EXHIBIT 13


                                  All the Bank
                              You'll Ever Need(TM)


                               1998 ANNUAL REPORT

Our Mission

It is our  mission  to be the  premier  community  commercial  bank  in  western
Connecticut;  to create and deliver quality  banking  products and services that
represent  exceptional  value;  to provide a stimulating  and  challenging  work
environment that encourages,  develops and rewards excellence;  and to serve our
local communities with integrity and pride.

Through  uncompromising  dedication  and  commitment  to this  mission,  we will
continue to be a responsible  corporate  citizen in the  communities in which we
serve and achieve consistent  superior financial  performance that creates value
for our stockholders.

Litchfield County        Park Lane Office       Bridgewater Office
Main Office              100 Park Lane Road     29 Main Street South
55 Main Street           New Milford, CT 06776  Bridgewater, CT 06752
New Milford, CT 06776    (860) 355-1171         (860) 355-1137
(860) 355-1171
                         Kent Office
South Seven Office       45 North Main Street
186 Danbury Road         Kent, CT 06757
New Milford, CT 06776    (860) 927-4681
(860) 355-1171

Fairfield County         Germantown Office      New Haven County
Candlewood Office        30 Germantown Road     Southbury Office
100 Route 37             Danbury, CT 06810      325 Main Street South
New Fairfield, CT 06812  (203) 743-6004         Southbury, CT 06488
(203) 746-2443                                  (203) 264-6463
                         Danbury Towers Office
Mill Plain Office        30 Main Street         NMBT Telephone Banker
105 Mill Plain Road      Danbury, CT 06810      (860) 350-0104
Danbury, CT 06810        (203) 792-BANK         (800) 368-6398
(203) 748-NMBT




<PAGE>


FINANCIAL HIGHLIGHTS

Dollars in thousands, except per share data
<TABLE>
<CAPTION>

For the Year Ended December 31,                                               1998             1997             1996
----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>              <C>
Net interest and dividend income                                         $  14,070        $  13,489        $  12,306
Noninterest income                                                           2,718            1,991            1,640
Noninterest expense                                                         11,282           10,110           10,385
Net income                                                                   3,217            2,898            2,792

----------------------------------------------------------------------------------------------------------------------
At Year End:
Assets                                                                    $380,481         $336,566         $305,545
Loans                                                                      229,945          223,909          211,686
Deposits                                                                   311,623          285,595          266,161
Stockholders' equity                                                        28,688           25,330           22,565

----------------------------------------------------------------------------------------------------------------------
Per Share:
Basic earnings                                                             $  1.22           $ 1.12          $  1.09
Diluted earnings                                                              1.15             1.05             1.04
Book value                                                                   10.77             9.69             8.72
Closing bid price                                                            16.13            20.00            11.75
Closing ask price                                                            17.38            22.00            12.50

----------------------------------------------------------------------------------------------------------------------
Selected Ratios:
Return on average assets                                                      0.90%            0.91%            0.98%
Return on average equity                                                     12.12            12.25            13.23
Loan loss allowance to nonperforming loans                                  142.48           110.23            79.79
Nonperforming assets to total assets                                          0.71             1.02             1.48
</TABLE>



                               [GRAPHICS OMITTED]

                                       1
<PAGE>

MESSAGE TO STOCKHOLDERS

To consumers and businesses, nmbt is all the bank they will ever need

To Our Stockholders,
Customers and Friends:

     NMBT represents many things to many people.  To our  stockholders,  it is a
public company with  consistent  dividends and dramatic growth in value over the
past few  years.  For our 170  employees  in 10 offices  throughout  Litchfield,
Fairfield and New Haven counties,  it is a source of income,  pride and personal
career satisfaction. To consumers and businesses in our market area, NMBT is all
the bank they will ever need,  providing  a myriad of  services  with a personal
touch.  To  everyone  in our  market  area,  NMBT has  earned a  reputation  for
consistency  and  stability  in  the  face  of  a  changing  financial  services
environment.

     1998 was another  successful  year for NMBT. We enjoyed growth in all areas
of the bank. These favorable forces and our commitment to providing  outstanding
personal service contributed to net income of $3.2 million in 1998, up from $2.9
million in 1997.


                                       2
<PAGE>

     Despite  our  satisfaction  with  such a  good  year,  we are  consistently
reminded  of the  fierce  competitive  forces  of  the  marketplace.  These  are
difficult  times when it comes to profitable  growth.  The price  competition we
have been facing over the past year has been intense;  and when coupled with the
cost of starting new branch offices, our ability to grow at a desirable rate has
been challenged.

     To address these concerns, NMBT has implemented plans to achieve growth. We
are revisiting our marketing  campaign in an effort to bolster name  recognition
and new business  development.  Our logo was redesigned and we received approval
in  February  1998 to change the name of the bank from  The New  Milford  Bank &
Trust  Company  to  NMBT.  In addition,  we expect to continue our  expansion by
capitalizing on the recent consolidation of larger banks. In this regard, we are
looking for  opportunities to enlarge our branch network by moving into recently
abandoned or closed offices of larger banks as a cost-effective way of expanding
without  incurring  the  start-up  costs  typically  associated  with new branch
offices.  Together,  our new graphic  identity,  marketing  campaign  and branch
expansion  strategy will go a long way toward  attracting new customers who will
value our service excellence and financial strength.

     Internally,  we are hard at work  strengthening  the  infrastructure of our
bank. We are currently  reviewing new platform equipment for branch personnel to
achieve more efficiency in branch delivery and on-line services.  Our goal is to
utilize the best technology  available so we can continue to deliver outstanding
customer service.

     In addition to  expending a  tremendous  amount of energy and  resources to
achieve corporate growth,  NMBT has always had a strong social  conscience.  The
Board of  Directors  has made a  commitment  to give  back to the  community  by
donating the time of personnel  and the  corporate  resources of NMBT to further
our  philanthropy  objectives.  This is reflected in the  Company's  outstanding
Community Reinvestment Act rating received from regulatory authorities.

     These days,  when everyone  seems to be reaching for the sky, few companies
manage to keep their feet on the ground and their eyes level to the horizon.  We
insist  on  delivering  the  highest  degree  of  customer  service,  on  giving
unparalleled  commitment  to community  endeavors,  on meeting and exceeding the
expectations  of the  marketplace  and in maximizing  stockholder  value without
taking undue risks. We remain committed to our marketplace and do not stray into
markets we do not  understand.  We also price  rationally and have not forgotten
the credit underwriting standards we established after the last recession.

     As we look toward the future,  this focus on excellence and risk management
will serve us well. We have five solid years of steady earnings and asset growth
to draw upon. NMBT will follow its mission of providing  financial  services and
capital to companies,  municipalities,  non-profit organizations and individuals
in our service area with a personal touch.

     We would like to thank our  hardworking  employees  for a year of  terrific
performance.  Their  continuing  efforts  make it possible for us to provide the
high-quality products and services demanded by our vital and expanding market.

Louis A. Funk, Jr.
Chairman of the Board

Michael D. Carrigan
President and Chief Executive Officer

                                       3
<PAGE>


OUR PARTNERSHIP WITH THE UNPARALLED COMMITMENT TO COMMUNITY ENTERPRISE

     Annual Walk America for the March of Dimes joins NMBT employees and friends
in their fund raising fight to end

     Ann's Place Home of I Can provides  counseling  services and support groups
to families  affected by cancer.  NMBT and the City of Danbury  donated the land
and building.

                               [GRAPHIC OMITTED]

                                       4
<PAGE>
PEOPLE

     NMBT  sponsors   concerts  in  village   centers,   bringing   culture  and
entertainment to thousands.

     Why does  NMBT  give  back so much to the  community?  Because  NMBT is the
community.  As a  hometown  bank,  all  employees  are  neighbors  living in the
communities they serve.  NMBT's experience proves that partnership,  cooperation
and caring make  communities  special  places to live in, work in and invest in.
NMBT is committed to these principles and to the people it calls neighbor.

     NMBT's family of employees gives its  unparalleled  commitment to community
enterprise through volunteer work and gifting programs.  Hundreds of NMBT branch
staff and management  take active roles in helping to shape better lives through
their  volunteer   efforts.   Schools,   hospitals,   teams,   clubs  and  other
organizations  throughout  Litchfield,  Fairfield and New Haven counties benefit
from the care giving efforts of NMBT's volunteer army.

     NMBT has made a significant level of qualified investments,  via donations,
within these  counties.  These  investments  consisting  of real estate to Ann's
Place,   financial   support  to  New  Milford  Hospital  and  contributions  to
nonprofits,  represent  a  significant  portion  of NMBT's net  income.  Michael
Carrigan,  NMBT's  President  and  CEO,  expressed  the  Bank's  pledge  to such
contributions when he said that effectively  servicing the communities with more
than sound financial advice and services is part of NMBT's corporate goals.

New Milford Hospital
Danbury Chamber of
   Commerce
New Milford Children's
   Center
New Milford Rotary Club
Danbury Rotary Club
Northern Fairfield County
   United Way
Shepaug Valley United Way
New Milford Chamber
   of Commerce
Kent Chamber of Commerce
Danbury Industrial Corporation
Danbury Lions Club
Regional YMCA
Western CT State University
Southbury Business
   Association
Hispanic Center of
   Greater Danbury
Minority Business Association
American Red Cross
Kent Senior Center
Danbury Hospital
SCORE -- Service Core
   of Retired Executives
Loaves and Fishes
New Milford Visiting
   Nurse Association
Junior Achievement
Bethel Chamber of
   Commerce
"DSABC" Danbury Schools
   and Business Collaborative
Salvation Army Danbury
   Advisory Board
City Center Danbury --
   Business Development
Ann's Place, The Home
   of I Can
Danbury Mayor's CRA
   Task Force
Danbury/Torrington
   Regional Workforce
   Development Board
Kiwanis
American Heart Association
American Cancer Society
Dream Come True of
   Western CT
New Fairfield Jaycees
Hospice
Bridgewater Fair
New Milford Housing
   Partnership
Danbury Catholic Family
   Services
New Milford Fair Days

                                       5

<PAGE>

                               #1 MORTGAGE LENDER

                    PROVIDING SERVICES WITH A PERSONAL TOUCH

     NMBT's Student  Loan  programs  help  families  manage  finances  for their
children's future.

