IBT Bancorp, Inc. 2006 Annual Report



                               [GRAPHIC OMITTED]

time to live better

<PAGE>
Irwin Bank.



Everyone has a different idea of what it means to "live better."
To some, it's having the chance to share some special times with their
families.  To others, it's taking a few extra moments to connect with
friends and the local community at a corner coffee shop.  But whatever
it means to you, the time to live better isn't just some future goal -
it's right now!


<PAGE>
FINANCIAL HIGHLIGHTS IBT Bancorp, Inc. & Subsidiary
--------------------------------------------------------------------------------
<TABLE>

<CAPTION>
(Dollars in Thousands, except per share data)
YEARS ENDED DECEMBER 31                              2006          2005           2004            2003            2002
<S>                                               <C>          <C>            <C>            <C>            <C>
SELECTED BALANCE SHEET DATA:
Total assets                                       $ 740,962    $ 685,151      $ 675,857      $ 629,530      $ 584,035
Cash and cash equivalents                             19,955       15,500         16,187         15,829         15,066
Securities available for sale                        226,446      201,463        196,891        172,448        186,718
Loans receivable (net)                               467,721      442,225        436,548        416,286        359,872
Deposits                                             572,472      520,486        526,217        492,158        468,257
Repurchase agreements                                 27,417       18,443         15,157         12,611         14,526
Federal funds purchased                                    -       12,468              -          7,900              -
FHLB advances                                         72,410       68,651         70,265         53,308         40,000
Shareholders' equity                                  62,581       61,081         59,843         59,606         56,151

SELECTED RESULTS OF OPERATIONS
Interest income                                    $  40,393    $  35,771      $  33,726      $  33,398      $  33,560
Net interest income                                   21,879       22,090         21,918         22,083         20,732
Provision for loan losses                              1,500        1,200            600            600          1,100
Net interest income after provision
      for loan losses                                 20,379       20,890         21,318         21,483         19,632
Other income                                           7,349        6,635          5,116          5,891          5,317
Loss on write-down of equity securities                    -            -          2,426              -              -
Other expense                                         17,237       16,187         15,095         14,300         12,831
Net income                                             8,456        8,579          6,085          9,646          8,937

PER SHARE DATA:
Net Income
      Basic                                           $ 1.43       $ 1.45         $ 1.02         $ 1.62         $ 1.50
      Diluted                                           1.42         1.44           1.01           1.60           1.50
Cash dividends declared                                 2.00         1.84           1.60           1.40           1.20

SELECTED RATIOS:
Return on average assets                                1.18%        1.26%          0.92%          1.59%          1.61%
Return on average equity                               13.74%       14.08%         10.25%         16.54%         16.95%
Ratio of average equity to average assets               8.61%        8.97%          9.02%          9.59%          9.47%
Dividend payout                                        69.74%       63.39%         78.01%         43.21%         40.00%
</TABLE>


<PAGE>
$740,962,000

TOTAL ASSETS
As of 12/31 (in millions)
[Bar graph with following data points:

        2002    $584.0
        2003    $629.5
        2004    $675.9
        2005    $685.0
        2006    $741.0]

TOTAL EQUITY
(in thousands)
[Bar graph with following data points:

        2002    $56,151
        2003    $59,606
        2004    $59,843
        2005    $61,081
        2006    $62,581]

NET INCOME
(in thousands)
[Bar graph with following data points:

        2002    $8,937
        2003    $9,646
        2004    $6,085
        2005    $8,579
        2006    $8,456]

DILUTED EARNINGS PER SHARE
[Bar graph with following data points:

        2002    $1.50
        2003    $1.60
        2004    $1.01
        2005    $1.44
        2006    $1.42]

DIVIDENDS PER SHARE
[Bar graph with following data points:

        2002    $1.20
        2003    $1.40
        2004    $1.60
        2005    $1.84
        2001    $2.00]

<PAGE>

Pursuing excellence in all that we do.

Last year, Irwin Bank asked, "Where do you want to be today?" In support of that
question, in 2006 we put our commitment to serving the community's banking needs
into high gear, adding products, services, and personnel to help keep  pace with
- and even anticipate - today's rapidly-changing financial environment.  But our
efforts towards better serving our customers showed us that Irwin Bank needed to
do even more if we intended to continue the Bank's growth and success. We needed
to do even more if we intended to continue  the Bank's  growth and  success.  We
needed to evolve,  just as the banking  industry was evolving - to find new ways
to deliver  the best  possible  products  and  services  to our  customers.  Our
solution?  To create a strong  positioning,  backed by a culture  of  excellence
within the bank,  which extends into  everything we do, day in and day out. This
combination  of  factors  would  enable us to look  inward  as well as  outward,
keeping a finger on the pulse of our business and our community, and allowing us
to  continuously  improve every aspect of our banking for our  customers.  So we
turned to the experts for help.

CREATING A CULTURE OF CONTINUOUS IMPROVEMENT

Recognizing  that we needed  expert  advice and counsel to set the benchmark for
this  "new"  position  and  culture,  Irwin  Bank  engaged a team of  "branding"
specialists to research our market,  customer base, banking operations,  and our
needs for the  future.  After  long and hard  work,  they  provided  a number of
recommendations,  including a new  tagline for the bank ("Time to Live  Better")
that  definitively  "brands"  or  portrays  Irwin  Bank  as  a  service-oriented
community  bank  with  our  customers'  best  financial  interests  and  service
convenience  foremost in mind. This new tagline will be featured  prominently in
our new advertising and other communications  efforts in 2007, and we believe it
will help us to more  effectively  communicate  our  strengths to customers  and
potential  customers,  enhancing our business  today and in the future.  We also
intend  to take  this new  positioning  line to  heart,  using it as a basis for
continuously improving our banking operations and our

<PAGE>

service to  customers  in every way  possible,  and  leveraging  it to create an
ongoing system for continuous change and improvement.

To accomplish the creation of this plan and to oversee its implementation, Irwin
Bank  worked  closely  with the  world-renowned  Disney  Institute  in  Orlando,
Florida,  customer service experts without peer. The Disney Institute  conducted
intensive  training seminars with a number of key Irwin Bank personnel,  helping
us to recognize  exactly what  customers  look for and to set new  standards for
developing  leadership,  providing  consistent quality in products and services,
building customer loyalty,  enhancing  organizational  creativity,  and internal
teambuilding.  These new  initiatives  are helping us to create a culture within
the Bank's  organization that will reward the pursuit of excellence,  ultimately
benefiting our customers  through  best-of kind service  delivery at every Irwin
Bank branch  office.  Since we have always been  totally  committed to community
banking values, the Disney Institute also helped us find new ways to communicate
and  reinforce  these  basic  values  to our  customers.  Our  people  have been
empowered with a "make it happen"  attitude and we are working towards  creating
an ever more positive banking experience for all of our customers.

TIME TO LIVE BETTER...WITH WORLD-CLASS COMMUNITY BANKING

Irwin Bank's goal in 2007 is to change our customers' banking experiences from a
chore that must be done into a satisfying,  rewarding  interchange  of ideas and
information in which customers  engage eagerly.  We want to be seen as THE local
bank with the strongest sense of community; the bank that's small enough to know
you personally -- while still offering  products and services that are the equal
of anything  offered by the "big" banks.  We want our  customers to see us doing
exceptional  things every day,  whether it's taking the time to call you by your
first  name  when  you  come  to one of our  offices,  or  supporting  community
initiatives  like The  Irwin  Project  in  developing  and  improving  our local
community.

In essence,  Irwin Bank wants to help you make the most of your time. It's "Time
to Live Better." And in 2007, that's why it's time for Irwin Bank.

<PAGE>
                                                    Making a difference
                                                    in people's lives every day.


To Our Stockholders:

This past year has certainly  been a busy and  interesting  one for IBT Bancorp,
Inc., and our  subsidiary,  Irwin Bank - and I mean that in a very positive way.
Of course,  our commitment to community  banking values is unchanged and remains
the core of our banking philosophy.  Throughout the year, we continued to keep a
close  watch  on  changes  in  banking  technology,  regulations,  and  customer
expectations,  adapting  our mix of products and services to stay one step ahead
of the  market  and  serve our  customers  as  efficiently  and  effectively  as
possible.  This  has  allowed  us to  maintain  the  level of  service  that our
customers have come to expect.

2006 INITIATIVES

In 2006, we continued  efforts to expand our offerings to match the  community's
changing  needs,  providing  "big bank"  products and services with a "community
bank" attention to detail.  Many of our employees  generously  contributed their
time  and  money to  assist  local  organizations  such as the  American  Cancer
Society, the Make-A-Wish  Foundation of Western PA, Salvation Army, American Red
Cross,  Toys for Tots, and the local food banks to raise funds for their various
causes. We also stayed closely connected with The Irwin Project, helping to lead
the way in the development and improvement of our local community.

However,  during  2006 Irwin Bank also took a long,  hard look at  ourselves  to
determine if the way we see the Bank - and more  importantly,  the way customers
see us - accurately portrays who we are, what we offer, and what makes us unique
and a better  choice for banking in our  community.  Additionally,  we wanted to
ensure  that we are  providing  the  same  banking  opportunities  at all of our
branches,  offering our customers a consistently excellent level of products and
personalized  services  regardless  of which office they visit.  We believe this
will result in the enhancement of our ability to build  long-term  relationships
-- and increase our opportunities to add new revenue.

<PAGE>

In carrying out these  initiatives,  Irwin Bank turned to some expert sources to
help  provide us with  "outside-the-box"  solutions.  We worked  closely  with a
company  that  specializes  in branding to research our market,  customer  base,
banking  opeations,  perceptions and needs,  and  communications.  They provided
recommendations for changes, both internally and for our customers,  designed to
better  portray  Irwin  Bank's  market  position.  Plus,  they  assisted  us  in
developing a new tagline ("Time To Live Better"), an image that will communicate
our strengths and help to enhance our business today and in the future.

We also  enlisted the  assistance  of the  pretigious  and  world-famous  Disney
Institute to help us find new and more  exciting  ways to deliver our  products,
services,  positioning,  and image to customers.  The Disney Institute conducted
intensive  training sessions with a number of key Irwin Bank personel to help us
institute new benchmarks for Leadership Development,  Quality Service Standards,
Customer Loyalty,  Organizational Creativity, and Teambuilding within the Bank's
internal  framework that will ultimately  benefit our customers and set us apart
from our competition.  Using the Disney  Institute's  advice and counsel,  Irwin
Bank is creating a "make it happen"  culture  within the Bank while  sharing our
enhanced focus with customers, helping to make banking with us more pleasant and
convenient  in every way we can.  Our goal for 2007 is to turn  banking at Irwin
Bank from an "I have to" chore into an "I want to" experience that is satisfying
and rewading for everyone.

NOW IS THE TIME

We  believe  our new focus and  initiatives  will  help our  customers  gain the
financial  opportunities to do more in their lives, giving them a better banking
experience  - and more  reasons to choose  Irwin Bank as the place to go for all
their banking needs, whether it's for business,  education,  retirement,  or any
other  financial  requirement.  As our new  tagline  says,  it's  "Time  to Live
Better."


/s/Charles G. Urtin

Charles G. Urtin
President & Chief Executive Officer
IBT Bancorp, Inc.


<PAGE>
                                                           FINANCIAL Information


<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

         The Private  Securities  Litigation  Reform Act of 1995  contains  safe
harbor  provisions  regarding  forward-looking  statements.  When  used  in this
discussion,  the words  "believes",  "anticipates",  "contemplates",  "expects",
"intends"  and similar  expressions  are  intended  to identify  forward-looking
statements. Such statements are subject to certain risks and uncertainties which
include changes in interest rates,  risks  associated with the effect of opening
new branches,  the ability to control costs and expenses,  and general  economic
conditions.   IBT  Bancorp,  Inc.  undertakes  no  obligation  to  update  those
forward-looking  statements to reflect  events or  circumstances  after the date
hereof or to reflect the occurrence of unanticipated events.

GENERAL

         IBT Bancorp,  Inc. is a bank holding  company  headquartered  in Irwin,
Pennsylvania,  which  provides a full range of commercial and retail banking and
trust  services  through  its  wholly  owned  banking  subsidiary,   Irwin  Bank
(collectively,  the  "Company").  The Company's  stock is traded on the American
Stock  Exchange  under the symbol IRW. All per share  amounts have been restated
for the 100% stock dividend paid on November 16, 2006.


CRITICAL ACCOUNTING POLICIES

         The most significant  accounting  policies  followed by the Company are
presented in Note 1 to the  consolidated  financial  statements.  The  Company's
accounting  and  reporting  policies  conform  with  the  accounting  principles
generally  accepted in the United States of America and general practices within
the financial  services  industry.  The preparation of the financial  statements
requires  management to make estimates and  assumptions  that affect the amounts
reported in the financial  statements and the accompanying notes. Actual results
could differ from those estimates.

         Allowance for loan losses: The Company considers that the determination
of the  allowance  for loan  losses  involves a higher  degree of  judgment  and
complexity than its other significant  accounting  policies.  The balance in the
allowance  for loan  losses  is  determined  based on  management's  review  and
evaluation of the loan portfolio in relation to past loss  experience,  the size
and composition of the portfolio,  current  economic events and conditions,  and
other pertinent factors.  All of these factors may be susceptible to significant
change  to the  extent  actual  outcomes  differ  from  management's  estimates,
additional  provisions  for loan  losses may be  required  that would  adversely
impact earnings in future periods.

         Accounting  for stock  options:  As of  January 1,  2003,  the  Company
adopted SFAS 123 as amended by SFAS 148 in regards to the  accounting  for stock
options.  As required by this  statement,  the Company  recognized  compensation
expense in the income statement based on the estimated fair value of the options
on the  date of the  grant.  Prior  to  this  date  the  Company  accounted  for
stock-based  compensation in accordance with Accounting Principles Board Opinion
(APB) No. 25. Under APB No. 25, no  compensation  expense is  recognized  in the
income statement related to any options granted under the Company's stock option
plans.  The pro forma  impact to net  income and  earnings  per share that would
occur if compensation expense was recognized,  based on the estimated fair value
of the  options  on the date of the  grant,  is  disclosed  in the  notes to the
consolidated financial statements.

         Employer  benefit  plans:  In September  2006, the FASB issued SFAS No.
158, "Employers  Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS 158).  The Company  adopted SFAS 158  prospectively  on December 31,
2006. SFAS 158 requires that the Company  recognize all  obligations  related to
defined benefit pensions.  This statement requires that the Company quantify the
plans'  funding  status as an asset or  liability  on its  consolidated  balance
sheets.

         SFAS 158  requires  that the  Company  measure  the  plans'  assets and
obligations  that  determine its funded status as

                                       IBT Bancorp, Inc., 2006 Annual Report / 1
<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


of the end of the fiscal  year.  The Company is also  required to recognize as a
component of other comprehensive  income (OCI) the changes in funded status that
occurred during the year that are not recognized as part of net periodic benefit
cost as explained in SFAS No. 87, "Employers' Accounting for Pensions."


FINANCIAL CONDITION

         At December 31, 2006, total assets increased $55.8 million, or 8.1%, to
$741.0  million from $685.2  million at December 31, 2005. The increase in total
assets was primarily the result of an increase of $25.5 million in net loans and
$25.2 million in securities available for sale. Growth in the loan portfolio and
securities  available  for sale was  primarily  funded by net increases of $52.0
million in deposit  accounts,  $9.0 million in repurchase  agreements,  and $3.8
million in FHLB  advances,  offset by a $12.5 million  decrease in Federal funds
purchased.

         The increase in available for sale  securities was mainly the result of
purchases of $66.4 million offset by net proceeds from  maturities and the sales
of  securities  of  $42.4  million.  This  resulted  in net  increases  of  U.S.
Government  agencies,  obligations  of state and  political  sub-divisions,  and
mortgage-backed  securities of $16.4  million,  $9.8 million,  and $7.2 million,
respectively,  offset by net decreases in equity securities of $8.1 million. The
Company  periodically  sells and purchases  securities to maximize the return of
the  portfolio  within  the  set  policy  limits  established  by the  board  of
directors.

          The increase in net loans is  primarily  due to increases in mortgage,
commercial,  and  installment  loans of $14.8 million,  $10.7 million,  and $5.6
million, respectively. Offsetting these increases was a decrease of $3.1 million
in home  equity  lines of  credit.  Customers  continue  to favor the fixed rate
mortgage and installment loans over adjustable rate lines of credit.

         At December 31, 2006,  total  liabilities  increased $54.3 million,  or
8.7%, to $678.4  million from $624.1  million at December 31, 2005. The increase
was  primarily  related to the increases in  interest-bearing  deposits of $50.3
million,  repurchase  agreements  of $9.0  million,  and FHLB  advances  of $3.8
million, offset by a $12.5 million decrease in Federal funds purchased.

