EXHIBIT 13

MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

      Granite State Bankshares, Inc. ("Granite State" or the "Company") is a
single-bank holding company which owns all of the stock of the Granite Bank
(the "subsidiary bank"), a New Hampshire chartered commercial bank. The
Company has grown profitably over the past several years through several
strategic acquisitions and by leveraging its capital. This activity
strengthened the franchise and assisted in the transition from a thrift
institution into a full-service commercial bank. This discussion of the
financial condition and results of operations of the Company should be read
in conjunction with the financial statements and supplemental financial data
contained elsewhere in this report.
      The subsidiary bank is a community oriented commercial bank offering a
variety of financial services. The principal business of the subsidiary bank
consists of attracting deposits from the general public and originating
loans secured by residential and commercial real estate and other loans. The
subsidiary bank has a diversified lending operation that services Cheshire,
Hillsborough, Merrimack, Strafford and Rockingham counties, New Hampshire.
The subsidiary bank also originates residential real estate loans for sale
in the secondary mortgage market. The subsidiary bank has eighteen full
service offices and an additional twenty-three remote automatic teller
locations. During 1999, the subsidiary bank began offering its products
and services online through its internet banking branch,
GRANITe-bank.
      The subsidiary bank's deposits are primarily insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC"), with the remaining portion of the subsidiary bank's deposits
(approximately 6.4% of total deposits at December 31, 1999) being OAKAR
deposits, which are deposits purchased from institutions previously insured
by the Savings Association Insurance Fund ("SAIF") of the FDIC. These
deposits are still insured by the SAIF. As a result of the foregoing, the
subsidiary bank is subject to regulation by the FDIC. The Company, as a bank
holding company, is subject to regulation by the Federal Reserve Board
("FRB").
      Financial institutions in general, including the Company, are
significantly affected by economic conditions, competition and the monetary
and fiscal policies of the Federal government. Lending activities are
influenced by the demand for and supply of housing and local economic
activity, competition among lenders, the interest rate conditions and funds
availability. Deposit balances and cost of funds are influenced by
prevailing market rates on competing investments, customer preference and
the levels of personal income and savings in the subsidiary bank's primary
market areas.

Forward-Looking Statements

      Certain statements contained herein are not based on historical facts
and are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements which are based on various assumptions
(some of which are beyond the Company's control), are subject to numerous
risks and uncertainties and statements for periods subsequent to December
31, 1999 are subject to greater uncertainty because of the increased
likelihood of changes in underlying factors and assumptions. Such forward-
looking statements may be identified by reference to a future period or
periods, or by the use of forward-looking terminology, such as "may,"
"will," "believe," "expect," "estimate," "anticipate," "continue," or
similar terms or variations on those terms, or the negative of those terms.
Actual results could differ materially from those set forth in forward-
looking statements due to a variety of factors, including, but not limited
to, those related to the economic environment, particularly in the market
areas in which the Company operates, competitive products and pricing,
fiscal and monetary policies of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements, changes in prevailing interest rates, acquisitions and
the integration of acquired businesses, credit risk management, asset-
liability management, the financial and securities markets and the
availability of and costs associated with sources of liquidity.
      The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.

Acquisition

      Effective after the close of business October 31, 1997, the Company
completed its merger with Primary Bank. Each of Primary Bank's 2,194,685
outstanding shares of common stock were converted into 1.1483 shares of the
Company's common stock resulting in the issuance of 2,520,157 shares of the
Company's common stock to Primary Bank stockholders. Primary Bank was a
state-chartered guaranty (stock) savings bank with total assets of $388
million, headquartered in Peterborough, New Hampshire. Primary Bank was
merged into Granite Bank, the Company's wholly-owned subsidiary, as part of
the transaction.
      The transaction was accounted for by the pooling-of-interests method
of accounting, and, accordingly, the consolidated financial statements for
all periods presented prior to the merger have been restated to present the
combined financial condition and results of operations as if the combination
had been in effect for all periods presented. The acquisition provided an
expanded penetration of the Company into commercial and industrial lending
and served to connect existing branch facilities in southwestern, central
and southeastern New Hampshire. Expenses directly attributable to the merger
were charged to earnings at the date of combination.


<PAGE>  11


FINANCIAL CONDITION

      Consolidated assets at December 31, 1999 were $867.7 million, down
$10.4 million or 1.2% from $878.1 million at December 31, 1998.

Interest Bearing Deposits in other banks

      Interest bearing deposits in other banks, which primarily consist of
deposits with the Federal Home Loan Bank of Boston ("FHLBB"), were $4.4
million at December 31, 1999 and $19.5 million at December 31, 1998. Such
investments are short-term overnight investments and the level of the
Company's investment in these instruments fluctuates as investments are made
in other interest earning assets such as loans, securities held to maturity
and securities available for sale, and as balances of interest bearing
liabilities such as deposits, securities sold under agreements to repurchase
and other borrowings fluctuate. These instruments are also used to fund cash
and due from bank requirements.

Securities Held to Maturity and
 Securities Available for Sale

      The Company classifies its investments in debt and equity securities
as securities held to maturity, securities available for sale or trading
securities. Securities held to maturity are carried at amortized cost,
securities available for sale are carried at market value with unrealized
gains and losses shown in accumulated other comprehensive income (loss) as a
separate component of stockholders' equity, net of related tax effects, and
trading securities are carried at market value with unrealized gains and
losses reflected in earnings. The Company had no securities classified as
trading securities during 1999, 1998 or 1997.

      At December 31, 1999 and 1998, the carrying values of securities held
to maturity and securities available for sale consisted of the following:

<TABLE>
<CAPTION>
                                               December 31,
                                           --------------------
                                             1999          1998
                                             ----          ----
                                              (In Thousands)

<S>                                        <C>         <C>
Securities held to maturity
  US Government agency obligations         $ 13,007    $ 17,265
  Other corporate obligations                 5,010       5,012
                                           --------------------
    Total securities held to maturity      $ 18,017    $ 22,277
                                           ====================

Securities available for sale
  US Treasury obligations                  $ 20,031    $ 83,716
  US Government agency obligations          102,026      55,998
  Other corporate obligations                69,424      46,457
  Mortgage-backed securities                  7,561      11,698
  Mutual funds                                7,024       6,402
  Marketable equity securities                9,506      15,494
                                           --------------------
    Total securities available for sale    $215,572    $219,765
                                           ====================
</TABLE>

      At December 31, 1999 the net unrealized losses on securities available
for sale, net of related tax effects were $4.3 million, compared to net
unrealized gains of $1.6 million at December 31, 1998. These net unrealized
gains or losses are shown in accumulated other comprehensive income (loss)
as a separate component of stockholders' equity.
      The weighted average maturity for all debt securities held to maturity
and available for sale, excluding mortgage-backed securities, is 63 months.
Actual maturities may differ from contractual maturities because certain
issuers have the right to call obligations without call penalties. The
weighted average maturity of mortgage-backed securities available for sale
is 262 months, based upon their final maturities. However, normal principal
repayments and prepayments of mortgage-backed securities are received
regularly, substantially reducing their weighted-average maturities.
      The total amortized cost of securities held to maturity and securities
available for sale, which excludes net unrealized gains and losses on
securities available for sale, remained fairly stable at $240.7 million at
December 31, 1999 compared to $239.5 million at December 31, 1998.

Loans

      At December 31, 1999 and 1998 the Company's loan portfolio consisted
of the following:

<TABLE>
<CAPTION>
                                     December 31,
                                 --------------------
                                   1999        1998
                                   ----        ----
                                    (In Thousands)

<S>                              <C>         <C>
Commercial, financial and
 agricultural                    $ 41,837    $ 48,418
Real estate-residential           356,368     328,243
Real estate-commercial            136,566     146,093
Real estate-construction and
 land development                   3,886       2,281
Installment                         5,952       7,809
Other                              24,085      22,855
                                 --------------------
    Total loans                   568,694     555,699

Less:
  Unearned income                  (1,248)     (1,506)
  Allowance for possible loan
   losses                          (7,032)     (7,122)
                                 --------------------
    Net loans                    $560,414    $547,071
                                 ====================
</TABLE>

      Loans outstanding before deductions for unearned income and the
allowance for possible loan losses increased $13.0 million or 2.34% to
$568.7 million at December 31, 1999 from $555.7 million at December 31,
1998.
      Residential real estate loans increased $28.2 million or 8.57% to
$356.4 million at December 31, 1999 from $328.2 million at December 31,
1998. The increase in residential real estate loans occurred throughout
1999; however, it slowed during the latter part of 1999, as higher interest
rates slowed residential loan


<PAGE>  12


refinance activity. Included in real estate-residential loans in the table
above are multi-family real estate loans of $39.5 million and $36.2 million,
respectively, at December 31, 1999 and 1998.
      As shown in the table above, commercial, financial and agricultural
loans decreased $6.6 million, or 13.59%, and commercial real estate loans
decreased $9.5 million, or 6.52%. The decrease in commercial, financial and
agricultural loans and commercial real estate loans related primarily to the
pace of loan repayments and the highly competitive environment for
attracting loans amongst financial institutions in the Company's market
areas.
      Total loan originations during 1999 and 1998, were $194.9 million and
$238.8 million, respectively. Loan originations for portfolio, excluding
loans originated for sale in the secondary mortgage market during 1999 and
1998 were $168.8 million and $198.7 million, respectively. Loan repayments
for 1999 and 1998, were $154.2 million and $149.4 million, respectively.
Loans charged off, net during 1999 and 1998 were $140 thousand and $1.7
million, respectively. Loans transferred to other real estate owned during
1999 and 1998 amounted to $1.1 million and $724 thousand, respectively.
      The subsidiary bank originates certain residential real estate loans
for sale in the secondary mortgage market. Mortgage loans held for sale at
December 31, 1999 and 1998 were $479 thousand and $1.8 million,
respectively. Loans originated for sale in the secondary mortgage market
during 1999 and 1998 were $26.1 million and $40.1 million, respectively.
Loans sold in the secondary mortgage market during 1999 and 1998 were $27.5
million and $39.3 million, respectively. Since July 1, 1996, the Company has
been originating fifteen year fixed rate residential real estate loans for
portfolio. Prior to July 1, 1996, these loans had been sold in the secondary
mortgage market. In the future, new originations of these loans may be
retained as portfolio loans or sold in the secondary mortgage market,
depending upon management's evaluation of the Company's interest rate risk
objectives. The Company continues to write thirty year fixed rate
residential real estate loans for sale in the secondary mortgage market. At
December 31, 1999 and 1998 the Company serviced residential real estate
loans for others totaling $138.0 million and $148.0 million, respectively.

Risk Elements

      The Company's management believes that New Hampshire has experienced
steady economic growth since 1992. There can be no assurance that this will
continue to be the case, however, and the economies and real estate markets
in the Company's primary market areas will continue to be significant
determinants of the quality of the Company's assets in future periods, and
thus its results of operations.
      The following table sets forth the Company's nonperforming loans and
other real estate owned at the dates indicated. The Company generally does
not accrue interest on any loans that are 90 days or more past due, unless
the loan is well secured and in the process of collection. At the dates
indicated, all loans delinquent 90 days or more were on nonaccrual status
and therefore considered nonperforming, with the exception of $4 thousand of
loans at December 31, 1999, $146 thousand of loans at December 31, 1998, and
$535 thousand of loans at December 31, 1997, all of which were in the
process of collection at those dates.

<TABLE>
<CAPTION>
                                         December 31,
                                  --------------------------
                                    1999     1998       1997
                                    ----     ----       ----
                                       ($ In Thousands)

<S>                               <C>       <C>       <C>
Nonperforming loans:
  Residential real estate         $  746    $1,347    $1,489
  Commercial real estate             294       592     4,261
  Construction and land
   development real estate                     378        92
  Commercial, financial and
   agricultural                      475       678       956
  Installment and other                1        18       347
                                  --------------------------
    Total nonperforming
     loans                         1,516     3,013     7,145
    Total other real estate
     owned                         1,288     1,601     1,905
                                  --------------------------
    Total nonperforming
     assets                       $2,804    $4,614    $9,050
                                  ==========================

Ratios:
    Total nonperforming loans
     to total loans                 0.27%     0.54%     1.40%
                                  ==========================

    Total nonperforming assets
     to total assets                0.32%     0.53%     1.11%
                                   =========================
</TABLE>

      The Company's nonperforming assets decreased $1.8 million or 39.23%
from $4.6 million at December 31, 1998 to $2.8 million at December 31, 1999.
The decrease in nonperforming assets relates primarily to decreases in
nonperforming commercial real estate loans of $298 thousand, a decrease in
nonperforming installment and other loans of $17 thousand, a decrease in
nonperforming commercial, financial and agricultural loans of $203 thousand,
a decrease in nonperforming residential real estate loans of $601 thousand,
a decrease in nonperforming construction and land development real estate
loans of $378 thousand and a decrease in other real estate owned of $313
thousand. The decrease in nonperforming assets relates to the Company's
continued focus on asset quality issues and the significant resources
allocated to the asset quality control functions of credit policy and
administration and loan review. The asset workout and collection functions
focus on reducing nonperforming assets. Despite the continued focus on asset
quality and reduction of nonperforming asset levels, there can be no
assurance that adverse changes in economic conditions and the real estate
markets in the Company's primary market areas will not result in higher
levels of nonperforming assets in the future and negatively impact the
Company's operations through higher provisions for possible loan losses,
decreases in accruals of inter-


<PAGE>  13


est income and increased noninterest expenses relating to the collection and
workout of nonperforming assets.
      The Company has identified loans as impaired in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 114, when it is
probable that interest and principal will not be collected according to the
terms of the loan agreements. The balance of impaired loans was $489
thousand and $1.6 million, respectively, at December 31, 1999 and 1998. The
average recorded investment in impaired loans was $1.1 million, $3.5 million
and $3.0 million, respectively, in 1999, 1998 and 1997. No income was
recognized on impaired loans during 1999, 1998 and 1997. Total cash
collected on impaired loans during 1999, 1998 and 1997 was $779 thousand,
$710 thousand and $779 thousand, respectively, all of which was credited to
the principal balance outstanding on such loans.
      The portion of the allowance for possible loan losses applicable to
impaired loans amounted to $252 thousand, $233 thousand and $1.1 million,
respectively, at December 31, 1999, 1998 and 1997. During 1999, 1998 and
1997, provisions for possible loan losses applicable to impaired loans were
$30 thousand, $201 thousand and $1.0 million, respectively. Impaired loans
charged off during 1999, 1998 and 1997 were $11 thousand, $1.0 million and
$386 thousand, respectively. At December 31, 1999, 1998 and 1997, there were
no impaired loans which did not have an allowance for possible loan losses
determined in accordance with SFAS No. 114.
      The Company's policy for interest income recognition on impaired loans
is to recognize income on nonaccrual loans under the cash basis when the
loans are both current and the collateral on the loan is sufficient to cover
the outstanding obligation to the Company; if these factors do not exist,
the Company does not recognize income.
      Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real
estate acquired in settlement of loans is recorded at the lower of the
carrying value of the loan or the fair value of the property received less
an allowance for estimated costs to sell. Loan losses arising from the
acquisition of such properties are charged against the allowance for
possible loan losses. Provisions to reduce the carrying value to net
realizable value are charged to current period earnings as realized and
reflected as an additional valuation allowance. Operating expenses and gains
and losses upon disposition are reflected in earnings as realized. Other
real estate owned amounted to $1.3 million and $1.6 million at December 31,
1999 and 1998, respectively. See note 11 of Notes to Consolidated Financial
Statements for further information on other real estate owned.
      The allowance for possible loan losses is a significant factor in the
Company's operating results and is established through charges against
earnings and is maintained at a level considered adequate to provide for
potential loan losses based on management's evaluation of known and inherent
risks in the loan portfolio. When a loan, or a portion of a loan, is
considered uncollectible it is charged against the allowance. Recoveries of
loans previously charged off are credited to the allowance when received.
      Management's evaluation of the allowance is based on a continuing
review of the loan portfolio. The methodology for determining the amount of
the allowance for possible loan losses consists of several elements.
Nonperforming, impaired and delinquent loans are reviewed individually and
the value of any underlying collateral is considered in determining
estimates of possible losses associated with those loans. Another element
involves estimating losses inherent in categories of loans, based primarily
on historical experience, industry trends and trends in the real estate
market and the current economic environment in the Company's primary market
areas. The last element is based on management's evaluation of various
conditions, and involves a higher degree of uncertainty because they are not
identified with specific problem credits or portfolio segments. The
conditions evaluated in connection with this element include the following:
industry and regional conditions and/or concentrations; seasoning of the
loan portfolio and changes in the composition of and growth in the loan
portfolio; the strength and duration of the current business cycle; existing
general economic and business conditions in the lending areas; credit
quality trends, including trends in nonperforming loans expected to result
from existing conditions; historical loan charge-off experience; and the
results of bank regulatory examinations.
      At December 31, 1999, 1998 and 1997, the allowance for possible loan
losses was $7.0 million, $7.1 million and $7.7 million, respectively, and
the ratio of the allowance to total loans outstanding was 1.24%, 1.28% and
1.50%, respectively. At December 31, 1999, 1998 and 1997, the allowance for
possible loan losses represented 463.9%, 236.4% and 107.1%, respectively, of
nonperforming loans. The amount of the allowance for possible loan losses
decreased at December 31, 1999 compared to December 31, 1998, primarily as a
result of decreases in nonperforming and impaired loans, the low level of
net charge-offs in 1999 and the continuing change in the composition of the
loan portfolio which was more predominantly residential real estate in 1999,
partially offset by the overall growth of the loan portfolio. The amount of
the allowance for possible loan losses decreased at December 31, 1998
compared to December 31, 1997, primarily as a result of decreases in
nonperforming and impaired loans, and a change in the composition of the
loan portfolio which was predominantly residential real estate in 1998,
partially offset by the overall growth of the loan portfolio.
      While management believes that the allowance for possible loan losses
at December 31, 1999 is adequate based on its current review and estimate,
further provisions to the allowance may be necessary if the market in which
the Company operates deteriorates. Additionally, regulatory agencies review
the Company's allowance for possible loan losses as part of their
examination process. Such agencies may require the Company to recognize
additions to the allowance based on judgments which may be different from
those of management.


<PAGE>  14


Deposits

      A summary of deposits at December 31, 1999 and 1998 follows:

<TABLE>
<CAPTION>
                                     December 31,
                                 --------------------
                                   1999        1998
                                   ----        ----
                                    (In Thousands)

<S>                              <C>         <C>
NOW accounts                     $195,833    $203,068
Savings accounts                   85,770      87,150
Money market deposit accounts      17,516      19,659
Time certificates                 256,103     266,901
                                 --------------------
    Total interest
     bearing deposits             555,222     576,778
Noninterest bearing deposits       72,796      73,709
                                 --------------------
    Total deposits               $628,018    $650,487
                                 ====================
</TABLE>

      Savings deposits, which are comprised of NOW accounts, savings
accounts and money market deposit accounts decreased $10.8 million to $299.1
million at December 31, 1999 from $309.9 million at December 31, 1998. The
decrease related primarily to the cash needs of depositors at year end 1999.
Average savings deposits increased $11.0 million to $307.6 million in 1999
compared to $296.6 million in 1998, primarily as a result of the continued
success of the NOW account product introduced by the subsidiary bank during
1995.
      Time certificates decreased $10.8 million to $256.1 million at
December 31, 1999 from $266.9 million at December 31, 1998 and average time
certificates balances decreased $11.1 million to $256.7 million during 1999
compared to $267.8 million during 1998. The decrease in the year end and
average balances of time certificates in 1999 compared to 1998, is primarily
the result of depositors looking to achieve higher yields by investing these
funds as they mature in alternate sources outside of traditional bank
products.
      Noninterest bearing deposits decreased $913 thousand to $72.8 million
at December 31, 1999 compared to $73.7 million at December 31, 1998,
primarily due to the timing of the cash needs of depositors, while the
average balances of noninterest bearing deposits increased $3.5 million to
$73.1 million during 1999 compared to $69.6 million during 1998, as
depositors made greater use of these accounts during 1999 compared to 1998.
      Time certificates with minimum balances of $100 thousand increased
$723 thousand, from $33.5 million at December 31, 1998 to $34.3 million at
December 31, 1999. The Company does not use brokers to solicit deposits.

Securities Sold Under Agreements to Repurchase

      Securities sold under agreements to repurchase increased $4.1 million
or 5.83% to $75.0 million at December 31, 1999 from $70.9 million at
December 31, 1998. The increase in securities sold under agreements to
repurchase was used to fund changes in interest earning assets and other
interest bearing liabilities. These short-term borrowings are instruments
which are used by municipalities and businesses to invest their excess cash
and are collateralized by US Treasury and US Government Agency obligations.