     For a second  successive  year,  independent  statistics  show that NMBT is
ranked  as the  number  one  mortgage  lender  in its  designated  market  area.
Moreover,   NMBT  received  an  outstanding  Community  Reinvestment  Act  (CEA)
evaluation from regulatory  authorities.  This is due, in part, to our community
activities  coupled with flexible


                                       6
<PAGE>

and innovative lending programs delivered with a high level of personal service.
In  addition,  the  Bank's  expertise  in  lending  to low- and  moderate-income
borrowers  greatly  exceeded all other lenders in the area. NMBT is committed to
maintaining its strong market  presence in residential and consumer  lending and
to expanding mortgage banking activities.

     NMBT operates 10  full-service  branches and 14 automatic  teller  machines
(ATMs);  they are accessible,  many with drive-up options,  and office hours are
suited to the needs of the  community.  NMBT also offers  bilingual  services to
help facilitate banking  communications and accommodate the needs of its diverse
customer base.

Personal Loans and Mortgages

Fixed Rate Mortgages

Adjustable Rate
   Mortgages

Construction-to-Permanent
   Mortgages

CHFA Mortgage Program

CHFA Police Home
   Ownership Program

CHFA Down Payment
   Assistance

FHA Loans

FHA 203(k) Rehab Loans

VA Loans

NMBT's Express
   Mortgage

No-Point/No-Closing
   Cost Program

Pre-qualification

Home Equity Financing

Home Equity Loans

Home Equity Line
   of Credit

Consumer Loans

Cash Reserve

Visa & MasterCard

Student Loans

Plus Loans

                                       7

<PAGE>

                               BUSINESS PARTNERS

          REINVESTING RESOURCES IN THE COMMUNITY IS A GOOD INVESTMENT

     Small  business  owners  relyon  NMBT's  lending   programs  for  inventory
financing and growth initiatives.

     NMBT focuses on commercial and industrial  lending as a major  component of
its growth  strategy.  NMBT  continually  partners with small business owners as
part of its pledge to build strong  communities.  By  providing a ready  lending
stream to local  entrepreneurs,  NMBT assists them with marketplace  competition
and in their planning for future growth.

     NMBT understands that with economic health,  communities  thrive.  For more
than  two  decades,  NMBT  has  continually  reinvested  its  resources  in  the
commercial  productivity of area  residents.  Small business owners have come to
rely on NMBT's expertise in strategic  planning and ongoing  training  seminars.
Specialized  lending  officers  and  staff are  available  to work with loan and
investment needs of both


                                       8

<PAGE>
FINANCIAL REVIEW
Dollars in thousands, except per share data


     The following selected financial data for the five years ended December 31,
1998 is  derived  from  the  consolidated  financial  statements  of NMBT  CORP.
Balances are as of and for the years ended December 31.

<TABLE>
<CAPTION>
                                                     1998                1997               1996             1995             1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>                <C>              <C>              <C>
STATEMENTS OF CONDITION:
Assets                                           $380,481            $336,566           $305,545         $269,176         $252,485
Securities                                        116,690              84,005             63,761           40,206           38,859
Loans, net                                        226,106             220,372            208,474          194,605          186,946
Deposits                                          311,623             285,595            266,161          247,067          225,758
Stockholders' equity                               28,688              25,330             22,565           20,157           17,546

------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS:
Interest and dividend income                    $  24,190           $  22,709          $  20,300        $  18,463        $  14,797
Interest expense                                   10,120               9,220              7,994            7,084            4,757
Net interest income                                14,070              13,489             12,306           11,379           10,040
Provision for loan losses                             371                 582                390              160              240
Noninterest income                                  2,718               1,991              1,640            1,275            1,214
Noninterest expense                                11,282              10,110             10,385            9,798            9,336
Income before income taxes                          5,135               4,788              3,171            2,696            1,678
Provision for income taxes                          1,918               1,890                379              537              339
Net income                                          3,217               2,898              2,792            2,159            1,339

------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA:
Book value per share                               $10.77               $9.69              $8.72            $7.87            $6.93
Tangible book value per share                       10.67                9.49               8.43             7.48             6.40
Basic earnings per share                             1.22                1.12               1.09             0.85             0.53
Diluted earnings per share                           1.15                1.05               1.04             0.83             0.53
Cash dividends per share                             0.35                0.21               0.17             0.13             0.00

------------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS:
Return on average assets                             0.90%               0.91%              0.98%            0.84%            0.58%
Return on average equity                            12.12               12.25              13.23            11.56             7.83
Net interest spread                                  3.85                4.21               4.33             4.50             4.50
Net interest margin                                  4.33                4.67               4.73             4.82             4.74
Stockholders' equity to total assets                 7.54                7.53               7.39             7.49             6.95
Nonperforming assets to total assets                 0.71                1.02               1.48             2.17             2.62
</TABLE>

                                       9
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

GENERAL

   NMBT CORP (the  "Company"),  a Delaware  corporation  formed in 1997,  is the
registered  bank holding company for NMBT, a wholly-owned  subsidiary  formed in
1975. NMBT is the Company's only subsidiary and its primary investment.  The net
income of the Company is presently derived entirely from the business of NMBT.

   On November 25, 1997, NMBT completed a change in its corporate structure with
the formation of its parent holding  company -- NMBT CORP. The Company  provides
the  capability to offer  comprehensive  banking  services  through NMBT and may
provide,  through  NMBT and any other  subsidiaries  that NMBT CORP may acquire,
additional  banking  and other  permissible  non-banking  services.  The holding
company  structure  provides the Company with  maximum  flexibility  in pursuing
financial opportunities as they present themselves.

   NMBT,  headquartered in New Milford,  Connecticut,  is a state-chartered bank
and trust company. NMBT's principal business is to provide full banking services
to individuals and businesses in western Connecticut. Deposits are insured up to
applicable  limits by the Bank  Insurance  Fund  ("BIF") of the Federal  Deposit
Insurance Corporation ("FDIC"). NMBT's lending activities consist of originating
loans  collateralized  by residential and commercial  properties,  and extending
collateralized  and  uncollateralized  loans to consumers and  businesses.  NMBT
serves  its  market  through a network  of ten  banking  offices  located in New
Milford, Kent, Bridgewater, New Fairfield, Southbury and Danbury.

   As of December 31, 1998, the Company had total assets of $380.48 million,  up
from  $336.57  million  as of  December  31,  1997.  The growth in assets is the
product of strong loan growth and an increase in  securities,  which assets were
funded by an increase in deposits coupled with a modest leverage strategy. Loans
grew $6.04 million,  or 2.7 percent,  mainly in real estate loans.  During 1998,
the Company's Board of Directors declared four quarterly cash dividends totaling
$0.92 million, or $0.35 per share.

   The following discussion and analysis of the Company's consolidated financial
condition  and  results of  operations  should be read in  conjunction  with the
consolidated financial statements and notes to financial statements.

RESULTS OF OPERATIONS
SUMMARY

   Results of operations are largely  dependent upon net interest income,  which
is the difference  between interest and dividend income on earning assets,  such
as loans and  securities,  and  interest  expense on  deposits  and  borrowings.
Interest and dividend income on loans, securities and interest-bearing  deposits
is a function  of the  average  balances  outstanding  during the period and the
average yields earned.  Interest expense on deposits and borrowings is similarly
a function of average balances  outstanding and the average rates paid.  Results
of operations  are also affected by: the provision for loan losses,  noninterest
income,  such as  service  charges on  deposits  and other  fee-based  revenues,
noninterest expense, and income taxes.

   Operating  results have benefited  considerably  in the past three years from
continued improvements in overall asset quality and reduced noninterest expenses
as a percent of net revenues.  The Company recorded net income of $3.22 million,
or $1.15  diluted  earnings per share for 1998,  compared to net income of $2.90
million,  or $1.05  diluted  earnings per share for 1997 and net income of $2.79
million,  or $1.04 diluted  earnings per share for 1996.  The 11 percent rise in
net  income  from  1997  to  1998  results   primarily   from  the  increase  in
interest-earning assets, continuation of a modest leverage strategy and dramatic
growth in  mortgage-banking  activities.  The 24 percent rise in net income from
1996 to 1997  results  primarily  from an increase in  interest-earning  assets,
which  assets were funded by a favorable  mix of low-cost  deposits  and Federal
Home Loan Bank ("FHLB") advances, coupled with improved operating efficiency.

COMPARISON OF YEARS ENDED
DECEMBER 31, 1998 AND 1997
NET INTEREST AND DIVIDEND INCOME

   Net interest and dividend  income  (interest  income less  interest  expense)
increased $0.58 million,  or 4.3 percent from 1997 to 1998. During the same time
period,  the net  interest  margin  declined  from 4.67  percent in 1997 to 4.33
percent in 1998. The decrease in the margin can be attributed to customer demand
for fixed  rate  loans,  increased  price  competition  for loans and  deposits,
matching  time deposit  rates of  competitors  when  necessary so as to maintain
market share in existing markets and a high-rate savings special in Southbury to
attract new  customers.  The effect of this  approach is to increase the overall
level of growth,  albeit at a lower  interest  rate  spread.  Overall,  deposits
increased  $26.0 million from December 31, 1997 to December 31, 1998,  mostly in
low-cost checking and savings accounts. In addition, FHLB advances were utilized
to match fund  material  fixed  rate  commercial  loans to lock in spreads  when
variable  rate loans were not suitable to the borrower.  The strong  increase in
core  deposits  and  careful  pricing  of core  accounts  and time  deposits  by
management had the effect of decreasing  the overall cost of funds.  Despite the
drop in the yield on assets from 7.79 to 7.35 percent, interest income increased
at a faster  rate than  interest  expense  from 1997 to 1998  mainly  due to the
strong increase in interest-earnings assets which were funded by a favorable mix
of new core deposits.

NONINTEREST INCOME

   Noninterest  income  increased from $1.99 million in 1997 to $2.72 million in
1998, primarily due to increases in loan servicing fees and gains on the sale of
mortgages  resulting  from  a  strategic  decision  to  expand  mortgage-banking
activities.  Service charges on deposit accounts  decreased $0.02 million due to
reduced  overdraft  fees and  customers'  consolidating  accounts and increasing
balances to avoid monthly fees.  These negative  trends in service  charges were
partially  offset by increased ATM servicing fee income from higher  transaction
volume and  additional  ATM

                                       10
<PAGE>

machines  and higher fees from an increase  in the number of  Mastermoney  debit
card  transactions.  Income from mortgage-  banking  activities  increased $0.71
million due to increased loan servicing fees and gains on the sales of mortgages
with fixed rates and adjustable rate mortgages with initial  adjustment  periods
of more than three years.  Increases  in  mortgage-banking  income  reflects the
Company's strategy of increasing its  mortgage-servicing  portfolio,  which grew
from $20.9 million at December 31, 1997 to $79.0 million at December 31, 1998.