         Non-interest  bearing deposits  increased $1.8 million to $85.6 million
at December 31, 2006 from $83.8  million at December 31, 2005.  This increase is
exclusive of the net increase of $9.0 million in repurchase  agreements..  Under
the terms of the repurchase  agreements,  deposits in designated demand accounts
of the  customer  are put into an  investment  vehicle  which  is used  daily to
purchase an interest in designated U.S. Government or Agencies' securities.  The
Company in turn agrees to repurchase these  investments on a daily basis and pay
the customers the daily  interest  earned based on the current  market rate. See
Note 8 to the consolidated financial statements.

         Interest-bearing  deposits totaled $486.9 million at December 31, 2006,
an increase of $50.3 million from  December 31, 2005.  The change was the result
of a $57.8 million  increase in time deposits offset by decreases in savings and
money  market  accounts of $5.6  million and $2.4  million,  respectively.  Time
deposits have become more attractive due to the rise in market rates.

         At December 31, 2006, total stockholders' equity increased $1.5 million
to $62.6  million  from $61.1  million at December  31,  2005.  The increase was
primarily  due to net income of $8.5 million for the period offset by a decrease
of $393,000 in accumulated other comprehensive  income (net of income taxes), an
increase in treasury  stock  purchased of $600,000,  and dividends  paid of $5.9
million.  Surplus  (additional  paid-in  capital)  decreased  to  zero  due to a
two-for-one  stock split  effected in the form of a 100 percent stock  dividend.
See  Note  21  to  the  consolidated  financial  statements.  Accumulated  other
comprehensive income increased as a result of changes in the net unrealized gain
on the available for sale securities and a decrease for the initial  application
of SFAS 158. The change in the net  unrealized  gain on the  available  for sale
securities was due to fluctuations  in interest rates.  Because of interest rate
volatility,   the  Company's   accumulated  other  comprehensive   income  could
materially fluctuate for each interim period and year-end. See Notes 2 and 15 to
the consolidated financial statements.

2 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


RESULTS OF OPERATIONS

         Net Income: Net income decreased $124,000, or 1.4%, to $8.5 million, or
$1.42 per diluted share for the year ended  December 31, 2006 from $8.6 million,
or $1.44 per diluted share for the year ended December 31, 2005. The decrease in
net  income for fiscal  2006  compared  to fiscal  2005 was  primarily  due to a
$211,000 decrease in net interest income and increases in the provision for loan
losses and other  expenses of $300,000 and $1.1 million,  respectively.  A $34.1
million increase in average interest-bearing liabilities coupled with a 70 basis
point increase in the cost of funds  contributed to the decrease in net interest
income.  Offsetting  these  decreases  was a $714,000  increase in other  income
attributable primarily to gains on sales of investment securities.

          Net income  increased  approximately  $2.5 million,  or 41.0%, to $8.6
million,  or $1.44 per diluted  share for the year ended  December 31, 2005 from
$6.1 million,  or $1.01 per diluted share for the year ended  December 31, 2004.
The increase in net income for fiscal 2005 compared to fiscal 2004 was primarily
due to a $3.9  million  increase in other  income and $2.1  million  increase in
interest  income  offset by an increase in interest  expense of $1.9 million and
increases in the  provision  for loan losses and other  expenses of $600,000 and
$1.1 million, respectively. A $15.5 million increase in average interest earning
assets and a 19 basis point increase in the average yield supported the increase
in  interest  income.  The  Company  did not record  any  non-cash  charges  for
investments  whose value declines were  determined to be other than  temporarily
impaired,  as a result,  other  income for fiscal  2005  exceeded  other  income
reported for 2004.

         Net  Interest  Income:  Net  interest  income  is the most  significant
component of the Company's  income from  operations.  Net interest income is the
difference between interest received on interest-earning assets (primarily loans
and investment  securities)  and interest paid on  interest-bearing  liabilities
(primarily  deposits and borrowed  funds).  Net interest  income  depends on the
volume and rate earned on  interest-earning  assets and the volume and  interest
rate paid on interest-bearing liabilities.

         Net  interest  income  decreased  $211,000  to $21.9  million  for 2006
compared to $22.1 million for 2005.  The decrease was primarily due to increases
in average  interest  bearing  liabilities of $34.1 million and a 70 basis point
increase in the cost of funds.  Partially  offsetting the resulting  increase in
interest  expense were a $35.3 million  increase in the average interest earning
assets and a 40 basis point yield  increase.  As a result of these changes,  the
net interest margin narrowed to 3.24% for the 2006 fiscal year from 3.45% in the
2005 fiscal year.

         Net interest income  increased  $172,000,  or 0.8% to $22.1 million for
2005  compared to $21.9  million for 2004.  The  increase was  primarily  due to
increases in average  interest earning assets of $15.5 million and average yield
of 19 basis  points.  Included in this  increase  was a rise of $6.4  million in
average  loans  receivable  and $7.6  million in average  investment  securities
coupled  with  increases  in the average  yields of 13 basis points and 37 basis
points,  respectively.  Offsetting  these  changes  was an  increase  in average
interest  bearing  liabilities of $18.3 million and a 27 basis point increase in
the average cost of funds.

         The  following  table sets forth  certain  information  relating to the
Company's  average  balance sheet and,  reflects the average yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs are
derived  by  dividing  income or  expense  by the  average  balance of assets or
liabilities,  respectively,  for the periods  presented.  Average  balances  are
derived from daily balances.

                                       IBT Bancorp, Inc., 2006 Annual Report / 3

<PAGE>

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                -------------------------------------------------------------------------------------------------
                                            2006                               2005                           2004
                                -------------------------------  -------------------------------  -------------------------------
                                Average               Average       Average            Average     Average               Average
                                Balance   Interest   Yield/Cost     Balance  Interest Yield/Cost   Balance   Interest  Yield/Cost
                                -------   --------   ----------     -------  -------- ----------   -------   --------  ----------
                                                                      (Dollars in Thousands)
<S>                            <C>        <C>          <C>      <C>        <C>           <C>     <C>       <C>           <C>
Interest-earning assets:
     Loans receivable (1)       $  462,036 $30,616      6.63%    $  436,906 $  27,273     6.24%   $430,543  $  26,313     6.11%
     Investment securities (2)     210,761   9,671      4.59%       200,528     8,437     4.21%    192,934      7,403     3.84%
     Federal funds sold              2,010     106      5.27%         2,029        61     3.01%        540         10     1.82%
                                ---------- -------      ----     ---------- ---------     ----    --------  ---------     ----
          Total interest-
            earning assets         674,807  40,393      5.99%       639,463    35,771     5.59%    624,017     33,726     5.40%

Non-interest earning assets (3)     40,150                           40,138                         34,156
                                ----------                       ----------                       --------
          Total assets          $  714,957                       $  679,601                       $658,173
                                ==========                       ==========                       ========

Interest-bearing liabilities:
     Money market accounts      $   52,671   1,338      2.54%    $   62,225     1,042     1.67%   $ 58,103        516     0.89%
     Certificates of deposit       274,047  11,430      4.17%       245,654     8,126     3.31%    245,881      7,595     3.09%
     Other liabilities (4)         239,749   5,746      2.40%       224,533     4,514     2.01%    210,096      3,697     1.76%
                                ---------- -------      ----     ---------- ---------     ----    --------  ---------     ----
         Total interest-
           bearing liabilities     566,467  18,514      3.27%       532,412    13,682     2.57%    514,080     11,808     2.30%
                                           -------      ----                ---------     ----              ---------     ----

Non-interest-bearing
  liabilities (3)                   86,944                           86,244                         84,704
                                ----------                       ----------                       --------
     Total liabilities             653,411                          618,656                        598,784
 Stockholders' Equity (5)           61,546                           60,945                         59,389
                                ----------                       ----------                       --------
     Total liabilities and
       stockholders' equity     $  714,957                       $  679,601                       $658,173
                                ==========                       ==========                       ========
Net interest income                        $21,879                          $  22,089                       $  21,918
                                           =======                          =========                       =========
Interest rate spread (6)                                2.72%                             3.02%                           3.10%
                                                        ====                              ====                            ====
Net interest margin (7)                                 3.24%                             3.45%                           3.51%
                                                        ====                              ====                            ====
Ratio of average
  interest-earning
  assets to average
  interest-bearing
  liabilities                                         119.13%                           120.11%                         121.38%
                                                      ======                            ======                          ======
</TABLE>

(1)  Average  balances include  non-accrual  loans, and are net of deferred loan
     fees.
(2)  Includes  investment   securities,   interest-bearing   deposits  in  other
     financial institutions and FHLB stock.
(3)  Includes  net  deferred  income taxes in excess of deferred tax benefits on
     AFS securities  (SFAS 115),  stock options (SFAS 123/148) and deferred fees
     (SFAS  109).   Non-interest  bearing  liabilities  include  demand  deposit
     accounts.
(4)  Includes FHLB advances, Federal funds purchased, and repurchase agreements.
(5)  Includes capital stock, surplus and accumulated other comprehensive income.
(6)  Interest-rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(7)  Net  interest  margin  represents  net interest  income as a percentage  of
     average interest earning assets.



<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


         The following table shows the effect of changes in volumes and rates on
interest  income  and  interest  expense.  The  changes in  interest  income and
interest  expense  attributable  to  changes  in both  volume and rate have been
allocated to the changes due to rate.  Tax-exempt income was not recalculated on
a tax  equivalent  basis  due to the  immateriality  of the  change to the table
resulting from a recalculation.

<TABLE>
<CAPTION>
                                                Year Ended December 31,          Year Ended December 31,
                                             -----------------------------    -----------------------------
                                                     2006 vs. 2005                    2005 vs. 2004
                                             -----------------------------    -----------------------------
                                                  Increase (Decrease)               Increase (Decrease)
                                                       Due to                            Due to
                                             -----------------------------    -----------------------------
                                              Volume     Rate         Net      Volume      Rate       Net
                                             -------    -------    -------    -------    -------    -------
                                                                     (In Thousands)
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
     Loans receivable                        $ 1,569    $ 1,774    $ 3,343    $   389    $   571    $   960
     Investment securities                       431        803      1,234        291        743      1,034
     Other interest-earning assets                (1)        46         45         27         24         51
                                             -------    -------    -------    -------    -------    -------
        Total interest-earning assets          1,999      2,623      4,622        707      1,338      2,045
                                             -------    -------    -------    -------    -------    -------

Interest expense:
     Money market accounts                      (160)       456        296         36        489        525
     Certificates of deposit                     939      2,365      3,304         (7)       538        531
     Other liabilities                           306        926      1,232        254        563        817
                                             -------    -------    -------    -------    -------    -------
        Total interest-bearing liabilities     1,085      3,747      4,832        283      1,590      1,873
                                             -------    -------    -------    -------    -------    -------

Net change in net interest income            $   914    $(1,124)   $  (210)   $   424    $  (252)   $   172
                                             =======    =======    =======    =======    =======    =======
</TABLE>

                                       IBT Bancorp, Inc., 2006 Annual Report / 5

<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


         Provision  for Loan Losses:  The Company  recorded a provision for loan
losses of $1.5 million,  $1.2 million,  and $600,000 for 2006,  2005,  and 2004,
respectively.  Increased provisions reflect the Company's loan growth and change
in portfolio composition. The table below sets forth information with respect to
activity in the Company's allowance for loan losses for the years indicated:

<TABLE>
<CAPTION>
                                                                At December 31,
                                                  -------------------------------------
                                                       2006          2005          2004
                                                  -------------------------------------
                                                             (Dollars in Thousands)
<S>                                              <C>           <C>           <C>
Total loans outstanding                           $ 472,490     $ 445,789     $ 439,142
                                                  =====================================
Average loans outstanding                         $ 462,036     $ 436,906     $ 430,543
                                                  =====================================
Allowance balances (at beginning of period)       $   3,564     $   2,594     $   3,285
Provision:                                            1,500         1,200           600
Charge-Offs:
   Mortgage                                               -           (64)       (1,204)
   Installment                                          (63)         (100)         (127)
   Commercial                                          (192)          (19)           (8)
   Home equity lines of credit                            -             -             -
   PHEAA                                                  -             -             -
   Municipal                                              -             -             -
   Credit cards                                          (2)            -             -
   Other                                                (91)          (88)            -
                                                  -------------------------------------
      Total charge-offs                                (348)         (271)       (1,339)
Recoveries:
   Mortgage                                               -             7             -
   Installment                                            5            10             3
   Commercial                                            30            13            45
   Home equity lines of credit                            -             -             -
   PHEAA                                                  -             -             -
   Municipal                                              -             -             -
   Credit cards                                           -             -             -
   Other                                                 18            11             -
                                                  -------------------------------------
      Total recoveries                                   53            41            48
                                                  -------------------------------------
   Net charge-offs                                     (295)         (230)       (1,291)
                                                  -------------------------------------
Allowance balance (at end of period)              $   4,769     $   3,564     $   2,594
                                                  =====================================
Allowance for loan losses as a percent of total
loans outstanding                                      1.01%         0.80%         0.59%

Net loans charged off as a percent of average
loans outstanding                                      0.06%         0.05%         0.30%
</TABLE>

6 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


         The  provision  for loan losses is charged to  operations  to bring the
total  allowance for loan losses to a level that  represents  management's  best
estimate of the losses  inherent in the portfolio,  based on a monthly review by
management of the following factors:

        o    Historical experience
        o    Volume
        o    Type of lending conducted by the Bank
        o    Industry standards
        o    The level and status of past due and non-performing loans
        o    The general economic conditions in the Bank's lending area; and
        o    Other factors affecting the collectability of the loans in the
             portfolio

         Large groups of homogeneous  loans,  such as  residential  real estate,
small  commercial  real  estate  loans and home  equity and  consumer  loans are
evaluated in the aggregate  using  historical  loss factors and other data.  The
amount of loss  reserve  is  calculated  using  historical  loss  rates,  net of
recoveries on a five year rolling weighted average,  adjusted for environmental,
and other  qualitative  factors  such as  industry,  geographical,  economic and
political  factors  that can affect loss rates or loss  measurements.  Watch and
classified loans are allocated additional reserves.

         Large  balance  and/or  more  complex  loans such as  multi-family  and
commercial  real estate loans may be evaluated  on an  individual  basis and are
also  evaluated in the  aggregate to determine  adequate  reserves.  As specific
loans are determined to be impaired,  specific  reserves are assigned based upon
collateral  value,  market value, if  determinable,  or the present value of the
estimated future cash flows of the loan.

         The  allowance  is  increased  by a  provision  for loan loss  which is
charged to expense,  and reduced by  charge-offs,  net of recoveries.  Loans are
placed on  non-accrual  status  when they are 90 days past due,  unless they are
adequately collateralized and in the process of collection.

         The allowance for loan losses is maintained at a level that  represents
management's best estimate of losses in the portfolio at the balance sheet date.
However,  there  can be no  assurance  that the  allowance  for  losses  will be
adequate to cover losses which may be realized in the future and that additional
provisions for losses will not be required.

         Other Income:  Total other income increased $714,000,  or 10.8% to $7.3
million  for the year ended  December  31,  2006 from $6.6  million for the year
ended December 31, 2005.  Included in this change was an increase of $644,000 in
investment  security gains in fiscal 2006 over fiscal 2005,  primarily resulting
from the sale of adjustable rate preferred  stocks,  which had been written down
to fair market value in 2004 due to an other-than-temporary decline in value.

         Total other income  increased  $3.9 million,  or 144.4% to $6.6 million
for the year  ended  December  31,  2005 from $2.7  million  for the year  ended
December 31, 2004. The most  significant  change in other income is the decrease
in investment  security  losses of $2.7 million for the year ended  December 31,
2005.  Security  losses  in 2004  were  primarily  related  to a  write  down of
preferred  stocks  due to an other  than  temporary  impairment  of fair  value.
Service fees  increased $1.0 million to $3.6 million for the year ended December
31, 2005 from $2.6  million for 2004.  This  increase  was  primarily  due to an
additional  $929,000  in  fees  collected  on  deposit  accounts.  Other  income
increased  $197,000 to $1.2  million for December 31, 2005 from $1.0 million for
2004 due to a one-time  gain  recorded  from the sale of property  classified as
other real estate.

         Other Expenses: Total other expenses increased $1.0 million, or 6.5% to
$17.2  million for the year ended  December 31, 2006 from $16.2  million for the
year ended  December 31, 2005.  This  increase was  primarily due to pension and
other employee  benefit costs of $628,000 arising from increases in the costs of
providing  health and retirement  benefits.  Other expenses  increased  $208,000
primarily due to consulting fees paid by the Company of $91,000.