Other Borrowings

      Other borrowings which consists of borrowings from the FHLBB increased
$10.0 million from $80.6 million at December 31, 1998 to $90.6 million at
December 31, 1999. The proceeds of borrowings from the FHLBB were used to
fund changes in interest earning assets and other interest bearing
liabilities.
      Principal payments due on other borrowings after December 31, 1999 are
$48 thousand in 2000, $51 thousand in 2001, $55 thousand in 2002, $30.1
million in 2003, $61 thousand in 2004 and $60.3 million in years thereafter.
The FHLBB has the right to call and require the repayment of $30 million of
borrowings during 2001, $20 million of which is at an interest rate of 4.49%
maturing in 2008 and $10 million of which is at an interest rate of 5.58%
maturing in 2009. Additionally, the FHLBB has the right to call and require
the repayment of $20 million of borrowings during 2000, which is at an
interest rate of 4.18% maturing in 2013. Should the FHLBB require repayment
of the callable borrowings on the call dates, the interest cost to replace
such borrowings is likely to increase.

Stockholders' Equity

      Stockholders' equity was $70.4 million at December 31, 1999, a
decrease of $2.2 million from $72.6 million at December 31, 1998. Book value
per share was $12.24 at December 31, 1999, down $0.07 or 0.57% from $12.31
at December 31, 1998. See "Capital Resources and Liquidity" for further
information on stockholders' equity.

Risk Management

      In the normal course of business, the Company is subject to various
risks, the most significant of which are credit, liquidity and market risk,
which includes interest rate risk. Although the Company cannot eliminate
these risks, it has risk management processes designed to provide for risk
identification, measurement, monitoring and control. The Board of Directors
establishes policies with respect to risk management, lending, investment,
asset/liability management and interest rate risk and reviews and approves
these policies annually. The Board of Directors delegates the responsibility
for carrying out these policies to management.
      Credit risk represents the possibility that a customer or counterparty
may not perform in accordance with contractual terms. Credit risk results
from extending credit to customers, purchasing securities and entering into
certain off-balance-sheet financial transactions (which are primarily
commitments to originate loans, unused lines and standby letters of credit
or unadvanced portions of construction loans). Risk associated with the
extension of credit (including off-balance-sheet items)


<PAGE>  15


includes general risk, which is inherent in the lending business, and risk
specific to individual borrowers. Risk associated with purchasing securities
primarily centers around the credit quality of the issuer of the security.
The Company seeks to manage credit risk through portfolio diversification,
investments in highly rated securities, loan underwriting policies and
procedures and loan monitoring practices.
      Liquidity represents an institution's ability to generate cash or
otherwise obtain funds at reasonable rates to satisfy commitments to
borrowers and demands of depositors and to invest in strategic initiatives.
Liquidity risk represents the likelihood the Company would be unable to
generate cash or otherwise obtain funds at reasonable rates for such
purposes. Liquidity is managed through the coordination of the relative
maturities of assets, liabilities and off-balance sheet positions and is
enhanced by the ability to raise funds with direct borrowings.
      Market risk reflects the risk of economic loss resulting from adverse
changes in market prices and interest rates. The risk of loss can be
reflected in diminished current values and/or reduced potential net interest
income in future periods. The Company's market risk arises primarily from
interest rate risk. The Company is also exposed to market price risk through
its investments in marketable equity securities.

Asset/Liability Management, Interest Rate Sensitivity
 and Market Risk

      The Company's primary objective regarding asset/liability management
is to position the Company so that changes in interest rates do not have a
material adverse impact upon net earnings (through changes in net interest
and dividend income) and the estimated net present value of equity of the
Company. The Company's primary strategy for accomplishing its
asset/liability management objective is achieved by managing the weighted
average maturities of assets, liabilities and off-balance-sheet items
(duration matching). At December 31, 1999, approximately 63.8% of the
Company's loan portfolio was comprised of adjustable rate loans.
Approximately 72.2% of its securities available for sale and securities held
to maturity portfolios are debt securities maturing in less than five years,
with an additional 5.4% comprised of debt securities having adjustable rate
features. With regard to deposit liabilities, only 40.8% of total deposits
and 46.1% of interest bearing deposits are comprised of time certificates.
Unlike other deposit products such as NOW, money market deposit and savings
accounts, time certificates carry a high degree of interest rate sensitivity
and therefore their renewal will vary based on the competitiveness of the
Company's interest rates. The Company has also entered into interest rate
cap agreements to manage its exposure to interest rate risk. At December 31,
1999 the Company had interest rate cap agreements in effect with notional
amounts of $20.0 million with a weighted average strike rate of 7.77%, which
mature in the year 2004. The Company receives an interest payment if the
three-month London Interbank Offer Rate ("LIBOR") increases above the strike
rate.
      To measure the impact of interest rate changes, the Company utilizes a
comprehensive financial planning model that recalculates the estimated net
present value of equity and net interest and dividend income of the Company
assuming instantaneous, permanent parallel shifts in the yield curve of both
up and down 100 and 200 basis points. Larger increases or decreases in
estimated net interest and dividend income and the estimated net present
value of equity of the Company as a result of these interest rate changes
represent greater interest rate risk than do smaller increases or decreases.
      The results of the financial planning model are highly dependent on
numerous assumptions. These assumptions generally fall into two categories:
those relating to the interest rate environment and those relating to
general business and economic factors. Assumptions related to the interest
rate environment include the prepayment speeds on mortgage-related assets
and the cash flows and maturities of financial instruments. Assumptions
related to general business and economic factors include changes in market
conditions, loan volumes and pricing, deposit sensitivity, customer
preferences, competition, and management's financial and capital plans. The
assumptions are developed based on current business and asset/liability
management strategies, historical experience, the current economic
environment, forecasted economic conditions and other analyses. These
assumptions are inherently uncertain and subject to change as time passes
and therefore, there can be no assurances that the Company's forecasts in
this regard will be achieved.
      Management believes that the above method of measuring and managing
interest rate risk is consistent with FDIC guidelines.
      The following table summarizes the timing of the Company's anticipated
maturities or repricing of and interest rates applicable to rate-sensitive
assets and rate-sensitive liabilities as of December 31, 1999. This table
has been generated using certain assumptions which the Company believes
fairly and accurately represent repricing volumes in a dynamic interest rate
environment. Adjustable rate loans are reflected in periods in which they
reprice, and fixed rate loans are shown in accordance with their contractual
maturities, adjusted for estimated prepayment activity. The earlier of
contractual maturities or the next repricing date are used on all
securities. Certain marketable equity securities and certain mutual fund
securities totaling $8.7 million, are not susceptible to interest rate
sensitivity and have therefore been excluded from this analysis. The gap
maturity categories for savings deposits (including NOW, savings, and money
market deposit accounts) are allocated based on the Company's historical
experience in retaining such deposits in changing interest rate
environments, as well as management's philosophy of repricing core deposits
in reaction to changes in the interest rate environment. Time deposits are
reflected at the earlier of contractual maturities or their next repricing
date. Repricing frequencies will vary at different points in the interest
cycle and as supply and demand for credit change.
      Nonperforming loans totaling $1.5 million have been excluded from this
analysis.


<PAGE>  16


                   INTEREST RATE SENSITIVITY GAP ANALYSIS
                            at December 31, 1999

<TABLE>
<CAPTION>
                                                                             Sensitivity Period
                                                  -------------------------------------------------------------------------
                                                    0-3        3 Months-      1-3           3-5        Over
                                                   Months       1 Year       Years         Years      5 Years       Total
                                                  -------------------------------------------------------------------------
                                                                              ($ In Thousands)

<S>                                       <S>     <C>          <C>          <C>          <C>          <C>          <C>
Rate-sensitive Assets:
  Interest bearing deposits in other
   banks                                     $    $  4,402                                                         $  4,402
                                          Rate        4.48%                                                            4.48%
  Securities, including stock in FHLBB       $      16,426     $ 21,396     $ 36,958     $120,061     $ 37,218      232,059
                                          Rate        6.73%        6.09%        6.08%        6.22%        6.69%        6.30%
  Loans and loans held for sale              $     123,709      113,458      123,305      104,674      102,511      567,657
                                          Rate        8.56%        8.04%        7.75%        7.93%        7.30%        7.94%
                                                  -------------------------------------------------------------------------
      Total                                       $144,537     $134,854     $160,263     $224,735     $139,729     $804,118
                                                  =========================================================================

Rate-sensitive Liabilities:
  Money Market Deposit Accounts              $    $  2,102     $  6,656     $  8,758                               $ 17,516
                                          Rate        2.53%        2.53%        2.53%                                  2.53%
  Savings and NOW Accounts                   $      14,080       42,240      112,641     $ 56,321     $ 56,321      281,603
                                          Rate        2.46%        2.46%        2.46%        2.46%        2.46%        2.46%
  Time certificates                          $      52,079      169,847       29,857        3,768          552      256,103
                                          Rate        4.68%        5.38%        5.23%        5.18%        5.20%        5.21%
  Securities sold under agreements
   to repurchase                             $      66,811        8,231                                              75,042
                                          Rate        4.75%        5.46%                                               4.82%
  Other borrowings                           $          12           36          106       30,119       60,290       90,563
                                          Rate        6.06%        6.06%        6.06%        5.87%        4.84%        5.18%
                                                  -------------------------------------------------------------------------
      Total                                       $135,084     $227,010     $151,362     $ 90,208     $117,163     $720,827
                                                  =========================================================================
Period Sensitivity Gap                            $  9,453     $(92,156)    $  8,901     $134,527     $ 22,566     $ 83,291
Cumulative Sensitivity Gap                        $  9,453     $(82,703)    $(73,802)    $ 60,725     $ 83,291
Cumulative Sensitivity Gap as a
 Percent of Total Rate-sensitive Assets               1.18%      (10.28)%      (9.18)%       7.55%       10.36%
</TABLE>

      The ability to assess interest rate risk using gap analysis is
limited. Gap analysis does not capture the impact of cash flow or balance
sheet mix changes over a forecasted future period and it does not measure
the amount of price change expected to occur in the various asset and
liability categories. Thus, management does not use gap analysis exclusively
in its assessment of interest rate risk. The Company's interest rate risk
exposure is also measured by the estimated net interest and dividend income
and discounted cash flow market value sensitivities referred to above.
      The Company's limits on interest rate risk specify that if interest
rates were to shift immediately up or down 200 basis points, hypothetical
net interest and dividend income over the next twelve months should decline
by less than 10%. Additionally, the Company's limits on interest rate risk
also specify that if interest rates were to shift immediately up or down 200
basis points, the change in the estimated net present value of equity should
decline by less than 25%. The following table presents as of December 31,
1999, the Company's interest rate risk as measured by the changes in the
estimated net present value of equity and hypothetical net interest and
dividend income for instantaneous and sustained parallel shifts of 100 and
200 basis points in market interest rates.


<PAGE>  17

<TABLE>
<CAPTION>
                                                                                  $ Change in         % Change in
                              $ Change in Estimated    % Change in Estimated    Hypothetical Net    Hypothetical Net
              Change in            Net Present              Net Present           Interest and        Interest and
            Interest Rates       Value of Equity          Value of Equity       Dividend Income     Dividend Income
            --------------------------------------------------------------------------------------------------------
            (Basis Points)       (In Thousands)                                  (In Thousands)

               <S>                  <C>                      <C>                    <C>                  <C>
                 +200               $(19,263)                (17.57)%               $(1,986)             (5.96)%
                 +100                 (9,831)                 (8.97)                   (989)             (2.97)
               Flat Rate                   0                      0                       0                  0
                 -100                 10,609                   9.68                   1,451               4.35
                 -200                 13,766                  12.56                   1,539               4.62
</TABLE>

      At December 31, 1998, the change in estimated net present value of
equity was $(3,503,000) or (3.21)% assuming a 200 basis points increase in
interest rates and $(8,196,000) or (7.50)% assuming a 200 basis points
decrease in interest rates. The differences in the change in estimated net
present value of equity from 1999 to 1998 is primarily the result of an
increase in fifteen year fixed rate residential loans and an increase in
adjustable rate loans with initial terms of 3 to 7 years before the first
rate adjustment may occur. Additionally, the higher interest rate
environment experienced at the end of 1999 as compared to the end of 1998,
resulted in lower assumed prepayment speeds for loans in 1999 as compared to
1998, as well as increased volatility in the investment portfolio.
      At December 31, 1998, the change in hypothetical net interest and
dividend income over the next twelve months was $(567,000) or (1.72)%
assuming a 200 basis points increase in interest rates and $(84,000) or
(0.26)% assuming a 200 basis points decrease in interest rates. The
differences in the change in hypothetical net interest and dividend income
in 1999 compared to 1998 is primarily due to the Company having greater rate
sensitive liabilities as compared to rate sensitive assets over a twelve
month time horizon in 1999 compared to 1998. These sensitivities were
impacted by a  decrease in prepayment speeds for loans in 1999 as compared
to 1998 and a lower level of securities maturing in the one year horizon in
1999 as compared to 1998. As a result of the foregoing, the Company was more
susceptible to risk from changes in interest rates at December 31, 1999 than
at December 31, 1998.
      Management also believes that the assumptions utilized in evaluating
the vulnerability of the Company's net interest and dividend income and
estimated net present value of equity to changes in interest rates are
reasonable based on historical experience. However, the interest rate
sensitivity of the Company's assets and liabilities as well as the estimated
effect of changes in interest rates on the estimated net present value of
equity or hypothetical net interest and dividend income, could vary
substantially if different assumptions are used or actual experience differs
from the experience on which the assumptions were based.
      In the event the Company should experience a mismatch in its desired
GAP ranges or an excessive decline in its estimated net present value of
equity or hypothetical net interest and dividend income subsequent to an
immediate and sustained change in interest rates, it has a number of options
which it could utilize to remedy such mismatch. The Company could
restructure its available for sale securities portfolio through sale or
purchase of securities with more favorable repricing attributes. It could
also emphasize loan products with appropriate maturities or repricing
attributes, or it could attract deposits or obtain borrowings with desired
maturities.
      The Company maintains a portfolio of marketable equity securities,
which are included in securities available for sale, and had estimated fair
values of $9.5 million and an original cost of $10.7 million at December 31,
1999. Such securities are recorded at estimated fair market value, and are
subject to market price risk. The risk is the potential loss in estimated
fair value resulting from adverse changes in prices quoted by stock markets.
The Company manages its market price risk by closely monitoring market
developments and reviewing current financial statements and other reports
published by the issuers of the equity securities.
      Within the Company's portfolio of marketable equity securities, an
analysis of significant quarterly movements in stock prices over the last
three years, or since the stock was initially offered for purchase if less
than three years, indicated a 10-20% movement in prices in 33% of the
quarters, a 20-25% movement in prices in 12% of the quarters, and a 25-35%
movement in prices in 7% of the quarters. The market price risk in the
Company's marketable equity securities portfolio, assuming hypothetical
decreases in quoted stock prices of 10%, 25% and 35%, would amount to $951
thousand, $2.4 million and $3.3 million, respectively. The after tax impact
on capital relating to these hypothetical decreases in stock prices would be
$577 thousand, $1.4 million and $2.0 million, respectively.

RESULTS OF OPERATIONS

General

      The operating results of the Company depend primarily on the net
interest and dividend income of its subsidiary bank, which is the difference
between interest and dividend income on interest earning assets, primarily
loans and securities, and interest expense on interest bearing liabilities,
primarily deposits, securities sold under agreements to repurchase and other
borrowings. The Company's operating results are also affected by the level
of its provision for possible loan losses, noninterest income, noninterest
expense, and income taxes.


<PAGE>  18


Comparison of Operating Results for the Years
 Ended December 31, 1999 and 1998

Net Earnings

      Operations in 1999 resulted in net earnings of $10.1 million, an
increase of $568 thousand over net earnings of $9.6 million for 1998. Basic
earnings per share was $1.75 in 1999 compared to $1.64 in 1998. Diluted
earnings per share was $1.71 in 1999 compared to $1.60 in 1998.
      Earnings before income taxes were $15.4 million in 1999, an increase
of $710 thousand compared to earnings before income taxes of $14.7 million
in 1998. Earnings before income taxes increased in 1999 compared to 1998,
primarily as a result of increases in net interest and dividend income and
decreases in the provision for possible loan losses and noninterest expense,
partially offset by a decrease in noninterest income.

Net Interest and Dividend Income

      Net interest and dividend income was $31.9 million and $31.0 million
in 1999 and 1998, respectively. The increase of $933 thousand in 1999
compared to 1998 relates primarily to an increase of $58.1 million or 7.74%
in average interest earning assets to $809.4 million in 1999 from $751.3
million in 1998, partially offset by an increase in average interest bearing
liabilities of $43.7 million, or 6.53%, to $712.9 million in 1999 from
$669.2 million in 1998. Additionally, the increase was partially offset by
decreases in the interest rate spread and net yield on interest earning
assets to 3.48% and 3.94%, respectively, in 1999 from 3.67% and 4.12%,
respectively, in 1998.
      Interest income on loans decreased $545 thousand to $45.3 million in
1999 from $45.8 million in 1998. The decrease was primarily the result of a
decrease in average loan yields to 8.09% in 1999 from 8.54% in 1998,
partially offset by an increase in average loan balances of $23.1 million,
or 4.30%, to $559.7 million in 1999 from $536.6 million in 1998. The
decrease in loan yields is a result of the change in the mix of loans to a
larger percentage of lower yielding residential real estate loans and a
smaller percentage of commercial real estate and commercial, financial and
agricultural loans. The competitive environment amongst financial
institutions for attracting commercial real estate and commercial, financial
and agricultural loans also contributed to the lower loan yields in 1999.
The increase in average loan balances in 1999 compared to 1998, reflects the
strong loan demand in the residential real estate market during most of
1999, although the demand slowed in late 1999 as interest rates trended
higher. The growth in residential real estate loans was partially offset by
decreases in commercial, financial and agricultural loans and commercial
real estate loans. Such decreases were as a result of the pace of repayments
due to the low interest rate environment that was prevalent until the latter
part of 1999 and the competition for these loans amongst financial
institutions. Management expects that the competition for loans will
continue, which could reduce average yields realized on loans, thereby
reducing the interest rate spread in future periods.
      Interest and dividend income on securities, including stock in FHLBB,
increased $1.8 million to $13.6 million in 1999 from $11.8 million in 1998.
The increase relates primarily to an increase in the average balances of
securities, including stock in FHLBB of $37.2 million, to $232.3 million in
1999 from $195.1 million in 1998, partially offset by a decrease in yields
to 5.87% in 1999 from 6.03% in 1998. The increase in average balances of
securities was due primarily to investments in available for sale securities
during the latter part of 1998, which were invested for all of 1999. The
decrease in yields was primarily the result of securities which were called
by the issuers in 1998, the proceeds of which were reinvested during 1998 at
lower rates, which rates remained in effect for all of 1999.
      Interest expense on deposits decreased $1.7 million to $20.9 million
in 1999 from $22.6 million in 1998, with interest on savings deposits
decreasing $321 thousand and interest on time deposits decreasing $1.4
million. The decrease related primarily to a lower average cost of deposits
of 3.70% during 1999 compared to 4.00% during 1998, while average balances
of interest bearing deposits were relatively stable at $564.2 million in
1999 compared to $564.4 million in 1998. Average balances of savings
deposits increased $11.0 million to $307.6 million in 1999 from $296.6
million in 1998, while average balances of time deposits decreased $11.1
million to $256.7 million in 1999 from $267.8 million in 1998. The continued
success of the NOW account product introduced by the subsidiary bank in 1995
was the primary reason for the increase in the average balance of savings
deposits, while the decrease in the average balance of time deposits related
primarily to those depositors continuing to look to achieve higher yields by
investing their funds in alternate sources outside of traditional bank
products. The lower cost of savings deposits of 2.39% in 1999 compared to
2.59% in 1998 and the lower cost of time deposits of 5.26% in 1999 compared
to 5.55% in 1998 related primarily to rate changes made during 1998 as rates
trended lower that remained in place for most of 1999.
      Interest expense on securities sold under agreements to repurchase
decreased $291 thousand to $2.7 million in 1999 from $2.9 million in 1998.
The decrease was primarily related to a decrease in the cost of these short
term borrowings to 4.08% in 1999 compared to 4.36% in 1998, coupled with a
decrease in the average balances of $2.5 million to $65.1 million in 1999
from $67.6 million in 1998. The decrease in rates related primarily to short
term rates being lower during 1999 than 1998 on average, although during the
latter part of 1999 short term interest rates trended higher. The decrease
in average balances related primarily to local municipalities and businesses
making slightly less use of these instruments to invest their excess funds
during 1999 compared to 1998.
      Interest expense on other borrowings, which consist primarily of
advances from the FHLBB, increased $2.2 million to $4.4 million in 1999 from
$2.2 million in 1998. The increase was primarily related to an increase in
average balances of other borrowings of $46.4 million to $83.6 million in
1999 compared to $37.2 million in 1998, partially offset by a decrease in
the cost of those borrowings to 5.23% in 1999 from 5.79% in 1998. The
increase in the average balance of other borrowings related prima-


<PAGE>  19


rily to the subsidiary bank making greater use of FHLBB advances to match
fund certain of its interest earning assets, as well as using special
callable FHLBB advances to borrow funds at attractive rates. The decrease in
the cost of other borrowings related to the subsidiary bank using special
callable advances to borrow funds from the FHLBB at attractive rates.