NONINTEREST EXPENSE

   Noninterest  expense  increased  $1.17  million,  or 11.6 percent,  to $11.28
million in 1998,  up from $10.11  million in 1997.  The  increase  is  primarily
attributable  to  an  increase  in  assets  of  13.0  percent,  an  increase  in
mortgage-banking  staff to handle a  tripling  of  volume,  the  opening  of the
Southbury Office in late 1997 and increased donations. Compensation and benefits
increased $0.68 million,  or 12.6 percent,  mainly due to salary increases,  the
opening of the Southbury  office and increased  staffing in the loan departments
to accommodate  demand.  Data processing  expense increased $0.12 million due to
$0.04 million in costs associated with Year 2000, the addition of a drive-up and
in-store ATM in Southbury, communications and equipment in the Southbury branch,
increases to service  contracts on the  mainframe  computer and new hardware and
software for the mortgage  department.  Other operating expenses increased $0.20
million,  or 15.5 percent,  due to $0.12 in donations to New Milford Hospital in
connection with NMBT's pledge for the new oncology  center, a full year of costs
associated  with the opening of NMBT's tenth full service office in Southbury in
September 1997 and a full year of costs associated with establishing the holding
company in November 1997.

COMPARISON OF YEARS ENDED
DECEMBER 31, 1997 AND 1996
NET INTEREST AND DIVIDEND INCOME

   Net interest and dividend income increased $1.18 million, or 9.6 percent from
1996 to 1997. During the same time period, the net interest margin declined from
4.73 percent in 1996 to 4.67 percent in 1997.  The decrease in the margin can be
attributed  to a strategy of  increasing  the size of the bank with leverage and
maintaining  certificates  of deposit by matching the rates of competitors  when
necessary so as to maintain  market share in existing  markets and penetrate new
markets. The effect of this approach is to increase the overall level of growth,
albeit at a lower  interest  rate  spread.  Overall,  deposits  increased  $19.4
million from December 31, 1996 to December 31, 1997, mostly in  interest-bearing
checking and certificates of deposit.  In addition,  FHLB advances were utilized
to match fund  material  fixed  rate  commercial  loans to lock in spreads  when
variable rate loans were not suitable to the borrower.  These funding strategies
had the  effect  of  increasing  the  overall  cost of funds.  Interest  expense
increased at a faster rate than interest  income from 1996 to 1997 mainly due to
the change in the mix of  deposits  mentioned  above,  and the  addition  of new
business at lower spreads than in previous years.

NONINTEREST INCOME

   Noninterest  income  increased from $1.64 million in 1996 to $1.99 million in
1997,  primarily due to increases in insufficient funds charges, fee income from
ATM and debit cards, and expanded mortgage-banking  activities.  Service charges
on deposit  accounts  increased $0.07 million due to increased ATM servicing fee
income from higher  transaction  volume and additional  ATM machines,  increased
fees for  insufficient  funds and higher  fees from an increase in the number of
Mastermoney debit card  transactions.  Income from  mortgage-banking  activities
increased  $0.18 million due to increased  loan  servicing fees and gains on the
sales of fixed rate mortgages. Increases in mortgage-banking income reflects the
Company's strategy of increasing its  mortgage-servicing  portfolio,  which grew
from $12.2  million at December 31, 1996 to $20.9  million at December 31, 1997.
Other  charges,  commissions  and fees  increased  $0.03  million  mainly on the
strength  of  additional  merchant  credit  card  transactions  as  the  Company
continues to expand its network of merchant credit card processing sites.  Other
income increased $0.07 million due to interest income received from the recovery
of federal and state  income taxes from  amending  prior year income tax returns
and a  greater  increase  in the  cash  surrender  value of life  insurance  for
contracts related to the 1986 deferred compensation plan.

NONINTEREST EXPENSE

   Noninterest  expense  decreased  $0.28  million,  or 2.6  percent,  to $10.11
million in 1997,  down from $10.39  million in 1996.  The  decrease is primarily
attributable to an overall improvement in operating efficiency from 1996 to 1997
as a result  of  management's  continued  focus on cost  control,  asset  growth
without  increases  to  staff,  migration  to  more  part-time  workers  and the
reduction  of  nonperforming  assets.  All of these  factors  served to  control
noninterest  expenses,   despite  a  10.2  percent  increase  in  total  assets.
Compensation and benefits increased $0.34 million, or 6.8 percent, mainly due to
the  opening  of the  Southbury  Office  and  increased  staffing  in  the  loan
departments  to accommodate  demand.  Other  operating  expenses were down $0.19
million, or 12.2 percent, due to stronger cost controls. In addition, 1996 other
operating  expenses  included  approximately  $0.10 million for  settlement of a
legal claim and the associated legal fees and a $0.02 million loss in connection
with the  robbery  of the Mill  Plain  Office.  Improvements  in 1997  operating
efficiency  more than offset the opening of NMBT's tenth full service  office in
Southbury in September  1997 and  approximately  $0.08  million in  expenditures
associated with  reorganization  into a holding company  structure.  None of the
expenses associated with establishing the holding company were capitalized.

                                       11
<PAGE>
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                                                                   Years ended December 31,
                                                                                         -------------------------------------------
Dollars in thousands                                                                       1998              1997             1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>               <C>              <C>   
Allowance for loan losses at beginning of year                                           $3,537            $3,212           $3,553
Provision for loan losses charged against income                                            371               582              390
Transfer to liability for estimated losses from
   off-balance sheet credit instruments                                                    (110)              (20)            (200)
Loan losses, net of recoveries                                                               41              (237)            (531)
------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year                                                 $3,839            $3,537           $3,212
====================================================================================================================================
Ratio of allowance for loan losses:
   to nonperforming loans                                                                 142.5%            110.2%            79.8%
   to total loans                                                                           1.7%              1.6%             1.5%
Provision for loan losses to average loans                                                  0.1%              0.3%             0.1%
Loan losses, net of recoveries to average loans                                             0.0%              0.1%             0.3%
====================================================================================================================================
</TABLE>

PROVISION AND ALLOWANCE FOR LOAN LOSSES

     The provision for loan losses  totaled $0.37 million for 1998,  compared to
$0.58 million for 1997 and $0.39 million in 1996.

     In 1998, the Company  recorded net  recoveries of $0.04  million.  Net loan
charge-offs  for fiscal 1997 were $0.24  million,  versus $0.53 million in 1996.
The  decreased  provisions  in 1998  reflect  lower  charge-offs  and  declining
nonperforming  loans.  The increased  provision for loan losses in 1997 reflects
growth in the commercial and installment loan portfolios. The provision for loan
losses  reflects  management's  assessment  of the adequacy of the allowance for
loan losses.  The amount of future  provisions will be a function of the regular
monthly review of the allowance for loan losses,  which  considers,  among other
things, the risk  characteristics of the loan portfolio and economic  conditions
existing  at the time.

     The provisions for loan losses  reflect  management's  analysis of the risk
elements of the loan  portfolio,  current  delinquency  rates and payment trends
(including the reduced level of charge-offs in 1998 and 1997).

     The Company  determines  its allowance and provisions for loan losses based
upon a  detailed  evaluation  of the loan  portfolio  through a  process,  which
considers numerous factors.  These factors include estimated credit losses based
on portfolio reviews,  delinquency  levels and trends,  estimates of the current
value  of  underlying  collateral,  concentrations,  portfolio  volume  and mix,
changes in lending policy,  historical loan loss  experience,  current  economic
conditions and examinations by regulatory authorities.

     Determining  the level of the  allowance at any given period is  difficult,
particularly during  deteriorating or uncertain economic times.  Management must
make estimates using assumptions and information,  which is often subjective and
changing  rapidly.  The review of the loan portfolio is a continuing  process in
light of a changing  economy and the  dynamics  of the  banking  and  regulatory
environment.

     Management  believes the overall level of the allowance for loan losses was
adequate at December 31, 1998 and 1997. Should the economic climate deteriorate,
borrowers  could  experience  difficulty and the level of  nonperforming  loans,
charge-offs and delinquencies  could rise and require  increased  provisions for
loan losses. In addition,  various regulatory  agencies,  as an integral part of
their examination process,  periodically review the Company's allowance for loan
losses.  Such agencies  could require the Company to recognize  additions to the
allowance based on their judgments of information  available to them at the time
of their  examination.  For a discussion  of  nonperforming  assets,  see "Asset
Quality."

PROVISION FOR INCOME TAXES

     The Company returned to a fully taxable  reporting basis on January 1, 1997
following the  recognition  of  substantially  its entire  deferred tax asset at
December 31, 1996. Net income for 1998 included an income tax provision of $1.92
million (a 37.4 percent  effective tax rate),  as compared to the 1997 provision
for income taxes of $1.89  million (a 39.5 percent  effective  tax rate) and the
1996  provision for income taxes of $0.38 million (a 12.0 percent  effective tax
rate).  The 1996 provision for income taxes was lower due to the  recognition of
deferred tax benefits in the fourth quarter of 1996.

     The  recognition of deferred tax benefits  resulted from a reduction in the
Company's  valuation  allowance  on its  deferred  tax  asset,  which  reflected
improved  financial  performance  marked by improving core earnings,  consistent
reductions in nonperforming  assets,  and a positive outlook for earnings in the
future.  Recognition of these future tax benefits in 1996 required that earnings
in 1997 and future  periods be tax effected at the  statutory  federal and state
rates, adjusted for any permanent  differences.

     Effective  January 4, 1999,  NMBT has formed a Passive  Investment  Company
("PIC") to take advantage of changes in Connecticut tax statutes.  The statutes,
effective  January 1, 1999,  allow NMBT to  transfer  mortgages  into the PIC, a
wholly-owned subsidiary of NMBT. Income of the PIC and its dividends to NMBT are
exempt from Connecticut  Corporation Business Tax.  Consequently,  the Company's
consolidated  1999 effective tax rate is expected to be 2-4 percent less than in
1998. The formation of the PIC will require the Company to establish a valuation
allowance  against its deferred state tax assets that are no longer  expected to
be realized in future years.

                                       12
<PAGE>


ASSET/LIABILITY  MANAGEMENT

     One of the Company's primary financial objectives is to manage the interest
rate risk  inherent  in its  business.  This is  accomplished  by  reducing  the
sensitivity  of its  earnings  to  interest  rate  fluctuations,  improving  its
interest  rate spread,  improving  the ratio of its  interest-earning  assets to
interest-bearing  liabilities  and achieving a better matching of the maturities
and interest rate sensitivities of its assets and liabilities. A better matching
is achieved  through  originating  adjustable  rate or  short-term  mortgage and
commercial  loans,  obtaining  longer  duration  sources of funds,  and  selling
long-term,  fixed rate loans.  These efforts can be expected to result in shifts
in the  Company's  one-year  gap  from  time  to time  to  reflect  management's
forecasts of the interest rate  environment.