          Total other expenses increased $1.1 million,  or 7.3% to $16.2 million
for the year  ended  December  31,  2005 from

                                       IBT Bancorp, Inc., 2006 Annual Report / 7


<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


$15.1  million for the year ended  December 31, 2004.  This is primarily  due to
increases in salary and other expenses.  Salary expense was $6.3 million for the
year ended December 31, 2005 an increase of $400,000 over 2004. This increase is
primarily due to additions to staff and annual merit  increases.  Other expenses
increased  $400,000 to $4.3  million for the year ended  December  31, 2005 from
$3.9 million at December 31, 2004.  Such increases to expense were attributed to
increases in other real estate,  customer debit cards,  and consulting fees paid
by the Company of $172,000, $96,000, and $52,000, respectively.

         Income Taxes: Income tax expense decreased $723,000 to $2.0 million for
the year ended December 31, 2006 compared to $2.8 million in 2005. This decrease
was primarily due to the sale of preferred  stocks which were written down,  for
financial reporting  purposes,  in 2004. The realized gain from the sale was not
taxable which  reduced the  Company's  effective tax rate for 2006 to 19.4% from
24.3% in 2005.

         Income tax expense of $2.8 million for the year ended December 31, 2005
remained relatively unchanged from 2004, however the effective tax rate for 2005
dropped to 24.3% from 31.7% reported for 2004.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's primary sources of funds include savings,  deposits, loan
repayments and prepayments, cash from operations and borrowings from the Federal
Home Loan Bank. The Company uses its capital resources  principally to fund loan
originations  and  purchases,   to  repay  maturing   borrowings,   to  purchase
investments,  and for short-term liquidity needs. The Company expects to be able
to  fund  or  refinance,  on a  timely  basis,  its  commitments  and  long-term
liabilities.  As of December 31,  2006,  the Company had  commitments  to extend
credit of $85.4 million.

         The Company's liquid assets consist of cash and cash equivalents, which
include short-term investments.  The levels of these assets are dependent on the
Company's  operating,  financing,  and  investment  activities  during any given
period. At December 31, 2006, cash and cash equivalents totaled $20.0 million.

         Net cash from operating  activities  for 2006 totaled $9.9 million,  as
compared to net cash from  operating  activities of $12.1 million for 2005.  The
decrease in 2006 was primarily the result of a $124,000  decrease in net income,
and a $807,000  decrease in other  assets  offset by a $300,000  increase in the
provision for loan losses.  Net cash from operating  activities for 2005 totaled
$12.1  million,  as  compared  to net cash from  operating  activities  of $11.3
million  for 2004.  The  increase  in 2005 was  primarily  the  result of a $2.5
million  increase in net income,  a $600,000  increase in the provision for loan
losses,  and a $600,000 increase in other assets offset by a $2.4 million change
in the write-down of equity securities.

         Net cash used by investing  activities  for 2006 totaled $51.0 million,
as compared to cash used of $15.5  million for 2005 and $50.5  million for 2004.
The increase of $35.5 million for 2006 is primarily due to increases in security
purchases  and loans  made to  customers  of $13.2  million  and $20.0  million,
respectively.  Net cash used by  investing  activities  for 2005  totaled  $15.5
million,  as compared to cash used of $50.5  million for 2004.  The  decrease of
$35.0 million for 2005 is primarily due to decreases in securities purchased and
loans made to customers of $58.4 million and $15.1 million, respectively.  These
changes  were offset by a decrease of $40.4  million in proceeds  from the sales
and maturities of securities.

         Net cash from financing activities for the year ended December 31, 2006
totaled $45.6 million, as compared to net cash from financing activities of $2.7
million  for 2005.  The change in 2006 was  primarily  due to an increase of net
deposits of $57.7 million and repurchase  agreements of $5.7 million offset by a
decrease in federal funds  purchased of $12.5  million.  Net cash from financing
activities  for the year ended  December  31,  2005  totaled  $2.7  million,  as
compared to net cash from  financing  activities of $39.6 million for 2004.  The
change in 2005 was  primarily due to decreases in net deposits and proceeds from
FHLB advances of $39.8  million and $28.0  million,  respectively,  offset by an
increase  in Federal  funds  purchased  of $20.4  million and a decrease of $9.4
million in repayments of FHLB advances.

         Liquidity  may be adversely  affected by unexpected  deposit  outflows,
excessive  interest rates paid by competitors,  and similar matters.  Management
monitors projected liquidity needs and determines the level desirable,  based in
part on the

8 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


Company's commitment to make loans and management's  assessment of the Company's
ability to generate  funds.  The Company is also subject to federal  regulations
that impose certain minimum capital requirements.

         The table below sets forth certain information  regarding the Company's
contractual  obligations.  See Note 4,  Note 7 and  Note 10 to the  consolidated
financial statements

<TABLE>
<CAPTION>
                                             Payments Due By Period
                              ----------------------------------------------------
                                         Less than    1 - 3      3 - 5   More than
Contractual Obligations         Total     1 year      years      years   5 years
----------------------------------------------------------------------------------
                                                 (In Thousands)
----------------------------------------------------------------------------------
<S>                          <C>        <C>        <C>        <C>        <C>
Long-Term Debt Obligations    $ 72,410   $ 16,338   $ 23,072   $ 13,000   $ 20,000
Operating Lease Obligations        988        221        389        229        149
Certificates of Deposit        308,887    251,326     40,082      4,336     13,143
</TABLE>


OFF-BALANCE SHEET ARRANGEMENTS

      In the normal  course of  business,  the  Company  engages in a variety of
financial  transactions that, in accordance with generally  accepted  accounting
principles,  are not recorded in its consolidated  financial  statements.  These
transactions involve, to varying degrees,  elements of credit, interest rate and
liquidity  risk.  Such  transactions  are used  primarily  to manage  customers'
requests for funding and take the form of loan  commitments and lines of credit.
At December 31, 2006 and 2005,  the Company had  commitments to extend credit in
the amount of $85.4 million and $104.3  million,  respectively.  During the year
ended  December 31, 2006,  the Company did not engage in any  off-balance  sheet
transactions  reasonably  likely to have a material  effect on its  consolidated
financial condition, results of operations or cash flows.


MARKET RISK

         Market risk is the risk of loss from adverse  changes in market  prices
and rates.  The Company's  market risk arises  primarily from interest rate risk
inherent in its lending, investment and deposit taking activities. The Company's
profitability  is  affected by  fluctuations  in  interest  rates.  A sudden and
substantial  increase or decrease in  interest  rates may  adversely  impact the
Company's  earnings  to the extent that the  interest  rates borne by assets and
liabilities  do not change at the same speed,  to the same extent or on the same
basis. To that end,  management  actively monitors and manages its interest rate
risk exposure.

         The principal  objective of the Company's interest rate risk management
is to  evaluate  the  interest  rate risk  inherent  in  certain  balance  sheet
accounts,  determine the appropriate level of risk given the Company's  business
strategy, operating environment, capital and liquidity requirements, performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines.   Through  such  management,  the  Company  seeks  to  minimize  the
vulnerability  of its  operations  to changes in interest  rates.  The Company's
Asset/Liability  Committee is comprised of the Company's senior management under
the direction of the Board of Directors,  with senior management responsible for
reviewing with the Board of Directors its activities and strategies,  the effect
of those  strategies on the Company's net interest  margin,  the market value of
the  portfolio  and the effect that  changes in interest  rates will have on the
Company's portfolio and the Company's exposure limits.

                                       IBT Bancorp, Inc., 2006 Annual Report / 9

<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


The Company utilizes the following strategies to manage interest rate risk:

          o    When  market  conditions  permit,  to  originate  and hold in its
               portfolio adjustable rate loans;
          o    Sell fixed rate mortgage  loans that conform to Federal  National
               Mortgage  Association  guidelines  when sales can be  achieved on
               terms favorable to the Company;
          o    Lengthen  the  maturities  of its  liabilities  when  deemed cost
               effective  through  the  utilization  of  Federal  Home Loan Bank
               advances;
          o    Purchase  mortgage-backed  securities  for the available for sale
               securities  portfolio  with cash flows that can be  reinvested in
               higher earning instruments when interest rates rise; and
          o    Generally,   maintain   securities  in  the  available  for  sale
               portfolio  that are short  term to  offset  the risk of long term
               fixed rate mortgage loans in a rising rate environment.

         The following table shows the Company's financial  instruments that are
sensitive  to changes in interest  rates,  categorized  by expected  maturity or
repricing  maturity,  and the  instruments'  fair values at December  31,  2006.
Market risk sensitive  instruments  are generally  defined as those  instruments
that can be adversely  impacted by changes in market interest rates. The Company
currently does not participate in hedging programs, interest rate swaps or other
activities   involving  the  use  of  off-balance  sheet  derivative   financial
instruments,  but  may do so in the  future  to  mitigate  interest  rate  risk.
Expected  maturities  are  contractual  maturities  adjusted for  prepayments of
principal.  The Company uses  certain  assumptions  to estimate  fair values and
expected maturities.  For assets, expected maturities are based upon contractual
maturity, call dates and projected repayments of principal. For interest earning
assets,  no  prepayments  are assumed.  Interest  bearing  liabilities,  such as
negotiable order of withdrawal  ("NOW")  accounts,  money market  accounts,  and
similar interest bearing demand accounts are subject to immediate  withdrawal or
repricing and are therefore presented in the earliest period in the table.

10 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

         Management's Discussion and Analysis of Financial Condition and
                             Results of Operations


Expected Maturity/Principal Repayment at December 31,

<TABLE>
<CAPTION>
                                                                                    Total     Carrying    Fair
                              2007       2008       2009       2010       2011    Thereafter   Value      Value
                            --------   --------   --------   --------   --------  ----------  --------   --------
                                                                (in thousands)
<S>                        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest-earning assets
-----------------------
Mortgage loans              $ 16,957   $ 14,182   $ 15,742   $ 15,437   $ 15,011   $190,201   $267,530   $270,433
Home equity loans,
    second mortgage
    loans, student loans,
    other loans               17,637     16,743     15,456     14,314     13,270     45,249    122,669    122,310

Commercial loans,
    municipal loans           14,482      8,967      4,858      2,639      2,793     48,804     82,543     83,914
Investment securities            740        361        545      3,356     14,074    202,173    221,249    221,249




Interest-bearing liabilities
----------------------------
NOW and other
    transaction accounts    $ 58,133   $      -   $      -   $      -   $      -   $      -   $ 58,133   $ 58,133
Money market and
    other savings
    accounts                 119,898          -          -          -          -          -    119,898    119,898
Certificates of deposit      251,327     27,128     12,954      2,561      1,775     13,142    308,887    317,666

Federal Home Loan
    Bank of Pittsburgh
    advance                   16,338      5,072     18,000       --       13,000     20,000     72,410     74,028
</TABLE>


IMPACT OF INFLATION AND CHANGING PRICES

         The  consolidated  financial  statements  and  related  financial  data
presented in this Annual Report have been prepared in accordance  with generally
accepted  accounting   principles  in  the  United  States,  which  require  the
measurement of financial  position and operating  results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to  inflation.  The primary  impact of inflation on the  Company's
operations is reflected in increased  operating  costs.  Unlike most  industrial
companies,  virtually all the assets and liabilities of a financial  institution
are  monetary  in nature.  As a result,  interest  rates  generally  have a more
significant  impact on a  financial  institution's  performance  than do general
levels  of  inflation.  Interest  rates  do not  necessarily  move  in the  same
direction or to the same extent as the prices of goods and services.


RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

         In 2006, the Financial  Accounting Standards Board issued FASB No. 155,
Accounting for Certain Hybrid  Financial  Instruments - an amendment of FASB No.
133 and 140, FASB No. 156,  Accounting  for  Servicing of Financial  Assets - an
amendment  of FASB No.  140,  FASB No.  157 Fair  Value  Measurements,  and FASB
interpretation  ("FIN") No. 48,  Accounting for Uncertainty in Income Taxes. The
Company does not believe  these  statements  will have a material  impact on the
Bank or its operations.

                                      IBT Bancorp, Inc., 2006 Annual Report / 11

<PAGE>

MANAGEMENT REPORT TO SHAREHOLDERS

         The consolidated  financial statements presented are the responsibility
of management and are prepared in accordance with generally accepted  accounting
principles (United States). The financial information contained elsewhere in the
annual report is consistent with that in the consolidated  financial statements.
The  financial  statements   necessarily  include  amounts  that  are  based  on
management's  best  judgments and  estimates.  In the opinion of management  the
accounting  practices  utilized are  appropriate  in the  circumstances  and the
financial  statements  fairly  reflect  the  financial  position  and results of
operation of the Company.

         IBT  Bancorp,  Inc.  maintains  a  system  of  internal  controls  over
financial  reporting,  which is designed to provide reasonable  assurance to the
Company's  management  and  board of  directors  regarding  the  reliability  of
financial  reporting and the  preparation  of financial  statements for external
purposes in accordance with generally  accepted  accounting  principles  (United
States).  The Company assessed its internal control over financial  reporting as
of December 31, 2006, based on the criteria for effective  internal control over
financial reporting as described in Internal Control-Integrated Framework issued
by the Committee of Sponsoring  Organizations of the Treadway Commission.  Based
upon that  assessment,  the Company  believes that, as of December 31, 2006, its
system of internal controls over financial reporting met those criteria.

         The Company's independent auditors,  Edwards Sauer and Owens, P.C. have
issued  an  attestation  report  on  management's  assessment  of the  Company's
internal  controls  over  financial  reporting.  Their  attestation  is included
elsewhere in this report.



                 /s/Charles G. Urtin                     /s/Raymond G. Suchta

                 Charles G. Urtin                        Raymond G. Suchta
                 President &                             Chief Financial Officer
                 Chief Executive Officer

12 / IBT Bancorp, Inc., 2006 Annual Report


<PAGE>

             Certified Public Accountants & Business Advisors
             -------------------------------------------------------------------
EDWARDS      500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
SAUER &      Phone: 412-281-9211  Fax: 412-281-2407   A Professional Corporation
OWENS, P.C.  www.esocpa.com



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


 To the Board of Directors
 IBT Bancorp, Inc.
 Irwin, Pennsylvania


We have audited the  accompanying  consolidated  balance  sheets of IBT Bancorp,
Inc.  (the  Bancorp) and  subsidiary  as of December 31, 2006 and 2005,  and the
related consolidated  statements of income,  changes in stockholders' equity and
cash flows for each of the years in the  three-year  period  ended  December 31,
2006. Weoalso have audited management's assessment, included in the accompanying
Management's  Report to  Shareholders,  that IBT Bancorp,  Inc.  and  subsidiary
maintained  effective  internal control over financial  reporting as of December
31, 2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
(COSO). The Bancorp's management is responsible for these financial  statements,
for maintaining effective internal control over financial reporting, and for its
assessment of the  effectiveness of internal  control over financial  reporting.
Our  responsibility is to express an opinion on these financial  statements,  an
opinion on management's  assessment,  and an opinion on the effectiveness of the
Bancorp's internal control over financial reporting based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements are free of material  misstatement  and whether  effective
internaumcontrol  over  financial  reporting  was  maintained  in  all  material
respects. Our audit of financial statements included examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall financial  statement  presentation.  Our
audit of  internal  control  over  financial  reporting  included  obtaining  an
understanding   of  internal  control  over  financial   reporting,   evaluating
management's  assessment,  testing  and  evaluating  the  design  and  operating
effectiveness  of internal  control,  and performing such other procedures as we
considered necessary in the circumstances.  We believe that our audits provide a
reasonable basis for our opinions.

<PAGE>

EDWARDS
SAUER &
OWENS, P.C.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the Bancorp are
being made only in accordance with authorizations of management and directors of
the Bancorp; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the Bancorp's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of IBT Bancorp,  Inc.
and  subsidiary  as of  December  31,  2006 and  2005,  and the  results  of its
operations  and its cash  flows for each of the years in the  three-year  period
ended  Deceoler 31, 2006 in  conformity  with  accounting  principles  generally
accepted in the United  States of America.  Also,  in our opinion,  management's
assessment that IBT Bancorp,  Inc. and subsidiary  maintained effective internal
control over financial  reporting as of December 31, 2006 is fairly  stated,  in
all   material   respects,   based   on   criteria   established   in   Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway  Commission (COSO).  Furthermore,  in our opinion,  IBT Bancorp,
Inc. and subsidiary  maintained,  in all material  respects,  effective internal
control  over  financial  reporting  as of  December  31, 2006 based on criteria
established in Internal Control-Integrated  Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).


/s/Edwards Sauer & Owens, P.C.