Average Balance Sheets and Net Interest and Dividend Income

      The following table presents, for the periods indicated, average
balances, the total dollar amount of interest and dividend income from
interest earning assets and their resultant yields, as well as the interest
expense on interest bearing liabilities, and their resultant costs:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                         ------------------------------------------------------------------------------------------
                                                     1999                           1998                           1997
                                         ----------------------------   ----------------------------   ----------------------------
                                         Average               Yield/   Average               Yield/   Average               Yield/
                                         Balance    Interest    Cost    Balance    Interest    Cost    Balance    Interest    Cost
                                         -------    --------   ------   -------    --------   ------   -------    --------   ------
                                                                              ($ In Thousands)

<S>                                      <C>        <C>        <C>      <C>        <C>        <C>      <C>        <C>        <C>
Assets
  Interest earning assets
    Loans and loans held for sale <F1>   $559,651   $45,287    8.09%    $536,596   $45,832    8.54%    $474,844   $42,307    8.91%
    Interest bearing deposits in
     other banks                           17,456       876    5.02       19,634     1,029    5.24       14,570       781    5.36
    Securities, including stock
     in FHLBB <F2>                        232,314    13,639    5.87      195,051    11,765    6.03      250,783    15,923    6.35
                                         --------   -------             --------   -------             --------   -------
      Total interest earning assets       809,421    59,802    7.39      751,281    58,626    7.80      740,197    59,011    7.97
                                                    -------                        -------                        -------
    Non-interest earning assets            59,057                         70,690                         72,400
    Allowance for possible loan losses     (7,138)                        (7,557)                        (6,594)
                                         --------                       --------                       --------
      Total assets                       $861,340                       $814,414                       $806,003
                                         ========                       ========                       ========

Liabilities and Stockholders' Equity
  Interest bearing liabilities
    Savings deposits                     $307,559     7,363    2.39     $296,639     7,684    2.59     $283,512     7,429    2.62
    Time deposits                         256,660    13,508    5.26      267,764    14,870    5.55      283,514    15,893    5.61
                                         --------   -------             --------   -------             --------   -------
      Total interest bearing deposits     564,219    20,871    3.70      564,403    22,554    4.00      567,026    23,322    4.11
    Securities sold under agreements
     to repurchase                         65,078     2,654    4.08       67,562     2,945    4.36       59,826     2,847    4.76
    Other borrowings                       83,577     4,371    5.23       37,222     2,154    5.79       47,236     2,731    5.78
                                         --------   -------             --------   -------             --------   -------
      Total interest bearing
       liabilities                        712,874    27,896    3.91      669,187    27,653    4.13      674,088    28,900    4.29
                                                    -------                        -------                        -------
  Non-interest bearing liabilities
    Demand deposits                        73,145                         69,575                         63,870
    Other liabilities                       2,376                          3,784                          3,368
                                         --------                       --------                       --------
      Total non-interest bearing
       liabilities                         75,521                         73,359                         67,238
  Stockholders' equity                     72,945                         71,868                         64,677
                                         --------                       --------                       --------
      Total liabilities and
       stockholders' equity              $861,340                       $814,414                       $806,003
                                         ========                       ========                       ========
Net interest and dividend
 income/interest rate spread                        $31,906    3.48%               $30,973    3.67%               $30,111    3.68%
                                                    =======    ====                =======    ====                =======    ====
Net earning balance/net yield on
 interest earning assets                 $ 96,547              3.94%    $ 82,094              4.12%   $ 66,109               4.07%
                                         ========              ====     ========              ====    ========               ====

--------------------
<FN>
<F1>  Loans on nonaccrual status are included in the average balances for
      all periods presented.
<F2>  The yield on securities, including stock in FHLBB is calculated using
      interest and dividend income divided by the average balance of the
      amortized historical cost.
</FN>
</TABLE>


<PAGE>  20


Rate Volume Analysis

      The following table presents the dollar amount of changes in interest
and dividend income, interest expense and net interest and dividend income
which are attributable to changes in the average amounts of interest earning
assets and interest bearing liabilities and/or changes in rates earned or
paid thereon. The net changes attributable to both volume and rate have been
allocated proportionately.

<TABLE>
<CAPTION>
                                                                                Year Ended
                                                                        December 31, 1999 vs. 1998
                                                                        Increase (Decrease) Due To
                                                                       ----------------------------
                                                                       Volume      Rate       Total
                                                                       ----------------------------
                                                                              (In Thousands)

<S>                                                                    <C>       <C>         <C>
Interest income on loans                                               $2,407    $(2,952)    $ (545)
Interest income on interest bearing deposits in other banks              (111)       (42)      (153)
Interest and dividend income on securities and stock in FHLBB           2,176       (302)     1,874
                                                                       ----------------------------
      Total interest and dividend income                                4,472     (3,296)     1,176
                                                                       ----------------------------
Interest expense on deposits                                               (7)    (1,676)    (1,683)
Interest expense on securities sold under agreements to repurchase       (106)      (185)      (291)
Interest expense on other borrowings                                    2,404       (187)     2,217
                                                                       ----------------------------
      Total interest expense                                            2,291     (2,048)       243
                                                                       ----------------------------
      Net interest and dividend income                                 $2,181    $(1,248)    $  933
                                                                       ============================
</TABLE>

<TABLE>
<CAPTION>
                                                                                Year Ended
                                                                        December 31, 1998 vs. 1997
                                                                        Increase (Decrease) Due To
                                                                      -----------------------------
                                                                       Volume      Rate       Total
                                                                      -----------------------------
                                                                              (In Thousands)

<S>                                                                   <C>        <C>        <C>
Interest income on loans                                              $ 5,179    $(1,654)   $ 3,525
Interest income on interest bearing deposits in other banks               265        (17)       248
Interest and dividend income on securities and stock in FHLBB          (3,389)      (769)    (4,158)
                                                                      -----------------------------
      Total interest and dividend income                                2,055     (2,440)      (385)
                                                                      -----------------------------
Interest expense on deposits                                             (113)      (655)      (768)
Interest expense on securities sold under agreements to repurchase        280       (182)        98
Interest expense on other borrowings                                     (582)         5       (577)
                                                                      -----------------------------
      Total interest expense                                             (415)      (832)    (1,247)
                                                                      -----------------------------
      Net interest and dividend income                                $ 2,470    $(1,608)   $   862
                                                                      =============================
</TABLE>

Provision for Possible Loan Losses

      The provision for possible loan losses was $50 thousand in 1999
compared to $1.1 million in 1998. The decrease in the provision resulted
primarily from a decrease in nonperforming loans, the low level of net loan
charge-offs in 1999 compared to 1998, the continued shift in the mix of
loans to a portfolio which was more predominantly residential real estate
loans in 1999, and management's overall evaluation of the loan portfolio and
the adequacy of the level of the allowance for possible loan losses.
Nonperforming loans decreased $1.5 million to $1.5 million at December 31,
1999 compared to $3.0 million at December 31, 1998. Loans charged off in
1999 were $559 thousand compared to $2.1 million in 1998. Recoveries of
loans previously charged off were $419 thousand in 1999 compared to $459
thousand in 1998. Net loans charged off were $140 thousand in 1999 compared
to $1.7 million in 1998. Residential real estate loans comprised 62.7% of
the loan portfolio at December 31, 1999 compared to 59.1% at December 31,
1998. Commercial real estate loans and commercial, financial and
agricultural loans comprised 31.4% of the loan portfolio at December 31,
1999 compared to 35.0% at December 31, 1998.

Noninterest Income

      Noninterest income was $5.5 million in 1999, a decrease of $3.6
million or 39.64% compared to $9.1 million in 1998. The decrease in 1999
over 1998 was primarily attributable to decreases in net gains on sales of
securities available for sale of $3.5 million, net gains on sales of loans
into the secondary mortgage market of $158 thousand and other noninterest
income of $140 thousand, partially offset by an increase in customer account
fees and service charges of $269 thousand. The decrease in net gains on
sales of securities available for sale was primarily


<PAGE>  21


as a result of a decrease in gains on sales of equity securities in 1999
compared to 1998. The decrease in net gains on sales of loans in the
secondary mortgage market was as a result of a decrease in loans originated
for and sold into the secondary mortgage market in 1999 compared to 1998,
because of the increases in interest rates during the latter part of 1999,
which slowed refinancing activity for residential real estate loans. The
decrease in mortgage service fees was as a result of a decrease in the
balance of loans being serviced in 1999 compared to 1998, due to a slowing
of refinance activity. The decrease in other noninterest income was
primarily as a result of a decrease in gains on sales of other assets in
1999 compared to 1998, partially offset by income from increases in the cash
surrender value of life insurance policies. The increase in customer account
fees and service charges related to changes in retail customer account fees
and service charges implemented in the latter part of 1998 and changes in
commercial customer account fees and service charges implemented in early
1999.

Noninterest Expense

      Noninterest expense was $21.9 million in 1999, a decrease of $2.3
million compared to $24.2 million in 1998. The decrease was attributable to
a decrease in salaries and benefits expenses of $600 thousand to $11.8
million in 1999 compared to $12.4 million in 1998, a decrease in occupancy
and equipment expenses of $836 thousand to $4.1 million in 1999 from $5.0
million in 1998 and a decrease in other noninterest expenses of $821
thousand to $5.6 million in 1999 from $6.4 million in 1998.
      The decrease in salaries and benefits expenses of $600 thousand was
primarily attributable to continued personnel efficiencies realized from the
merger with Primary Bank, as average full time equivalent employees was 288
in 1999 compared to 301 in 1998, a decrease in commissions paid to loan
originators as a result of a slow down in residential loan refinancing
activity and a decrease of $760 thousand relating to the cost of terminating
certain officers in 1998, for which there was no such expense in 1999,
partially offset by normal salary increases of approximately 4.50% and an
increase in retirement expense. The increase in retirement expense is
primarily related to the Supplemental Executive Retirement Plan ("SERP")
being amended during 1999 and certain additional officers becoming
participants in the SERP, as well as an increase in expense related to the
defined benefit pension plan ("Plan") for former Primary Bank employees, who
as current Granite Bank employees became full participants in the Plan for
measurement purposes during 1999.
      Occupancy and equipment expense decreased $836 thousand to $4.1
million in 1999 from $5.0 million in 1998. The decrease is primarily
attributable to a decrease of $712 thousand relating to a writedown of bank
buildings during 1998 on property used as a branch office which was closed
and other efficiencies realized during 1999 relating to the closing of the
branch.
      Other expenses decreased $821 thousand to $5.6 million in 1999 from
$6.4 million in 1998. The significant changes in other expenses were
decreases in professional fees of $458 thousand, decreases in data
processing costs of $147 thousand and decreases in printing and supplies
expense of $201 thousand. The decrease in professional fees related
primarily to a decrease in legal fees, as defense costs and legal fees
associated with nonperforming assets were lower in 1999 than 1998. The
decrease in data processing costs and printing and supplies expense related
to continuing efficiencies realized from the merger with Primary Bank.

Income Taxes

      Income tax expense increased $142 thousand to $5.3 million in 1999
compared to $5.1 million in 1998 and represented effective tax rates of
34.3% and 35.0%, respectively, of pretax income.

Comparison of Operating Results for the Years
 Ended December 31, 1998 and 1997

Net Earnings

      Operations in 1998 resulted in net earnings of $9.6 million, an
increase of $7.3 million over net earnings of $2.3 million for 1997. Basic
earnings per share was $1.64 in 1998 compared to $.42 in 1997. Diluted
earnings per share was $1.60 in 1998 compared to $.40 in 1997.
      Earnings before income taxes were $14.7 million in 1998, an increase
of $11.7 million compared to earnings before income taxes of $3.0 million in
1997. Earnings before income taxes increased in 1998 compared to 1997,
primarily as a result of increases in net interest and dividend income and
noninterest income and decreases in the provision for possible loan losses
and noninterest expense.

Net Interest and Dividend Income

      Net interest and dividend income was $31.0 million and $30.1 million
in 1998 and 1997, respectively. The increase of $862 thousand in 1998
compared to 1997 relates to an increase of $11.1 million or 1.50% in average
interest earning assets to $751.3 million in 1998 from $740.2 million in
1997 and a decrease in average interest bearing liabilities of $4.9 million,
or 0.73%, to $669.2 million in 1998 from $674.1 million in 1997, while the
interest rate spread was fairly stable at 3.67% in 1998 compared to 3.68% in
1997.
      Interest income on loans increased $3.5 million to $45.8 million in
1998 from $42.3 million in 1997. The increase was primarily the result of an
increase in the average loan balances of $61.8 million, or 13.00%, to $536.6
million in 1998 from $474.8 million in 1997, partially offset by a decrease
in average loan yields to 8.54% in 1998 from 8.91% in 1997. The increase in
average balances in the loan portfolio reflects strong loan demand in the
residential real estate market during 1998 as a result of the continued low
interest rate environment which encouraged refinancing, as well as new home
purchases in the subsidiary bank's market areas. Competition for loans
amongst financial institutions and the continued low interest rate
environment sparked


<PAGE>  22


loan demand and also contributed to the slightly lower yields realized in
1998 compared to 1997. The competitive loan environment also resulted in a
decrease in the Company's commercial, financial and agricultural loans and
commercial real estate loans, which also contributed to the lower yields
realized on loans in 1998 compared to 1997.
      Interest and dividend income on securities, including stock in FHLBB
decreased $4.1 million to $11.8 million in 1998 from $15.9 million in 1997.
The decrease relates primarily to a decrease in the average balances of
securities, including stock in FHLBB of $55.7 million to $195.1 million in
1998 from $250.8 million in 1997, coupled with a decrease in yields to 6.03%
in 1998 from 6.35% in 1997. The decrease in average balances of securities
is due to a change in mix of assets to higher yielding loans from lower
yielding securities during 1998. The decrease in yields was primarily the
result of the continued low interest rate environment that was prevalent
during 1998.
      Interest expense on deposits decreased $768 thousand to $22.6 million
in 1998 from $23.3 million in 1997, with interest on time deposits
decreasing $1.0 million, partially offset by an increase in interest on
savings deposits of $255 thousand. The decrease related primarily to a
decrease in the average cost of deposits to 4.00% during 1998 compared to
4.11% during 1997, coupled with a decrease in the average balances of
deposits of $2.6 million to $564.4 million in 1998 from $567.0 million in
1997. Average balances of time certificates decreased $15.7 million to
$267.8 million during 1998 from $283.5 million during 1997 which was
partially offset by an increase in average balances of savings deposits of
$13.1 million to $296.6 million during 1998 from $283.5 million during 1997.
The decrease in the average balances of time certificates related primarily
to depositors looking to achieve higher yields by investing their funds in
alternate sources outside of traditional bank products, while the continued
success of the NOW account product introduced by the subsidiary bank in 1995
was the primary reason for the increase in the average balances of savings
deposits.
      Interest expense on securities sold under agreements to repurchase
increased $98 thousand to $2.9 million in 1998 from $2.8 million in 1997.
The increase was primarily the result of an increase in average balances of
$7.8 million to $67.6 million in 1998 from $59.8 million in 1997, partially
offset by a decrease in the average cost of securities sold under agreements
to repurchase to 4.36% in 1998 from 4.76% in 1997. The increase in average
balances was as a result of local municipalities and businesses making
greater use of securities sold under agreements to repurchase in investing
their excess funds. The lower average cost of securities sold under
agreements to repurchase related to the continued low interest rate
environment that was prevalent during 1998.
      Interest expense on other borrowings decreased $577 thousand to $2.2
million in 1998 from $2.7 million in 1997. The decrease was primarily
related to a decrease in the average balances of other borrowings of $10.0
million to $37.2 million in 1998 from $47.2 million in 1997, while the cost
of these borrowings was relatively stable at 5.79% in 1998 and 5.78% in
1997.

Provision for Possible Loan Losses

      The provision for possible loan losses was $1.1 million in 1998,
representing a $1.3 million or 53.6% decrease from the provision of $2.4
million in 1997. The decrease in the provision resulted primarily from a
change in the mix of loans to residential real estate loans, which accounted
for 59.1% of the total loan portfolio at December 31, 1998 compared to 48.2%
at December 31, 1997, while commercial real estate and commercial, financial
and agricultural loans accounted for 35.0% of the total loan portfolio in
1998 compared to 43.2% in 1997. Also contributing to the decrease in the
provision was a decrease of $4.1 million in nonperforming loans to $3.0
million at December 31, 1998 from $7.1 million at December 31, 1997, and
management's overall evaluation of the loan portfolio and the adequacy of
the level of the allowance for possible loan losses. Loans charged off in
1998 were $2.1 million compared to $1.2 million in 1997. Recoveries of loans
previously charged off were $459 thousand in 1998 compared to $178 thousand
in 1997. Net loans charged off were $1.7 million in 1998 compared to $1.0
million in 1997.

Noninterest Income

      Noninterest income was $9.1 million in 1998, an increase of $2.0
million or 27.48% compared to $7.1 million in 1997. The increase in 1998
over 1997, was primarily attributable to increases in net gains on sales of
securities available for sale of $2.0 million, net gains on sales of loans
into the secondary mortgage market of $310 thousand and other noninterest
income of $397 thousand, partially offset by decreases in customer account
fees and service charges of $686 thousand and mortgage service fees of $68
thousand. The increase in net gains on sales of securities available for
sale was a result of the Company continuing to closely monitor the equity
markets in light of their continued volatility in 1998. The increase in net
gains on sales of loans in the secondary mortgage market was as a result of
an increase in loans originated for and sold into the secondary mortgage
market in 1998 compared to 1997, because of the continued low interest rate
environment during 1998, which kept demand for residential real estate loans
at a very high level. The increase in other noninterest income was primarily
as a result of gains on sales of other assets during 1998. The decrease in
customer account fees and service charges related to the elimination of
and/or restructuring of certain deposit programs which the Company assumed
in its merger with Primary Bank in 1997. The elimination and/or
restructuring of these deposit programs provided efficiencies through the
reduction of noninterest expense.

Noninterest Expense

      Noninterest expense was $24.2 million in 1998, a decrease of $7.6
million compared to $31.8 million in 1997. The decrease was primarily
attributable to a decrease in salaries and benefit expenses of $1.4 million
to $12.4 million in 1998 compared to $13.8 million in 1997 and a decrease in
merger-related costs from $5.9 million in 1997 to $34 thousand in 1998.


<PAGE>  23


      The decrease in salaries and benefits expense of $1.4 million was
primarily attributable to a decrease in salaries, related to personnel
efficiencies realized from the merger with Primary Bank, which were
partially offset by normal salary increases, increased costs for commissions
to loan originators and nondeposit product sales staff and $760 thousand
relating to the 1998 cost of termination of certain officers. Additionally,
decreases in employee benefits related primarily to merger efficiencies and
a $1.1 million expense incurred in 1997 associated with the vesting of
performance based stock options assumed in the merger with Primary Bank, for
which there was no related expense in 1998, partially offset by an increase
of $362,000 in expense related to the 1998 restricted stock grants.
      Occupancy and equipment expense increased $761 thousand from $4.2
million in 1997 to $5.0 million in 1998. The increase is primarily
attributable to the Company recording a $712 thousand writedown on bank
buildings based upon an appraisal on property used as a branch office which
was closed.
      Other real estate owned expense increased $294 thousand from $63
thousand in 1997 to $357 thousand in 1998 as a result of an increase in
foreclosure activity related to nonperforming loans and costs related to the
disposition of foreclosed properties.
      In connection with the completion of the merger with Primary Bank,
effective after the close of business October 31, 1997, the Company incurred
merger-related charges of $5.9 million which were recorded at the date of
combination. Merger-related charges associated with the Primary Bank merger
in 1998 were $34 thousand.
      Other expenses decreased $1.4 million primarily as a result of
efficiencies realized in the merger with Primary Bank in the following
areas: advertising and marketing expenses decreased $643 thousand, data
processing and transmission costs decreased $614 thousand, general liability
insurance decreased $154 thousand and directors fees decreased $167
thousand. These efficiencies were offset by increases in amortization
expense of $56 thousand, an increase in Year 2000 expenses of $101 thousand
from $0 in 1997 to $101 thousand in 1998 and an increase in telephone
expense of $119 thousand. The increase in amortization expense was primarily
attributable to increases in originated mortgage servicing rights, while the
increase in telephone expense relates to increased data transmission and
call volume amongst the branch network as well as higher customer call
volume for account activity through the subsidiary bank's telephone banking
system in 1998 as compared with 1997.

Income Taxes

      Income tax expense increased $4.4 million to $5.1 million in 1998
compared to $704 thousand in 1997 and represented effective tax rates of
35.0% and 23.4%, respectively, of pretax income. The reason the tax rate is
lower in 1997 compared to 1998, relates primarily to the reversal in 1997 of
the remainder of the valuation allowance on deferred tax assets established
for net operating losses as a result of current and projected earnings,
partially offset by nondeductible merger related charges and nondeductible
performance based stock option charges incurred in 1997.