     The Company  monitors its interest rate risk exposure on a quarterly  basis
using both  traditional  gap analysis to identify  short and long-term  interest
rate risk positions, and simulation analysis to measure the amount of short-term
earnings at risk under rising and falling interest rate scenarios.

     Gap analysis  measures the difference  between the amount of assets and the
amount of liabilities  that mature or are repriced  during a given time frame. A
"positive" gap results when more assets than liabilities  mature or are repriced
in a given time frame (denotes asset sensitivity).  Conversely, a "negative" gap
results when more  liabilities than assets mature or are repriced during a given
time frame (denotes liability sensitivity).

   The  following  table  sets forth the  Company's  interest  rate  sensitivity
position, or gap position, at December 31, 1998, measured in terms of the volume
of interest rate sensitive  assets and liabilities that are subject to repricing
in future time periods. For purposes of this analysis,  all checking and savings
accounts have been presented  within the one-month  category.  Nonaccrual  loans
have been presented in the noninterest-bearing category.  Significant variations
may exist in the degree of interest rate  sensitivity  between  individual asset
and liability types within the repricing periods presented due to differences in
their repricing  elasticity relative to changes in the general level of interest
rates.

GAP ANALYSIS

<TABLE>
<CAPTION>
                                              WITHIN 6           7-12                      AFTER      NONINTEREST-
DOLLARS IN THOUSANDS                            MONTHS         MONTHS              1-5 YEARS       5 YEARS    BEARING          TOTAL
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>              <C>             <C>           <C>              <C>
ASSETS
Securities                                   $  19,040      $   7,051        $30,739         $59,860       $       --       $116,690
Loans                                          143,581         34,973         42,007           6,690            2,694        229,945
Interest-bearing deposits                       13,730             --             --              --               --         13,730
Other assets                                        --             --             --              --           20,116         20,116
------------------------------------------------------------------------------------------------------------------------------------
   Total assets                               $176,351       $ 42,024        $72,746         $66,550       $   22,810       $380,481
------------------------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
Noninterest-bearing checking                 $      --       $     --      $      --         $    --       $   44,414       $ 44,414
Interest-bearing checking                       99,216             --             --              --               --         99,216
Savings                                         72,334             --             --              --               --         72,334
Time deposits                                   53,571         25,338         16,750              --               --         95,659
FHLB advances                                    6,256          7,041          7,836          16,539               --         37,672
Other liabilities                                   --             --             --              --            2,498          2,498
Stockholders' equity                                --             --             --              --           28,688         28,688
------------------------------------------------------------------------------------------------------------------------------------
   Total sources of funds                     $231,377       $ 32,379        $24,586         $16,539       $   75,600       $380,481
------------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap                     $ (55,027)     $   9,645        $48,160         $50,013       $  (52,791)      $     --
------------------------------------------------------------------------------------------------------------------------------------
Cumulative gap                               $ (55,027)      $(45,382)      $  2,778         $52,791       $       --
------------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a
   percentage of assets                         (14.46)%       (11.93)%         0.73%          13.87%              --%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The Company  maintains a relatively  balanced  position for managing interest
rate risk. At December 31, 1998, the one-year  negative gap was $(45.4) million,
or 11.9 percent of total assets.  Management, as warranted by market conditions,
can  quickly  modify this gap  position.  The Board of  Directors  is briefed on
tactical and strategic issues inherent in the Company's gap position.

   The gap analysis reflects liability sensitivity,  while the income simulation
displays  asset  sensitivity.   This  difference  in  results  between  the  two
approaches  is caused by  inclusion  of all  checking  and  savings  deposits as
immediately  repriceable for purposes of computing the gap. Management is unable
to  reliably  document  customer  behavior  when rates  change and has chosen to
maintain its  position  that,  technically,  all core  deposits are  immediately
repriced.  Consequently,  this causes the gap  analysis  to  indicate  liability
sensitivity.

   To translate this into an effective income simulation,  management  documents
the relative  changes in deposit rates in relation to changes in market interest
rates.  This  relationship  is then used to adjust rates on core deposits in the
model to reflect a more accurate income simulation.  Since the income simulation
takes into  account the  dynamics of  management  decisions,  the  proportionate
adjustments  to core deposit rates  relative to market  rates,  options risk and
predicted customer behavior;  it has proven to be a reliable measure by which to
project  earnings  volatility.  The income  simulation shows that the Company is
actually  asset  sensitive  and earnings do better in a rising rate  environment
than they do in a falling rate environment.

                                       13

<PAGE>

   The  following  table  presents  average  balance  sheets  (daily  averages),
interest income and interest expense,  and the  corresponding  yields earned and
rates paid. The average loan balances include both performing and  nonperforming
loans.  Interest  income on loans does not  include  interest on loans for which
interest is no longer accrued.


DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
                                                  1998                            1997                            1996
                                         -------------------------      -------------------------       --------------------------
                                                        TAX                            Tax                             Tax
                                         AVERAGE EQUIVALENT YIELD/      Average Equivalent Yield/       Average Equivalent  Yield/
Dollars in thousands                     BALANCE   INTEREST   RATE      Balance   Interest   Rate       Balance   Interest    Rate
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>          <C>   <C>         <C>          <C>    <C>         <C>       C>
ASSETS
INTEREST-EARNING ASSETS:
Loans (1)                               $229,504    $17,952      7.82% $216,665    $17,791      8.21%  $203,928    $16,534  8.11%
Taxable securities                        77,915      4,961      6.37%   60,015      4,026      6.71%    50,952      3,371  6.62%
Tax-exempt securities                     19,337      1,274      6.59%   12,959        887      6.85%     6,219        422  6.79%
Interest-bearing deposits                  8,323        428      5.15%    5,612        301      5.37%     2,154        113  5.25%
----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets            335,079     24,615      7.35%  295,251     23,005      7.79%   263,253     20,440  7.76%
----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
Cash and due from banks                   17,011                         16,387                          15,312
Premises and equipment, net                3,684                          3,641                           3,760
Other assets                               5,408                          5,751                           5,597
Allowance for loan losses                 (3,758)                        (3,434)                         (3,469)
----------------------------------------------------------------------------------------------------------------------------------
       Total                            $357,424                       $317,596                        $284,453
----------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Deposits                                $256,139   $  8,178      3.19% $240,000   $  8,144      3.39%  $220,137   $  7,255  3.30%
FHLB advances and capital leases          32,957      1,942      5.89%   17,301      1,076      6.22%    12,376        739  5.97%
----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities       289,096     10,120      3.50%  257,301      9,220      3.58%   232,513      7,994  3.44%
----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
Deposits                                  39,203                         34,016                          28,681
Other liabilities                          2,587                          2,611                           2,160
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities                        330,886                        293,928                         263,354
Stockholders' equity                      26,538                         23,668                          21,099
----------------------------------------------------------------------------------------------------------------------------------
       Total                            $357,424                       $317,596                        $284,453
----------------------------------------------------------------------------------------------------------------------------------
Net interest income                                  14,495                         13,785                         $12,446
Less FTE adjustment                                     425                            296                             140
----------------------------------------------------------------------------------------------------------------------------------

Net interest income per
   income statement                                 $14,070                        $13,489                         $12,306
----------------------------------------------------------------------------------------------------------------------------------
Interest rate spread (FTE)                                       3.85%                          4.21%                       4.33%

Net interest margin (FTE)                                        4.33%                          4.67%                       4.73%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Included in interest  income from loans is accretion  (amortization)  of net
deferred loan fees and costs.

   Management has continued to focus its marketing efforts on the origination of
adjustable rate loans for its own portfolio.  The origination of adjustable rate
loans reduces interest rate risk by increasing the portion of the loan portfolio
that constitutes interest sensitive assets.  Increased borrower demand for fixed
rate loans  continued  during 1998 as interest rates remained at historical lows
throughout  the year.  The increased  refinancing  activities as a result of the
favorable  interest rate environment has made it much more difficult to maintain
the spread between yields on assets and rates paid on liabilities.

   Declining  interest  rates  throughout  the year  caused the yield  earned on
assets to fall, which was offset by increases in interest-earnings  assets. This
increase in assets was funded by favorable mix of savings and checking accounts.
Larger  fixed rate  commercial  loans were  selectively  match  funded with FHLB
advances.  The  leveraging  of the  aforementioned  growth with  advances  and a
decrease in market  interest  rates  combined to  decrease  the spread  realized
between the yield on assets and the cost of funds.  Lower interest rates in 1998
reversed the migration  from savings and  transaction  accounts to time deposits
because of the convergence of savings and time deposit rates.


                                       14
<PAGE>


   The Company  structures  its loan and  securities  portfolios  to provide for
portfolio  repricing  consistent with its interest rate risk objectives,  and to
ensure that earnings at risk to short-term  interest rate  fluctuations will not
exceed +/-10 percent of net interest income. A significant factor in determining
the Company's ability to maintain its net interest margin in a changing interest
rate  environment is its ability to manage its core deposit  rates.  Essentially
all of the Company's  deposit base is composed of local retail deposit  accounts
which tend to be somewhat less sensitive to moderate  interest rate fluctuations
than other  funding  sources and,  therefore,  provide a  reasonably  stable and
cost-effective source of funds.

   Based on the Company's asset/liability mix at December 31, 1998, management's
simulation analysis of the effects of changing interest rates on net income over
a twelve-month forecast horizon projects that a gradual 200 basis point increase
or  decrease in market  interest  rates would  result in a net  interest  income
fluctuation of less than 10 percent.

   The sensitivity table presents an analysis of the sensitivity inherent in the
Company's  net interest  income.  The interest rate  scenarios  presented in the
table  include  interest  rates at December  31, 1998 and as adjusted by gradual
rate changes  upward and  downward of 200 basis  points over a one-year  period.
Each rate scenario reflects unique prepayment and repricing assumptions.

   Since there are limitations  inherent in any methodology used to estimate the
exposure to changes in market interest  rates,  this analysis is not intended to
be a forecast of the actual effect of a change in market  interest  rates on the
Company.  The net  interest  income  variability  reflects the  Company's  asset
sensitivity (defined here) and does not include the decrease in earnings from an
increase in  amortization of servicing  intangible  assets that may be caused by
higher  prepayments when rates decline.  Further,  this analysis is based on the
Company's assets,  liabilities and off-balance sheet instruments at December 31,
1998 and does not  contemplate  any  actions  the  Company  might  undertake  in
response to changes in market interest rates.