Pittsburgh, Pennsylvania
February 21, 2007

<PAGE>

        Consolidated Balance Sheets / IBT Bancorp, Inc. and Subsidiary


<TABLE>
<CAPTION>
                                                                  December 31,
                                                         ------------------------------
                                                             2006             2005
                                                         -------------    -------------
<S>                                                    <C>              <C>
 ASSETS
      Cash and due from banks                            $  19,317,614    $  15,063,970
      Interest-bearing deposits in banks                       637,034          435,970
      Certificate of deposit                                   100,000          100,000
      Securities available for sale                        221,249,369      195,993,449
      Federal Home Loan Bank stock, at cost                  5,196,800        5,469,600
      Loans, net of allowance for loan losses of
           $4,769,260 in 2006 and $3,563,501 in 2005       467,720,508      442,225,344
      Premises and equipment, net                            5,281,385        5,624,572
      Other assets                                          21,459,045       20,237,792
                                                         -------------    -------------

Total Assets                                             $ 740,961,755    $ 685,150,697
                                                         =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
      Deposits
           Non-interest bearing                          $  85,553,753    $  83,846,681
           Interest-bearing                                486,918,461      436,639,077
                                                         -------------    -------------
           Total deposits                                  572,472,214      520,485,758

      Federal funds purchased                                        -       12,468,000
      Repurchase agreements                                 27,416,559       18,442,703
      Accrued interest and other liabilities                 6,082,279        4,022,118
      FHLB advances                                         72,409,643       68,651,125
                                                         -------------    -------------

      Total liabilities                                    678,380,695      624,069,704

Stockholders' Equity
      Capital stock, par value $1.25,
           50,000,000 shares authorized,
           5,965,119 shares issued, 5,882,640 and
           5,910,910 shares outstanding
           at December 31, 2006 and 2005, respectively       7,456,399        3,779,749
      Surplus                                                        -        1,231,444
      Retained earnings                                     58,970,791       58,931,230
      Accumulated other comprehensive income                  (904,723)        (512,029)
                                                         -------------    -------------
                                                            65,522,467       63,430,394

      Less:  Treasury stock, at cost (82,479 shares in
           2006 and 68,344 in 2005)                         (2,941,407)      (2,349,401)
                                                         -------------    -------------
      Total stockholders' equity                            62,581,060       61,080,993
                                                         -------------    -------------

Total Liabilities and Stockholders' Equity               $ 740,961,755    $ 685,150,697
                                                         =============    =============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      IBT Bancorp, Inc., 2006 Annual Report / 13

<PAGE>

      Consolidated Statements of Income / IBT Bancorp, Inc. and Subsidiary

<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                              --------------------------------------------
                                                  2006            2005            2004
                                              ------------    ------------    ------------
<S>                                         <C>             <C>             <C>
Interest Income
        Loans, including fees                 $ 30,615,567    $ 27,272,969    $ 26,312,685
        Investment securities                    9,671,261       8,437,156       7,403,199
        Federal funds sold                         105,903          61,177           9,835
                                              ------------    ------------    ------------
        Total interest income                   40,392,731      35,771,302      33,725,719

Interest Expense
        Deposits                                13,520,225       9,996,792       8,703,234
        Federal funds purchased                    239,267         180,901          92,982
        FHLB advances                            3,332,565       2,939,435       2,858,623
        Repurchase agreements                    1,421,881         564,658         152,970
                                              ------------    ------------    ------------
        Total interest expense                  18,513,938      13,681,786      11,807,809
                                              ------------    ------------    ------------
Net Interest Income                             21,878,793      22,089,516      21,917,910
Provision for Loan Losses                        1,500,000       1,200,000         600,000
                                              ------------    ------------    ------------
Net Interest Income after Provision
for Loan Losses                                 20,378,793      20,889,516      21,317,910

Other Income (Losses)
        Service fees                             3,793,266       3,602,991       2,595,941
        Investment security gains                  900,922         274,267         383,290
        Investment security losses                (120,301)       (138,078)     (2,789,571)
        Increase in cash surrender value
          of life insurance                        473,201         456,042         466,923
        Debit card fees                            836,932         775,715         680,600
        Trust fees                                 465,608         455,051         340,492
        Other income                               999,734       1,209,163       1,011,967
                                              ------------    ------------    ------------
        Total other income                       7,349,362       6,635,151       2,689,642

Other Expenses
        Salaries                                 6,438,599       6,332,915       5,875,511
        Pension and other employee benefits      2,460,131       1,831,784       1,820,031
        Occupancy expense                        1,624,313       1,795,473       1,767,950
        Data processing expense                  1,113,992         992,005         916,939
        Advertising expense                        431,995         387,344         309,032
        Pennsylvania shares tax                    589,064         560,428         496,802
        Debit card expense                         562,721         479,346         383,023
        Other expenses                           4,016,211       3,807,688       3,525,401
                                              ------------    ------------    ------------
        Total other expenses                    17,237,026      16,186,983      15,094,689
                                              ------------    ------------    ------------

Income Before Income Taxes                      10,491,129      11,337,684       8,912,863

Provision for Income Taxes                       2,035,437       2,758,333       2,828,125
                                              ------------    ------------    ------------
Net income                                    $  8,455,692    $  8,579,351    $  6,084,738
                                              ============    ============    ============
Basic Earnings per Share                      $       1.43    $       1.45    $       1.02
                                              ============    ============    ============
Diluted Earnings per Share                    $       1.42    $       1.44    $       1.01
                                              ============    ============    ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

14 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>
<TABLE>
<CAPTION>
<S>                                                       <C>

Consolidated Statements of Changes in Stockholders' Equity / IBT Bancorp, Inc. and Subsidiary
</TABLE>
Years Ended December 31, 2006, 2005 and 2004
<TABLE>
<CAPTION>
                                                                              Accumulated
                                                                                 Other
                                   Capital                     Retained     Comprehensive    Treasury
                                    Stock        Surplus       Earnings         Income        Stock            Total
                                ------------  ------------  -------------  -------------  -------------   --------------
<S>                           <C>           <C>           <C>            <C>            <C>               <C>
   Balance at
   December 31, 2003            $ 3,779,749   $ 1,684,258   $ 54,451,662    $ 1,033,638   $ (1,343,266)   $ 59,606,041

   Comprehensive Income
     Net income                                                6,084,738                                     6,084,738
     Other comprehensive
       income, net of tax:
       Change in net
         unrealized holding
         gains on securities
         available for sale,
         net of deferred
         income tax benefit
         of ($688,712)                                                       (1,336,912)                    (1,336,912)

       Reclassification
         adjustment, net of
         deferred income tax
         of $776,858                                                          1,508,018                      1,508,018
                                                                                                           -----------
                                                                                                               171,106
                                                                                                           -----------
         Total Comprehensive
            Income                                                                                           6,255,844

   Cash dividends ($1.60)                                     (4,746,485)                                   (4,746,485)
   Stock options granted/vested                    59,141                                                       59,141
   Exercise of stock options                     (325,644)                                                    (325,644)
   Purchase of
     Treasury Stock                                                                         (1,006,135)     (1,006,135)
                                -----------   -----------   ------------   ------------   ------------    ------------
   Balance at
   December 31, 2004            $ 3,779,749   $ 1,417,755   $ 55,789,915    $ 1,204,744   $ (2,349,401)   $ 59,842,762
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      IBT Bancorp, Inc., 2006 Annual Report / 15

<PAGE>

<TABLE>
<CAPTION>
<S>                                                       <C>

Consolidated Statements of Changes in Stockholders' Equity (Cont.) / IBT Bancorp, Inc. and Subsidiary
</TABLE>
Years Ended December 31, 2006, 2005 and 2004
<TABLE>
<CAPTION>
                                                                     Accumulated
                                                                        Other
                              Capital                   Retained    Comprehensive     Treasury
                               Stock       Surplus      Earnings        Income         Stock          Total
                            -----------  -----------  ------------  -------------  ------------    ------------
<S>                       <C>          <C>          <C>           <C>            <C>             <C>
Balance at
December 31, 2004           $ 3,779,749  $ 1,417,755  $ 55,789,915  $   1,204,744  $ (2,349,401)   $ 59,842,762

Comprehensive Income
   Net income                                            8,579,351                                    8,579,351
   Other comprehensive
     income, net of tax:
     Change in net
       unrealized holding
       gains on securities
       available for sale,
       net of deferred
       income tax benefit
       of ($831,292)                                                   (1,613,684)                   (1,613,684)

     Reclassification
       adjustment, net of
       deferred income tax
       benefit of  ($53,107)                                             (103,089)                     (103,089)
                                                                                                   -------------
                                                                                                     (1,716,773)
                                                                                                   -------------
       Total Comprehensive
         Income                                                                                       6,862,578

Cash dividends ($1.84)                                  (5,438,036)                                  (5,438,036)
Stock options granted/
   vested                                     59,141                                                     59,141
Exercise of stock options                   (245,452)                                                  (245,452)
Purchase of
   Treasury Stock                                                                                             -
                            ------------ ------------ ------------- -------------- ------------- ---------------
Balance at
December 31, 2005           $ 3,779,749  $ 1,231,444  $ 58,931,230  $    (512,029) $ (2,349,401)   $ 61,080,993
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

16 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

<TABLE>
<CAPTION>
<S>                                                       <C>
Consolidated Statements of Changes in Stockholders' Equity (Cont.) / IBT Bancorp, Inc. and Subsidiary
</TABLE>
Years Ended December 31, 2006, 2005 and 2004

<TABLE>
<CAPTION>
                                                                      Accumulated
                                                                       Other
                             Capital                   Retained      Comprehensive  Treasury
                              Stock       Surplus      Earnings        Income        Stock              Total
                           -----------  -----------  ------------  --------------  -----------      ------------
<S>                       <C>          <C>          <C>           <C>          <C>                 <C>
Balance at
December 31, 2005          $ 3,779,749  $ 1,231,444  $ 58,931,230  $  (512,029) $  (2,349,401)      $ 61,080,993

Comprehensive Income
   Net income                                           8,455,692                                      8,455,692
   Other comprehensive
     income, net of tax:
     Change in net
       unrealized holding
       gains on securities
       available for sale,
       net of deferred
       income tax benefit
       of ($191,598)                                                  (371,925)                         (371,925)

     Reclassification
       adjustment, net of
       deferred income tax
       benefit of  ($20,518)                                           (39,828)                          (39,828)

     Reclassification
       adjustment, gain on
       sale of preferred
       stocks, no deferred
       income tax effect                                               840,967                           840,967
                                                                                                    -------------
                                                                                                         429,214
                                                                                                    -------------
       Total Comprehensive
         Income                                                                                        8,884,906

Cash dividends ($2.00)                                 (5,896,738)                                    (5,896,738)
Stock options granted/
   vested                                    39,808                                                       39,808
Exercise of stock options                  (134,525)                                                    (134,525)
Purchase of Treasury Stock                                                           (667,100)          (667,100)
Sale of Treasury Stock                       20,530                                    75,094             95,624
Two-for-one stock split
       effective in the form
       of a 100% stock
       dividend              3,676,650   (1,157,257)   (2,519,393)                                             -

Adjustment to initially apply
       FASB Statement
       No. 158, net of
       deferred income tax
       benefit of ($423,407)                                          (821,908)                         (821,908)
                           -----------  ----------   ------------  -----------   ------------       ------------
Balance at
December 31, 2006          $ 7,456,399  $        -   $ 58,970,791  $  (904,723)  $ (2,941,407)      $ 62,581,060
                           ===========  ==========   ============  ===========   ============       ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      IBT Bancorp, Inc., 2006 Annual Report / 17

<PAGE>

   Consolidated Statements of Cash Flows / IBT Bancorp, Inc. and Subsidiary

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                  -----------------------------------------------
                                                                       2006             2005             2004
                                                                  -------------    -------------    -------------
<S>                                                             <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                  $   8,455,692    $   8,579,351    $   6,084,738
      Adjustments to reconcile net cash
      from operating activities:
      Depreciation                                                      768,651          994,839        1,009,989
      Increase in cash surrender value of insurance                    (473,201)        (456,042)        (466,923)
      Net amortization/accretion of
        premiums and discounts                                          390,380          810,975        1,046,467
      Net investment security gains                                    (780,621)        (136,189)         (19,896)
      Loss on write-down of equity securities                                 -                -        2,426,177
      Provision for loan losses                                       1,500,000        1,200,000          600,000
      Stock options granted/vested                                       39,808           59,141           59,141
      Increase (decrease) in cash due to
      changes in assets and liabilities:
        Other assets                                                 (1,582,595)         775,593          223,003
        Accrued interest and other liabilities                        1,536,916          267,918          339,288
                                                                  -------------    -------------    -------------

      Net Cash From Operating Activities                              9,855,030       12,095,586       11,301,984

CASH FLOWS FROM INVESTING ACTIVITIES
      Purchase of certificate of deposit                               (100,000)        (100,000)        (100,000)
      Proceeds from maturity of certificate of deposit                  100,000          100,000          100,000
      Proceeds from sales of securities available for sale           24,614,156        9,728,425       61,556,451
      Proceeds from maturities of securities available for sale      17,820,881       35,093,279       23,575,354
      Purchase of securities available for sale                     (66,359,153)     (53,165,621)    (111,626,403)
      Net loans made to customers                                   (26,971,633)      (6,989,448)     (22,118,272)
      Purchases of premises and equipment                              (425,464)        (387,131)        (773,520)
      Proceeds from the sale Federal Home Loan Bank stock             5,283,500        6,183,500        3,763,900
      Purchase of Federal Home Loan Bank stock                       (5,010,700)      (5,970,400)      (4,906,100)
                                                                  -------------    -------------    -------------

      Net Cash Used By Investing Activities                         (51,048,413)     (15,507,396)     (50,528,590)

CASH FLOWS FROM FINANCING ACTIVITIES
      Net increase (decrease) in deposits                            51,986,456       (5,731,190)      34,059,419
      Net increase in securities sold under
        agreements to repurchase                                      8,973,856        3,285,446        2,546,380
      Net (decrease) increase in federal funds purchased            (12,468,000)      12,468,000       (7,900,000)
      Dividends                                                      (5,896,738)      (5,438,036)      (4,746,485)
      Proceeds from FHLB advances                                    80,039,000                -       28,000,000
      Repayment of FHLB advances                                    (76,280,482)      (1,614,189)     (11,042,453)
      Exercised stock options                                          (134,525)        (245,452)        (325,644)
      Purchase of treasury stock                                       (667,100)               -       (1,006,135)
      Sale of treasury stock                                             95,624                -                -
                                                                  -------------    -------------    -------------

      Net Cash From Financing Activities                             45,648,091        2,724,579       39,585,082
                                                                  -------------    -------------    -------------

Net Change in Cash and Cash Equivalents                               4,454,708         (687,231)         358,476

Cash and Cash Equivalents at Beginning of Year                       15,499,940       16,187,171       15,828,695
                                                                  -------------    -------------    -------------

Cash and Cash Equivalents at End of Year                          $  19,954,648    $  15,499,940    $  16,187,171
                                                                  =============    =============    =============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

18 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Consolidated Statements of Cash Flows (Cont.) / IBT Bancorp, Inc. and Subsidiary

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                                 --------------------------------------------
                                                                     2006            2005           2004
                                                                 ------------    ------------    ------------
<S>                                                             <C>             <C>             <C>
SUPPLEMENTAL DISCLOSURES

       Cash payments for:
           Interest                                              $ 17,236,256    $ 13,625,849    $ 11,446,837

           Income taxes                                          $  2,466,000    $  3,182,617    $  2,634,965


NON CASH TRANSACTIONS

       Net recorded unrealized (losses) gains on
           securities available for sale                         $   (116,965)   $ (1,058,528)   $  1,825,368
           at December 31

       Deferred (benefit) income taxes on recorded
           unrealized (losses) gains on securities
           available for sale at December 31                     $    (34,151)   $   (546,500)   $    620,625

       Loans transferred to foreclosed real
           estate during the year                                $     88,849    $    112,380    $  1,557,735

       Recorded nonmonetary gain (loss) on
           securities available for sale
           at December 31                                        $          -    $     81,111    $ (2,426,177)

       Recorded liability for accrued pension cost               $  1,245,315    $          -    $          -
           and reduction of prepaid pension

       Deferred income tax benefit on accrued
           pension liability                                     $    423,407    $          -    $          -

       Two-for-one stock split in the form of a stock dividend
           Capital stock                                         $  3,676,650    $          -    $          -
           Surplus                                               $ (1,157,257)   $          -    $          -
           Retained earnings                                     $ (2,519,393)   $          -    $          -

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      IBT Bancorp, Inc., 2006 Annual Report / 19

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: IBT Bancorp, Inc. (the Bancorp), is a bank holding company
whose  principal  activity is the ownership  and  management of its wholly owned
subsidiary,  Irwin Bank & Trust  Company (the Bank).  The Bank is a full service
state  chartered  commercial  banking  institution  and  provides  a variety  of
financial services to individuals and corporate customers through its six branch
offices, two loan centers, a trust division, three supermarket branches and main
office located in Southwestern Pennsylvania. The Bank's primary deposit products
are non-interest and  interest-bearing  checking accounts,  savings accounts and
certificates of deposit.  Its primary  lending  products are  single-family  and
multi-family residential loans, installment loans and commercial loans.

Principles of Consolidation:  The consolidated  financial statements include the
accounts of the Bancorp and the Bank. All significant intercompany accounts have
been eliminated in the consolidation.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual results could differ from those  estimates.