Capital Resources and Liquidity


Capital Resources

      The Company's capital base totaled $70.4 million or 8.11% of total
assets at December 31, 1999 compared to $72.6 million, or 8.27% of total
assets at December 31, 1998. Stockholders' equity decreased $2.2 million,
primarily related to a decrease with respect to accumulated other
comprehensive income (loss) of $5.9 million, treasury stock purchases of
$4.1 million and dividends declared of $3.3 million, partially offset by net
earnings of $10.1 million, reissuance of common stock from treasury for the
exercise of stock options, including related tax effects of $428 thousand,
restricted stock award amortization of $305 thousand and Employee Stock
Ownership Plan distribution and indebtedness repayments totaling $111
thousand.
      The Company and subsidiary bank are subject to various regulatory
capital requirements administered by federal banking agencies. Failure to
meet minimum requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and subsidiary bank must meet
specific capital guidelines that involve quantitative measures of their
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The 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 Company and subsidiary bank to maintain minimum amounts
and ratios of total and Tier I capital (as defined in the regulations) to
risk weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). As of December 31, 1999 and 1998, the Company
and subsidiary bank meet all capital adequacy requirements to which they are
subject. See note 20 of Notes to Consolidated Financial Statements for
further details of regulatory capital.
      As of December 31, 1999, the most recent notification from the FDIC
categorized the Company's wholly-owned subsidiary bank as "well-capitalized"
under the regulatory framework for prompt corrective action. To be
categorized as well-capitalized, the subsidiary bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios. There have
been no conditions or events since that notification that management
believes would cause a change in the subsidiary bank's categorization.
      On August 11, 1998, the Company announced a Stock Repurchase Program
("Program"), whereby the Company's Board of Directors authorized the
repurchase of up to 5% of its outstanding common shares from time to time.
Any shares repurchased may be held in treasury, retired or used for general
cor-


<PAGE>  24


porate purposes. As of December 31, 1999, 199,061 shares, had been
repurchased under the Program, with an additional 95,850 shares still
available to be repurchased.

Liquidity

      The principal source of funds for the payment of dividends and
expenses by the Company, is dividends paid to it by the subsidiary bank.
Bank regulatory authorities generally restrict the amounts available for
payment of dividends by the subsidiary bank to the Company if the effect
thereof would cause the capital of the subsidiary bank to be reduced below
applicable capital requirements. These restrictions indirectly affect the
Company's ability to pay dividends. Dividends paid to the Company by the
subsidiary bank in 1999, 1998 and 1997 were $5.3 million, $2.3 million and
$3.0 million, respectively. The primary source of liquidity in the Company
is its interest bearing deposit with its subsidiary bank of $2.1 million at
December 31, 1999. Management believes that these funds are adequate to
provide for the Company's needs.
      The subsidiary bank monitors its level of short-term assets and
liabilities, maintaining an appropriate balance between liquidity, risk and
return. The major sources of liquidity are deposits, securities available
for sale, maturities of securities held to maturity, interest bearing
deposits in other banks, amortization, prepayments and maturities of
outstanding loans and other borrowings from the FHLBB. While maturities and
scheduled amortization of loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by interest rate
trends, economic conditions and competition.
      The Company's and subsidiary bank's liquidity, represented by cash and
due from banks, is a product of its operating activities, investing
activities and financing activities. These activities are summarized as
follows:

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                         --------------------------------
                                                           1999        1998        1997
                                                         --------------------------------
                                                                  (In Thousands)

<S>                                                      <C>         <C>         <C>
Cash and due from banks at beginning of year             $ 23,506    $ 28,677    $ 30,559

Operating activities:
  Net earnings                                             10,125       9,557       2,307
  Adjustments to reconcile net earnings to net
   cash provided by operating activities                     (727)     (1,411)      4,496
                                                         --------------------------------
Net cash provided by operating activities                   9,398       8,146       6,803
Net cash provided by (used in) investing activities         1,045     (73,132)    (15,609)
Net cash provided by (used in) financing activities       (15,374)     59,815       6,924
                                                         --------------------------------
Cash and due from banks at end of year                   $ 18,575    $ 23,506    $ 28,677
                                                         ================================
</TABLE>

      Operating activities provided positive cash flows in 1999, 1998 and
1997 and were primarily comprised of net earnings and net noncash items
included in earnings which negatively affected cash flows in 1999 and 1998
and positively affected cash flows in 1997.
      Investing activities provided cash in 1999 and used cash in 1998 and
1997. The primary investing activities of the Company and the subsidiary
bank, are originating loans and purchasing securities available for sale and
securities held to maturity. In 1999, 1998 and 1997, loan originations net
of repayments were $14.2 million, $48.9 million and $68.6 million,
respectively. Purchases of securities available for sale and securities held
to maturity were $101.0 million, $124.6 million and $154.3 million,
respectively, in 1999, 1998 and 1997. A substantial portion of the net loan
originations and purchases of securities available for sale and securities
held to maturity in 1999, 1998 and 1997, were funded by maturities and calls
of securities held to maturity and maturities, calls and sales of securities
available for sale in each of those years, increases in securities sold
under agreements to repurchase in each of those years, increases in other
borrowings in 1999 and 1998 and increases in deposits in 1997.
      Financing activities used cash in 1999 and provided cash in 1998 and
1997. The primary financing activities of the Company and the subsidiary
bank are deposits, short-term borrowings in the form of securities sold
under agreements to repurchase and other borrowings. In 1999, deposits
decreased $22.5 million, while in 1998 and 1997, deposits increased by $1.5
million and $39.3 million, respectively. Securities sold under agreements to
repurchase increased $4.1 million, $4.9 million and $1.1 million,
respectively in 1999, 1998 and 1997. In 1999 and 1998, proceeds from other
borrowings exceeded repayments, which increased other borrowings by $10.0
million and $54.7 million, respectively, while other borrowings decreased by
$33.3 million in 1997, as repayments exceeded proceeds of other borrowings.
Net cash used in financing activities during 1999 was funded by cash
provided from operating and investing activities and a decrease in cash and
due from banks. Net cash provided by financing activities in 1998 and 1997
was used to fund investing activities.
      Liquidity management is both a daily and long-term function of
management. Excess liquidity is generally invested in short-term investments
such as interest bearing deposits in the


<PAGE>  25


FHLBB and 2 to 5 year fixed income US Treasury and US Government agency
securities and corporate securities. In addition to assets in cash on hand
and due from banks of $18.6 million at December 31, 1999, the Company
through its subsidiary bank has interest bearing deposits in other banks,
primarily with FHLBB of $4.4 million and securities available for sale of
$215.6 million. In addition to these liquidity sources the Company has
significant cash flow from the repayments of loans through its subsidiary
bank. If the subsidiary bank requires funds beyond its ability to generate
them internally, borrowing arrangements with the FHLBB can provide
additional funds. At December 31, 1999, the subsidiary bank had $90.6
million of outstanding borrowings with the FHLBB, with an additional
borrowing capacity of approximately $245.1 million.
      The Company anticipates that the subsidiary bank will have sufficient
funds available to meet its current loan commitments. At December 31, 1999,
the subsidiary bank had outstanding loan commitments of $51.3 million. For
additional information as to loan commitments, see note 15 of Notes to
Consolidated Financial Statements. Time deposits which are scheduled to
mature in one year or less at December 31, 1999, totaled $221.9 million.
Management believes that a significant portion of such deposits will remain
with the subsidiary bank.
      For a discussion of the limitations that federal law places on
extensions of credit from banks to their parent holding company, see note 21
of Notes to Consolidated Financial Statements.

Impact of Inflation and Changing Prices

      The consolidated financial statements and related consolidated
financial data herein have been presented in accordance with generally
accepted accounting principles which require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due
to inflation. Inflation can affect the Company in a number of ways,
including increased operating costs and interest rate volatility. Unlike
most industrial companies, virtually all the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's performance than
the effects of 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. Management attempts to minimize the effects of
inflation by maintaining an approximate match between interest rate
sensitive assets and interest rate sensitive liabilities and, where
practical, by adjusting service fees to reflect changing costs.

Legal Proceedings

      The Company is a defendant in ordinary and routine pending legal
actions incident to its business, none of which is believed by management to
be material to the financial condition of the Company.

Recent Accounting Developments

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which was effective for fiscal years beginning after June 15,
1999. SFAS No. 133 must be adopted prospectively and retroactive application
is not permitted. SFAS No. 133 will require the Company to record all
derivatives on the balance sheet at fair value. Changes in derivative fair
values will either be recognized in earnings as offsets to the changes in
fair value of related hedged assets, liabilities and firm commitments or for
forecasted transactions, deferred and recorded as a component of accumulated
other comprehensive income (loss) in stockholders' equity until the hedged
transactions occur and are recognized in earnings. The ineffective portion
of a hedging derivative's change in fair value will be immediately
recognized in earnings. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No. 133", which delayed the effective
date. SFAS No. 133 is now effective for fiscal years beginning after June
15, 2000. The Company expects to adopt SFAS No. 133 on January 1, 2001 and
does not believe the effect of adopting SFAS No. 133 will have any material
effect on its consolidated financial position or results of operations.

Year 2000

      The Company had developed and implemented a plan to deal with the
issues associated with programming code within computer systems and related
embedded technology with respect to the rollover of the two digit year value
to 00 ("Year 2000"). The issue was whether computer systems would properly
recognize date sensitive information when the year changed to 2000.
      The Company has not experienced any significant issues associated with
the Year 2000 problem as a result of the date change to January 1, 2000 or
any date subsequent thereto. The incremental costs related to the Year 2000
compliance were approximately $90,000 in 1999 and $101,000 in 1998,
respectively. Any additional incremental costs associated with Year 2000
issues are not expected to be material. Management will continue to monitor
operations through the year 2000 and although no assurances can be given, it
is not expected that any future adverse developments will arise with respect
to Year 2000.


<PAGE>  26


                                            [FORM OF GRANT THORNTON LETTERHEAD]

             REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Granite State Bankshares, Inc.

      We have audited the accompanying consolidated statements of financial
condition of Granite State Bankshares, Inc. and subsidiary as of December
31, 1999 and 1998, and the related consolidated statements of earnings,
comprehensive income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial
statements are the responsibility of the management of Granite State
Bankshares, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to
above, present fairly, in all material respects, the financial position of
Granite State Bankshares, Inc. and subsidiary as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.



                                       /s/ Grant Thornton LLP

Boston, Massachusetts
January 11, 2000


<PAGE>  28


Consolidated Statements of Financial Condition

<TABLE>
<CAPTION>

                                                                                                    December 31,
                                                                                                ---------------------
                                                                                                  1999         1998
                                                                                                  ----         ----
                                                                                                   (In Thousands)

<S>                                                                                             <C>          <C>
                                           ASSETS
Cash and due from banks                                                                         $ 18,575     $ 23,506
Interest bearing deposits in other banks, at cost, which approximates market value                 4,402       19,532
Securities available for sale (amortized cost $222,673,000 in 1999 and $217,186,000 in 1998)     215,572      219,765
Securities held to maturity (market value $17,232,000 in 1999 and $22,548,000 in 1998)            18,017       22,277
Stock in Federal Home Loan Bank of Boston                                                          7,201        7,201
Loans held for sale                                                                                  479        1,828

Loans                                                                                            568,694      555,699
  Less:  Unearned income                                                                          (1,248)      (1,506)
         Allowance for possible loan losses                                                       (7,032)      (7,122)
                                                                                                ---------------------
Net loans                                                                                        560,414      547,071

Premises and equipment                                                                            16,967       17,700
Other real estate owned                                                                            1,288        1,601
Other assets                                                                                      24,762       17,666
                                                                                                ---------------------
      Total assets                                                                              $867,677     $878,147
                                                                                               ======================

                            LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Interest bearing deposits                                                                       $555,222     $576,778
Noninterest bearing deposits                                                                      72,796       73,709
                                                                                                ---------------------
      Total deposits                                                                             628,018      650,487

Securities sold under agreements to repurchase                                                    75,042       70,905
Other borrowings                                                                                  90,563       80,608
Other liabilities                                                                                  3,685        3,547
                                                                                                ---------------------
      Total liabilities                                                                          797,308      805,547

STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; authorized 7,500,000 shares; none issued
Common stock, $1.00 par value; authorized 12,500,000 shares; 6,789,582
 shares issued at December 31, 1999 and 1998, respectively                                         6,790        6,790
Additional paid-in capital                                                                        37,919       38,018
                                                                                                ---------------------
                                                                                                  44,709       44,808
Retained earnings                                                                                 39,870       32,998
Accumulated other comprehensive income (loss)                                                     (4,312)       1,583
                                                                                                ---------------------
                                                                                                  80,267       79,389

  Less:  Treasury stock, at cost, 1,039,089 and 889,759 shares at December 31, 1999 and
          1998, respectively                                                                      (9,418)      (6,065)
         Unallocated common stock acquired by the ESOP                                               (36)         (71)
         Unearned restricted stock                                                                  (444)        (653)
                                                                                                ---------------------
         Total stockholders' equity                                                               70,369       72,600
                                                                                                ---------------------
         Total liabilities and stockholders' equity                                             $867,677     $878,147
                                                                                                =====================

</TABLE>

      The accompanying notes are an integral part of these statements.


<PAGE>  29


Consolidated Statements of Earnings

<TABLE>
<CAPTION>

                                                                                           Year Ended December 31,
                                                                                   ---------------------------------------
                                                                                     1999          1998          1997
                                                                                     ----          ----          ----
                                                                                   ($ In Thousands, except per share data)

<S>                                                                                 <C>           <C>           <C>
Interest and dividend income
  Loans                                                                             $  45,287     $  45,832     $  42,307
  Debt securities available for sale                                                   11,182         9,110         9,771
  Marketable equity securities available for sale                                         738           725           586
  Securities held to maturity                                                           1,248         1,469         5,110
  Interest bearing deposits in other banks                                                876         1,029           781
  Dividends on Federal Home Loan Bank of Boston stock                                     471           461           456
                                                                                    -------------------------------------
      Total interest and dividend income                                               59,802        58,626        59,011
                                                                                    -------------------------------------

Interest expense
  Deposits                                                                             20,871        22,554        23,322
  Securities sold under agreements to repurchase                                        2,654         2,945         2,847
  Other borrowings                                                                      4,371         2,154         2,731
                                                                                    -------------------------------------
      Total interest expense                                                           27,896        27,653        28,900
                                                                                    -------------------------------------
      Net interest and dividend income                                                 31,906        30,973        30,111
Provision for possible loan losses                                                         50         1,125         2,425
                                                                                    -------------------------------------
      Net interest and dividend income after provision for possible loan losses        31,856        29,848        27,686

Noninterest income
  Customer account fees and service charges                                             2,552         2,283         2,969
  Mortgage service fees                                                                   485           566           634
  Net gains on sales of securities available for sale                                     708         4,185         2,187
  Net gains on sales of loans                                                             567           725           415
  Other                                                                                 1,151         1,291           894
                                                                                    -------------------------------------
      Total noninterest income                                                          5,463         9,050         7,099

Noninterest expense
  Salaries and benefits                                                                11,844        12,444        13,822
  Occupancy and equipment                                                               4,122         4,958         4,197
  Other real estate owned                                                                 359           357            63
  Merger-related charges                                                                                 34         5,917
  Other                                                                                 5,591         6,412         7,775
                                                                                    -------------------------------------
      Total noninterest expense                                                        21,916        24,205        31,774
                                                                                    -------------------------------------
      Earnings before income taxes                                                     15,403        14,693         3,011
Income taxes                                                                            5,278         5,136           704
                                                                                    -------------------------------------
      NET EARNINGS                                                                  $  10,125     $   9,557     $   2,307
                                                                                    =====================================

Net earnings per share-basic                                                        $    1.75     $    1.64     $     .42
                                                                                    =====================================

Net earnings per share-diluted                                                      $    1.71     $    1.60     $     .40
                                                                                    =====================================

Shares used in computing net earnings per share-basic                               5,778,272     5,818,856     5,444,350
Shares used in computing net earnings per share-diluted                             5,927,668     5,990,745     5,751,262
</TABLE>


      The accompanying notes are an integral part of these statements.


<PAGE>  30


Consolidated Statements of Comprehensive Income

<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                            -----------------------------
                                                                              1999       1998       1997
                                                                              ----       ----       ----
                                                                                   (In Thousands)

<S>                                                                         <C>        <C>        <C>
Net earnings                                                                $10,125    $ 9,557    $ 2,307
  Other comprehensive income (loss):
    Unrealized holding gains (losses) on securities available for sale
     arising during the period                                               (8,972)    (2,543)     9,086
    Related income tax effects                                                3,507        982     (3,620)
                                                                            -----------------------------
      Net unrealized holding gains (losses) on securities available for
       sale, net of related income tax effects                               (5,465)    (1,561)     5,466
                                                                            -----------------------------

  Less: reclassification adjustment for net gains on sales of securities
   available for sale realized in net earnings:
    Realized net gains                                                         (708)    (4,185)    (2,187)
    Related income tax effects                                                  278      1,616        845
                                                                            -----------------------------
      Net reclassification adjustment                                          (430)    (2,569)    (1,342)
                                                                            -----------------------------

      Total other comprehensive income (loss)                                (5,895)    (4,130)     4,124
                                                                            -----------------------------

Comprehensive income                                                        $ 4,230    $ 5,427    $ 6,431
                                                                            =============================

</TABLE>


      The accompanying notes are an integral part of these statements.


<PAGE>  31


Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                Accumulated    Unallocated
                                            Additional                             Other          Common        Unearned
                                   Common    Paid-in     Retained   Treasury   Comprehensive  Stock Acquired   Restricted
                                   Stock     Capital     Earnings    Stock      Income(Loss)   by the ESOP       Stock      Total
                                   ------   ----------   --------   --------   -------------  --------------   ----------   -----
                                                                           (In Thousands)

<S>                                <C>       <C>         <C>        <C>           <C>             <C>           <C>        <C>
Balance as of December 31, 1996    $6,264    $32,015     $25,704    $(6,000)      $ 1,589         $(143)                   $59,429
Net earnings                                               2,307                                                             2,307
Payment of Employee Stock
 Ownership Plan Indebtedness                                                                         36                         36
Employee Stock Ownership Plan
 distribution                                     94                                                                            94
Cash dividends declared on
 common stock, $.29 per share                             (1,622)                                                           (1,622)
Change in accumulated other
 comprehensive income (loss),
 net of income taxes                                                                4,124                                    4,124
Issuance of common stock upon
 exercise of stock options,
 including related tax effects        230      2,621                                                                         2,851
Purchase of common stock for
 treasury                                                              (305)                                                  (305)
                                   -----------------------------------------------------------------------------------------------
Balance as of December 31, 1997     6,494     34,730      26,389     (6,305)        5,713          (107)                    66,914

Net earnings                                               9,557                                                             9,557
Payment of Employee Stock
 Ownership Plan Indebtedness                                                                         36                         36
Employee Stock Ownership Plan
 distribution                                     97                                                                            97
Cash dividends declared on
 common stock, $.50 per share                             (2,948)                                                           (2,948)
Change in accumulated other
 comprehensive income (loss),
 net of income taxes                                                               (4,130)                                  (4,130)
Issuance of common stock upon
 exercise of stock options,
 including related tax effects        296      2,898                                                                         3,194
Restricted stock awards                          313                    421                                     $(1,015)      (281)
Restricted stock award
 amortization                                                                                                       362        362
Reissuance of common stock from
 treasury upon exercise of stock
 options                                         (20)                   108                                                     88
Purchase of common stock for
 treasury                                                              (289)                                                  (289)
                                   -----------------------------------------------------------------------------------------------
Balance as of December 31, 1998     6,790     38,018      32,998     (6,065)        1,583           (71)           (653)    72,600

Net earnings                                              10,125                                                            10,125
Payment of Employee Stock
 Ownership Plan Indebtedness                                                                         35                         35
Employee Stock Ownership Plan
 distribution                                     76                                                                            76
Cash dividends declared on
 common stock, $.56 per share                             (3,253)                                                           (3,253)
Change in accumulated other
 comprehensive income (loss),
 net of income taxes                                                               (5,895)                                  (5,895)
Restricted stock awards                           (8)                   104                                         (96)         -
Restricted stock award
 amortization                                                                                                       305        305
Reissuance of common stock from
 treasury upon exercise of stock
 options, including related tax
 effects                                        (167)                   595                                                    428
Purchase of common stock for
 treasury                                                            (4,052)                                                (4,052)
                                   -----------------------------------------------------------------------------------------------
Balance as of December 31, 1999    $6,790    $37,919     $39,870    $(9,418)      $(4,312)        $ (36)        $  (444)   $70,369
                                   ===============================================================================================

</TABLE>


      The accompanying notes are an integral part of these statements.