   Management  currently  anticipates that it will maintain a negative  one-year
gap  throughout  1999 to reflect,  among other  things,  the lag in repricing of
checking and savings  deposits,  which deposits are all  considered  immediately
replicable in the gap analysis.

SENSITIVITY TABLE
<TABLE>
<CAPTION>
                                            Simulated Change in
Change in Interest Rates     Board Limit    Net Interest Income
--------------------------------------------------------------------------------
<S>                           <C>                 <C>
  (Basis points)

        +200                     10.00%              4.64%
           0                      0.00%              0.00%
        -200                    (10.00)%            (6.68)%
================================================================================
</TABLE>

   The table below  summarizes the  year-to-year  changes in net interest income
resulting  from  fluctuations  in  interest  rates and from  volume  changes  in
interest-earning  assets and interest-bearing  liabilities.  Changes due to rate
are the change in rate  multiplied  by the prior year's  volume.  Changes due to
volume are the change in volume multiplied by the prior year's rate.  Changes in
volume and rate that cannot be  separately  identified  have been  allocated  in
proportion to the  relationship of the absolute dollar amounts of the changes in
rate and volume.

RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
                                                                   1998 COMPARED TO 1997                 1997 COMPARED TO 1996
                                                             -----------------------------------------------------------------------
                                                                INCREASE  (DECREASE)  DUE TO          INCREASE  (DECREASE)   DUE TO
------------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands                                          VOLUME        RATE       TOTAL          VOLUME       RATE       TOTAL
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>           <C>       <C>              <C>          <C>       <C>
Interest earned on:
Loans                                                        $   805       $(644)    $   161          $1,044       $213      $1,257
Taxable securities                                             1,127        (192)        935             608         47         655
Tax-exempt securities (FTE)                                      419         (32)        387             461          4         465
Interest-bearing deposits                                        139         (12)        127             185          3         188
------------------------------------------------------------------------------------------------------------------------------------
                                                               2,490        (880)      1,610           2,298        267       2,565
------------------------------------------------------------------------------------------------------------------------------------

Interest paid on:
Deposits                                                         280        (246)         34             669        220         889
FHLB advances and capital leases                                 919         (53)        866             305         32         337
------------------------------------------------------------------------------------------------------------------------------------
                                                               1,199        (299)        900             974        252       1,226
------------------------------------------------------------------------------------------------------------------------------------

Increase (decrease) in net interest income                    $1,291       $(581)    $   710          $1,324      $  15      $1,339
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       15
<PAGE>
SECURITIES
   The  principal  categories  of  the  securities  portfolio,   including  both
available for sale and held to maturity, are as follows:

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                               ---------------------------------------------------
Dollars in thousands                                                                    1998                      1997
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                  <C>       <C>          <C>  
U.S. Treasury and agency                                                       $  75,506            64.7%     $38,186      45.5%
Municipal                                                                         21,493            18.4       17,385      20.7
Mortgage-backed                                                                   15,563            13.3       26,674      31.7
Corporate                                                                          2,148             1.9           --      --
----------------------------------------------------------------------------------------------------------------------------------
   Total debt securities                                                         114,710            98.3       82,245      97.9
FHLB stock                                                                         1,980             1.7        1,760       2.1
----------------------------------------------------------------------------------------------------------------------------------
   Total securities                                                             $116,690           100.0%     $84,005     100.0%
==================================================================================================================================
</TABLE>

   At December 31, 1998,  91.8 percent of the securities  portfolio was invested
in fixed rate  securities,  6.5 percent in adjustable  rate  securities  and 1.7
percent in FHLB stock.  Fixed rate  securities  include US  Treasury  and agency
obligations,   mortgage-backed   securities   ("MBS"),   Connecticut   municipal
obligations and corporate securities. Fixed rate MBS are generally in securities
with relatively stable cash flows.  Management actively monitors the prepayments
of its MBS. Adjustable rate securities,  which consist of six-month and one-year
ARM securities,  generally  reprice monthly based on predetermined  spreads over
various  underlying  indices and are subject to annual and lifetime  caps.  Some
fixed rate agency  securities  are match funded with FHLB  advances.  Adjustable
rate  securities are tied to the London  Interbank  Offered Rate ("LIBOR") or US
Treasury rates.

   Securities  purchased  with the intent to hold to maturity for the purpose of
earning  interest  income are stated at cost, and adjusted for  amortization  of
premiums and accretion of discounts. Securities which management does not intend
to hold to maturity are  categorized as available for sale.  Trading  securities
are prohibited by policy.

   At December 31, 1998,  securities  totaling $76.33 million,  or 65.4 percent,
were  classified as available for sale and  securities  totaling  $40.36 million
were  classified  as held to  maturity.  Included  in  stockholders'  equity  at
December 31, 1998 is an adjustment of $0.68 million,  net of taxes,  relating to
the net unrealized  gain on the available for sale  portfolio.  No credit losses
are anticipated  and all unrealized  gains and losses are expected to reverse as
the available for sale securities approach maturity.  Short-term fluctuations in
fair market value caused by  movements in interest  rates and market  conditions
will not necessarily adversely impact future earnings.

   On occasion, available for sale securities are sold prior to maturity and the
proceeds are used to fund loans when  deposit  in-flows  are not  adequate,  the
rates offered on FHLB advances are not  favorable and liquidity  ratios  support
sales. Management believes this restructuring to be prudent since it provides an
opportunity to reinvest the proceeds from sales of securities in higher yielding
loans.  Management  also  occasionally  sells  available for sale  securities to
restructure  an  asset/liability  mismatch,  reduce  exposure to  interest  rate
fluctuations, improve its tax position or for other specific purposes.

LENDING ACTIVITIES
SUMMARY

   The  Company's  lending  operation  is currently  divided into three  primary
functions: residential mortgage lending, commercial lending and consumer lending
(including automobile loans,  personal loans,  guaranteed student loans and home
equity loans).

   Residential  mortgage  lending  is  the  focus  of  the  Company's  community
strategy. To increase originations, the Company seeks referrals from real estate
brokers and other sources and originates  residential  first and second mortgage
loans. The Company generally receives fees for originating loans and making loan
commitments,  which fees are generally  deferred and amortized  over the life of
the loan.

   Statute and  regulation  limit the amount the Company is permitted to lend to
one borrower.  At December 31, 1998,  the maximum amount which the Company could
lend to one borrower (and related entities) was $4.76 million ($7.94 million for
loans fully secured by readily marketable collateral). At December 31, 1998, the
Company had no loans that exceeded either limit.

     The Company uses its funds primarily for lending.  Total loans increased by
$6.04 million, or 2.7 percent, from December 31, 1997 to December 31, 1998.

   The principal categories of the loan portfolio are as follows:

LOANS

<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                              -----------------------------------------------------
Dollars in thousands                                                                     1998                       1997
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                 <C>       <C>             <C>
Collateralized by one to four family residential properties                   $143,760            62.5%     $139,787        62.4%
Collateralized by five or more family residential properties                       530             0.2           549         0.2
Commercial properties                                                           48,091            20.9        48,532        21.7
Construction and development                                                    13,443             5.9         7,299         3.3
Commercial and industrial                                                       16,107             7.0        17,818         8.0
Installment and education                                                        7,137             3.1         8,994         4.0
Cash reserve and credit cards                                                      877             0.4           930         0.4
-----------------------------------------------------------------------------------------------------------------------------------
   Total loans                                                                $229,945           100.0%     $223,909       100.0%
===================================================================================================================================
</TABLE>

                                       16
<PAGE>

   The Company is primarily a real estate  lender.  In recent years,  management
has  attempted  to  increase  the  proportion  of  commercial,   industrial  and
commercial real estate loans. The commercial  lending  department has focused on
lending to small businesses with annual sales of up to $20 million.

   The Company, which began selling fixed rate residential mortgage loans in May
1994,  has had success  building its mortgage  servicing  portfolio,  which grew
$58.1 million in 1998 and now totals more than $79 million at December 31, 1998.
This trend is expected to continue  and  produce  higher  levels of  noninterest
income from gains on the sales of loans (primarily  government-sponsored  loans)
and  mortgage  servicing  fees.  The  Company's  policy  is to  emphasize  loans
utilizing  variable rates as much as possible to protect its net interest margin
and liquidity when the cost of its deposits fluctuate.

RESIDENTIAL LENDING

   The  Company's  residential  mortgage  loan  portfolio  consists of loans and
increasingly  reflects the Company's strong commitment to affordable housing and
its  Community  Reinvestment  Act  ("CRA")  responsibilities.  Underwriting  and
purchase  guidelines  emphasize credit quality and potential  returns on equity,
and not volume or market  share  alone.  The Company has  continued  to focus on
residential  first  mortgage  loan  originations.  The Company has increased its
originations  of residential  first  mortgage loans through  referrals from real
estate agents,  community contacts,  association with other mortgage origination
companies  and its  branches.  The Company  also employs  commissioned  mortgage
originators to foster better relations with Realtors and improve outreach to low
and moderate income buyers.

   The Company originates fixed and variable interest rate loans having terms to
maturity of not more than 30 years, including among others, balloon loans having
terms to  maturity  of not more than ten years.  Beginning  in 1999,  management
intends to emphasize in its portfolio  variable rate loans bearing interest at a
rate adjusted within five years from the origination date. This is a change from
the previous strategy to retain three-year ARM's and reflects  implementation of
a strategy to invest in  adjustable  rate or  shorter-duration  assets to manage
interest rate risk and to retain more loans in portfolio.

   It is the Company's policy to liquidate its current production of fixed rate,
Federal Housing  Administration  ("FHA"),  Connecticut Housing Finance Authority
("CHFA"),  Veteran's  Administration ("VA") and adjustable rate mortgage ("ARM")
loans with initial adjustment periods exceeding five years. These loans are sold
into the secondary market to the Federal National Mortgage  Association ("FNMA")
or on a flow basis to CHFA and  various  institutional  investors.  The  Company
intends to expand its  originations  of loans over agency  size limits  (jumbos)
using  agency-underwriting  standards  to retain  variable  rate jumbos  bearing
interest at a rate adjusted within five years from the  origination  date and to
sell other jumbos through private parties.