Material  estimates that are  particularly  susceptible  to  significant  change
relate to the  determination  of the allowance for loan losses and the valuation
of real estate  acquired in connection  with  foreclosures or in satisfaction of
loans.  In connection with the  determination  of the allowances for loan losses
and  foreclosed  real estate,  management  obtains  independent  appraisals  for
significant properties.

Investment  Securities:  All investments in debt and equity securities are to be
classified  into three  categories.  Securities  which  management  has positive
intent and ability to hold until  maturity are  classified  as held to maturity.
Securities  held to maturity are stated at cost,  adjusted for  amortization  of
premium and  accretion of discount  computed on a level yield basis.  Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading  securities.  All other securities are classified
as  available  for sale  securities.  Unrealized  holding  gains and  losses for
trading securities are included in earnings. Unrealized holding gains and losses
for available for sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized.  At
this time,  management  has no intention of  establishing  a trading  securities
classification.

Interest and dividends on securities are reported as interest income.  Gains and
losses  realized on sales of securities  represent the  differences  between net
proceeds and carrying values determined by the specific identification method.

Advertising  Costs:  Advertising  costs are  expensed as  incurred.  Advertising
expense totaled $431,995 for 2006, $387,344 for 2005 and $309,032 for 2004.

Loans  and  Allowance  for Loan  Losses:  Loans are  stated at unpaid  principal
balances, less the allowance for loan losses and net deferred loan fees.

20 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Loan  origination  and commitment  fees, as well as certain  direct  origination
costs,  are deferred and amortized as a yield  adjustment  over the lives of the
related loans using the interest  method.  Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual  status.

The allowance for loan losses is  maintained at a level which,  in  management's
judgement,  is  adequate  to  absorb  potential  losses  inherent  in  the  loan
portfolio.  The amount of the allowance is based on  management's  evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations,  trends in historical loss experience,  specific impaired
loans,  and economic  conditions.  Large groups of smaller  balance  homogeneous
loans are valued  collectively  for  impairment.  The amount of loss  reserve is
calculated  using  historical  loss  rates,  net  of  recoveries,  adjusted  for
environmental,  and other  qualitative  factors such as industry,  geographical,
economic and political factors that can affect loss rates or loss measurements.

Allowances for losses on specifically identified loans that are determined to be
impaired  are  calculated  based  upon  collateral   value,   market  value,  if
determinable,  or the present  value of the  estimated  future  cash flows.  The
allowance  is  increased  by a provision  for loan  losses,  which is charged to
expense,  and reduced by  charge-offs,  net of  recoveries.  Loans are placed on
nonaccrual  status when they are 90 days past due,  unless  they are  adequately
collateralized and in the process of collection.


Premises  and  Equipment:  Premises  and  equipment  are  stated  at  cost  less
accumulated  depreciation  computed on both the  straight-line  and  accelerated
methods over the estimated useful lives of the assets. Costs for maintenance and
repairs are expensed  currently.  Costs of major additions or  improvements  are
capitalized.

Other Real Estate Owned (OREO):  Real estate  properties  acquired through or in
lieu of loan  foreclosure  are  initially  recorded  at the lower of the  Bank's
carrying  amount  or fair  value  less  estimated  selling  cost at the  date of
foreclosure.  Any  write-downs  based on the  asset's  fair value at the date of
acquisition  are charged to the  allowance for loan losses.  After  foreclosure,
these assets are carried at the lower of their new cost basis or fair value less
cost to sell.  Costs  of  significant  property  improvements  are  capitalized,
whereas  costs  relating  to  holding  property  are  expensed.  Valuations  are
periodically  performed  by  management,  and  any  subsequent  write-downs  are
recorded as a charge to operations,  if necessary,  to reduce the carrying value
of a property to the lower of its cost or fair value less cost to sell.

Income  Taxes:  The Bancorp  uses an asset and  liability  approach to financial
accounting and reporting for income taxes.  Deferred tax assets and  liabilities
are  recognized  for the future tax  consequences  attributable  to  differences
between  the  financial  statement  carrying  amounts  of  existing  assets  and
liabilities and their respective tax bases.  Deferred tax assets and liabilities
are measured  using enacted tax rates expected to apply to taxable income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled. Valuation allowances are established, when necessary to reduce deferred
tax assets to the amount expected to be realized.  Income tax expense is the tax
payable or refundable  for the period plus or minus the change during the period
in deferred tax assets and liabilities.  The Bancorp files consolidated  Federal
income tax returns with its subsidiary.

Earnings  per  Share:  Earnings  per  share are  calculated  on the basis of the
weighted  average  number of shares  outstanding.  The weighted  average  shares
outstanding,  given retroactive  effect of the stock dividend  described in Note
21, was  5,895,919,  5,910,910 and  5,932,818  for the years ended  December 31,
2006, 2005 and 2004, respectively.

                                      IBT Bancorp, Inc., 2006 Annual Report / 21

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash  Equivalents:  For purposes of the  Statements  of Cash Flows,  the Bancorp
considers all highly liquid debt instruments  purchased with a maturity of three
months  or less to be cash  equivalents.  The  Bancorp  considers  all  cash and
amounts due from  depository  institutions,  interest-bearing  deposits in other
banks, except certificates of deposit with maturities of more than three months,
and federal funds sold to be cash  equivalents for purposes of the statements of
cash flows.

Reclassification  of Prior Year's Statements:  Certain previously reported items
have been  reclassified  to conform to the current year's  classifications.  The
reclassifications  have  no  effect  on  total  assets,  total  liabilities  and
stockholders' equity, or net income.

NOTE 2 -- INVESTMENT SECURITIES

Investment securities available for sale consist of the following:

<TABLE>
<CAPTION>
                                                                 December 31, 2006
                                           --------------------------------------------------------------
                                                               Gross          Gross
                                             Amortized       Unrealized     Unrealized         Market
                                                Cost           Gains          Losses           Value
                                           --------------   ------------   -------------   --------------
<S>                                       <C>              <C>            <C>             <C>
Obligations of
  U.S. Government Agencies                 $  95,578,239    $   426,951    $   (680,000)   $  95,325,190
Obligations of State and
  political sub-divisions                     63,316,546      1,348,184         (67,095)      64,597,635
Mortgage-backed securities                    62,174,784         70,967      (1,199,447)      61,046,304
Other securities                                  46,545              -              (3)          46,542
Equity securities                                250,220          1,167         (17,689)         233,698
                                           --------------   ------------   -------------   --------------

                                           $ 221,366,334    $ 1,847,269    $ (1,964,234)   $ 221,249,369
                                           ==============   ============   =============   ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                 December 31, 2005
                                           --------------------------------------------------------------
                                                               Gross          Gross
                                             Amortized       Unrealized     Unrealized         Market
                                                Cost           Gains          Losses           Value
                                           --------------   ------------   -------------   --------------
<S>                                       <C>              <C>            <C>             <C>
Obligations of
  U.S. Government Agencies                 $  80,139,533    $    35,630    $ (1,301,245)   $  78,873,918
Obligations of State and
  political sub-divisions                     53,723,194      1,356,363        (271,660)      54,807,897
Mortgage-backed securities                    55,228,872        114,890      (1,516,289)      53,827,473
Other securities                                 195,589              -              (2)         195,587
Equity securities                              7,764,789        557,507         (33,722)       8,288,574
                                           --------------   ------------   -------------   --------------

                                           $ 197,051,977    $ 2,064,390    $ (3,122,918)   $ 195,993,449
                                           ==============   ============   =============   ==============
</TABLE>

22 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)

Gross  realized  gains  and  losses  on calls  and  sales of  available-for-sale
securities were:

<TABLE>
<CAPTION>
                                                           Years Ended December 31,
                                                     ------------------------------------
                                                        2006         2005         2004
                                                     ----------   ----------   ----------
<S>                                                <C>          <C>          <C>
Gross realized gains:
  Obligations of U.S. Government Agencies            $   18,400   $        -   $  204,102
  Obligations of state and political sub-divisions        9,478      153,523       91,855
  Mortgage-backed securities                             32,077            -            -
  Equity securities                                     840,967      120,744       87,333
                                                     ----------   ----------   ----------

                                                     $  900,922   $  274,267   $  383,290
                                                     ==========   ==========   ==========

Gross realized losses:
  Obligations of U.S. Government Agencies            $  107,100   $   45,679   $  363,394
  Obligations of state and political sub-divisions          302            -            -
  Mortgage-backed securities                             12,899       92,399            -
  Equity securities                                           -            -    2,426,177
                                                     ----------   ----------   ----------
                                                     $  120,301   $  138,078   $2,789,571
                                                     ==========   ==========   ==========
</TABLE>

In 2004, the Company recorded a $2,426,177 non-cash write-down of certain agency
preferred  stocks due to an impairment in value that was  determined to be other
than temporary.

The  amortized  cost and  estimated  market value of the  investment  securities
available  for sale at December 31, 2006,  by  contractual  maturity,  are shown
below.  Expected  maturities  will differ from  contractual  maturities  because
issuers  have the right to call or prepay  obligations  with or without  call or
prepayment penalties.

<TABLE>
<CAPTION>
                                                            Amortized          Market
                                                              Cost             Value
                                                          -------------    -------------
<S>                                                      <C>              <C>
Due in one year or less                                   $     736,402    $     740,261
Due after one year through five years                        18,615,189       18,336,200
Due after five years through ten years                       94,963,322       95,075,215
Due after ten years, includes equity securities             107,051,421      107,097,693
                                                          -------------    -------------

                                                          $ 221,366,334    $ 221,249,369
                                                          =============    =============
</TABLE>

As a member of the  Federal  Home Loan Bank of  Pittsburgh  (FHLB),  the Bank is
required to  maintain a minimum  amount of FHLB  stock.  The  minimum  amount is
calculated  based  on  level  of  assets,  residential  real  estate  loans  and
outstanding FHLB advances. The Bank held $5,196,800 and $5,469,600 of FHLB stock
at December 31, 2006 and 2005, respectively.

                                      IBT Bancorp, Inc., 2006 Annual Report / 23

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 2 -- INVESTMENT SECURITIES (CONTINUED)

Temporarily impaired investments consist of the following:

<TABLE>
<CAPTION>
                                                                December 31, 2006
                               -----------------------------------------------------------------------------------------
                                   Less Than 12 Months          12 Months or Longer                  Total
                               ---------------------------  -----------------------------    ---------------------------
                                  Market        Unrealized      Market        Unrealized       Market        Unrealized
                                  Value           Losses        Value           Losses         Value           Losses
                               ------------     ----------  --------------   ------------   -------------   ------------
<S>                           <C>              <C>         <C>              <C>            <C>             <C>
Obligations of U.S.
    Government Agencies        $ 10,578,040     $  (23,375) $   60,393,240   $   (656,625)  $  70,971,280   $   (680,000)
Mortgage-backed securities       11,864,259        (63,493)     40,001,238     (1,135,954)     51,865,497     (1,199,447)
Obligations of state and
    political sub-divisions       3,568,589        (35,791)      4,253,633        (31,304)      7,822,222        (67,095)
Other investments                    41,130           (676)        136,040        (17,016)        177,170        (17,692)
                               ------------     ----------  --------------   ------------   -------------   ------------
    Total temporarily
         impaired securities   $ 26,052,018     $ (123,335) $  104,784,151   $ (1,840,899)  $ 130,836,169   $ (1,964,234)
                               ============     ==========  ==============   ============   =============   ============
</TABLE>

Investments are reviewed for declines in value on a quarterly basis. At December
31,  2006,  no  investment  was  recognized  as having  an  other-than-temporary
impairment. The unrealized loss on debt securities is attributable to changes in
interest rates.  The unrealized loss on the equity  securities are attributed to
temporary declines in market value.

NOTE 3 -- LOANS

Major classifications of loans are as follows:

                                                         December 31,
                                                 ---------------------------
                                                     2006           2005
                                                 ------------   ------------

Mortgage                                         $267,530,358   $252,699,327
Home equity credit                                 16,597,644     19,684,198
Installment                                        99,044,497     93,428,367
Commercial                                         74,167,612     63,508,313
PHEAA                                               6,471,077      6,780,415
Municipal                                           8,374,801      9,148,382
Credit cards                                           99,789         61,868
Other                                                 456,127        744,087
                                                 ------------   ------------
                                                  472,741,905    446,054,957
Less:
Allowance for loan losses                           4,769,260      3,563,501
Deferred loan fees                                    252,137        266,112
                                                 ------------   ------------

                                                 $467,720,508   $442,225,344
                                                 ============   ============

24 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 3 -- LOANS (CONTINUED)

The aggregate  amount of demand deposit  accounts with  overdrawn  balances that
were  reclassified  as loan  balances at December 31, 2006 and 2005  amounted to
$406,672 and $607,114, respectively and are included in other loans.


The total  recorded  investment  in impaired  loans  amounted to  $1,058,657  at
December 31, 2006 and  $1,484,017  at December 31, 2005.  The allowance for loan
losses  related to impaired  loans amounted to $367,294 and $522,857 at December
31, 2006 and 2005, respectively.

Changes in the allowance for loan losses were as follows:

                                           Years Ended December 31,
                                  -----------------------------------------
                                     2006           2005           2004
                                  -----------    -----------    -----------

Balance, beginning of year        $ 3,563,501    $ 2,593,642    $ 3,284,830
  Provision charged to operations   1,500,000      1,200,000        600,000
  Loans charged off                  (347,467)      (271,238)    (1,338,749)
  Recoveries                           53,226         41,097         47,561
                                  -----------    -----------    -----------

Balance, end of year              $ 4,769,260    $ 3,563,501    $ 2,593,642
                                  ===========    ===========    ===========


NOTE 4 -- PREMISES AND EQUIPMENT

Premises and equipment which are stated at cost are as follows:

                                        December 31,
                                  -------------------------
                                      2006          2005
                                  -----------   -----------
Land                              $   921,559   $   921,559
Buildings and improvements          5,992,449     5,950,036
Furniture and equipment             8,088,429     7,744,717
                                  -----------   -----------
                                   15,002,437    14,616,312
Less:  Accumulated depreciation     9,721,052     8,991,740
                                  -----------   -----------

                                  $ 5,281,385   $ 5,624,572
                                  ===========   ===========


Depreciation  expense was $768,651 in 2006,  $994,839 in 2005 and  $1,009,989 in
2004.

Eight of the Bank's  commercial  branch office buildings and/or land, the Bank's
trust division office and an operations  facility are leased by the Bank.  These
leases have initial terms of 1 to 20 years,  and all contain renewal options for
additional  years.

In 2005, fully  depreciated  assets and the remaining  depreciation on assets no
longer in use, as a result of the closure of two branch  offices,  were  written
off.

                                      IBT Bancorp, Inc., 2006 Annual Report / 25

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 4 -- PREMISES AND EQUIPMENT (CONTINUED)

The  following is a summary of the future  minimum  lease  payments  under these
operating leases:

For the year ended December 31,
                                        2007                           $ 220,594
                                        2008                             201,971
                                        2009                             186,719
                                        2010                             131,100
                                        2011                              98,677
                                        2012 and thereafter              149,007
                                                                       ---------

                                                                       $ 988,068
                                                                       =========

Rental expense under these operating leases was $238,915,  $247,327 and $250,464
for the years ended December 31, 2006, 2005 and 2004, respectively.

NOTE 5 -- JOINT VENTURE

The Bancorp has an 85% limited partnership  interest in T.A. of Irwin, L.P. This
partnership provides title insurance to the general public. The Bancorp uses the
equity method to account for its investment in the  partnership.  As of December
31, 2006 and 2005,  the  partnership is reflected in the other assets section of
the balance sheet at $26,713 and $31,772, respectively.

NOTE 6 -- BANK OWNED LIFE INSURANCE

In 2001, the Bank purchased  single premium life insurance  policies on officers
of the Bank at a cost of  $10,000,000.  At December 31, 2006 and 2005,  the cash
surrender value of these policies was $12,381,754 and $11,930,700, respectively,
and is included in the other assets section of the balance  sheet.  The increase
in cash surrender value of these policies is recorded as other income.

NOTE 7 -- DEPOSITS

Time deposits  maturing in years ending December 31, as of December 31, 2006 are
summarized as follows:
                                        2007                       $ 251,326,533
                                        2008                          27,128,089
                                        2009                          12,954,307
                                        2010                           2,560,875
                                        2011                           1,774,540
                                        2012 and thereafter           13,142,665
                                                                   -------------

                                                                   $ 308,887,009
                                                                   =============

The Bank held related party deposits of approximately  $3,817,000 and $3,976,000
at December 31, 2006 and 2005, respectively.

The Bank held time deposits of $100,000 or more of $93,876,778  and  $64,684,980
at December 31, 2006 and 2005, respectively.