<PAGE>  32


Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                                             Year Ended December 31,
                                                                                        --------------------------------
                                                                                          1999        1998        1997
                                                                                          ----        ----        ----
                                                                                                 (In Thousands)

<S>                                                                                     <C>         <C>         <C>
Increase (decrease) in cash and due from banks
Cash flows from operating activities
  Net earnings                                                                          $ 10,125    $  9,557    $  2,307
  Adjustments to reconcile net earnings to net cash provided by operating activities
    Provision for possible loan losses                                                        50       1,125       2,425
    Provision for depreciation and amortization                                            2,363       2,468       2,329
    Net amortization of security discounts and premiums                                      193          30          24
    Provision for loss on other real estate owned                                            146          53          25
    Earned compensation-performance-based stock options                                                            1,078
    Deferred income taxes (benefits)                                                         412         (43)     (1,243)
    Realized gains on sales of securities available for sale, net                           (708)     (4,185)     (2,187)
    Writedown of premises and equipment                                                                  712       1,305
    Loans originated for sale                                                            (26,122)    (40,082)    (26,435)
    Proceeds from sale of loans originated for sale                                       28,038      40,047      26,807
    (Increase) decrease in other assets                                                   (4,739)        316       3,509
    Increase (decrease) in other liabilities                                                 106      (1,285)     (2,270)
    Allocation of common stock by the ESOP                                                   111         133          36
    Decrease in unearned restricted stock                                                    305         362
    Realized gains on sales of loans                                                        (567)       (725)       (415)
    Gains on sales of other assets                                                           (11)       (465)
    Increase (decrease) in unearned income                                                  (258)         74        (428)
    Realized (gains) losses on sales of other real estate owned                              (46)         54         (64)
                                                                                        --------------------------------
      Net cash provided by operating activities                                            9,398       8,146       6,803
                                                                                        --------------------------------

Cash flows from investing activities
  Proceeds from sales of securities available for sale                                    57,067       5,462     116,531
  Proceeds from maturities and calls of securities available for sale                     35,000      50,750      52,500
  Principal payments received on securities available for sale                             3,916       9,596      13,294
  Purchase of securities available for sale                                             (100,995)   (109,586)   (147,266)
  Purchase of securities held to maturity                                                            (15,012)     (7,000)
  Proceeds from maturities and calls of securities held to maturity                        4,300      26,765      33,150
  Principal payments received on securities held to maturity                                                       2,129
  Purchase of Federal Home Loan Bank of Boston stock                                                                (836)
  Loan originations, net of repayments                                                   (14,246)    (48,912)    (68,627)
  Purchase of premises and equipment                                                      (1,465)     (1,533)     (2,489)
  Proceeds from sales of other assets                                                        760         465
  Net (increase) decrease in interest-bearing deposits in other banks                     15,130       7,920      (9,459)
  Proceeds from sales of other real estate owned                                           1,324         921       2,376
  Other                                                                                      254          32          88
                                                                                        --------------------------------
      Net cash provided by (used in) investing activities                                  1,045     (73,132)    (15,609)
                                                                                        --------------------------------

Cash flows from financing activities
  Net increase (decrease) in demand, NOW, money market deposit and savings
   accounts                                                                              (11,671)     24,779      19,865
  Net increase (decrease) in time certificates                                           (10,798)    (23,275)     19,451
  Net increase in securities sold under agreements to repurchase                           4,137       4,880       1,064
  Increase (decrease) in other borrowings                                                  9,955      54,731     (33,313)
  Repayment on liability relating to ESOP                                                    (35)        (36)        (36)
  Dividends paid on common stock                                                          (3,185)     (2,824)     (1,285)
  Proceeds from issuance of common stock                                                               2,042       1,483
  Reissuance of common stock from treasury                                                   275          88
  Purchase of common stock for treasury                                                   (4,052)       (289)       (305)
  Purchase of common stock relating to restricted stock awards                                          (281)
                                                                                        --------------------------------
      Net cash provided by (used in) financing activities                                (15,374)     59,815       6,924
                                                                                        --------------------------------
      Net decrease in cash and due from banks                                             (4,931)     (5,171)     (1,882)
Cash and due from banks at beginning of year                                              23,506      28,677      30,559
                                                                                        --------------------------------
Cash and due from banks at end of year                                                  $ 18,575    $ 23,506    $ 28,677
                                                                                        ================================

</TABLE>

      The accompanying notes are an integral part of these statements.


<PAGE>  33


Notes to Consolidated Financial Statements

NOTE 1-Summary of Significant Accounting Policies

      The accounting and reporting policies of Granite State Bankshares,
Inc. (the "Company") and its wholly-owned subsidiary, Granite Bank (the
"subsidiary bank") conform to generally accepted accounting principles and
to general practices within the banking industry.
      The subsidiary bank is a community oriented commercial bank offering a
variety of financial services. The principal business of the subsidiary bank
consists of attracting deposits from the general public and originating
loans secured by residential and commercial real estate and other loans. The
subsidiary bank has a diversified lending operation that services Cheshire,
Hillsborough, Merrimack, Strafford and Rockingham counties, New Hampshire.
The subsidiary bank also originates residential real estate loans for sale
in the secondary mortgage market. The subsidiary bank has eighteen full
service offices and an additional twenty-three remote automatic teller
locations. During 1999, the subsidiary bank began offering its products and
services online through its internet banking branch, GRANITe-bank.
      In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of
the dates of the balance sheets, and revenues and expenses for the periods.
Actual results could differ from those estimates.
      Material estimates that are particularly susceptible to change in the
near-term relate to the determination of the allowance for possible loan
losses. In connection with the determination of the allowance for possible
loan losses, management obtains independent appraisals for significant
properties which collateralize loans.
      A substantial portion of the Company's loans are secured by real
estate in New Hampshire. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio is susceptible to
changing conditions in New Hampshire.
      The following is a description of the significant accounting policies.

Principles of Consolidation

      The consolidated financial statements include the accounts of the
Company and the subsidiary bank. All significant intercompany transactions
and balances have been eliminated in consolidation.

Reclassifications

      Certain amounts in the 1998 and 1997 consolidated financial statements
have been reclassified to conform to the 1999 presentation.

Securities

      Debt securities that the Company has the positive intent and ability
to hold to maturity are classified as held to maturity and reported at
amortized cost; debt and equity securities that are bought and held
principally for the purpose of selling in the near term are classified as
trading and reported at fair value, with unrealized gains and losses
included in earnings; and debt and equity securities not classified as
either held to maturity or trading are classified as available for sale and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in accumulated other comprehensive income (loss) as a
separate component of stockholders' equity, net of estimated income taxes.
During 1999, 1998 and 1997, the Company had no securities classified as
trading securities.
      Premiums and discounts on securities are amortized or accreted into
earnings on the straight-line method over the life of the investments.
Income recognized by use of this method does not differ materially from that
which would be recognized by use of the level-yield method. If a decline in
fair value below the amortized cost basis of a security is judged to be
other than temporary, the cost basis of the security is written down to fair
value as a new cost basis and the amount of the write-down is included as a
charge against net gains or losses on securities. Gains and losses on the
sale of securities available for sale are recognized at the time of sale on
a specific identification basis.

Loans

      Real estate mortgage loans and other loans are stated at the amount of
unpaid principal, less unearned income and the allowance for possible loan
losses.
      Interest on loans is included in income as earned based on rates
applied to principal amounts outstanding. Accrual of interest on loans is
discontinued either when reasonable doubt exists as to the full, timely
collection of interest or principal, or when a loan becomes contractually
past due by ninety days, unless the loan is well secured and in the process
of collection. When a loan is placed on nonaccrual status, all interest
previously accrued is reversed against current period interest income.
Interest subsequently received on nonaccrual loans is either applied against
principal or recorded as income according to management's judgment as to the
collectibility of principal.
      The Company measures loan impairment on commercial, financial and
agricultural loans, commercial real estate loans and construction and land
development real estate loans in excess of $75,000 based on the present
value of expected future cash flows discounted at the loan's effective
interest rate, or on a loan's observable market price, or the fair value of
the collateral if the loan is collateral dependent. When


<PAGE>  34


the Company determines that foreclosure is probable, it measures impairment
based on the fair value of the collateral. Loans that experience
insignificant payment delays and insignificant shortfalls in payment amounts
generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower's prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Commercial,
financial and agricultural loans, commercial real estate loans and
construction and land development real estate loans of $75,000 or less are
collectively evaluated for impairment. Additionally, large groups of smaller
balance homogeneous loans, such as residential real estate and consumer
loans are collectively evaluated for impairment.
      Loan origination and commitment fees, certain direct loan origination
costs and discounts on acquired loans are being deferred and amortized as an
adjustment of the related loan yield over the contractual life of the loans.

Allowance for Possible Loan Losses

      The adequacy of the allowance for possible loan losses is evaluated on
a regular basis by management. The methodology for determining the amount of
the allowance for possible loan losses consists of several elements. Nonper-
forming, impaired and delinquent loans are reviewed individually and the
value of any underlying collateral is considered in determining estimates of
possible losses associated with those loans. Another element involves
estimating losses inherent in categories of loans, based primarily on
historical experience, industry trends and trends in the real estate market
and the current economic environment in the Company's primary market areas.
The last element is based on management's evaluation of various conditions,
and involves a higher degree of uncertainty because they are not identified
with specific problem credits or portfolio segments. The conditions
evaluated in connection with this element include the following: industry
and regional conditions and/or concentrations; seasoning of the loan
portfolio and changes in the composition of and growth in the loan
portfolio; the strength and duration of the current business cycle; existing
general economic and business conditions in the lending areas; credit
quality trends, including trends in nonperforming loans expected to result
from existing conditions; historical loan charge-off experience; and the
results of bank regulatory examinations.
      The provision for possible loan losses charged to operations is based
upon management's judgment of the amount necessary to maintain the allowance
at a level adequate to absorb possible losses. Loan losses are charged
against the allowance when management believes the collectibility of the
principal is unlikely, and recoveries are credited to the allowance when
received.
      Management believes that the allowance for possible loan losses is
adequate. While management evaluates the allowance for possible loan losses
based upon available information, future additions to the allowance may be
necessary. Additionally, regulatory agencies review the Company's allowance
for possible loan losses as part of their examination process. Such agencies
may require the Company to recognize additions to the allowance based on
judgments which may be different from those of management.

Mortgage Loans Held For Sale

      Mortgage loans held for sale into the secondary market and commitments
to fund such loans are carried at the lower of cost or estimated market
value as determined by outstanding investor and origination commitments or,
in the absence of such commitments, current investor yield requirements.
Valuation adjustments are charged against gain/loss on sales of mortgage
loans. Gains or losses on sales of mortgage loans are recognized at the time
of the sale.
      The Company recognizes as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired. When the
Company acquires mortgage servicing rights either through the purchase or
origination of mortgage loans and sells those loans with servicing rights
retained, it allocates the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing rights) based
on their relative fair values.
      Mortgage servicing rights are amortized on a basis which results in
approximately level rates of return in proportion to, and over the period
of, estimated net servicing income.
      On a quarterly basis, the Company assesses the carrying values of
mortgage servicing rights for impairment based on the fair value of such
rights. A valuation model that calculates the present value of future cash
flows is used to estimate such fair value. This valuation model incorporates
assumptions that market participants would use in estimating future net
servicing income including estimates of the cost of servicing loans,
discount rate, float value, ancillary income, prepayment speeds and default
rates. Any impairment is recognized as a charge to earnings through a
valuation allowance.

Premises and Equipment

      Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is computed
using the straight-line method over the estimated useful lives of the assets
or the remaining lease terms, if shorter. Useful lives are 15-50 years for
bank buildings, 3-20 years for leasehold improvements and 2-10 years for
furniture and equipment.
      The Company reviews for impairment of long-lived assets, certain
identifiable intangibles and goodwill, whenever


<PAGE>  35


events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
      Gains or losses on routine dispositions are credited or charged to
earnings. Maintenance and repairs are charged to expense as incurred, and
improvements are capitalized.

Other Real Estate Owned

      Other real estate owned is comprised of properties acquired through
foreclosure proceedings or acceptance of a deed in lieu of foreclosure.
Other real estate owned is recorded at the lower of the carrying value of
the loan or the fair value of the property received less a valuation
allowance for estimated costs to sell. Loan losses arising from the
acquisition of such properties are charged against the allowance for
possible loan losses. Provisions to reduce the carrying value to net
realizable value are charged to current period earnings as realized and are
reflected as an additional valuation allowance. Operating expenses and gains
and losses upon disposition are reflected in earnings as realized.

Other Assets

      The Company has investments in two tax advantaged limited
partnerships. These investments are included in other assets and amortized
over the same period the tax benefits are expected to be received.
      Goodwill arising from acquisitions is included in other assets, net of
accumulated amortization, and is amortized on the straight-line basis over
15 years.
      Mortgage servicing rights are included in other assets, net of
accumulated amortization, and are amortized on a basis which results in
approximately level rates of return in proportion to, and over the period
of, estimated net servicing income.

Fair Value of Financial Instruments

      In accordance with Statement of Financial Accounting Standards
("SFAS") No. 107, Disclosures about Fair Value of Financial Instruments, the
Company is required to disclose estimated fair values of financial
instruments. Fair value estimates, methods, and assumptions are set forth
below in note 23 of Notes to Consolidated Financial Statements.

Income Taxes

      The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, 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 the respective tax bases and operating loss and
tax credit carryforwards. 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.
Under the asset and liability method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings in the period
that includes the enactment date.

Retirement and Benefit Plans

      The Company and its subsidiary bank have a non-contributory defined
benefit Pension Plan covering substantially all of the Company's employees.
Contributions are intended to provide for benefits attributed to services
rendered to date and for those expected to be earned in the future.
      The Company sponsors a Supplemental Executive Retirement Plan
("SERP"). The SERP is a nonqualified plan designed to provide supplemental
retirement benefits to certain key employees, whose benefits under the
Company's other retirement plans are limited by Federal tax laws.
      The Company has an Employee Stock Ownership Plan ("ESOP"), covering
eligible employees with one year of service as defined by the ESOP. The
Company records compensation expense in an amount equal to the fair value of
shares committed to be released from the ESOP to employees.

Stock-Based Compensation

      SFAS No. 123, "Accounting for Stock-Based Compensation", establishes a
fair value based method of accounting for stock-based compensation
arrangements with employees, rather than the intrinsic value based method
that is contained in Accounting Principles Board Opinion No. 25 ("Opinion
25"). However, SFAS No. 123 did not require an entity to adopt the new fair
value based method for purposes of preparing its basic financial statements.
Entities are allowed (1) to continue to use the intrinsic value based method
under Opinion 25 or (2) to adopt the SFAS No. 123 fair value based method.
SFAS No. 123 applies to all transactions in which an entity acquires goods
or services by issuing equity instruments or by incurring liabilities where
the payment amounts are based on the entity's common stock price, except for
employee stock ownership plans. For entities not adopting the SFAS No. 123
fair value based method, SFAS No. 123 requires the entity to display in the
footnotes to the financial statements pro forma net earnings and earnings
per share information as if the fair value based method had been adopted.
The Company continues to account for stock-based compensation under the
intrinsic value based method under Opinion 25, as allowed by SFAS No. 123,
and includes presentation of the required pro forma disclosures in the notes
to the consolidated financial statements.

Earnings Per Share

      Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted


<PAGE>  36


into common stock or resulted in the issuance of common stock that then
shared in the earnings of the Company.

Derivative Financial Instruments

      The Company utilizes interest rate cap agreements to manage exposure
to interest rate risk. The Company does not purchase derivative financial
instruments for trading purposes. Under these agreements, the Company
receives an interest payment if the three-month London Interbank Offered
Rate ("LIBOR") increases above a predetermined rate. This payment would be
based upon the rate difference between current LIBOR and the predetermined
rate accrued on the notional value of the instrument. The amounts received
on the interest rate cap agreements are accounted for as an adjustment to
the yield or cost of the hedged financial instruments. The transaction fee
paid on the interest rate cap is amortized over the life of the contract.

Comprehensive Income

      The Company adopted SFAS No. 130, "Reporting Comprehensive Income",
effective January 1, 1998. SFAS No. 130 establishes standards for reporting
comprehensive income and its components (revenues, expenses, gains and
losses). Components of comprehensive income are net earnings and all other
non-owner changes in equity. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income (loss) separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company's accumulated other
comprehensive income (loss) included in stockholders' equity is comprised
exclusively of net unrealized gains (losses)on securities available for
sale, net of related tax effects.
      The Company discloses comprehensive income in a separate statement of
comprehensive income.

Disclosure about Segments

      The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", effective January 1, 1998. SFAS No. 131
establishes standards for reporting information about segments in annual and
interim financial statements. SFAS No. 131 introduces a new model for
segment reporting called the "management approach". The management approach
is based on the way the chief operating decision-makers organize segments
within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure and any other manner in which management
disaggregates a company. Based on the "management approach" model, the
Company has determined that its business is comprised of a single operating
segment.

Recent Accounting Developments

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which was effective for fiscal years beginning after June 15,
1999. SFAS No. 133 must be adopted prospectively and retroactive application
is not permitted. SFAS No. 133 will require the Company to record all
derivatives on the balance sheet at fair value. Changes in derivative fair
values will either be recognized in earnings as offsets to the changes in
fair value of related hedged assets, liabilities and firm commitments or for
forecasted transactions, deferred and recorded as a component of accumulated
other comprehensive income (loss) in stockholders' equity until the hedged
transactions occur and are recognized in earnings. The ineffective portion
of a hedging derivative's change in fair value will be immediately
recognized in earnings. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No. 133". SFAS No. 133 is now effective
for fiscal years beginning after June 15, 2000. The Company expects to adopt
SFAS No. 133 on January 1, 2001 and does not believe the effect of adopting
SFAS No. 133 will have any material effect on its consolidated financial
position or results of operations.

NOTE 2-Mergers and Acquisitions

      Effective after the close of business October 31, 1997, the Company
completed its merger with Primary Bank, which was accounted for under the
pooling-of-interests method. Accordingly, the consolidated financial
statements of the Company have been restated to reflect the acquisition at
the beginning of each period presented. In connection with the merger, each
share of Primary Bank's common stock was converted into 1.1483 shares of the
Company's common stock, resulting in the issuance of 2,520,157 shares of the
Company's common stock to Primary Bank stockholders. Expenses directly
attributable to the merger during the years ending December 31, 1998 and
1997 amounted to $34,000 and $5,917,000, respectively. The 1997 expenses
were recorded at the date of combination and consisted of personnel costs of
$1,462,000 related to the costs of employee severance, data processing costs
of $1,282,000 related to the termination of data processing contracts with
outside service bureaus, facilities and equipment costs of $1,305,000
related to writedowns of property owned and the disposition of unusable
equipment and other costs of $1,868,000 which included investment banking,
legal and accounting fees, due diligence costs, proxy registration/filing
fees and mailing costs. The 1998 expenses were insignificant.


<PAGE>  37


NOTE 3-Earnings Per Share

      Information regarding the computations of earnings per share is as
follows:

<TABLE>
<CAPTION>

                                        Year Ended December 31,
                                ---------------------------------------
                                   1999          1998          1997
                                   ----          ----          ----
                                ($ in Thousands, except per share data)

<S>                              <C>           <C>           <C>
Net earnings                     $  10,125     $   9,557     $   2,307
                                 =====================================
Weighted average common
 shares outstanding-basic        5,778,272     5,818,856     5,444,350
Dilutive effect of stock
 options and restricted stock
 awards computed using the
 treasury stock method             149,396       171,889       306,912
                                 -------------------------------------
Weighted average common
 shares outstanding-diluted      5,927,668     5,990,745     5,751,262
                                 =====================================
Net earnings per share-
 basic                               $1.75         $1.64          $.42
                                 =====================================
Net earnings per share-
 diluted                             $1.71         $1.60          $.40
                                 =====================================

</TABLE>

      Weighted average options to purchase 75,000 and 37,808 shares of
common stock were outstanding at December 31, 1999 and 1998, respectively,
but were not included in the computation of weighted average common shares
outstanding for purposes of computing diluted earnings per share, because
the effect would have been antidilutive. All options to purchase shares of
common stock outstanding at December 31, 1997 were included in the
computation of weighted average common shares outstanding for purposes of
computing diluted earnings per share.

NOTE 4-Supplemental Cash Flow Disclosures

Supplemental Disclosures of Cash Flow Information

<TABLE>
<CAPTION>

                            Year Ended
                           December 31,
                  -----------------------------
                   1999       1998       1997
                   ----       ----       ----
                         (In Thousands)

<S>               <C>        <C>        <C>
Cash paid for
  Interest        $27,837    $27,400    $29,010
  Income taxes      3,725      3,924      2,500

</TABLE>

Supplemental Schedule of Noncash Investing and
 Financing  Activities

      The subsidiary bank acquired other real estate owned through
foreclosure in settlement of loans or accepted deeds in lieu of foreclosures
on real estate loans in the amount of $1,111,000, $724,000 and $732,000
during the years ended December 31, 1999, 1998 and 1997, respectively.
      Dividends declared and unpaid on common stock at December 31, 1999,
1998 and 1997 were $806,000, $737,000 and $613,000, respectively.