   In  order  to  meet  its  commitment  to  affordable   housing  and  its  CRA
responsibilities, the Company offers several residential loan programs involving
high  loan-to-value  ratios  and  flexible  underwriting  standards.  Because of
refinancings  and  prepayments,  residential  mortgage  loans  generally  remain
outstanding for shorter periods than stated.  Whether residential mortgage loans
bear  interest at a fixed or an adjustable  rate depends upon  consumer  demand,
which is influenced by market conditions.

COMMUNITY REINVESTMENT PROGRAMS

   The  Company  attempts  to  ascertain  the credit  needs of its  communities,
including low and moderate  income areas,  through a number of means,  including
reviewing the results of market  research and the  interaction of members of the
Board of Directors and management in the local communities. The Company also has
a CRA Committee of the Board of Directors  whose  function is to oversee all CRA
activities.  The Company offers various loans and  participates  in various loan
programs  designed to make credit  available to low and moderate income persons.
Many of the loan programs are advertised in local  newspapers and local Realtors
and builders are informed by periodic mailings.

   The Company is committed to treating all members of the community equally and
fairly.  As such,  the Company  conducts  seminars  and training  sessions  with
employees regarding fair lending practices and equal treatment in banking.  NMBT
has adopted  anti-discrimination  and fair housing  statements of policy,  along
with the  implementation  of a second  review  policy for loans  which have been
rejected to ensure fair treatment for each applicant.

   The Company  maintains  ongoing  contact with many civic groups in its market
area.  These contacts,  and joint  sponsorship of various seminars and awareness
meetings,  foster  what we  consider  to be an  excellent  working  relationship
between the Company and the community.

COMMERCIAL MORTGAGE LENDING

   The Company is engaged in commercial  mortgage  lending on such properties as
industrial,   retail,   office  and  multi-family   residential   buildings  and
condominiums.  Generally,  the Company will provide this type of lending only to
existing customers or to prospective customers who represent the potential for a
complete  banking  relationship.  Such lending has been proven to be profitable,
but entails certain  additional  risks when compared with  residential  mortgage
lending. Accordingly, the Company has implemented standards on such loans, which
attempt to mitigate these risks. Required conservative  loan-to-value ratios and
extensive  research  into  the  background  of  the  borrower  are  among  those
standards.   Owner-occupied   properties   are   encouraged   and  property  and
environmental appraisals are conducted by qualified outside appraisers, and then
reviewed by Company officers.

   Because the real estate market has stabilized,  the Company will  selectively
issue certain  commercial  mortgage loans that are  speculative in nature.  Such
loans  will be  issued  only to the most  credit-worthy  borrowers  who have the
financial  strength  to  repay  the loan  outside  of the  real  estate  project
involved.  These  loans must be modest in terms of dollar  amounts  and  involve
substantial  equity.  The Company  recognizes  the need to continue to serve the
commercial  mortgage  market,  and its potential  for  providing  profits to the
Company when done in a disciplined fashion.

                                       17
<PAGE>

COMMERCIAL LENDING

   Commercial  lending to small and medium-sized  businesses is an integral part
of the Company's effort to achieve a higher level of profitability. Such lending
entails somewhat  different risks compared with mortgage or consumer lending but
also produces  higher yields,  due in part to the Company's  policy of requiring
depository  relationships.  Commercial  loans tend to be  directly  affected  by
changes in the economic cycle while consumer loans are indirectly  affected.  As
such,  commercial  loans  must  be  more  closely  evaluated  to  ensure  likely
repayment.  In order to accomplish  this, the Company has procedures and systems
to provide for not only  proper  underwriting,  but  appropriate  follow-up  and
monitoring  of  commercial  loans.  The  Company  has  continued  to enhance its
business  calling  effort  with real  emphasis on  outreach  into the  Company's
communities.

   The  Company's  commercial  loan  portfolio  is generally  amortizing,  which
provides some additional margin of safety, but also generates quicker repayment.
As such,  loan officers must be aggressive  with their calling efforts to assure
continued  loan growth.  Fortunately,  the local  economy is  improving  (albeit
slowly) and management  believes that hard work and community  involvement  will
produce commercial loan growth in 1999.

   Notwithstanding  the new business effort,  management is acutely aware of its
obligation to assure the safety of its  commercial  loans.  In that regard,  the
Company's policy is generally to collateralize  commercial loans with acceptable
collateral and to obtain the personal guarantees of responsible business owners.
The Company has an active  SBA-lending  program to originate  government-insured
commercial  loans.  Emphasis will continue to be placed upon  origination of the
various  types of SBA loans in an effort to more fully serve the credit needs of
small businesses.

   Management  is also  aware  of the  need  to  provide  appropriate  ancillary
services to expand its  commercial  loan base.  Corporate  cash  management  via
remote personal  computers,  domestic and international  wire transfer services,
commercial letters of credit and various  international  services are available.
NMBT offers one of the most  attractive  fee  schedules for  commercial  deposit
accounts in its market area.

ASSET QUALITY

   During 1998,  nonperforming  assets decreased $0.72 million, or 21.2 percent,
to $2.69 million at December 31, 1998,  due  principally to sales of real estate
owned, loan payments and loans returned to accrual status. These reductions were
partially offset by loans placed on nonaccrual.

NONPERFORMING ASSETS
<TABLE>
<CAPTION>
                                                                      NONPERFORMING      REAL ESTATE     NONPERFORMING      % OF
Dollars in thousands                                                      LOANS             OWNED           ASSETS          TOTAL
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                                <C>                <C>  
Collateralized by residential properties                                 $1,644               --            $1,644             61.0%
Collateralized by commercial properties                                     957               --               957             35.5
Commercial, industrial and all other                                         93               --                93              3.5
------------------------------------------------------------------------------------------------------------------------------------
   Total nonperforming assets on December 31, 1998                       $2,694               --            $2,694            100.0%
------------------------------------------------------------------------------------------------------------------------------------
   Total nonperforming assets on December 31, 1997                       $3,208             $212            $3,420            100.0%
------------------------------------------------------------------------------------------------------------------------------------
   Total nonperforming assets on December 31, 1996                       $4,025             $496            $4,521            100.0%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The Company has a Special Assets  Committee,  which is a subcommittee  of the
Officer's  Loan  Committee,  whose primary  responsibility  is to provide senior
management  oversight  and  ongoing  review  of the loan and real  estate  owned
portfolios.  Management  pursues  the  resolution  of all  nonperforming  assets
through  restructurings,  credit  enhancements or  collections.  When collection
procedures  do  not  bring  a  loan  into  performing  or  restructured  status,
management generally initiates action to foreclose the property or to acquire it
by deed in lieu of foreclosure.

   There were no accruing  loans past due 90 days or more at December  31, 1998.
Accruing  loans past due 90 days or more totaled  $0.24  million at December 31,
1996 and $0.02 million at December 31, 1997.  Nonaccruing  loans and real estate
owned are depicted in the chart above.  Nonaccruing loans consisted  principally
of residential and commercial loans collateralized by real estate.

   There are no loans to foreign  borrowers,  no  leveraged  buyout loans and no
undue concentrations of loans for commercial  construction.  NMBT generally, and
as a matter of policy, does not lend outside of its market area.

   Real estate owned  consisted of commercial and  residential  properties.  The
amount of real  estate  owned,  net of  valuation  allowances,  decreased  $0.21
million from 1997 to 1998.  NMBT  actively  markets all real estate owned and in
1998 sold  $0.24  million  of real  estate  owned  from which net gains of $0.06
million were realized. At December 31, 1998, real estate owned was $0.03 million
with a valuation allowance of $0.03 million.

                                       18

<PAGE>

LIQUIDITY MANAGEMENT

   Liquidity is a measure of the  Company's  ability to meet its cash needs at a
reasonable  cost.  Cash needs  arise  primarily  as a result of the need to fund
lending  opportunities,  the maturity of liabilities  such as borrowings and the
withdrawal of deposits.  Asset  liquidity is achieved  through the management of
earning  asset  maturities,  loan  amortization,  deposit  growth  and access to
borrowed funds. At December 31, 1998, liquid assets totaled $106.03 million,  or
27.9 percent of total assets.

   NMBT is also a member of the Federal Home Loan Bank of Boston  (FHLB),  which
makes  substantial  borrowings  available  to its  members.  NMBT is eligible to
borrow against assets an amount not to exceed collateral as defined by the FHLB.
At December 31, 1998,  this gave NMBT potential  access to additional  financing
well in excess of NMBT's annual financing  requirements.  NMBT also maintains an
interest-bearing  checking  account with the FHLB on which it may overdraw up to
$6.11 million.  This  arrangement  allows NMBT to obtain  advances from the FHLB
rather than having to rely on  commercial  bank lines of credit or federal funds
purchased.

   At  December  31,  1998,  NMBT  had  approximately  $95.00  million  in  loan
commitments outstanding. It is expected deposits, loan repayments, FHLB advances
and maturing investments will fund these future loans.

DEPOSITS AND BORROWINGS

   For the year  ended  December  31,  1998,  total  deposits  increased  $26.03
million, or 9.1 percent, while FHLB borrowings increased $14.53 million, or 62.8
percent.  During 1998,  the deposit mix shifted to checking  and savings.  These
changes in mix are due in part to the reduced interest rate differential between
certificates of deposit and savings accounts, which have caused savers to ignore
certificates  to maintain  liquidity.  In  addition,  most  transaction  account
holders are no longer satisfied with a noninterest-bearing  checking account and
are finding ways to earn interest on their checking accounts.

   The Company  maintains a  favorable  liquidity  position in large part due to
stable core deposits  generated  from its branch network and from a high quality
securities portfolio.  Core deposits (checking and savings accounts) represent a
stable,  low-cost  source of funds,  which  amounted  to 69.3  percent  of total
deposits at December 31, 1998.

CAPITAL MANAGEMENT
STOCKHOLDERS' EQUITY AND CAPITAL RATIOS

   At December 31, 1998, the Company had $28.69 million in stockholders' equity,
compared with $25.33 million at December 31, 1997.  The growth in  stockholders'
equity from the end of 1997 was due to the  following:  receipt of $0.76 million
in  proceeds  from the  exercise  of stock  options;  a $0.30  million  positive
adjustment  for net unrealized  gains on securities  available for sale; and the
retention  of $3.22  million  in net  earnings,  less  cash  dividends  of $0.92
million.

   The Company and NMBT are subject to minimum capital requirements established,
respectively,  by the Federal Reserve Board ("FRB") and the FDIC. The regulatory
risk-based capital requirements take into account the differing risk profiles of
organizations by assigning risk weights to both assets and the credit equivalent
amounts of off-balance sheet exposures. In addition, capital is divided into two
tiers, tier 1 and tier 2.