26 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 8 -- REPURCHASE AGREEMENTS

The Bank offers its corporate  customers an investment  product fashioned in the
form of a repurchase  agreement.  Under the terms of the agreement,  deposits in
designated  demand  accounts of the customer are put into an investment  vehicle
which is used daily to purchase an interest in  designated  U.S.  Government  or
Agencies'  securities  owned by the Bank.  The Bank in turn agrees to repurchase
these  investments  on a daily  basis and pay the  customer  the daily  interest
earned  on them.  The  amount  of  repurchase  agreements  was  $27,416,559  and
$18,442,703 at December 31, 2006 and 2005, respectively.

NOTE 9 -- PLEDGED ASSETS

At  December  31,  2006  and  2005,  U.S.   Government  Agency  obligations  and
obligations  of  state  and  politcal  sub-divisions  carried  at  approximately
$62,695,000 and $40,865,000 respectively,  were pledged to qualify for fiduciary
powers,  to secure public monies and for other purposes required or permitted by
law. At December 31, 2006 and 2005, the carrying amount of securities pledged to
secure  repurchase  agreements was  approximately  $52,920,000  and  $30,917,000
respectively.

NOTE 10 -- FHLB ADVANCES

At December  31, 2006 and 2005,  the Bank had the  following  advances  from the
Federal Home Loan Bank (FHLB).

<TABLE>
<CAPTION>
       2006           2005             Interest Rate               Maturity Date
  -------------  --------------  ---------------------------    ----------------------
<S>              <C>              <C>                         <C>
  $          -    $   1,250,000          2.54% Fixed               February 21, 2006
             -        1,250,000          2.83% Fixed                August 21, 2006
     2,000,000                -          5.20% Fixed                 March 7, 2007
     2,000,000                -          5.20% Fixed                 June 7, 2007
     4,920,000                -       5.43% Variable LOC             July 27, 2007
       575,070        1,416,489     2.99% Amortizing-Fixed          August 20, 2007
     2,000,000        2,000,000          3.67% Fixed               September 5, 2007
     4,000,000                -          5.215% Fixed              September 7, 2007
       914,573        1,734,636     2.79% Amortizing-Fixed         January 28, 2008
     5,000,000        5,000,000       5.63% Fixed to Float           July 21, 2008
             -        5,000,000       4.86% Fixed to Float         October 23, 2008
     8,000,000        8,000,000    3.48% Fixed w/Strike Rate       January 20, 2009
    10,000,000       10,000,000    4.06% Fixed w/Strike Rate         July 22, 2009
     4,000,000        4,000,000    5.18% Fixed w/Strike Rate      February 23, 2011
     4,000,000        4,000,000      4.98% Fixed to Float            March 23, 2011
     5,000,000        5,000,000   4.947% Fixed w/Strike Rate         August 29, 2011
     5,000,000        5,000,000    4.6% Fixed w/Strike Rate        January 30, 2012
     5,000,000        5,000,000    3.51% Fixed w/Strike Rate       January 28, 2013
     5,000,000        5,000,000    3.47% Fixed w/Strike Rate         March 18, 2013
     5,000,000        5,000,000    4.05% Fixed to Float              August 20, 2014
  -------------   -------------
  $ 72,409,643    $  68,651,125
  =============   =============
</TABLE>

Interest only is payable until maturity on all FHLB advances except for the FHLB
advances  with  maturity  dates of August 20, 2007 and January 28,  2008,  which
require monthly payments of interest and principal.  Collateral for all advances
includes all qualifying mortgages.

                                      IBT Bancorp, Inc., 2006 Annual Report / 27

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 10 -- FHLB ADVANCES (CONTINUED)

The  following is a summary of the  principal  payments  due on FHLB  amortizing
advances at December 31, 2006.

<TABLE>
<CAPTION>
<S>                                                  <C>                     <C>
      Original loan amount                            $          4,000,000    $         2,500,000
      Interest rate                                                  2.79%                  2.99%
      Monthly payment (includes interest)             $             71,502    $            72,692
      Number of payments                                                60                     36
      Maturity date                                       January 28, 2008        August 20, 2007

      Principal payments due December 31:     2007    $            843,237    $           575,070
                                              2008                  71,336                      -

                                                      ---------------------   --------------------
      Balance of loan at December 31, 2006            $            914,573    $           575,070
                                                      =====================   ====================
</TABLE>

In 2006,  the Bank  renewed  its line of credit  with the FHLB in the  amount of
$30,000,000.  The interest  rate is variable and was 5.44% at December 31, 2006.
The line of credit has an expiration date of May 11, 2007.  There was no balance
outstanding  on the line of credit as of December  31, 2005.  Also in 2006,  the
Bank  secured  an  additional  line of  credit  with the FHLB in the  amount  of
$30,000,000.  The interest  rate is variable and was 5.43% at December 31, 2006.
The line of credit has an  expiration  date of July 27,  2007.  The  outstanding
balance  on the line of credit as of  December  31,  2006 is  $4,920,000  and is
included  in FHLB  advances  on the  consolidated  balance  sheet.

The Bank had maximum borrowing capacity with FHLB, including the line of credit,
of  approximately  $313,018,000  and $301,914,000 at December 31, 2006 and 2005,
respectively.

NOTE 11 -- INCOME TAXES

The provision for income taxes consists of:

                                                Years Ended December 31,
                                       -----------------------------------------
                                          2006           2005           2004
                                       -----------    -----------    -----------

Currently payable                      $ 2,397,251    $ 3,086,159    $ 2,643,614
Deferred (benefit) tax                    (361,814)      (327,826)       184,511
                                       -----------    -----------    -----------

Total                                  $ 2,035,437    $ 2,758,333    $ 2,828,125
                                       ===========    ===========    ===========

The significant  components of temporary differences for 2006, 2005 and 2004 are
as follows:

                                                Years Ended December 31,
                                          -------------------------------------
                                               2006         2005         2004
                                          ----------    ----------    ---------

      Provision for loan losses           $ (409,958)   $ (329,752)   $ 153,231
      Depreciation                           (42,236)     (137,670)     (14,169)
      Pension                                 51,311       106,946       85,095
      Deferred loan fees                       4,752         8,533       15,825
      Other                                   34,317        24,117      (55,471)
                                          ----------    ----------    ---------

      Total                               $ (361,814)   $ (327,826)   $ 184,511
                                          ==========    ==========    =========

28 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 11 -- INCOME TAXES (CONTINUED)

A  reconciliation  of the federal  statutory  tax rate to the effective tax rate
applicable to income before income taxes is as follows:

                                                    Years Ended December 31,
                                               --------------------------------
                                                      % of Pretax Income
                                               --------------------------------
                                                 2006        2005        2004
                                                 ----        ----        ----

         Provision at statutory rate             34.0%       34.0%       34.0 %
         Effect of tax free income               (8.9)       (7.7)       (6.3)
         Other                                   (5.7)       (2.0)        4.0
                                                 ----        ----        ----

         Effective tax rate                      19.4%       24.3%       31.7 %
                                                 ====        ====        ====

The deferred tax assets and  deferred  tax  liabilities  recorded on the balance
sheet as of December 31, 2005 and 2004 are as follows:

                                    2006                       2005
                            -------------------------  ------------------------
                                  Deferred Tax              Deferred Tax
                            -------------------------  ------------------------
                              Assets      Liabilities    Assets     Liabilities
                            -----------   -----------  -----------  -----------
Provision for loan losses   $ 1,621,548    $       -   $ 1,211,590   $       -
Depreciation                          -      124,000             -     166,238
Pension expense                       -      374,624             -     342,998
Other                           371,405       61,359       334,799           -
SFAS 115                         34,151            -       546,500           -
Unfunded pension cost           423,407            -             -           -
                            -----------    ---------   -----------   ---------

                            $ 2,450,511    $ 559,983   $ 2,092,889   $ 509,236
                            ===========    =========   ===========   =========

NOTE 12 -- SHAREHOLDER RIGHTS PLAN

On  November  18,  2003,  the  Board  of  Directors  of the  Bancorp  adopted  a
Shareholder Rights Plan. The Board declared a dividend distribution of one Right
for each  outstanding  share of common  stock to  stockholders  of record at the
close of  business  on  December  1, 2003.  Each Right  initially  entitled  the
registered  holder to purchase  from the Bancorp  common stock worth $410 on the
date  of  exercise,  for a  purchase  price  of  $205,  subject  to  adjustment.

Initially,  the  Rights  will  be  attached  to all  common  stock  certificates
representing  shares then outstanding,  and no separate Rights certificates will
be  distributed.   The  Rights  will  separate  from  the  common  stock  and  a
distribution  date will occur upon the earlier of (i) 10 business days following
a public announcement that a person or group of affiliated or associated persons
(an  "Acquiring  Person"),  has  acquired,  or  obtained  the Right to  acquire,
beneficial  ownership of 10% or more of the  outstanding  shares of common stock
("stock  acquisition  date") or (ii) 10 business days following the commencement
of a tender  offer or  exchange  offer  that  would  result in a person or group
beneficially owning 10% or more of such outstanding shares of common stock.

The Rights are not exercisable  until the  distribution  date and will expire at
the close of business on December 1, 2013,  unless earlier redeemed or exchanged
by the Bancorp.


                                      IBT Bancorp, Inc., 2006 Annual Report / 29

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 12 -- SHAREHOLDER RIGHTS PLAN (CONTINUED)

In the event that at any time following the Rights dividend  declaration date, a
person  becomes  the  beneficial  owner  of 10% or more of the  then-outstanding
shares of common  stock,  each holder of a Right  (other than Rights held by the
party  triggering  the Rights and certain  transferees  which are  voided)  will
thereafter  have the right to  receive,  upon  exercise,  common  stock (or,  in
certain  circumstances,  cash,  property,  or other  securities  of the  Bancorp
subject to certain  limitations)  having a value equal to two times the exercise
price of the Right. However, Rights are not exercisable following the occurrence
of the  event set  forth  above  until  such  time as the  Rights  are no longer
redeemable by the Bancorp.

NOTE 13 -- COMMITMENTS AND CONTINGENCIES

In the normal course of business,  there are various outstanding commitments and
certain  contingent  liabilities  which are not  reflected  in the  accompanying
financial  statements.  These commitments and contingent  liabilities  represent
financial  instruments  with  off-balance-sheet  risk.  The contract or notional
amounts of those  instruments  were  comprised of  commitments  to extend credit
approximating  $85,356,000  and  $104,269,000  as of December 31, 2006 and 2005,
respectively, and approximate fair value.

The instruments  involve,  to varying  degrees,  elements of credit and interest
rate risk in excess of the amount  recognized  in the  balance  sheet.  The same
credit policies are used in making  commitments  and conditional  obligations as
for on-balance-sheet  instruments.  The amount of collateral obtained, if deemed
necessary upon extension of credit,  is based on management's  credit evaluation
of the  counterparty.  The terms are  typically  for a one year period,  with an
annual renewal option subject to prior approval by management.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the loan agreement.  These
commitments are comprised  primarily of available  commercial and personal lines
of credit.

The exposure to loss under these  commitments  is limited by subjecting  them to
credit approval and monitoring procedures.  Substantially all of the commitments
to extend credit are  contingent  upon  customers  maintaining  specific  credit
standards at the time of the loan  funding.  Since many of the  commitments  are
expected to expire  without being drawn upon, the total  contractual  amounts do
not necessarily represent future funding requirements.

The Bancorp and Bank are involved in various legal actions from normal  business
activities.  Management  believes that the liability,  if any, arising from such
actions will not have a material adverse effect on the financial position of the
Bancorp and Bank.

NOTE 14 -- CONCENTRATION OF CREDIT

The Bank  primarily  grants  loans to  customers  in Western  Pennsylvania,  and
maintains a diversified  loan  portfolio and the ability of its debtors to honor
their  contracts  is not  substantially  dependent  on any  particular  economic
business  sector. A substantial  portion of the Bank's  investments in municipal
securities  are  obligations of state or political  subdivisions  located within
Pennsylvania.  As a whole,  the Bank's loan and investment  portfolios  could be
affected by the general  economic  conditions of Pennsylvania.  In addition,  at
December 31, 2006 and 2005, a significant portion of the Bank's "due from banks"
and "federal  funds sold" is maintained  with two large  financial  institutions
located in  Southwestern  Pennsylvania.  The Bank  maintains a cash  balance and
federal  funds sold at financial  institutions  that exceed the $100,000  amount
that is  insured  by the FDIC.  Amounts  in excess of  insured  limits,  per the
institutions' records, were approximately  $4,680,000 and $2,200,000 at December
31, 2006 and 20, respectively.

30 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 15 -- EMPLOYEE BENEFIT PLANS

Defined Benefit Plans

The Bank  maintained one  non-contributory  defined benefit pension plan for its
employees  prior to 1995 (Plan  #1).  In 1995,  various  plan  assumptions  were
changed  which  resulted in a reduction in benefits for older and  long-standing
employees.  To  compensate  for  this,  a  supplemental  non-qualified  plan was
installed for those  employees so affected  (Plan #2). The Bank's funding policy
is to  contribute  annually,  an amount not to exceed that which can be deducted
for federal  income tax  purposes  for Plan #1.  Contributions  are  intended to
provide not only for benefits  attributed  to service to date but also for those
expected to be earned in the future. Assets for the plans are primarily invested
in U.S. Government obligations,  corporate obligations,  equity securities,  and
mutual funds whose  valuations are subject to  fluctuations  of the  securities'
market.

In September  2006,  the FASB issued SFAS No. 158,  "Employers'  Accounting  for
Defined  Benefit  Pension and Other  Postretirement  Plans" (SFAS 158). The Bank
adopted SFAS 158  prospectively  on December 31, 2006. SFAS 158 requires that we
recognize all obligations  related to defined benefit  pensions.  This statement
requires  that the Bank  quantify  the  plans'  funding  status as an asset or a
liability on our consoldiated balance sheets.

SFAS 158 requires that the Bank measure the plans' assets and  obligations  that
determine its funded  status as of the end of the fiscal year.  The Bank is also
required to  recognize as a component  of other  comprehensive  income (OCI) the
changes in funded status that occurred  during the year that are not  recognized
as part of net periodic  benefit  cost as explained in SFAS No. 87,  "Employers'
Accounting for Pensions."

Based on the funded status of its defined  benefit  pension plans as of December
31, 2006,  the Bank reported a reduction to our OCI of $821,908,  an increase of
$523,245 to accrued pension  obligations,  a decrease of $722,070 to its prepaid
pension account and an increase of $423,407 to the deferred tax asset account.

The actuarial  measurement period of October 15, through October 14, was used to
determine  the  components  of the net periodic  pension cost and the  financial
disclosures  for both plans.  The actuarial  measurement  date of October 15 was
used in determining the plans' liabilities and asset information.  The following
is a combined summary of the plans' components as of December 31, 2006, 2005 and
2004,  even  though  the  information  has  been  compiled  on the  basis of the
actuarial measurement period.

<TABLE>
<CAPTION>
                                              2006           2005           2004
                                          -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year   $ 4,455,987    $ 3,655,011    $ 3,331,356
Service cost                                  356,068        289,282        256,712
Interest cost                                 266,965        227,751        216,129
Actuarial loss due to settlements                   -              -          8,099
Benefits paid                                (123,622)       (73,069)      (350,346)
Other - net                                  (186,687)       357,012        193,061
                                          -----------    -----------    -----------
      Benefit obligation at end of year   $ 4,768,711    $ 4,455,987    $ 3,655,011
                                          ===========    ===========    ===========
</TABLE>

                                      IBT Bancorp, Inc., 2006 Annual Report / 31
<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

Defined Benefit Plans (continued)

<TABLE>
<CAPTION>

                                                      2006           2005           2004
                                                  -----------    -----------    -----------
<S>                                             <C>            <C>            <C>
Change in Fair Value of Plan Assets:
Plan assets at estimated
  fair value at beginning of year                 $ 3,348,241    $ 2,783,121    $ 2,736,071
Actual return on plan assets, net of expenses         342,549        157,829        146,318
Plan settlements                                            -              -        (42,197)
Benefits paid                                        (123,622)       (73,069)      (350,346)
Employer contributions                                678,298        480,360        293,275
                                                  -----------    -----------    -----------
      Fair value of plan assets at end of year    $ 4,245,466    $ 3,348,241    $ 2,783,121
                                                  ===========    ===========    ===========

Funded status at end of year (1)                  $  (523,245)   $(1,107,746)   $  (871,890)
Unrecognized net loss from actuarial experience     1,388,289      1,706,791      1,352,122
Unrecognized prior service cost                      (128,914)      (147,176)      (165,438)
Unrecognized transition asset                         (14,060)       (17,917)       (21,774)
Effect of settlements                                       -              -         (5,989)
                                                  -----------    -----------    -----------
      Prepaid pension cost                        $   722,070    $   433,952    $   287,031
                                                  ===========    ===========    ===========
</TABLE>

(1) After adoption of SFAS 158 on December 31, 2006,  these amounts are recorded
and this reconciliation is no longer required.