NOTE 5-Cash and Due From Banks

      The Federal Reserve Bank requires the subsidiary bank to maintain
average reserve balances. Reserves (in the form of deposits with the Federal
Reserve Bank) of $1,000,000 were maintained to satisfy Federal regulatory
requirements at December 31, 1999 and 1998. These reserves are included in
cash and due from banks in the consolidated statements of financial
condition.


<PAGE>  38


NOTE 6-Securities

      The amortized cost and estimated market values of securities at
December 31, were as follows:

<TABLE>
<CAPTION>

                                                                                      Estimated
                                             Amortized    Unrealized    Unrealized     Market
                                               Cost         Gains         Losses        Value
                                             ---------    ----------    ----------    ---------
                                                               (In Thousands)

<S>                                          <C>            <C>           <C>         <C>
Securities held to maturity
 At December 31, 1999
  US Government agency obligations           $ 13,007                     $  482      $ 12,525
  Other corporate obligations                   5,010                        303         4,707
                                             -------------------------------------------------
      Total securities held to maturity      $ 18,017       $    0        $  785      $ 17,232
                                              ================================================

Securities available for sale
 At December 31, 1999
  US Treasury obligations                    $ 19,988       $   43                    $ 20,031
  US Government agency obligations            105,454                     $3,428       102,026
  Other corporate obligations                  71,824           27         2,427        69,424
  Mortgage-backed securities:
    FNMA                                        4,772           20            44         4,748
    FHLMC                                       1,526            1            22         1,505
    GNMA                                          870           40                         910
    SBA                                           397            2             1           398
                                             -------------------------------------------------
      Total mortgage-backed securities          7,565           63            67         7,561
  Mutual Funds                                  7,149           47           172         7,024
  Marketable equity securities                 10,693          909         2,096         9,506
                                             -------------------------------------------------
      Total securities available for sale    $222,673       $1,089        $8,190      $215,572
                                              ================================================

Securities held to maturity
 At December 31, 1998
  US Government agency obligations           $ 17,265       $  230                    $ 17,495
  Other corporate obligations                   5,012           41                       5,053
                                             -------------------------------------------------
      Total securities held to maturity      $ 22,277       $  271        $    0      $ 22,548
                                              ================================================

Securities available for sale
 At December 31, 1998
  US Treasury obligations                    $ 82,521       $1,195                    $ 83,716
  US Government agency obligations             55,961          112        $   75        55,998
  Other corporate obligations                  46,593          150           286        46,457
  Mortgage-backed securities:
    FNMA                                        7,045           35            49         7,031
    FHLMC                                       2,876            2            25         2,853
    GNMA                                        1,190           59             3         1,246
    SBA                                           552           16                         568
                                             -------------------------------------------------
      Total mortgage-backed securities         11,663          112            77        11,698
  Mutual Funds                                  6,326          105            29         6,402
  Marketable equity securities                 14,122        2,785         1,413        15,494
                                             -------------------------------------------------
      Total securities available for sale    $217,186       $4,459        $1,880      $219,765
                                             =================================================

</TABLE>

      In the fourth quarter of 1997, the acquisition of Primary Bank (see
Note 2-"Mergers and Acquisitions") necessitated a transfer of securities
held to maturity with an amortized cost of $22,226,000 and a net unrealized
loss of $156,000 to securities available for sale in order to maintain the
Company's existing interest rate risk profile.


<PAGE>  39


      As a member of the Federal Home Loan Bank of Boston ("FHLBB"), the
subsidiary bank is required to invest in $100 par value stock of the FHLBB
in the amount of 1% of its outstanding loans secured by residential housing,
or 1% of 30% of total assets, or 5% of its outstanding advances from the
FHLBB, whichever is higher. When such stock is redeemed, the subsidiary bank
would receive from the FHLBB an amount equal to the par value of the stock.
As of December 31, 1999 and 1998, the subsidiary bank had investments in
FHLBB stock of $7,201,000. Such investments are reflected separately in the
Consolidated Statements of Financial Condition.
      Gross realized gains and gross realized losses on sales of securities
available for sale for the years ended December 31 were as follows:

<TABLE>
<CAPTION>
                                                 1999                      1998                      1997
                                         ---------------------     ---------------------     ---------------------
                                         Realized     Realized     Realized     Realized     Realized     Realized
                                           Gain         Loss         Gain         Loss         Gain         Loss
                                         --------     --------     --------     --------     --------     --------
                                                                      (In Thousands)

      <S>                                 <C>           <C>         <C>           <C>         <C>          <C>
      Securities
        Debt securities                   $  317        $ 39        $   23                    $  166       $1,018
        Marketable equity securities       1,157         727         4,162                     3,039
                                          -----------------------------------------------------------------------
                                          $1,474        $766        $4,185        $  0        $3,205       $1,018
                                          =======================================================================
</TABLE>

      At December 31, 1999, U. S. Treasury and U. S. Government Agency
Obligations with carrying values of $86,192,000 and estimated market values
of $85,710,000 were pledged as collateral for securities sold under
agreements to repurchase and for government deposit accounts.
      The following table sets forth the maturity distribution of debt
securities held to maturity and available for sale at amortized cost and
estimated market value at December 31, 1999. Actual maturities may differ
from contractual maturities because certain issuers have the right to call
or prepay obligations without penalties.

<TABLE>
<CAPTION>
                                                               Over 1 Year     Over 5 Years
                                                   Within        Through         Through          Over
                                                   1 Year        5 Years         10 Years       10 Years      Totals
                                                   ------      -----------     ------------     --------      ------
                                                                             (In Thousands)

<S>                                                <C>          <C>              <C>            <C>          <C>
Amortized Cost
At December 31, 1999
  Securities held to maturity
    US Government agency obligations                                             $13,007                     $ 13,007
    Other corporate obligations                                                    5,010                        5,010
                                                   ------------------------------------------------------------------
      Total debt securities held to maturity       $     0      $      0         $18,017        $     0      $ 18,017
                                                   ==================================================================
  Securities available for sale
    US Treasury obligations                        $12,501      $  7,487                                     $ 19,988
    US Government agency obligations                              97,481         $ 7,973                      105,454
    Other corporate obligations                                   54,545           4,399        $12,880        71,824
    Mortgage-backed securities                          17           994                          6,554         7,565
                                                   ------------------------------------------------------------------
      Total debt securities available for sale     $12,518      $160,507         $12,372        $19,434      $204,831
                                                   ==================================================================

Estimated Market Value
At December 31, 1999
  Securities held to maturity
    US Government agency obligations                                             $12,525                     $ 12,525
    Other corporate obligations                                                    4,707                        4,707
                                                   ------------------------------------------------------------------
      Total debt securities held to maturity       $     0      $      0         $17,232        $     0      $ 17,232
                                                   ==================================================================
  Securities available for sale
    US Treasury obligations                        $12,531      $  7,500                                     $ 20,031
    US Government agency obligations                              94,485         $ 7,541                      102,026
    Other corporate obligations                                   53,091           4,215        $12,118        69,424
    Mortgage-backed securities                          17           976                          6,568         7,561
                                                   ------------------------------------------------------------------
      Total debt securities available for sale     $12,548      $156,052         $11,756        $18,686      $199,042
                                                   ==================================================================
</TABLE>


<PAGE> 40


NOTE 7-Loans

      Loans consist of the following at:

<TABLE>
<CAPTION>
                                      December 31,
                                  ---------------------
                                    1999         1998
                                    ----         ----
                                     (In Thousands)

<S>                               <C>          <C>
Commercial, financial and
 agricultural                     $ 41,837     $ 48,418
Real estate-residential            356,368      328,243
Real estate-commercial             136,566      146,093
Real estate-construction and
 land development                    3,886        2,281
Installment                          5,952        7,809
Other                               24,085       22,855
                                  ---------------------
      Total loans                  568,694      555,699
Less:
  Unearned income                   (1,248)      (1,506)
  Allowance for possible loan
   losses                           (7,032)      (7,122)
                                  ---------------------
      Net loans                   $560,414     $547,071
                                  =====================
</TABLE>

      Included in real estate-residential loans in the table above are
multi-family real estate loans of $39,477,000 and $36,184,000, respectively
at December 31, 1999 and 1998.
      At December 31, 1999 and 1998, loans which were on nonaccrual status
were $1,516,000 and $3,013,000, respectively. Interest income which would
have been accrued on nonaccrual loans, had they performed in accordance with
the terms of their contracts, for the years ended December 31, 1999, 1998
and 1997, was $157,000, $441,000 and $767,000, respectively. Interest income
recognized on nonaccrual loans in 1999, 1998 and 1997 amounted to $49,000,
$145,000 and $413,000, respectively.
      The Company has identified loans as impaired in accordance with SFAS
No. 114, when it is probable that interest and principal will not be
collected according to the terms of the loan agreements. The balance of
impaired loans was $489,000 and $1,556,000, respectively, at December 31,
1999 and 1998. The average recorded investment in impaired loans was
$1,052,000, $3,502,000 and $3,001,000, respectively, in 1999, 1998 and 1997.
No income was recognized on impaired loans during 1999, 1998 and 1997. Total
cash collected on impaired loans during 1999, 1998 and 1997 was $779,000,
$710,000 and $779,000, respectively, all of which was credited to the
principal balance outstanding on such loans.
      The allowance for possible loan losses associated with impaired loans
was $252,000, $233,000, $1,054,000 and $457,000 at December 31, 1999, 1998,
1997 and 1996, respectively. During 1999, 1998 and 1997, provisions for
possible loan losses applicable to impaired loans were $30,000, $201,000 and
$983,000, respectively. Impaired loans charged off during 1999, 1998 and
1997 were $11,000, $1,022,000 and $386,000, respectively. At December 31,
1999 and 1998, there were no impaired loans which did not have an allowance
for possible loan losses determined in accordance with SFAS No. 114.
      The Company's policy for interest income recognition on impaired loans
is to recognize income on nonaccrual loans under the cash basis when the
loans are both current and the collateral on the loan is sufficient to cover
the outstanding obligation to the Company; if these factors do not exist,
the Company does not recognize income.
      The Company's lending activities are conducted principally in New
Hampshire and to a lesser extent in selected areas in other New England
states. The Company grants single family and multi-family residential real
estate loans, commercial real estate loans, commercial, financial and
agricultural loans and a variety of consumer loans. In addition, the Company
grants loans for the construction of residential homes, multi-family
properties and commercial real estate properties. Most loans granted by the
Company are collateralized by real estate. The ability and willingness of
the single family residential and consumer borrowers to honor their
repayment commitments is generally dependent on the level of overall
economic activity within the borrowers' geographic areas, and real estate
values. The ability and willingness of commercial real estate, commercial,
financial and agricultural and construction loan borrowers to honor their
repayment commitments is generally dependent on the health of the real
estate economic sector in the borrowers' geographic areas, and the general
economy.
      At December 31, 1999 and 1998, the subsidiary bank serviced real
estate loans sold to others in the amounts of $137,977,000 and $148,024,000,
respectively.

NOTE 8-Allowance for Possible Loan Losses

      Changes in the allowance for possible loan losses are as follows:

<TABLE>
<CAPTION>
                                      Year Ended December 31,
                                   ------------------------------
                                    1999       1998        1997
                                    ----       ----        ----
                                           (In Thousands)

<S>                                <C>        <C>         <C>
Balance at beginning of year       $7,122     $ 7,651     $ 6,253
Provision for possible loan
 losses                                50       1,125       2,425
Loans charged off                    (559)     (2,113)     (1,205)
Recoveries of loans previously
 charged off                          419         459         178
                                   ------------------------------
Balance at end of year             $7,032     $ 7,122     $ 7,651
                                   ==============================
</TABLE>

NOTE 9-Loans to Related Parties

      The Company's banking subsidiary has granted loans to its officers and
directors, and those of the Company and to their associates. The aggregate
amount of these loans was $8,572,000 and $9,622,000 at December 31, 1999 and
1998, respectively. During 1999, $2,613,000 of new loans were made


<PAGE> 41


and repayments totaled $3,119,000. Approximately $544,000 of related party
loans at December 31, 1998 were loans to officers and directors who were no
longer associated with the Company in those capacities at December 31, 1999.

NOTE 10-Premises and Equipment

      The following is a summary of premises and equipment:

<TABLE>
<CAPTION>
                                        December 31,
                                     -------------------
                                      1999        1998
                                      ----        ----
                                       (In Thousands)

<S>                                  <C>         <C>
Bank buildings                       $15,728     $15,496
Leasehold improvements                 1,689       1,697
Furniture and equipment               11,892      11,077
                                     -------------------
                                      29,309      28,270
  Less: Accumulated depreciation
   and amortization                   15,381      13,528
                                     -------------------
                                      13,928      14,742
Land                                   3,037       2,791
Construction in progress                   2         167
                                     -------------------
                                     $16,967     $17,700
                                     ===================
</TABLE>

      Depreciation and amortization expense for the years ended December 31,
1999, 1998 and 1997 was $1,959,000, $1,994,000 and $1,911,000, respectively.
      During the year ended December 31, 1998, the Company recorded a
$712,000 writedown on bank buildings based upon an appraisal performed on
property used as a branch office, which was closed. The charge to earnings
is reflected in occupancy and equipment expense in 1998.

NOTE 11-Other Real Estate Owned

      A summary of other real estate owned follows:

<TABLE>
<CAPTION>
                                          December 31,
                                        -----------------
                                         1999       1998
                                         ----       ----
                                         (In Thousands)

<S>                                     <C>        <C>
Condominiums and apartment projects     $   55     $  131
Single family housing projects             794        739
Non-retail commercial                      691        756
Residential                                235        451
                                        -----------------
                                         1,775      2,077
  Less:Valuation allowance                 487        476
                                        -----------------
                                        $1,288     $1,601
                                        =================
</TABLE>

      An analysis of other real estate owned follows:

<TABLE>
<CAPTION>
                                    Year Ended December 31,
                                 ------------------------------
                                  1999        1998       1997
                                  ----        ----       ----
                                         (In Thousands)

<S>                              <C>         <C>        <C>
Balance at beginning of year     $ 1,601     $1,905     $ 3,492
Other real estate owned
 acquired                          1,111        724         732
Advances for construction
 and other                                                   18
Sales proceeds                    (1,324)      (921)     (2,376)
Gains (losses) on sales, net          46        (54)         64
Provisions for loss
 subsequent to foreclosure          (146)       (53)        (25)
                                 ------------------------------
Balance at end of year           $ 1,288     $1,601     $ 1,905
                                 ==============================
</TABLE>

      An analysis of other real estate owned expense follows:

<TABLE>
<CAPTION>
                                       Year Ended December 31,
                                       -----------------------
                                       1999      1998     1997
                                       ----      ----     ----
                                           (In Thousands)

<S>                                    <C>       <C>      <C>
Foreclosure and holding costs, net     $ 259     $250     $102
Provision for loss subsequent to
 foreclosure                             146       53       25
(Gains) losses on sales, net             (46)      54      (64)
                                       -----------------------
                                       $ 359     $357     $ 63
                                       =======================
</TABLE>

      Changes in the valuation allowance for other real estate owned were as
follows:

<TABLE>
<CAPTION>
                                       Year Ended December 31,
                                       -----------------------
                                       1999      1998     1997
                                       ----      ----     ----
                                           (In Thousands)

<S>                                    <C>       <C>      <C>
Balance at beginning of year           $ 476     $468     $528
Provision for loss                       146       53       25
Charge offs, net                        (135)     (45)     (85)
                                       -----------------------
Balance at end of year                 $ 487     $476     $468
                                       =======================
</TABLE>


<PAGE> 42


NOTE 12-Other Assets

      A summary of other assets follows:

<TABLE>
<CAPTION>
                                                December 31,
                                             -------------------
                                              1999        1998
                                              ----        ----
                                               (In Thousands)

<S>                                          <C>         <C>
Cash surrender value of life insurance       $10,148     $ 4,744
Accrued interest receivable                    5,767       5,722
Net deferred tax assets                        5,074       1,701
Goodwill, net of accumulated
 amortization of $2,290,000 in 1999
 and $2,044,000 in 1998                        1,392       1,638
Mortgage servicing rights, net of accum-
 ulated amortization of $1,145,000 in
 1999 and $987,000 in 1998                       401         390
Prepaid expenses                                 927         980
Other                                          1,053       2,491
                                             -------------------
                                             $24,762     $17,666
                                             ===================
</TABLE>

      Mortgage servicing rights of $169,000, $262,000 and $114,000, were
capitalized during 1999, 1998 and 1997. Amortization expense on mortgage
servicing rights was $158,000, $203,000 and $118,000 in 1999, 1998 and 1997,
respectively.
      Amortization expense on goodwill was $246,000 during each of the years
1999, 1998 and 1997.

NOTE 13-Interest Bearing Deposits

      Interest bearing deposits consisted of the following:

<TABLE>
<CAPTION>
                                      December 31,
                                  ---------------------
                                    1999         1998
                                    ----         ----
                                     (In Thousands)

<S>                               <C>          <C>
NOW accounts                      $195,833     $203,068
Savings accounts                    85,770       87,150
Money market deposit accounts       17,516       19,659
Time certificates                  256,103      266,901
                                  ---------------------
                                  $555,222     $576,778
                                  =====================
</TABLE>

      Maturities of time certificates after December 31, 1999 are
$221,919,000 in 2000, $20,645,000 in 2001, $9,219,000 in 2002, $2,443,000 in
2003, $1,325,000 in 2004 and $552,000 in years thereafter.
      Time certificates with balances of $100,000 or more at December 31,
1999 and 1998 totaled $34,268,000 and $33,545,000, respectively.

NOTE 14-Borrowings

Securities Sold Under Agreements to Repurchase

      Short-term borrowings in the form of securities sold under agreements
to repurchase at December 31, 1999 and 1998, totaled $75,042,000 and
$70,905,000, respectively. Such borrowings were collateralized at December
31, 1999 by a portion of the Company's U.S. Treasury and U.S. Government
agency securities with a carrying value of $84,184,000 and estimated market
value of $83,753,000 (see note 6 of Notes to Consolidated Financial
Statements). The collateral is maintained under the control of the Company
in a separate custodial account at the FHLBB. The weighted average interest
rate on those borrowings was 4.82% and 4.29%, respectively, at December 31,
1999 and 1998.
      The maximum amount of securities sold under agreements to repurchase
at any month end during 1999, 1998 and 1997, were $75,042,000, $73,392,000
and $67,693,000, respectively. The average amount of securities sold under
agreements to repurchase in 1999, 1998 and 1997 were $65,078,000,
$67,562,000 and $59,826,000, respectively. The average cost of securities
sold under agreements to repurchase was 4.08%, 4.36% and 4.76% during 1999,
1998 and 1997, respectively.

Other Borrowings

      The Company's subsidiary bank maintains a line of credit with the
FHLBB to meet short or long-term financing needs that may arise. Short and
long-term borrowings from the FHLBB are secured by a blanket lien on
substantially all unencumbered interest-earning assets and FHLBB stock held.
The Company's subsidiary bank is able to commingle, encumber or dispose of
any collateral held subject to its ability to maintain specific "qualifying"
collateral levels in excess of collateral maintenance requirements and meet
minimum capital ratios, both of which were met as of December 31, 1999 and
1998.
      Based upon "qualifying" collateral held, the Company's subsidiary bank
had a total borrowing capacity with the FHLBB as of December 31, 1999 of
approximately $335,679,000, of which approximately $245,116,000 was still
available.
      Other borrowings, all of which were with the FHLBB, consisted of the
following:

<TABLE>
<CAPTION>
                                  December 31, 1999
                                ---------------------
                                            Range of
                                Amount      Rates (%)
                                ------      ---------
                                  ($ In Thousands)

<S>                             <C>         <C>
Due within one year             $    48     5.00-6.17
Due from one to three years         106     5.00-6.17
Due over three years             90,409     4.18-6.17
                                -------
                                $90,563
                                =======
<CAPTION>
                                  December 31, 1998
                                ---------------------
                                            Range of
                                Amount      Rates (%)
                                ------      ---------
                                  ($ In Thousands)

<S>                             <C>         <C>
Due within one year             $    45     5.00-6.17
Due from one to three years          99     5.00-6.17
Due over three years             80,464     4.18-6.17
                                -------
                                $80,608
                                =======
</TABLE>

<PAGE> 43


      Principal payments due on other borrowings after December 31, 1999 are
$48,000 in 2000, $51,000 in 2001, $55,000 in 2002, $30,058,000 in 2003,
$61,000 in 2004 and $60,290,000 in years thereafter. The FHLBB has the right
to call and require the repayment of $30,000,000 of borrowings during 2001,
$20,000,000 of which is at an interest rate of 4.49% maturing in 2008 and
$10,000,000 of which is at an interest rate of 5.58% maturing in 2009.
Additionally, the FHLBB has the right to call and require the repayment of
$20,000,000 of borrowings during 2000, which is at an interest rate of 4.18%
maturing in 2013.