   At December 31, 1998,  banking  organizations were required to meet a minimum
total capital ratio of 8 percent,  with at least  one-half  being in the form of
tier 1  capital.  Higher  tier 1 and total  capital  ratios  can be  imposed  on
particular  institutions at the discretion of the regulatory  agencies.  Banking
organizations are also subject to a minimum leverage capital ratio of 3 percent.

   The Company and NMBT have a capital planning process that seeks to ensure the
maintenance  of  appropriate  capital  levels  and  ratios.  From  a  regulatory
standpoint,  the  Company  and NMBT have  capital  ratios  that  place it in the
"well-capitalized"  category.

                               [GRAPHIC OMITTED]


REGULATORY CAPITAL
<TABLE>
<CAPTION>

                                                                                                   December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           NMBT                         REGULATORY
Dollars in thousands                                                                       CORP              NMBT          MINIMUM
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>              <C>                   <C>
Risk-based capital ratios:
Tier 1 capital ratio                                                                      12.87%            12.52%            4.00%
Total capital ratio                                                                       14.13%            13.78%            8.00%
-----------------------------------------------------------------------------------------------------------------------------------
Leverage ratio                                                                             7.40%             7.19%            3.00%
-----------------------------------------------------------------------------------------------------------------------------------
Tier 1 capital                                                                        $  27,647         $  26,871
Total risk-based capital                                                              $  30,351         $  29,573
Total risk-adjusted assets                                                             $214,786          $214,685
</TABLE>

                                       19
<PAGE>


Well-capitalized, which is the highest capital category as defined by the Prompt
Corrective  Action  regulations  issued by the FRB and the FDIC, is defined as a
company which maintains a total  risk-based ratio of 10 percent or above, a tier
1  risk-based  ratio of 6 percent or above and a leverage  ratio of 5 percent or
above,  and is not  subject to any written  order,  written  agreement,  capital
directive, or prompt corrective action directive to meet and maintain a specific
capital level.

DIVIDENDS AND RESTRICTIONS

   The Company's  ability to pay dividends is dependent on NMBT's ability to pay
dividends  to the  Company.  There are  certain  restrictions  on the payment of
dividends by NMBT to the Company.  Connecticut  Banking Laws limit the amount of
annual dividends that NMBT may declare on its common stock to net income for the
current  year and  retained  net income  for the  preceding  two  years,  net of
dividends  previously  paid during those periods.  NMBT is also  prohibited from
paying a cash  dividend  that would  reduce its  capital  ratios  below  minimum
regulatory requirements. In addition, the FRB may impose further restrictions on
dividends of the Company.

   The Company  believes that payment of cash dividends to its  stockholders  is
appropriate,  provided that such payment  considers the Company's capital needs,
asset  quality and overall  financial  condition.  Furthermore,  cash  dividends
should not adversely affect the financial  stability of the Company or NMBT. The
continued  payment of cash  dividends  by the Company  will be  dependent on the
Company's  future  core  earnings,   financial   condition  and  capital  needs,
regulatory  restrictions  and  other  factors  deemed  relevant  by the Board of
Directors of the Company.

   During the year ended  December 31, 1998,  the Company paid cash dividends of
$0.92 million,  or $0.35 per share,  which  represents  28.7 percent of 1998 net
income. The Company's dividend payment policy generally limits dividends paid in
any year to no more than 40 percent of net earnings,  absent mitigating factors.
This was done in the interest of preserving  capital,  which will be used in the
continued growth and expansion of the Company.  The Company reviews its dividend
payment  policy based on current  earnings  and by assessing  the need to retain
earnings to support long-term growth.

RECENT RELEVANT FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES

   In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 (SFAS 133),  Accounting for Derivative  Instruments and Hedging  Activities.
SFAS 133 is effective for all fiscal years  beginning  after June 15, 1999. SFAS
133 requires that all derivative instruments be recorded on the balance sheet at
their  fair  value.  Changes  in the fair value of  derivative  instruments  are
recorded  each  period  in  current  earnings  or  other  comprehensive  income,
depending on whether a derivative is  designated as part of a hedge  transaction
and, if it is, the type of hedge transaction.  Management  anticipates that, due
to its limited use (currently none) of derivative  instruments,  the adoption of
SFAS  133 will not  have a  significant  effect  on  results  of  operations  or
financial position.


IMPACT OF INFLATION AND CHANGING PRICES

   The Company's financial  statements have been prepared in terms of historical
dollars,  without  considering changes in the relative purchasing power of money
over time due to inflation.  Unlike most industrial companies,  virtually all of
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  effect of  general  levels  of  inflation.
Interest  rates do not  necessarily  move in the same  direction  or in the same
magnitude as the prices of goods and services.  Notwithstanding  this, inflation
can directly affect the value of loan  collateral,  in particular,  real estate.
Inflation, or disinflation, could continue to significantly affect the Company's
earnings in future periods.

YEAR 2000 READINESS
BACKGROUND

   The  Company's  overall  goal is to be "Year 2000  Ready,"  which  means that
critical  systems,  devices,  applications or business  relationships  have been
evaluated  and are expected to be suitable for continued use into and beyond the
Year 2000. In the event the aforementioned are not suitable for continued use or
malfunction, contingency plans will be in place.

   The Company began  addressing  Year 2000 in 1996 by  establishing a Year 2000
committee to  identify,  monitor and document  Year 2000  activities  and report
those  findings to the Board of Directors.  Senior  management  and the Board of
Directors receive regular updates on the status of the Company's Year 2000 Plan.

   The  Company is using a  multi-phase  approach  to Year 2000  which  includes
inventory,  assessment,  remediation,  testing  and  contingency  planning.  The
inventory  and  assessment  phases  were  completed  in  1997.  As a part of the
assessment  process,  remediation  strategies  were  identified and estimates of
remediation  costs were  developed.  The Company has utilized  both internal and
external  resources to remediate and test for Year 2000 readiness.  The majority
of the Company's systems  requiring  remediation have been modified or replaced.
The Company plans to test the remaining systems by March 31, 1999.

   The  Company  initiated  formal   communications  with  government  agencies,
suppliers  and large  customers to determine  the extent to which the Company is
vulnerable  to those third  parties'  failure to remediate  the Year 2000 Issue.
While this  information  will be used to mitigate  these risks,  there can be no
assurance that any  third-party  systems will be Year 2000 compliant on a timely
basis or that  noncompliance  will not have an  adverse  material  impact on the
Company.

COSTS

   The Company  currently  plans to complete Year 2000  remediation  by June 30,
1999. The total  remaining cost of the Year 2000 Issue is estimated at less than
$50,000.  To date,  the Company has  incurred  costs of $40,000  which have been
expensed as incurred. The costs of the project and the date on which the Company
plans to  complete  Year  2000  modifications  are  based on  management's  best
estimates,  which were derived utilizing

                                       20

<PAGE>

numerous  assumptions of future events  including the continued  availability of
certain resources, third parties' Year 2000 readiness and other factors.

RISK ASSESSMENT

   At this time, the Company  believes that completed and planned  modifications
of its internal systems and equipment will allow it to be Year 2000 compliant in
a timely manner. There can be no assurance, however, that the Company's internal
systems or  equipment,  or those of third  parties on which the Company  relies,
will be Year 2000  compliant in a timely  manner or that the  Company's or third
parties'  contingency plans will mitigate the effects of any noncompliance.  The
failure of the systems or equipment of the Company or third  parties  (which the
Company  believes is the most likely  worst case  scenario)  could result in the
reduction or suspension of the  Company's  operations  and could have a material
adverse effect on the Company's business or consolidated financial statements.

CONTINGENCY PLANNING

   The Company is revising its existing  contingency  plans to address  internal
and  external  issues  specific  to Year 2000 to the extent  practicable.  These
contingency  plan  revisions are expected to be completed by September 30, 1999.
The plans,  which are  intended  to enable the Company to continue to operate to
the extent that it can do so prudently,  include  performing  certain  processes
manually;  repairing or obtaining replacement systems;  changing suppliers;  and
reducing or suspending  operations.  The Company believes,  however, that due to
the widespread nature of the potential Year 2000 Issue, the contingency planning
process  is an ongoing  one which  will  require  further  modifications  as the
Company  obtains  additional  information  regarding (1) the Company's  internal
systems and equipment during the remediation and testing phases of its Year 2000
project and (2) the status of third party Year 2000 readiness.

FORWARD-LOOKING STATEMENTS

   The   preceding   "Year   2000   Readiness"   discussion   contains   various
forward-looking statements which represent the Company's beliefs or expectations
regarding future events. When used in the "Year 2000 Readiness" discussion,  the
word "believes,"  "expects" and "estimates" and similar expressions are intended
to identify  forward-looking  statements.  Forward-looking  statements  include,
without limitation,  the Company's  expectations as to when it will complete the
remediation and testing phases of its Year 2000 project as well as its Year 2000
contingency plans; its estimated cost of achieving Year 2000 readiness;  and the
Company's  belief  that its  internal  systems and  equipment  will be Year 2000
compliant in a timely manner. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected  results.  Factors that may cause these differences  include,
but  are  limited  to,  the  availability  of  qualified   personnel  and  other
information technology resources; the ability to replace embedded computer chips
in affected  systems or  equipment;  and the actions of  government  agencies or
other third parties with respect to Year 2000 issues.

   The  Company has made,  and may  continue  to make,  various  forward-looking
statements  with respect to earnings,  credit  quality and other  financial  and
business matters. The Company cautions that these forward-looking statements are
subject to numerous  assumptions,  risks and uncertainties,  and that statements
relating to subsequent periods  increasingly are subject to greater  uncertainty
because  of the  increased  likelihood  of  changes in  underlying  factors  and
assumptions.   Actual  results  could  differ  materially  from  forward-looking
statements.

   In addition to those  factors  previously  disclosed by the Company and those
factors  identified  elsewhere herein,  the following factors could cause actual
results to differ materially from such forward-looking  statements:  competitive
pressures on loan and deposit  product  pricing;  other actions of  competitors;
changes in economic conditions;  the extent and timing of actions of the Federal
Reserve  Board;  customer  deposit  disintermediation;   changes  in  customers'
acceptance  of NMBT's  products  and  services;  and the  extent  and  timing of
legislative and regulatory actions and reform.

   The Company's  forward-looking  statements speak only as of the date on which
such statements are made. By making any forward-looking  statements, the Company
assumes no duty to update them to reflect new, changing or unanticipated  events
or circumstances.

                                       21
<PAGE>

FINANCIAL GLOSSARY

BASIS POINT

A basis point is equal to one  one-hundredth  of one  percent  (25 basis  points
equals 0.25 percent and 100 basis points equals one percent).