                                                       December 31,
                                        ----------------------------------------
Amounts recognized in the consolidated      2006           2005          2004
balance sheets consist of:              -----------    -----------   -----------

  Prepaid benefit cost                  $   485,057    $ 1,043,094   $   713,304
  Accrued benefit liability                (523,245)             -             -
  Accumulated OCI                          (821,908)             -             -
                                        -----------    -----------   -----------
                                        $  (860,096)   $ 1,043,094   $   713,304
                                        ===========    ===========   ===========


In  the months of December 2006,  2005 an 2004, the Bank  contributed  $612,708,
$678,298 and $480,360  respectively,  to the plans  subsequent  to the actuarial
measurement  dates of October 15, 2006,  2005 and 2004.  Because these  employer
contributions were paid after the actuarial measurement period ended, the Bank's
prepaid  pension  cost at  December  31,  2006,  2005  and  2004  was  $485,057,
$1,043,094 and $713,304, respectively.

32 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

Defined Benefit Plans (continued)

Amounts recognized in accumulated other comprehensive income consist of:

                                                     December 31,
                                     -------------------------------------------
                                         2006           2005            2004
                                     -----------    ------------    ------------

       Transition asset              $   (14,060)   $          -    $          -
       Prior service cost               (128,914)              -               -
       Net loss                        1,388,219               -               -
                                     -----------    ------------    ------------
                                     $ 1,245,245    $          -    $          -
                                     ===========    ============    ============

The accumulated benefit obligation and information for the pension plans consist
of;

                                                    December 31,
                                        ------------------------------------
                                          2006         2005         2004
                                        ----------   ----------   ----------

       Projected benefit obligation     $4,768,711   $4,455,823   $3,655,011
       Accumulated benefit obligation   $3,622,820   $3,237,383   $2,675,106
       Fair value of plan assets        $4,245,466   $3,348,241   $2,783,121

The  incremental  effect of applying FASB  statement No. 158 on individual  line
items in the consolidated balance sheet as of December 31, 2006, is as follows:

                                       Before                         After
                                   Application of                 Application of
                                    FASB No. 158     Adjustment    FASB No. 158
                                     ----------      ----------   -------------

       Prepaid pension cost          $1,207,127      $ (722,070)  $     485,057
       Deferred tax asset            $        -      $  423,407   $     423,407
       Accrued benefit liability     $        -      $ (523,245)  $    (523,245)
       Accumulated OCI               $        -      $  821,908   $     821,908


The prepaid  pension cost and deferred tax asset are included in other assets on
the consolidated  balance sheets.  The accrued benefit  liability is included in
accrued interest and other liabilities on the consolidated balance sheets.


                                      IBT Bancorp, Inc., 2006 Annual Report / 33

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

Defined Benefit Plans (continued)

Net periodic pension cost included the following
 components:
                                                 Years Ended December 31,
                                           -----------------------------------
Net Periodic Pension Cost                     2006         2005         2004
                                           ---------    ---------    ---------
   Service cost                            $ 356,068    $ 289,282    $ 256,712
   Interest cost                             266,965      227,751      216,129
   Expected return on plan assets           (270,003)    (219,638)    (206,976)
   Amortization of prior service cost        (18,262)     (18,262)     (18,262)
   Amortization of transition asset           (3,857)      (3,857)      (4,098)
   Recognized net actuarial loss              75,335       57,296       45,043
                                           ---------    ---------    ---------

   Net periodic pension cost               $ 406,246    $ 332,572    $ 288,548
                                           =========    =========    =========

The following is a summary of the estimated  portion of the net periodic pension
cost included in accumulated other  comprehensive  income that is expected to be
recognized during the year ended December 31, 2007:


Service cost                                                     $   356,489
Interest cost                                                        285,737
Expected return on plan assets                                      (313,604)
Amortization of prior service cost                                   (18,262)
Amortization of transition asset                                      (3,857)
Recognized net actuarial loss                                         50,617
                                                                 -----------

Net periodic pension cost to be recognized                       $   357,120
                                                                 ===========

<TABLE>
<CAPTION>

Weighted-average assumptions used to determine
both the benefit obligations and net periodic pension       Years Ended December 31,
costs were as follows:                               ------------------------------------------------
                                                         2006           2005                 2004
                                                     ------------      ------------      ------------
<S>                                                <C>               <C>               <C>
   Plan #1
      Discount rate                                      6.00%            6.00%               6.25%
      Expected long-term return on plan assets           7.00%            7.00%               7.00%
      Rate of compensation increase                  3.50% - 5.50%     3.50% - 5.50%     3.50% - 5.50%

   Plan #2
      Discount rate                                      7.00%            7.00%               7.00%
      Expected long-term return on plan assets           6.00%            6.00%               6.00%
      Rate of compensation increase                      3.50%            3.50%               3.50%
</TABLE>

The interest rate assumption  utilized for the plan valuation methods is 7%. The
interest rate assumption is reasonable  considering  historical  rates of return
and the asset allocation mix of the plans.

34 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 15 -- EMPLOYEE BENEFIT PLANS (CONTINUED)

Defined Benefit Plans (continued)

Pension plan weighted-average asset allocations           December 31,
  by investment category are as follows:           ------------------------
                                                    2006      2005    2004
                                                    ----      ----    ----

Cash and cash equivalents                            16%        6%      9%
Stocks                                               15%       18%     22%
Bonds                                                 5%        9%     12%
Mutual funds                                         33%       36%     33%
Government securities                                31%       31%     24%
                                                    ---       ---     ---

Total                                               100%      100%    100%
                                                    ===       ===     ===

The Bank's  pension plan funds are managed and held in trust by the Bank's Trust
Division.  The investment objective and strategy for investing plan assets calls
for  a  "Moderate  Growth  Income  Objective".  This  objective  provides  for a
preservation of the principal's purchasing power and moderate growth and income.
The  range  of  equity  exposure  is  from 40 to 80  percent  and  fixed  income
maturities to 30 years.  The investment  policies of the plan trustees  prohibit
the  use  of  derivatives.   In  addition,   the  plan  assets  are  diversified
appropriately  across different business sections for individual  securities and
the plan  trustees  have  further  diversified  plan  assets by  maintaining  an
investment in mutual funds.

Other Employee Benefit Plans

The Bank also maintains  non-qualified  deferred  compensation plans for certain
directors, which are generally funded by life insurance. Prior to 2002, premiums
on those  policies were paid for by the Bank.  In 2002,  the Bank elected to pay
those premiums with dividends  accruing on the insurance  policies.  The present
value of these  benefits to be paid under the programs is being accrued over the
estimated remaining service period of the participants.  The liability for these
future  obligations  was  $616,930  and  $602,118 at December 31, 2006 and 2005,
respectively.

In addition,  the Bank maintains a qualified 401(k) - deferred compensation plan
for eligible employees. The plan is designed to provide a predetermined matching
contribution by the Bank based on compensation  deferrals by participants in the
plan. The Bank contributions,  including administrative fees, for 2006, 2005 and
2004 amounted to $88,196, $80,561 and $77,362, respectively.


NOTE 16 -- RELATED-PARTY TRANSACTIONS

At December 31, 2006 and 2005, certain officers and directors of the Bancorp and
the Bank, and companies in which they have beneficial  ownership,  were indebted
to the Bank in the aggregate amount of approximately  $9,063,000 and $8,257,000,
respectively.  During 2006, new loans to such related parties were approximately
$1,901,000 and repayments approximated $1,095,000.

                                      IBT Bancorp, Inc., 2006 Annual Report / 35

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 17 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.

Cash and cash equivalents:  The carrying amount is a reasonable estimate of fair
value.

Certificates of deposit:  The carrying  amounts of these short term  investments
approximate their fair value.

Investment  securities:  The fair value of  securities is equal to the available
quoted  market  price.  If no quoted  market price is  available,  fair value is
estimated using the quoted market price for similar securities.

Federal  Home  Loan  Bank  stock:  The  carrying  value of the  FHLB  stock is a
reasonable estimate of fair value due to restrictions on the securities.

Loans  receivable:  For certain  homogeneous  categories of loans, fair value is
estimated using the quoted market prices for securities  backed by similar loans
adjusted for differences in loan characteristics.  The fair value of other types
of loans is  estimated  by  discounting  the future cash flows using the current
rates at which similar  loans would be made to borrowers for the same  remaining
maturities.

Deposit  liabilities:  The fair value of demand  deposits,  savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by discounting
the future cash flows using the rates currently  offered for deposits of similar
remaining maturities.

Short-term  borrowings:  The carrying  amounts of  borrowings  under  repurchase
agreements are short-term borrowings and approximate their fair values.

FHLB advances: The fair value of FHLB advances was determined using a discounted
cash flow analysis based on current FHLB advance rates for advances with similar
maturities.

The estimated fair value of the Bancorp's  financial  instruments as of December
31, 2006 are as follows:

                                               Carrying          Fair
                                                Amount           Value
                                            -------------    -------------
Financial Assets:
      Cash and cash equivalents             $  19,954,648    $  19,954,648

      Certificate of deposit                $     100,000    $     100,000

      Investment securities                 $ 221,249,369    $ 221,249,369

      Federal Home Loan Bank stock          $   5,196,800    $   5,196,800

      Loans receivable                      $ 467,720,508    $ 471,887,819

Financial liabilities:
      Deposits                              $ 572,472,214    $ 581,250,829

      Short-term borrowings                 $  27,416,559    $  27,416,559

      FHLB advances                         $  72,409,643    $  74,028,364

The market values of investments, which are based upon quoted market prices, are
contained in Note 2.

36 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 18 -- REGULATORY MATTERS

The Bank is subject to legal  limitations on the amount of dividends that can be
paid to the Bancorp.  The  Pennsylvania  Banking Code  restricts  the payment of
dividends, generally to the extent of its retained earnings.

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities and certain  off-balance  sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings and other factors. Quantitative measures established by regulation to
ensure capital adequacy require the Bank to maintain minimum amounts and ratios,
as set forth below, of total and Tier 1 capital (as defined in the  regulations)
to  risk-weighted  assets,  and of Tier 1 capital to average assets.  Management
believes,  as of  December  31,  2006 and 2005,  that the Bank meets all capital
adequacy requirements to which it is subjected.

The Bank's actual  capital  ratios as of December 31, 2006 and 2005, the minimum
ratios  required for capital  adequacy  purposes,  and the ratios required to be
considered  well  capitalized  under the Federal Deposit  Insurance  Corporation
Improvement Act of 1991 provisions are as follows:

<TABLE>
<CAPTION>
                                            December 31,                Minimum                Well
                                       ----------------------           Capital             Capitalized
                                         2006          2005           Requirements          Requirements
                                       --------      --------       ----------------     ------------------

<S>                                    <C>           <C>             <C>                <C>
Risk-based capital ratio                 14.6%         15.1%           8.0%               10.0% or higher
Leverage capital ratio                    8.5%          8.9%           3.0% to 4.0%       5.0% or higher
Tier 1 risk-based capital  ratio         13.8%         14.2%           4.0%               6.0% or higher
</TABLE>

Included in cash and due from banks are required  federal reserves of $7,945,000
and $7,450,000 at December 31, 2006 and 2005, respectively, for facilitating the
implementation  of monetary policy by the Federal  Reserve System.  The required
reserves  are computed by applying  prescribed  ratios to the classes of average
deposit balances. These reserves are held in the form of due from banks.


NOTE 19 -- STOCK OPTION PLAN

The  Bancorp's  Stock Option Plan  authorizes  the granting of stock  options to
directors  and  employees  for up to  600,000  shares  of  common  stock,  given
retroactive  effect of the stock dividend described in Note 21. The stock option
plan provides for a term of ten years,  after which no awards can be made. Under
the plan,  the exercise  price of each option equals the closing market price of
the  Bancorp's  stock on the grant  date,  and an option's  maximum  term is ten
years. Options constitute both incentive and non-incentive stock options and are
generally granted annually in the month of May. Options granted to directors are
vested  immediately  and are  exercisable  six  months  from the grant  date and
options granted to employees generally vest over three years.

                                      IBT Bancorp, Inc., 2006 Annual Report / 37

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 19 -- STOCK OPTION PLAN (CONTINUED)

As of December 31, 2006, a total of 380,500 stock options have been granted,  of
which, 169,873 are vested and exercisable,  61,000 have not vested, 124,556 have
been exercised and 25,071 have been forfeited.

A summary of the status of the Bank's stock option plan is presented below:

<TABLE>
<CAPTION>
                                                                               December 31,
                                              ----------------------------------------------------------------------------------
                                                        2006                       2005                          2004
                                              --------------------------   ---------------------------   -----------------------
                                                             Weighted                     Weighted                     Weighted
                                                             Average                      Average                       Average
                                                             Exercise                     Exercise                     Exercise
                                                 Shares       Price          Shares        Price           Shares        Price
                                                 ------       -----          ------        -----           ------        -----

<S>                                             <C>        <C>             <C>         <C>               <C>        <C>
      Outstanding at beginning of year            174,542    $  15.43        204,178     $   15.57         236,108    $  15.47
      Granted                                      80,500    $  19.99              -             -               -          -
      Forfeitures                                  (6,668)   $  24.41              -             -         (10,068)   $  19.67
      Exercised                                   (17,500)   $  13.37        (29,636)    $   13.38         (21,862)   $  12.68
                                                 --------                   --------                      --------

      Outstanding at December 31,                 230,874    $  17.30        174,542     $   15.43         204,178    $  15.57
                                                 ========                   ========                      ========

      Exercisable at December 31,                 169,873    $  16.33        165,004     $   15.38         170,446    $  14.36
                                                 ========                   ========                      ========
</TABLE>

The  options   outstanding   at  December  31,   2006,   2005  and  2004  had  a
weighted-average contractual maturity of 5.68 years, 5.74 years, and 6.68 years,
respectively.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:

                                                 December 31,
                                      ---------------------------------------
                                      2006           2005           2004
                                      ----           ----           ----
      Dividend yield                  5.50%       None granted   None granted
      Expected life                   7 years
      Expected volatility             19.24%
      Risk-free interest rate         4.90%
      Weighted-average fair value    $2.45

Effective  January  1,  2003,  the  Bank  adopted  the  fair  value  recognition
provisions of Statement of Financial Accounting Standards (SFAS) 123, Accounting
for Stock-Based  Compensation,  prospectively  to all employee awards granted in
2003.  Awards under the plan vest over periods  ranging from six months to three
years. Therefore,  the cost related to stock-based  compensation included in the
determination  of net income  for 2003 is less than that  which  would have been
recognized  if the fair value based  method had been applied to all awards since
the original effective date of Statement 123.


38 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 19 -- STOCK OPTION PLAN (CONTINUED)

The following table  illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all  outstanding and unvested
awards in each year.

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                                   ----------------------------------------
                                                                      2006            2005         2004
                                                                   -----------    -----------   -----------

<S>                                                               <C>            <C>           <C>
Net income, as reported                                            $ 8,455,692    $ 8,579,351   $ 6,084,738
Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects         26,273         39,034        39,034
Deduct: Total stock-based employee compensation
    expense determined under fair value based method for
    all awards, net of related tax effects                                   -              -        85,525
                                                                   -----------    -----------   -----------

Pro-forma net income                                               $ 8,481,965    $ 8,618,385   $ 6,038,247
                                                                   ===========    ===========   ===========

Earnings per share:
      Basic-as reported                                            $      1.43    $       1.45  $      1.03
                                                                   ===========    ===========   ===========
      Basic-pro forma                                              $      1.44    $       1.46  $      1.02
                                                                   ===========    ===========   ===========

      Diluted-as reported                                          $      1.42    $       1.44  $      1.01
                                                                   ===========    ===========   ===========
      Diluted-pro forma                                            $      1.43    $       1.45  $      1.01
                                                                   ===========    ===========   ===========
</TABLE>

Weighted-average  number of shares outstanding,  given retroactive effect of the
stock dividend  described in Note 21,  assuming  dilution of  exercisable  stock
options using the treasury stock method was 5,937,894,  5,964,900, and 6,010,734
for the years ended December 31, 2006, 2005, and 2004, respectively.

NOTE 20 -- TREASURY STOCK

In 2006 the Bancorp  repurchased  16,385 shares of its stock for $667,100 and is
being held as treasury  stock.  The Bancorp did not repurchase any shares of its
own stock during 2005.

                                      IBT Bancorp, Inc., 2006 Annual Report / 39

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 21 -- CAPITAL STOCK

On October 17,  2006,  the  Bancorp  declared a  two-for-one  stock split on the
Bancorp's  capital stock,  which was effected in the form of a 100 percent stock
dividend.  One  additional  share will be issued for each share of capital stock
held by  shareholders of record as of the close of business on October 27, 2006.
New shares  were  distributed  on  November  16,  2006.  Par value  will  remain
unchanged as $1.25.  The number of shares  issued on November  16,  2006,  after
giving effect to the split,  was 5,965,119  (3,023,799  shares issued before the
split).