NOTE 15-Commitments and Contingencies

Financial Instruments With Off-Balance Sheet Risk

      The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to originate
loans and standby letters of credit. The instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statement of financial condition. The
contract or notional amount of those instruments reflects the extent of
involvement the Company has in particular classes of financial instruments.
      The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for loan commitments, standby
letters of credit and recourse arrangements is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
      Financial instruments with off-balance sheet credit risk at December
31, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                              Contract or
                                            Notional Amount
                                          -------------------
                                           1999        1998
                                           ----        ----
                                            (In Thousands)

<S>                                       <C>         <C>
Financial instruments whose contract
 amounts represent credit risk
  Commitments to originate loans          $10,361     $18,886
  Unused lines and standby letters
   of credit                               38,729      38,490
  Unadvanced portions of construction
   loans                                    2,175       1,767
</TABLE>

      Commitments to originate loans are agreements to lend to a customer
provided there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based upon management's credit evaluation of the borrower.
      Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance by a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.

Derivative Financial Instruments

      The Company uses interest rate cap agreements in managing the interest
rate risk included in the consolidated statement of financial condition.
      With respect to interest rate caps, the Company is not exposed to loss
beyond its initial cash outlay to enter into the agreements. The cash paid
to enter into these agreements is amortized over the terms of the
agreements. The unamortized cost related to these agreements was $266,000
and $325,000 at December 31, 1999 and 1998, respectively. The Company enters
into these agreements with AAA-rated counterparties.
      Interest rate cap agreements provide for the receipt of interest to
the extent that the three-month LIBOR is greater than the strike rate. No
interest was received under these agreements during 1999, 1998 and 1997.
      At December 31, 1999 and 1998 the Company had the following interest
rate cap agreements in effect:

<TABLE>
<CAPTION>
         Notional        Strike     Maturity
          Amount          Rate        Date
         --------        ------     --------
      (In Thousands)

         <C>             <C>        <C>
         $ 5,000         7.50%        2/7/04
           5,000         7.8125%      6/4/04
          10,000         7.875%     11/15/04
</TABLE>

Investment in Limited Partnerships

      At December 31, 1999, the subsidiary bank was committed to invest an
additional $1,035,000 in two real estate development limited partnerships
related to low income housing. The investments will be $208,000 in 2000,
$198,000 in 2001, $187,000 in 2002, $177,000 in 2003, $166,000 in 2004 and
$99,000 thereafter. At December 31, 1999 and 1998, the Company had $334,000
and $400,000, respectively, invested in such partnerships, which are
included in other assets in the consolidated statements of financial
condition.


<PAGE> 44


Lease Commitments

      As of December 31, 1999, the Company was obligated under noncancelable
operating leases for premises. Minimum future rentals under leases are as
follows:

<TABLE>
<CAPTION>
                                 Amount
                                 ------
                             (In Thousands)

<S>                              <C>
Year Ending December 31,
  2000                           $  385
  2001                              262
  2002                              220
  2003                              199
  2004                              201
  Thereafter                        866
                                 ------
                                 $2,133
                                 ======
</TABLE>

      Rent expense amounted to $537,000, $537,000 and $510,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.

Employment and Special Termination Agreements

      The subsidiary bank and the Company have entered into an employment
agreement with a senior officer, which provides for a specified minimum
annual compensation, certain lump sum severance payments following a "change
in control" as defined in the agreement and for the reimbursement by the
Company for any excise taxes relating to a change in control. However, such
employment may be terminated for cause without incurring any continuing
obligations. The Company has also entered into Special Termination
Agreements with four other senior officers which generally provide for
certain lump sum severance payments following a "change in control" as
defined in the agreements.

Legal Proceedings

      The Company is a defendant in ordinary and routine pending legal
actions incident to its business, none of which is believed by management to
be material to the financial condition of the Company.

NOTE 16-Income Taxes

      The Company and its subsidiary file a consolidated Federal income tax
return on the accrual basis for taxable years ending December 31.
      Income tax expense (benefit) reflected in the consolidated statements
of earnings for years ended December 31, are as follows:

<TABLE>
<CAPTION>
                            1999       1998       1997
                            ----       ----       ----
                                  (In Thousands)

<S>                        <C>        <C>        <C>
Federal:
  Current                  $4,010     $4,476     $ 1,947
  Deferred                    405        341          34
  Effect of change in
   valuation allowance                            (1,277)
State:
  Current                     856        703
  Deferred                      7       (384)
                           -----------------------------
                           $5,278     $5,136     $   704
                           =============================
</TABLE>

      The above amounts include a tax provision on securities transactions
of $278,000, $1,616,000 and $845,000, in 1999, 1998 and 1997, respectively.
      The income tax benefit related to the exercise of nonstatutory stock
options reduces taxes currently payable and is credited to additional paid-
in capital. Such amounts were $153,000 in 1999, $1,152,000 in 1998 and
$290,000 in 1997.
      The difference between the total expected income tax expense computed
by applying the Federal income tax rate to earnings before income tax
expense and the reported income tax expense for years ended December 31, is
as follows:

<TABLE>
<CAPTION>
                                 1999       1998       1997
                                 ----       ----       ----
                                       (In Thousands)

<S>                             <C>        <C>        <C>
Computed "expected" Federal
 income tax expense at
 statutory rate                 $5,237     $4,996     $ 1,024
Increase (decrease)
 resulting from:
  State income tax, net of
   Federal tax benefit             570        211
  Low income/rehabilitation
   tax credits                    (320)
  Performance based stock
   options                                                367
  Nondeductible merger-
   related charges                                        611
  Change in valuation
   allowance                                           (1,277)
  Other                           (209)       (71)        (21)
                                -----------------------------
                                $5,278     $5,136     $   704
                                =============================
</TABLE>

<PAGE> 45


      Significant components of the Company's deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
                                           December 31,
                                         -----------------
                                          1999       1998
                                          ----       ----
                                          (In Thousands)

<S>                                      <C>        <C>
Deferred tax assets:
  Allowance for possible loan losses     $2,066     $2,428
  Other real estate owned                    75         74
  Federal net operating loss
   carryforwards                            436        580
  Accrued interest                          104        132
  Core deposit intangibles                   79        101
  Deferred compensation                      59         65
  Marketable equity securities               39         49
  Restricted stock awards                   129
  Low income-housing partnerships            83
  Unrealized loss on securities
   available for sale                     2,789
  Other                                     120        153
                                         -----------------
                                          5,979      3,582
  Less: Valuation allowance                   0          0
                                         -----------------
      Total deferred tax assets           5,979      3,582
                                         -----------------

Deferred tax liabilities:
  Unearned income                           703        674
  Deferred loan fees                         93        140
  Unrealized gains on securities
   available for sale                                  996
  Mortgage servicing rights                 109         71
                                         -----------------
      Total deferred tax liabilities        905      1,881
                                         -----------------
      Net deferred tax asset             $5,074     $1,701
                                         =================
</TABLE>

      At December 31, 1999 and 1998, net deferred tax assets includes
$2,789,000 in deferred tax assets and $996,000, in deferred tax liabilities,
respectively, which are attributable to the tax effects of net unrealized
losses at December 31, 1999 and net unrealized gains at December 31, 1998 on
securities available for sale. Pursuant to SFAS No. 115 and SFAS No. 109,
the corresponding credit or charge, respectively, has been made directly to
stockholders' equity.
      As of December 31, 1999 the Company has net operating loss
carryforwards available for tax purposes of approximately $1,281,000, which
expire at various dates from the year 2006 through 2010. The subsequent
realization of net operating loss carryforwards is subject to limitation as
defined in Internal Revenue Code Section 382 due to changes in ownership
relating to acquisitions. Approximately $426,000 of these net operating loss
carryforwards are available for use by the Company in 2000.
      SFAS No. 109 requires a valuation allowance against deferred tax
assets, if based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. Prior
to 1997, management believed that uncertainty existed with respect to future
realization of a portion of its net operating loss carryforwards and had
established a valuation allowance. In view of taxable income generated
during 1997 and upon management's evaluation of the likelihood of
realization, the valuation allowance was reversed in 1997.

NOTE 17-Pension Plans

Defined Benefit Pension Plan

      The following table sets forth the funded status of the Company's
defined benefit pension plan as of September 30, 1999 and 1998 (the most
recent actuarial valuations):

<TABLE>
<CAPTION>
                                                 1999       1998
                                                 ----       ----
                                                 (In Thousands)

<S>                                             <C>        <C>
Actuarial present value of benefit
 obligations:
  Accumulated benefit obligation, in-
   cluding vested benefits of $2,420,000
   and $2,425,000, respectively                 $2,482     $2,502
                                                =================
Projected benefit obligation, beginning of
 period                                         $3,217     $2,800
  Service costs-benefits earned during
   the period                                      202        176
  Interest cost on projected benefit
   obligation                                      222        194
  Actuarial (gain) loss recognized during
   the period                                     (162)       187
  Annuity payments made during the
   period                                          (77)       (76)
  Settlements occurring during the
   period                                          (52)       (64)
                                                -----------------
Projected benefit obligation, end of period     $3,350     $3,217
                                                -----------------
Plan assets at fair value, beginning of
 period, primarily fixed income and
 equity securities                              $3,167     $3,221
  Return on plan assets during the
   period                                          437         44
  Employer contributions during the
   period                                          207         42
  Annuity payments made during the
   period                                          (77)       (76)
  Settlements occurring during the period          (52)       (64)
                                                -----------------
Plan assets at fair value, end of period,
 primarily fixed income and equity
 securities                                     $3,682     $3,167
                                                -----------------
Plan assets in excess of (less than)
 projected benefit obligation                   $  332     $  (50)
  Unrecognized net gain from past
   experience different from that
   assumed and effects of changes in
   assumptions                                    (727)      (389)
  Unrecognized net liability being
   recognized over approximately
   12 years                                         78        134
                                                -----------------
      Accrued pension cost                      $ (317)    $ (305)
                                                =================
</TABLE>

<PAGE> 46


      Net periodic pension expense included the following components:

<TABLE>
<CAPTION>
                                               Year Ended
                                              December 31,
                                        -------------------------
                                        1999      1998      1997
                                        ----      ----      ----
                                             (In Thousands)

<S>                                     <C>       <C>       <C>
Service cost-benefits earned during
 the period                             $ 202     $ 176     $ 151
Interest cost on projected benefit
 obligation                               222       194       184
Expected return on plan assets           (259)     (254)     (217)
Net amortization and deferral              53         2        18
                                        -------------------------
      Net periodic pension expense      $ 218     $ 118     $ 136
                                        =========================
</TABLE>

      The weighted average discount rate of 8.00% in 1999, 6.50% in 1998 and
7.25% in 1997, and the rate of increase in future compensation levels of
5.50% in 1999, 4.50% in 1998 and 5.00% in 1997, were used in determining the
actuarial present value of the projected benefit obligation. The expected
long-term rate of return on assets was 8.00% for each year.

Supplemental Executive Retirement Plan

      The Company sponsors a SERP, and in connection therewith, maintains a
Rabbi Trust, which purchases life insurance policies to satisfy its benefit
obligations thereunder. During 1999 the SERP was amended and certain
additional officers became participants in the SERP. Additional life
insurance policies were purchased during 1999 to fund the additional benefit
obligations. The cash surrender value of these life insurance policies was
$6,227,000 and $1,430,000 at December 31, 1999 and 1998, respectively, and
is carried in Other Assets in the Consolidated Statements of Financial
Condition. Annual accruals for expense are paid to trusts for the benefit of
the participants. The present value of future benefits is being accrued over
the term of employment. SERP expense for the years ended December 31, 1999,
1998 and 1997 amounted to $605,000, $257,000 and $257,000, respectively.

NOTE 18-Employee Stock Ownership Plan (ESOP)

      On October 13, 1993, the Company's ESOP purchased 39,562 shares of
common stock for $250,000. These funds were obtained by the ESOP through a
loan from a third party lender and repayment of the loan is guaranteed by
the Company. Annual principal payments are approximately $36,000 with
interest at approximately the prime rate. Company contributions are the
primary source of funds for the ESOP's repayment of the loan.
      Interest expense incurred on ESOP debt was $6,000, $9,000 and $17,000,
respectively, for the years ended December 31, 1999, 1998 and 1997.
      Compensation expense related to the ESOP amounted to $287,000,
$308,000 and $321,000, respectively, for the years ended December 31, 1999,
1998 and 1997 and included additional contributions in excess of amounts
required to service the ESOP debt of $175,000 in each of those years.
      Dividends on unallocated shares were insignificant during 1999, 1998
and 1997.
      The total shares held by the ESOP were as follows:

<TABLE>
<CAPTION>
                               December 31,
                            -------------------
                             1999        1998
                             ----        ----

<S>                         <C>         <C>
Allocated shares            329,926     322,448
Unallocated shares            5,663      11,314
                            -------------------
      Total ESOP shares     335,589     333,762
                            ===================
</TABLE>

      The fair value of unallocated shares at December 31, 1999 and 1998 was
$113,000 and $266,000, respectively.  Unallocated shares are allocated to
employees as the ESOP debt is repaid.

NOTE 19-Stock Compensation Plans

      The Company maintains the 1997 Long-Term Incentive Stock Benefit Plan.
Under this plan, stock options have been granted to certain officers of the
Company and its subsidiary bank. Under this plan, stock options have also
been granted to each member of the Board of Directors who is not an officer
or employee of the Company or the subsidiary bank. Options have been granted
to certain officers and still remain outstanding under the Company's 1986
stock option plan and stock options are still outstanding that relate to
plans adopted by Primary Bank in 1993 and 1995, which plans were assumed by
the Company in connection with the acquisition of Primary Bank.
Additionally, stock options granted to members of the Board of Directors of
Primary Bank, are still outstanding under plans adopted by Primary Bank in
1993 and 1995, which plans were assumed by the Company in connection with
the acquisition of Primary Bank. Each option entitles the holder to purchase
one share of the Company's common stock at an exercise price equal to the
fair market value of the stock at the date of grant. Options will be
exercisable in whole or in part over the vesting period and expire 10 years
following the date of grant. However, all options become 100% exercisable in
the event that the employee or Director terminates their employment or
service due to death, disability, normal retirement, or in the event of a
change in control.
      The following is a description of activity in the stock compensation
plans:


<PAGE> 47


Fixed Stock Option Plans

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                    ----------------------------------------------------------------------------------------
                                               1999                           1998                           1997
                                    --------------------------     --------------------------     --------------------------
                                                    Weighted                       Weighted                       Weighted
                                    Number of       Average        Number of       Average        Number of       Average
                                     Options      Option Price      Options      Option Price      Options      Option Price
                                    ---------     ------------     ---------     ------------     ---------     ------------

<S>                                  <C>             <C>           <C>              <C>           <C>              <C>
Options at beginning of year         520,468         $17.06         584,600         $11.39         490,331         $ 5.80
Granted                               25,250          21.44         195,250          19.64         283,918          16.93
Exercised                            (14,017)          6.37        (257,880)          6.26        (189,024)          5.20
Canceled                                (500)         23.88          (1,502)          8.91            (625)          9.90
                                     -------                       --------                       --------
Options at end of year               531,201         $17.54         520,468         $17.06         584,600         $11.39
                                     =======         ======        ========         ======        ========         ======

Options exercisable at year end      198,315         $15.85          82,861         $11.13         305,600         $ 6.28
                                     =======         ======        ========         ======        ========         ======
</TABLE>

<TABLE>
<CAPTION>
                                                                At December 31, 1999
                             ------------------------------------------------------------------------------------------
                                              Options Outstanding                            Options Exercisable
                             -----------------------------------------------------     --------------------------------
                               Number        Weighted Average     Weighted Average       Number        Weighted Average
Range of Exercise Prices     Outstanding      Remaining Life       Exercise Price      Exercisable      Exercise Price
------------------------     -----------     ----------------     ----------------     -----------     ----------------

<S>                            <C>                 <C>                 <C>               <C>                <C>
$3.33                           13,000             2.3                 $ 3.33             13,000            $ 3.33
$6.33 to $7.52                  10,427             4.1                   6.99             10,427              6.99
$8.29 to $9.10                   3,288             5.5                   8.79              3,288              8.79
$11.09 to $11.40                 4,498             5.8                  11.40              4,498             11.40
$13.93                             988             7.0                  13.93                988             13.93
$17.00                         399,250             7.8                  17.00            150,328             17.00
$21.44                          25,250             9.7                  21.44                  0               N/A
$23.88                          74,500             8.0                  23.88             15,786             23.88
                               -------                                                   -------

$3.33 to $23.88                531,201             7.6                 $17.54            198,315            $15.85
                               =======             ===                 ======            =======            ======
</TABLE>

<TABLE>
<CAPTION>
Performance-Based Stock Option Plans

                                                                    Year Ended December 31,
                                    ----------------------------------------------------------------------------------------
                                               1999                           1998                           1997
                                    --------------------------     --------------------------     --------------------------
                                                    Weighted                       Weighted                       Weighted
                                    Number of       Average        Number of       Average        Number of       Average
                                     Options      Option Price      Options      Option Price      Options      Option Price
                                    ---------     ------------     ---------     ------------     ---------     ------------

<S>                                  <C>             <C>            <C>             <C>            <C>             <C>
Options at beginning of year          19,506         $11.23          66,787         $11.09         103,616         $11.06
Exercised                            (16,514)         11.27         (46,809)         11.02         (36,331)         11.01
Canceled                                                               (472)         10.82            (498)         10.78
                                     -------                        -------                        -------
Options at end of year                 2,992         $11.03          19,506         $11.23          66,787         $11.09
                                     =======         ======         =======         ======         =======         ======

Options exercisable at year end        2,992         $11.03          19,506         $11.23          66,787         $11.09
                                     =======         ======         =======         ======         =======         ======
</TABLE>

      The range of exercise prices for the performance-based stock option
plans are $10.78-$11.40, with a remaining weighted average life of 6.4 years
at December 31, 1999.
      Under the 1995 Stock Option Plan for Outside Directors and the 1995
Stock Option Plan for Officers, which plans were assumed by the Company in
connection with the acquisition of Primary Bank (the "Performance-Based
Stock Options"), options vest in increments when the fair value of the stock
exceeds certain target prices, as defined, at the date of grant. During 1997
the fair market value of the stock exceeded the target prices and all such
options fully vested. In connection with the Performance-Based Stock
Options, the Company


<PAGE> 48


recorded compensation expense of $1,078,000 in 1997. The offsetting entry
relating to this expense was credited to additional paid-in capital.
      The weighted average fair values of options at their grant date during
1999, 1998 and 1997, were $7.80, $8.64 and $6.55 per option share,
respectively. The fair values of the share grants were estimated on the date
of grant using the Black-Scholes option-pricing model using the following
assumptions:

<TABLE>
<CAPTION>
                             1999          1998          1997
                             ----          ----          ----

<S>                         <C>         <C>            <C>
Expected option lives       7 years      7 years       7.5 years
Expected volatility           30%         37-48%          39%
Risk free interest rate      6.21%      4.99-5.49%       6.96%
Expected dividend yield      2.72%        2.10%          1.74%
</TABLE>

      Had compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123 for awards made after July 1,
1995, the Company's net earnings and net earnings per share would have been
reduced to the pro forma amounts indicated below for the years ended
December 31:

<TABLE>
<CAPTION>
                                 1999        1998       1997
                                 ----        ----       ----
                                   ($ In Thousands, except
                                       per share data)

<S>             <S>             <C>         <C>        <C>
Net Earnings    As Reported     $10,125     $9,557     $2,307
                Pro forma       $ 9,342     $8,370     $2,070
Net Earnings
 Per Share:
  Basic         As Reported     $  1.75     $ 1.64     $  .42
                Pro forma       $  1.62     $ 1.44     $  .38
  Diluted       As Reported     $  1.71     $ 1.60     $  .40
                Pro forma       $  1.58     $ 1.40     $  .36
</TABLE>

      In 1998, 46,500 shares of restricted stock were awarded to certain
officers under the 1997 Long-Term Incentive Stock Benefit Plan with a
weighted average fair value at the dates of grant of $21.83 per share. In
1999, 4,500 shares of restricted stock were awarded to certain officers
under the 1997 Long-Term Incentive Stock Benefit Plan with a fair value at
the date of grant of $21.44 per share. At December 31, 1999, restricted
stock awards totaled 51,000 shares of which 15,500 shares were vested.
Shares vest ratably over a period of five years. Compensation expense
applicable to the stock awards was $305,000 and $362,000 in 1999 and 1998,
respectively.

NOTE 20-Stockholders' Equity

Capital Requirements

      The Company and the subsidiary bank are subject to various regulatory
capital requirements administered by 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 Company's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Company and the subsidiary bank must meet
specific capital guidelines that involve quantitative measures of their
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The 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 Company and subsidiary bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). As of December
31, 1999 and 1998, the Company and the subsidiary bank meet all capital
adequacy requirements to which they are subject.
      As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation ("FDIC") categorized the Company's wholly-
owned subsidiary bank as "well-capitalized" under the regulatory framework
for prompt corrective action. To be categorized as well-capitalized, the
subsidiary bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There have been no
conditions or events since that notification that management believes would
cause a change in the subsidiary bank's categorization.
      The Company's and the subsidiary bank's actual capital amounts and
ratios as of December 31, 1999 and 1998 are presented in the following
table.