NOTE 22 -- RECENT ACCOUNTING PRONOUNCEMENTS


In 2006, the FASB issued FASB No. 155,  Accounting for Certain Hybrid  Financial
Instruments - an amendment of FASB No. 133 and 140, FASB No. 156, Accounting for
Servicing of Financial Assets - an amendment of FASB No. 140, FASB No. 157, Fair
Value  Measurements,  FASB No. 158,  Employers'  Accounting for Defined  Benefit
Pension and Other  Postretirement  Plans - an amendment of FASB No. 87, 88, 106,
and 132(R), and FASB  interpretation  ("FIN") No. 48, Accounting for Uncertainty
in Income Taxes.  The Bank was most  impacted by FASB No. 158 which  requires an
employer to recognize the overfunded or underfunded  status of a defined benefit
postretirement  plan as an asset or  liability  in its  statement  of  financial
position and to recognize changes in that funded status in the year in which the
changes occur through  comprehensive  income. See Note 15 for impact of FASB 158
on Bancorp's  consolidated balance sheets.  Management does not believe that the
other pronouncements will have a material impact on the Bancorp's operations.

40 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 23 -- PARENT COMPANY FINANCIAL INFORMATION

The condensed  financial  information  for IBT Bancorp,  Inc. as of December 31,
2006 and 2005 and for the years ended  December  31,  2006,  2005 and 2004 is as
follows:

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            December 31
                                                                     -------------------------
                                                                         2006          2005
                                                                     -----------   -----------
<S>                                                                 <C>           <C>
ASSETS
     Cash in bank                                                    $ 1,016,721   $   522,780
     Investment in subsidiary                                         61,110,750    60,002,071
     Securities available for sale                                       205,243       294,163
     Other assets                                                        248,346       261,979
                                                                     -----------   -----------

     Total Assets                                                    $62,581,060   $61,080,993
                                                                     ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
     Liabilities                                                     $         -   $         -

     Stockholders' Equity                                             62,581,060    61,080,993
                                                                     -----------   -----------

     Total Liabilities and Stockholders' Equity                      $62,581,060   $61,080,993
                                                                     ===========   ===========
</TABLE>

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                          ------------------------------------
                                                             2006         2005         2004
                                                          ----------   ----------   ----------
<S>                                                     <C>          <C>          <C>
Income
     Dividends from subsidiary                            $7,100,000   $5,650,000   $5,900,000
     Other dividends                                          10,882       11,280       11,916
     Investment security gains                                     -      120,744       87,333
     Income from joint ventures                               19,026       34,804       55,139

Expenses
     Professional fees                                       118,074      105,943       97,126
     Miscellaneous                                           111,857       63,142       60,636
                                                          ----------   ----------   ----------
Income Before Income Taxes
     and Equity in Undistributed Earnings of Subsidiary    6,899,977    5,647,743    5,896,626

Equity in Undistributed
     Earnings of Subsidiary                                1,555,715    2,931,608      188,112
                                                          ----------   ----------   ----------

Net Income                                                $8,455,692   $8,579,351   $6,084,738
                                                          ==========   ==========   ==========
</TABLE>

                                      IBT Bancorp, Inc., 2006 Annual Report / 41

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 23 -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                        -----------------------------------------
                                                           2006           2005           2004
                                                        -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES

      Net income                                        $ 8,455,692    $ 8,579,351    $ 6,084,738
      Adjustments to reconcile net income to
         net cash provided by operating activities:
         Net undistributed earnings of joint ventures       (19,026)       (34,805)       (55,139)
         Investment security gains                                -       (120,744)       (87,333)
         Decrease in cash due to changes
             in assets and liabilities:
                Equity in undistributed earnings
                  of subsidiary                          (1,555,715)    (2,931,608)      (188,112)
                                                        -----------    -----------    -----------

Net Cash From Operating Activities                        6,880,951      5,492,194      5,754,154

CASH FLOWS FROM INVESTING ACTIVITIES

      Distributions from joint ventures                      24,085         23,116         56,365
      Proceeds from sale of securities
         available for sale                                 154,311        185,899        168,033
      Purchase of securities available for sale             (56,697)        (4,783)       (22,355)
                                                        -----------    -----------    -----------

Net Cash From Investing Activities                          121,699        204,232        202,043

CASH FLOWS FROM FINANCING ACTIVITIES

      Dividends paid                                     (5,896,738)    (5,438,036)    (4,746,485)
      Exercised stock options                               (40,495)             -              -
      Purchase of Treasury Stock                           (667,100)             -     (1,006,135)
      Sale of Treasury Stock                                 95,624              -              -
                                                        -----------    -----------    -----------

Net Cash Used by Financing Activities                    (6,508,709)    (5,438,036)    (5,752,620)
                                                        -----------    -----------    -----------

Net Change in Cash and Cash Equivalents                     493,941        258,390        203,577

Cash and Cash Equivalents at Beginning
      of Year                                               522,780        264,390         60,813
                                                        -----------    -----------    -----------

Cash and Cash Equivalents at End of Year                $ 1,016,721    $   522,780    $   264,390
                                                        ===========    ===========    ===========
</TABLE>

42 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

Notes to Consolidated Financial Statements / IBT Bancorp, Inc. and Subsidiary

Years Ended December 31, 2006, 2005 and 2004


NOTE 23 -- CONDENSED CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA  (Unaudited)

                                         Quarters Ended 2006
                          -----------------------------------------------------
                            March 31      June 30    September 30   December 31
                          -----------   -----------  ------------   -----------

Interest income           $ 9,418,342   $ 9,871,783   $10,358,604   $10,744,002
Interest expense            4,010,646     4,392,961     4,853,163     5,257,168
                          -----------   -----------   -----------   -----------
Net interest income         5,407,696     5,478,822     5,505,441     5,486,834
Provision for loan
  losses                      300,000       550,000       350,000       300,000
Non-interest income         1,844,553     1,858,549     1,939,668     1,706,592
Non-interest expense        4,037,663     4,217,532     4,275,458     4,706,373
                          -----------   -----------   -----------   -----------
Income before income
  taxes                     2,914,586     2,569,839     2,819,651     2,187,053
Income tax expense            604,147       384,418       668,466       378,406
                          -----------   -----------   -----------   -----------

Net income                $ 2,310,439   $ 2,185,421   $ 2,151,185   $ 1,808,647
                          ===========   ===========   ===========   ===========

Net income per Share of
  Capital Stock           $      0.39   $      0.37   $      0.37   $      0.30
                          ===========   ===========   ===========   ===========


                                         Quarters Ended 2005
                          -----------------------------------------------------
                            March 31      June 30    September 30   December 31
                          -----------   -----------  ------------   -----------

Interest income           $ 8,738,031   $ 8,814,344   $ 9,016,445   $ 9,202,482
Interest expense            3,126,624     3,280,426     3,516,174     3,758,562
                          -----------   -----------   -----------   -----------
Net interest income         5,611,407     5,533,918     5,500,271     5,443,920
Provision for loan
  losses                      300,000       300,000       300,000       300,000
Non-interest income         1,624,670     1,777,621     1,638,471     1,594,390
Non-interest expense        3,710,161     4,064,011     4,134,575     4,278,237
                          -----------   -----------   -----------   -----------
Income before income
  taxes                     3,225,916     2,947,528     2,704,167     2,460,073
Income tax expense            901,770       621,685       665,927       568,951
                          -----------   -----------   -----------   -----------

Net income                $ 2,324,146   $ 2,325,843   $ 2,038,240   $ 1,891,122
                          ===========   ===========   ===========   ===========

Net income per Share of
  Capital Stock           $      0.39   $      0.39   $      0.35   $      0.32
                          ===========   ===========   ===========   ===========

                                      IBT Bancorp, Inc., 2006 Annual Report / 43

<PAGE>

              IBT Bancorp, Inc., Corporate Profile

              IBT BANCORP, INC. CORPORATE PROFILE

IBT Bancorp,  Inc. (the  "Company"),  a  Pennsylvania  corporation,  is the bank
holding  company for Irwin Bank.  Irwin Bank is the principal  subsidiary of the
Company.

Irwin  Bank  was  incorporated  in 1922  under  the  laws of  Pennsylvania  as a
commercial bank. The Bank is  headquartered in Irwin,  Pennsylvania and conducts
business  through  6 full  service  branches,  3  supermarket  branches,  2 loan
offices,  and a trust office in the  Pennsylvania  counties of Westmoreland  and
Allegheny.  Irwin Bank is a diversified financial services institution providing
a broad  range of  commercial  and  retail  banking  services,  as well as trust
services to consumers and businesses.  Deposits in Irwin Bank are insured by the
Federal Deposit Insurance Corporation ("FDIC") to applicable limits.


Stock Market Information

The Company's  common stock is listed on the American  Stock  Exchange  ("AMEX")
under the symbol "IRW". As of March 1, 2007, IBT Bancorp, Inc. had approximately
1,428  shareholders of record and 5,965,119 shares of common stock  outstanding.
The number of  stockholders  does not reflect persons or entities who hold their
stock in nominee or "street" name through various brokerage firms


                                  Price Range               Cash Dividends
                              High ($)       Low ($)     Declared Per Share ($)
2006
First Quarter                   20.62         18.62               0.25
Second Quarter                  20.35         18.92               0.25
Third Quarter                   22.12         20.05               0.25
Fourth Quarter                  21.82         20.31               0.25

2005
First Quarter                   24.15         21.88               0.23
Second Quarter                  22.75         18.50               0.23
Third Quarter                   22.30         20.25               0.23
Fourth Quarter                  23.15         20.25               0.23


44 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

              IBT Bancorp, Inc., Corporate Profile


The ability of the Company to pay  dividends  is  dependent  upon the ability of
Irwin Bank to pay  dividends to the Company.  Because Irwin Bank is a depository
institution  insured by the FDIC it may not pay dividends or distribute  capital
assets if it is in default on any assessment due the FDIC.

Additionally,  Irwin Bank is also subject to certain  federal and state  banking
regulations.  Under Federal Reserve Policy,  the Company is required to maintain
adequate  regulatory  capital and is  expected  to act as a source of  financial
strength  to  Irwin  Bank and to  commit  resources  to  support  Irwin  Bank in
circumstances  where it might not do so absent such a policy.  The policy  could
have the effect of reducing the amount of dividends declarable by the Company.

Stock Performance Graph

The following  graph compares the  cumulative  total  shareholder  return on the
Common Stock with (a) the cumulative total shareholder return on stocks included
in the  Nasdaq  Stock  Market  composit  index  and  (b)  the  cumulative  total
shareholder  return on stocks  included in the Nasdaq Bank index, as prepared by
SNL Financial LC. All three investment comparisons assume the investment of $100
as of December 31, 2001 and the  reinvestment  of dividends.  The graph provides
comparisons at December 31, 2001 and each fiscal year through December 31, 2006.

[Line graph appears here showing 5-year cumulative total return on $100 invested
in the Common Stock compared to cumulative total returns on $100 invested in the
Nasdaq Bank Index and Nasdaq Index, respectively.  Line graph starts at December
31, 2001 and shows the  cumulative  total  returns at December 31,  2002,  2003,
2004, 2005 and 2006. Plot points are shown below]

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                   Period Ending
                   -----------------------------------------------------------------------------------
Index               12/31/01      12/31/02       12/31/03      12/31/04       12/31/05       12/31/06
------------------------------------------------------------------------------------------------------
<S>                  <C>           <C>            <C>           <C>            <C>            <C>
IBT Bancorp, Inc.     100.00        135.91         218.73        182.99         161.08         175.16
NASDAQ Composite      100.00         68.76         103.67        113.16         115.57         127.58
NASDAQ Bank           100.00        106.95         142.29        161.73         158.61         180.53
------------------------------------------------------------------------------------------------------
</TABLE>


There can be no assurance that the Company's  future stock  performance  will be
the same or similar to the historical  performance shown in the above graph. The
Company neither makes nor endorses any predictions as to stock performance.

                                      IBT Bancorp, Inc., 2006 Annual Report / 45

<PAGE>

              IBT Bancorp, Inc., Corporate Profile


Annual Shareholders Meeting

The annual meeting of shareholders of IBT Bancorp, Inc., will be held on Tuesday
April 17, 2007 at 2:00 PM local time, at the Irwin Masonic Hall,  located at 417
Main Street, Irwin Pennsylvania 15642.


Form 10-K

The Annual Report for the year ended December 31, 2006 filed with the Securities
and Exchange  Commission on Form 10-K, is available  without charge upon written
request. For a copy of the Form 10-K please contact:  Raymond G. Suchta,  Senior
Vice President and Chief Financial Officer, IBT Bancorp,  Inc., 309 Main Street,
Irwin, PA 15642.


Transfer Agent                                      Independent Auditors
Registrar and Transfer Company                      Edwards Sauer & Owens, P.C.
Investor Relations                                  500 Warner Centre
10 Commerce Drive                                   Pittsburgh, PA 15222
Cranford, New Jersey 07016-3572
1-800-368-5948


Special Counsel
Malizia Spidi & Fisch, PC
901 New York Avenue, NW
Suite 210 East
Washington, D.C. 20001


46 / IBT Bancorp, Inc., 2006 Annual Report

<PAGE>

[THE FOLLOWING DIRECTORS' PICTURES WERE OMITTED]

BOARD OF DIRECTORS
Left to right:
John N. Brenzia
Director

Thomas E. Deger
Director

Charles G. Hergenroeder
Director


Left to right:
Richard J. Hoffman
Director

Robert Rebich, Jr.
Chairman

Richard L. Ryan
Director


Left to right:
Dr. Grant J. Shevchik
Director

Charles G. Urtin
President/CEO

Robert C. Whisner
Director

(Not pictured, Directors Emeritus)
Thomas Beter, William D. Fawcett, Sr., J. Curt Gardner, Edwin A. Paulone,
Vincent V. Rodger

[PICTURES OF THE FOLLOWING PERSONS OMITTED]

EMPLOYEE MILESTONES, PROMOTIONS & NEW HIRES
Left to right:
Steven D. Landis
Assistant Vice President
Special Assets
Promoted: April 2006

Linda D. Shaner
Vice President/Commercial Lending
Promoted: April, 2006

Alan V. DeMarchi
Vice President
Loan Administration Manager
Hired: March 6, 2006

Without the hard work and  dedication  of its  employees,  Irwin Bank's  success
would not be  possible.  Irwin  Bank  holds an  Employee  Service  Award  Dinner
annually  to award and  recognize  the many years of  service of its  Directors,
Officers and Employees. In 2006 Sandra L. Hayden was recognized for her 25 years
of service and  Elizabeth A.  Caruthers and Sheli L. Fyock were  recognized  for
their 20  years of  service.  Nancy J.  McCullough  and  Beverly  A.  Hahn  both
announced their  retirements at this year's Awards Dinner after serving 46 years
and 42 years respectively.  We are proud to honor these employees for their many
years of dedicated  service to Irwin Bank.  We are also pleased to recognize our
officers  who  achieved  higher rank and those who joined  Irwin Bank during the
year 2006.

<PAGE>

<TABLE>
<CAPTION>

Irwin Bank Locations

BRANCH OFFICERS                 IN STORE LOCATIONS              LOAN CENTER LOCATIONS
<S>                           <C>                             <C>
GREENSBURG (Triangle Dr.)       FORT ALLEN                      MAIN OFFICE LOAN CENTER
4 Triangle Drive                Inside Hempfield Shop N'Save    319 Main Street
Greensburg, PA 15601            4589 Route 136                  Irwin, PA 15642
724-837-5000                    Greensburg, PA 15601            224-863-3100
                                724-853-8540
GREENSBURG (PA Commons)                                         MT. PLEASANT LOAN CENTER
20 N. Pennsylvania Avenue       PENN CROSSING                   445 West Main Street
Greensburg, PA 15601venue       Inside Giant Eagle              Mt. Pleasant, PA 15666
724-837-5000                    2000 Penny Lane                 724-547-2255
                                Jeannette, PA 15644
MONROEVILLE                     724-744-6111
Haymaker Village
4580 Broadway Blvd.             OAK PARK MALL
Monroeville, PA 15146           Inside Giant Eagle
412-858-4450                    2001 Lincoln Way
                                White Oak, PA 15131
PENN TOWNSHIP                   412-664-0984
4021 Route 130
Irwin, PA 15642
724-744-2176

IRWIN ROUTE 30
9350 Route 30
Irwin, PA 15642
724-863-2510

WHITE OAK
Oak Park Mall
2003 Lincoln Way
White Oak, PA 15131
412-678-3000


                    MAIN OFFICE
                    309 Main Street
[LOGO]              Irwin, PA 15642
IB                  724-863-3100
Irwin
Bank                TRUST DIVISION
                    Suite 204
                    20 N. Pennsylavnia Avenue
                    Greensburg, PA 15601
                    724-836-2010                             www.myirwinbank.com

</TABLE>