<PAGE> 49

<TABLE>
<CAPTION>
                                                                                                    To Be Well
                                                                                                  Capitalized Under
                                                                           For Capital            Prompt Corrective
                                                      Actual            Adequacy Purposes         Action Provisions
                                                ------------------     --------------------     ----------------------
                                                Amount      Ratio      Amount       Ratio       Amount        Ratio
                                                ------      -----      ------       -----       ------        -----
                                                                           ($ In Thousands)

<S>                                             <C>         <C>        <C>         <C>          <C>         <C>
As of December 31, 1999:
  Total Capital (to Risk Weighted Assets):
    Consolidated                                $79,501     14.18%     $44,855     >/=8.00%         N/A
    Subsidiary Bank                             $78,273     13.96%     $44,855     >/=8.00%     $56,069     >/=10.00%
  Tier I Capital (to Risk Weighted Assets):
    Consolidated                                $72,492     12.93%     $22,428     >/=4.00%         N/A
    Subsidiary Bank                             $71,263     12.71%     $22,428     >/=4.00%     $33,641      >/=6.00%
  Tier I Capital (to Average Assets):
    Consolidated                                $72,492      8.26%     $35,100     >/=4.00%         N/A
    Subsidiary Bank                             $71,263      8.12%     $35,100     >/=4.00%     $43,875      >/=5.00%
As of December 31, 1998:
  Total Capital (to Risk Weighted Assets):
    Consolidated                                $75,971     14.42%     $42,145     >/=8.00%         N/A
    Subsidiary Bank                             $72,961     13.85%     $42,145     >/=8.00%     $52,681     >/=10.00%
  Tier I Capital (to Risk Weighted Assets):
    Consolidated                                $69,379     13.17%     $21,072     >/=4.00%         N/A
    Subsidiary Bank                             $66,369     12.60%     $21,072     >/=4.00%     $31,609      >/=6.00%
  Tier I Capital (to Average Assets):
    Consolidated                                $69,379      8.18%     $33,944     >/=4.00%         N/A
    Subsidiary Bank                             $66,369      7.82%     $33,944     >/=4.00%     $42,430      >/=5.00%
</TABLE>

Stock Repurchase Program

      On August 11, 1998, the Company announced a Stock Repurchase Program
("Program"), whereby the Company's Board of Directors authorized the
repurchase of up to 5% of its outstanding common shares from time to time.
Any shares repurchased may be held in treasury, retired or used for general
corporate purposes. As of December 31, 1999, 199,061 shares had been
repurchased under the Program, with an additional 95,850 shares still
available to be repurchased.

NOTE 21-Restrictions on Subsidiary's Loans,
 Advances and Dividends

      Bank regulatory authorities restrict the amounts available for the
payment of dividends by the subsidiary bank to the Company if the effect
thereof would cause the capital of the subsidiary bank to be reduced below
applicable capital requirements. These restrictions indirectly restrict the
Company's ability to pay common stock dividends.
      Federal laws and regulations prohibit the Company from borrowing from
the subsidiary bank unless the loans are secured by specified amounts of
collateral. In addition, such secured loans to the Company from the
subsidiary bank generally are limited to 10 percent of the subsidiary bank's
capital surplus. At December 31, 1999 and 1998, no such transactions existed
between the Company and the subsidiary bank.

NOTE 22-Other Noninterest Expense

      Components of other noninterest expense were as follows:

<TABLE>
<CAPTION>
                                       Year Ended
                                      December 31,
                              ----------------------------
                                1999       1998       1997
                                ----       ----       ----
                                     (In Thousands)

<S>                           <C>        <C>        <C>
Advertising and marketing     $  623     $  567     $1,210
Amortization                     404        474        418
Data processing                  340        487      1,101
FDIC deposit insurance
 assessments                      95         93         82
Postage and freight              529        576        552
Professional fees                398        856        817
Printing and supplies            439        640        726
Telephone                        489        552        433
Other                          2,274      2,167      2,436
                              ----------------------------
                              $5,591     $6,412     $7,775
                              ============================
</TABLE>

<PAGE> 50


NOTE 23-Fair Values of Financial Instruments

      Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the subsidiary bank's entire holdings of
a particular financial instrument. Because no market exists for a
significant portion of the subsidiary bank's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
      Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets or liabilities and
therefore, are not valued pursuant to SFAS No. 107, include premises and
equipment, other real estate owned, life insurance contracts, deferred tax
assets, core deposit intangibles and goodwill.  In addition, the tax
ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in many of the estimates.
      The following methods and assumptions were used by the Company in
estimating fair values of its financial instruments:

Cash and due from banks and interest bearing
 deposits in other banks

      For cash and due from banks and short term investments in interest
bearing deposits in other banks, having maturities of 90 days or less, the
carrying amounts reported in the consolidated statements of financial
condition approximate fair values.

Securities held to maturity, securities available for sale
 and stock in Federal Home Loan Bank of Boston

      The fair value of securities held to maturity and securities available
for sale is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. Ownership of stock in
FHLBB is restricted to member banks; therefore, the stock is not traded. The
estimated fair value of stock in FHLBB, which approximates carrying value,
represents the price at which the subsidiary bank could liquidate its
holdings.

Loans held for sale

      Loans actively traded in the secondary mortgage market have been
valued using current investor yield requirements.

Loans

      Fair values are estimated for portfolios of loans with similar
financial characteristics.  Loans are segregated by type such as commercial,
financial and agricultural, commercial real estate, residential mortgage,
construction, and other consumer. Each loan category is further segmented
into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
      The fair value of performing loans, except residential mortgage loans,
is calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan. The estimate of maturity is based
on the subsidiary bank's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary
market sources adjusted to reflect differences in servicing and credit
costs.
      Fair value for significant nonperforming loans is based on recent
external appraisals. If appraisals are not available, estimated cash flows
are discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market
information and specific borrower information.

Mortgage Servicing Rights

      A valuation model that calculates the present value of future cash
flows is used to estimate such fair values.  This valuation model
incorporates assumptions that market participants would use in estimating
future net servicing income including estimates of the cost of servicing
loans, discount rate, float value, ancillary income, prepayment speeds and
default rates.

Accrued interest receivable

      The carrying value of accrued interest receivable on securities and
loans, included in other assets, approximates its fair value.

Deposits

      Under SFAS No. 107, the fair value of deposits with no stated
maturity, such as non-interest bearing deposits, NOW, regular savings and
money market deposit accounts, is equal to the amount payable on demand.
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market.  The fair value estimate of time certificates
is based on the discounted value of contractual cash flows.  The discount
rate is estimated using the rates currently offered for deposits of similar
remaining maturities.


<PAGE> 51


Securities sold under agreements to repurchase

      The fair value estimate of securities sold under agreements to
repurchase that mature within ninety days and bear market interest rates
approximates carrying value. For those maturing after ninety days, estimated
fair value is based upon the discounted value of contractual cash flows,
with the discount rate based on rates currently offered for borrowings of
similar maturities.

Other Borrowings

      The fair value of other borrowings is based upon the discounted value
of contractual cash flows.  The discount rate is estimated using the rates
currently offered for borrowings of similar maturities.

Accrued interest payable

      The carrying value of accrued interest payable on deposits and
borrowings, included in other liabilities, approximates its fair value.

Off-balance sheet instruments

      The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed rate loan commitments, excluding those
committed for sale to the secondary market, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of financial guarantees written and letters of credit is
based on fees currently charged for similar agreements or on the estimated
cost to terminate them or otherwise settle the obligations with the
counterparties. It is management's belief that the fair value estimate of
commitments to extend credit are not material, at December 31, 1999 and
1998, because most mature within one year, do not present any unanticipated
credit concerns and bear market interest rates.
      The fair values of the interest rate cap agreements are based on
dealer quotes.
      The following presents the carrying value and estimated fair value of
the Company's financial instruments at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                        December 31,
                                                     ---------------------------------------------------
                                                              1999                        1998
                                                     -----------------------     -----------------------
                                                     Carrying     Estimated      Carrying     Estimated
                                                      Value       Fair Value      Value       Fair Value
                                                     --------     ----------     --------     ----------
                                                                       (In Thousands)

<S>                                                  <C>           <C>           <C>           <C>
Financial Assets
  Cash and due from banks                            $ 18,575      $ 18,575      $ 23,506      $ 23,506
  Interest bearing deposits in other banks              4,402         4,402        19,532        19,532
  Securities held to maturity                          18,017        17,232        22,277        22,548
  Stock in Federal Home Loan Bank of Boston             7,201         7,201         7,201         7,201
  Securities available for sale                       215,572       215,572       219,765       219,765
  Net loans                                           560,414       558,837       547,071       554,886
  Loans held for sale                                     479           479         1,828         1,828
  Mortgage servicing rights                               401           773           390           643
  Accrued interest receivable                           5,767         5,767         5,722         5,722
Financial Liabilities
  Deposits (with no stated maturity)                  371,915       371,915       383,586       383,586
  Time deposits                                       256,103       256,086       266,901       269,129
  Securities sold under agreements to repurchase       75,042        75,057        70,905        70,905
  Other borrowings                                     90,563        87,616        80,608        80,579
  Accrued interest payable                              1,347         1,347         1,288         1,288

<CAPTION>
                                                   Contractual     Estimated    Contractual     Estimated
                                                   or Notional       Fair       or Notional       Fair
                                                     Amount          Value        Amount          Value
                                                   -----------     ---------    -----------     ---------
                                                                       (In Thousands)

<S>                                                  <C>           <C>           <C>           <C>
Off-balance sheet instruments
  Commitments to extend credit                       $ 51,265      $      0      $59,143       $      0
  Interest rate cap agreements                         20,000           273       20,000            122
</TABLE>

<PAGE> 52


NOTE 24-Condensed Parent Company Only Financial Information

      Condensed financial statements of Granite State Bankshares, Inc. (the
"Parent Company"), as of December 31, 1999 and 1998, and for the years ended
December 31, 1999, 1998 and 1997, are as follows:

Balance Sheets

<TABLE>
<CAPTION>
                                                    December 31,
                                                 -------------------
                                                  1999        1998
                                                  ----        ----
                                                   (In Thousands)

<S>                                              <C>         <C>
Assets
Interest bearing deposits in subsidiary bank     $ 2,117     $ 3,948
Investment in subsidiary bank, at equity          69,140      69,590
Other assets                                           7           3
                                                 -------------------
                                                 $71,264     $73,541
                                                 ===================

Liabilities                                      $   895     $   941

Stockholders' equity                              70,369      72,600
                                                 -------------------
                                                 $71,264     $73,541
                                                 ===================
</TABLE>

Statements of Earnings
<TABLE>
<CAPTION>
                                                                                                   Year Ended December 31,
                                                                                                -----------------------------
                                                                                                 1999        1998       1997
                                                                                                 ----        ----       ----
                                                                                                       (In Thousands)

<S>                                                                                             <C>         <C>        <C>
Revenues
  Interest income from subsidiary bank                                                          $    47     $   83     $   29
  Dividend income from subsidiary bank                                                            5,250      2,250      3,000
  Other revenues                                                                                               465
                                                                                                -----------------------------
      Total revenues                                                                              5,297      2,798      3,029
Operating expenses                                                                                   47         83        254
                                                                                                -----------------------------
Earnings before income taxes and equity in undistributed earnings (loss) of subsidiary bank       5,250      2,715      2,775
Income tax expense (benefit)                                                                                   161        (68)
                                                                                                -----------------------------
Earnings before equity in undistributed earnings (loss) of subsidiary bank                        5,250      2,554      2,843
Equity in undistributed earnings (loss) of subsidiary bank                                        4,875      7,003       (536)
                                                                                                -----------------------------
      Net earnings                                                                              $10,125     $9,557     $2,307
                                                                                                =============================
</TABLE>

<PAGE> 53


Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                          -------------------------------
                                                                                           1999        1998        1997
                                                                                           ----        ----        ----
                                                                                                  (In Thousands)

<S>                                                                                       <C>         <C>         <C>
Cash flows from operating activities:
  Net earnings                                                                            $10,125     $ 9,557     $ 2,307
  Adjustments to reconcile net earnings to net cash provided by operating activities:
    Equity in undistributed (earnings) loss of subsidiary bank                             (4,875)     (7,003)        536
    Gains on sales of other assets                                                                       (465)
    (Increase) decrease in other assets                                                        (4)         (1)        228
    Increase (decrease) in other liabilities                                                  (80)        127         (22)
    Deferred income tax expense (benefit)                                                                  68         (68)
                                                                                          -------------------------------
      Net cash provided by operating activities                                             5,166       2,283       2,981
                                                                                          -------------------------------

Cash flows from investing activities:
  (Increase) decrease in interest bearing deposits with subsidiary bank                     1,831      (1,448)     (1,781)
  Proceeds from sales of other assets                                                                     465
                                                                                          -------------------------------
      Net cash provided by (used in) investing activities                                   1,831        (983)     (1,781)
                                                                                          -------------------------------

Cash flows from financing activities:
  Dividends paid on common stock                                                           (3,185)     (2,824)     (1,285)
  Proceeds from issuance of common stock                                                                2,042         426
  Reissuance of common stock from treasury                                                    275          88
  Purchase of common stock for treasury                                                    (4,052)       (289)       (305)
  Repayment on liability relating to ESOP                                                     (35)        (36)        (36)
  Purchase of common stock relating to restricted stock awards                                           (281)
                                                                                          -------------------------------
      Net cash used in financing activities                                                (6,997)     (1,300)     (1,200)
                                                                                          -------------------------------
      Net increase (decrease) in cash                                                           0           0           0
Cash at beginning of year                                                                       0           0           0
                                                                                          -------------------------------
Cash at end of year                                                                       $     0     $     0     $     0
                                                                                          ===============================
</TABLE>

      The Parent Company's Statements of Comprehensive Income and Statements
of Stockholders' Equity are identical to the Consolidated Statements of
Comprehensive Income and Statements of Stockholders' Equity and therefore,
are not reprinted here.
      The Company has no material contingencies, commitments or long-term
obligations other than those disclosed elsewhere in the accompanying Notes
to Consolidated Financial Statements.


<PAGE> 54


NOTE 25-Summary of Quarterly Results (Unaudited)

The following is a summary of the quarterly results of operations for the
years ended December 31, 1999 and 1998.

<TABLE>
<CAPTION>
                                                            1999                                    1998
                                            -------------------------------------   -------------------------------------
                                            Fourth     Third    Second     First    Fourth     Third    Second     First
                                            Quarter   Quarter   Quarter   Quarter   Quarter   Quarter   Quarter   Quarter
                                            -------   -------   -------   -------   -------   -------   -------   -------
                                                                   ($ In Thousands, except per share data)
<S>                                         <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Interest and dividend income
  Loans                                     $11,411   $11,290   $11,290   $11,296   $11,447   $11,515   $11,595   $11,275
  Securities available for sale               3,121     2,896     2,920     2,983     2,739     2,542     2,099     2,455
  Securities held to maturity                   289       288       289       382       380       321       248       520
  Interest bearing deposits in other banks      303       341       137        95       373       349       226        81
  Dividends on Federal Home Loan Bank
   of Boston stock                              123       117       117       114       116       115       114       116
                                            -----------------------------------------------------------------------------
      Total interest and dividend income     15,247    14,932    14,753    14,870    15,055    14,842    14,282    14,447
                                            -----------------------------------------------------------------------------

Interest expense
  Deposits                                    5,236     5,159     5,213     5,263     5,589     5,664     5,533     5,768
  Other borrowed funds                        1,938     1,818     1,570     1,699     1,588     1,497     1,096       918
                                            -----------------------------------------------------------------------------
      Total interest expense                  7,174     6,977     6,783     6,962     7,177     7,161     6,629     6,686
                                            -----------------------------------------------------------------------------
      Net interest and dividend income        8,073     7,955     7,970     7,908     7,878     7,681     7,653     7,761

Provision for possible loan losses                0         0         0        50       350       250       225       300
                                            -----------------------------------------------------------------------------

      Net interest and dividend income
       after provision for possible loan
       losses                                 8,073     7,955     7,970     7,858     7,528     7,431     7,428     7,461
Net gains on sales of securities available
 for sale                                        13       404       286         5     1,805       481       800     1,099
Other noninterest income                      1,211     1,247     1,188     1,109     1,290     1,254     1,173     1,148
Noninterest expense<F1>                       5,540     5,455     5,475     5,446     7,221     5,560     5,565     5,859
                                            -----------------------------------------------------------------------------

  Earnings before income taxes                3,757     4,151     3,969     3,526     3,402     3,606     3,836     3,849
Income tax expense                            1,106     1,504     1,412     1,256     1,193     1,276     1,325     1,342
                                            -----------------------------------------------------------------------------

      NET EARNINGS<F1>                      $ 2,651   $ 2,647   $ 2,557   $ 2,270   $ 2,209   $ 2,330   $ 2,511   $ 2,507
                                            =============================================================================

Net earnings per share-basic<F2>            $   .46   $   .46   $   .44   $   .39   $   .38   $   .40   $   .43   $   .44

Net earnings per share-diluted<F2>          $   .45   $   .45   $   .43   $   .38   $   .37   $   .39   $   .42   $   .42

Annualized Returns
  Return on average assets                     1.20%     1.22%     1.21%     1.07%     1.03%     1.12%     1.27%     1.29%
  Return on average stockholders' equity      14.44%    14.53%    13.96%    12.58%    11.93%    12.74%    14.02%    14.63%


<FN>
--------------------
<F1>  Included in noninterest expense during the fourth quarter of 1998 were
      costs relating to the termination of certain officers. Additionally, a
      writedown of premises in connection with a branch closing occured
      during the fourth quarter of 1998. Noninterest expense associated with
      these items amounted to $1,472,000 in the fourth quarter of 1998.
<F2>  Net earnings per share is calculated by dividing net earnings by the
      average common shares outstanding for each quarter. Therefore, the sum
      of net earnings per share for the quarters may not equal net earnings
      per share for the year.
</FN>
</TABLE>

<PAGE> 55


                    SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                  At or for Years Ended December 31,
                                                         ----------------------------------------------------
                                                           1999       1998       1997       1996       1995
                                                         --------   --------   --------   --------   --------
                                                                ($ In Thousands, except per share data)

<S>                                                      <C>        <C>        <C>        <C>        <C>
Balance Sheet Data:

Total assets                                             $867,677   $878,147   $813,670   $797,840   $728,724
Net loans                                                 560,414    547,071    500,082    434,184    416,979
Loans held for sale                                           479      1,828      1,068      1,025      1,985
Investments<F1>                                           240,790    249,243    219,791    273,230    218,229
Deposits                                                  628,018    650,487    648,983    609,667    591,123
Securities sold under agreements to repurchase             75,042     70,905     66,025     64,961     49,958
Other borrowings                                           90,563     80,608     25,877     59,190     28,499
Stockholders' equity                                       70,369     72,600     66,914     59,429     54,755

Operating Data:

Interest and dividend income                             $ 59,802   $ 58,626   $ 59,011   $ 54,430   $ 51,798
Interest expense                                           27,896     27,653     28,900     27,243     25,018
                                                         ----------------------------------------------------
      Net interest and dividend income                     31,906     30,973     30,111     27,187     26,780
Provision for possible loan losses                             50      1,125      2,425      1,372      3,337
Net gains on sales of securities available for sale           708      4,185      2,187        650        338
Other noninterest income                                    4,755      4,865      4,912      5,081      4,703
Noninterest expense<F2>                                    21,916     24,205     31,774     22,640     24,364
                                                         ----------------------------------------------------
Earnings before income taxes                               15,403     14,693      3,011      8,906      4,120
Income taxes                                                5,278      5,136        704      1,705      1,638
                                                         ----------------------------------------------------
      Net earnings<F2>                                   $ 10,125   $  9,557   $  2,307   $  7,201   $  2,482
                                                         ====================================================

Per share data:
Net earnings per share-basic                             $   1.75   $   1.64   $    .42   $   1.35   $    .46
                                                         ====================================================
Net earnings per share-diluted                           $   1.71   $   1.60   $    .40   $   1.28   $    .44
                                                         ====================================================

Cash dividends declared on common stock                  $    .56   $    .50   $    .29   $    .20   $    .18

Financial Ratios:
  Return on average assets                                   1.18%      1.17%       .29%       .95%       .35%
  Return on average stockholders' equity                    13.88%     13.30%      3.57%     12.88%      4.56%

<FN>
--------------------
<F1>  Investments include securities held to maturity, securities available
      for sale and stock in the Federal Home Loan Bank of Boston.
<F2>  The Company recorded $5,917,000 in merger-related charges in 1997
      associated with the acquisition of Primary Bank. The after-tax amount
      of these costs was $4,325,000.
</FN>
</TABLE>

<PAGE> 56