BOOK VALUE PER SHARE

The amount of the Company's net worth  represented  by each share of outstanding
common  stock.  lt is obtained by dividing  common  stockholders'  equity by the
number of shares of common stock outstanding.

EFFICIENCY RATIO

The  efficiency  ratio is a measure of relative  overhead  expense levels and is
computed by dividing total noninterest  expense  (excluding  provisions for real
estate owned write-downs), by the sum of tax-equivalent net interest income plus
noninterest income (excluding securities gains and losses).

FEDERAL FUNDS SOLD AND INTEREST-BEARING DEPOSITS

Immediately  available  funds on deposit at a Federal  Reserve Bank, the Federal
Home Loan Bank of Boston or a  correspondent  bank.  Banks with excess  reserves
lend such funds,  generally on an overnight basis, to banks that are temporarily
deficient  in  required  reserves or that want to borrow  federal  funds to fund
short-term assets.

INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES

Interest  is a price  paid by a lender  for the use of  money.  Interest-earning
assets  result  from  transactions  in which the  Company  acts as a provider of
funds.  These  include  loans to  customers,  purchases of debt  securities  and
various   transactions  in  the  short-term   money  markets.   Interest-bearing
liabilities  are those for which the Company acts as borrower and pays  interest
to depositors and other  suppliers of funds,  such as the Federal Home Loan Bank
of Boston.

INTEREST RATE SENSITIVITY

The exposure to financial  gain or loss due to a change in the level of interest
rates. In a given period, if more interest-earning  assets than interest-bearing
liabilities  are  subject to a change in interest  rates  because the assets are
maturing or the contract calls for a rate change, the Company is asset sensitive
(or  positive)  for that period.  Rising  interest  rates during that time would
enhance  earnings,  while declining  interest rates would reduce  earnings.  The
reverse earnings effect would occur if the Company were liability sensitive.

INTEREST RATE SPREAD

The  difference  between two  interest  rates.  The phrase is most often used to
refer to the difference  between the interest yield on average  interest-earning
assets and the interest cost of average interest-bearing liabilities.

LEVERAGE RATIO

The ratio was established by federal bank regulators and is computed by dividing
tier 1 capital by average quarterly assets less goodwill and other  intangibles.
A minimum  leverage  ratio of at least 3.00  percent  must be  maintained.  This
leverage  ratio is a  minimum  requirement  for the most  highly  rated  banking
organizations,  and other banking  organizations will be expected to maintain an
additional cushion of at least 100 to 200 basis points.

NET INTEREST INCOME

Net interest income is the difference  between the interest earned on assets and
the interest paid on  liabilities.  Interest  income and expense are affected by
changes  in  the  volume  and  mix  of  average   interest-earning   assets  and
interest-bearing liabilities, as well as changes in the level of interest rates.


NET INTEREST MARGIN

Net interest  margin  represents the  tax-equivalent  yield on  interest-earning
assets.  This is obtained by dividing net interest income for a given accounting
period by the average  level of  interest-earning  assets for the  period.  This
relationship is usually expressed on a tax-equivalent basis.

NONACCRUING LOANS

Loans on which the accrual of interest income has been  discontinued  because of
the uncertainty  that exists  regarding the collection of interest or principal.
This circumstance typically results from the borrower's financial  difficulties.
Interest  received  on such loans is recorded as a  reduction  of  principal  or
interest income if there is no doubt as to the  collectibility of the loan. Also
referred to as nonperforming loans.

NONPERFORMING ASSETS

Nonperforming  assets  consist  of real  estate  acquired  through  foreclosure,
forgiveness of debt or otherwise in lieu of debt, and nonaccrual loans.

RESTRUCTURED LOANS

Loans with  original  terms which have been  modified as a result of a change in
the borrower's  financial  condition.  Typically,  interest rate concessions are
made or repayment schedules are lengthened in these cases.

RETURN ON AVERAGE ASSETS

A ratio  obtained by dividing net income by average  assets.  lt is a measure of
profitability in banking.

RETURN ON AVERAGE EQUITY

A ratio obtained by dividing net income by average stockholders' equity. This is
a standard measure of the rate of return on the stockholders' investment.

RISK-WEIGHTED ASSETS

Established  by federal bank  regulators,  this is computed  based on the sum of
risk-weighted  balance  sheet assets and  off-balance  sheet  credit  equivalent
amounts calculated in accordance with federal guidelines.

TAX-EQUIVALENT BASIS

An  adjustment  of  income  exempt  from  federal  and  state  taxes or taxed at
preferential  rates, such as interest income on state and municipal bonds, to an
amount that would yield the same  pretax  income had the income been  subject to
taxation.  The result is to equate the true  earnings  value of  tax-exempt  and
taxable income.

TIER 1 CAPITAL

Established  by federal  bank  regulators,  this is composed  of common  equity,
retained earnings and perpetual preferred stock, reduced by goodwill and certain
nonqualifying  intangible assets.  Tier 1 capital does not include the effect of
adjustments associated with SFAS 115.

TIER 1 CAPITAL AND TOTAL CAPITAL RATIOS

These  measures  of capital  adequacy  have been  established  by  federal  bank
regulators,  who require  institutions to have a minimum ratio of tier 1 capital
to  risk-weighted  assets of 4.00  percent  and a minimum  of total  capital  to
risk-weighted assets of 8.00 percent. The ratios are obtained by dividing tier 1
capital or total capital by risk-weighted assets.

TOTAL CAPITAL

Established by federal bank  regulators,  this consists of tier 1 capital plus a
limited amount of allowable  debt,  certain other  financial  instruments  and a
limited amount of the allowance for loan losses.

                                       22

<PAGE>
FINANCIAL STATEMENTS



                               [GRAPHIC OMITTED]




                                       23
<PAGE>



REPORT OF MANAGEMENT

   The  accompanying   consolidated   financial   statements  were  prepared  by
management,  which is responsible  for the integrity and objectivity of the data
presented,  including amounts that must be based on judgments and estimates. The
consolidated  financial  statements  were prepared in conformity  with generally
accepted accounting  principles,  and in situations where acceptable alternative
accounting  principles  exist,  management  selected  the  method  that was most
appropriate.

   Management depends upon internal control in meeting its  responsibilities for
reliable  consolidated  financial  statements.  Internal  control is designed to
provide  reasonable  assurance that assets are safeguarded and that transactions
are   properly   recorded   and  executed  in   accordance   with   management's
authorization.  Judgments  are required to assess and balance the relative  cost
and the expected  benefits of these  controls.  As an integral  part of internal
control, the Company has an internal auditor on staff who conducted operational,
financial  and  special  audits,   and  coordinated   audit  coverage  with  the
independent auditors.

   The  consolidated  financial  statements have been audited by our independent
auditors,  Deloitte & Touche LLP, who render an independent professional opinion
on management's consolidated financial statements.  Management believes that all
representations  made to the  independent  auditor during their audit were valid
and appropriate.

   The Audit  Committee of the Board of  Directors,  composed  solely of outside
directors,  meets  periodically  with  the  internal  auditor,  the  independent
auditors  and  management  to review  the work of each to  ensure  that they are
properly  discharging  their  responsibilities.  The  internal  auditor  and the
independent auditors have free access to the Audit Committee, without management
present, to discuss the results of their audit work and the quality of financial
reporting.

/s/ Michael D. Carrigan                   /s/ Jay C. Lent

Michael D. Carrigan                       Jay C. Lent
President and Chief Executive Officer     Executive Vice President,
                                          Secretary and Chief Financial Officer
--------------------------------------------------------------------------------



REPORT OF INDEPENDENT AUDITORS

To the Stockholders and the Board of Directors:

  We have audited the accompanying consolidated statements of condition of NMBT
Corp and  Subsidiary  (the  "Company") as of December 31, 1998 and 1997, and the
related   consolidated   statements  of  operations,   cash  flows,  changes  in
stockholders' equity and comprehensive income for each of the three years in the
period ended December 31, 1998. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

   In our opinion, the consolidated  financial statements present fairly, in all
material  respects,  the  consolidated  financial  position of the Company as of
December 31, 1998 and 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period  ended  December  31,
1998, in conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Stamford, Connecticut
January 21, 1999


                                       24
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITION
Dollars in thousands, except share data

<TABLE>
<CAPTION>

December 31,                                                                                                  1998              1997
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                                                      <C>               <C>
Cash and due from banks                                                                                  $  13,934         $  18,737
Interest-bearing deposits                                                                                   13,730             4,025
------------------------------------------------------------------------------------------------------------------------------------
   Cash and cash equivalents                                                                                27,664            22,762
------------------------------------------------------------------------------------------------------------------------------------
Securities:
   Available for sale, at fair value (amortized cost of $75,302 in 1998
     and $47,556 in 1997)                                                                                   76,326            48,129
   Held to maturity, at amortized cost (fair value of $40,769 in 1998
     and $36,240 in 1997)                                                                                   40,364            35,876
------------------------------------------------------------------------------------------------------------------------------------
   Total securities                                                                                        116,690            84,005
------------------------------------------------------------------------------------------------------------------------------------

Loans                                                                                                      229,945           223,909
Less allowance for loan losses                                                                               3,839             3,537
------------------------------------------------------------------------------------------------------------------------------------
   Loans, net                                                                                              226,106           220,372
------------------------------------------------------------------------------------------------------------------------------------

Real estate owned, net                                                                                          --               212
Premises, equipment and capital leases, net                                                                  3,546             3,706
Excess of cost over fair value of net assets acquired, net                                                     271               506
Accrued interest and other assets                                                                            6,204             5,003
------------------------------------------------------------------------------------------------------------------------------------
   Total assets                                                                                           $380,481          $336,566
------------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
   Noninterest-bearing checking                                                                          $  44,414         $  36,999
   Interest-bearing checking                                                                                99,216            88,501
   Savings                                                                                                  72,334            60,782
   Time deposits under $100                                                                                 77,662            81,902
   Time deposits $100 or more                                                                               17,997            17,411
------------------------------------------------------------------------------------------------------------------------------------
   Total deposits                                                                                          311,623           285,595
------------------------------------------------------------------------------------------------------------------------------------

Advances from Federal Home Loan Bank of Boston (FHLB)                                                       37,672            23,145
Accrued interest and other liabilities                                                                       2,498             2,496
------------------------------------------------------------------------------------------------------------------------------------
   Total liabilities                                                                                       351,793           311,236
------------------------------------------------------------------------------------------------------------------------------------

Stockholders' equity:
   Common stock, $0.01 par value
   Shares authorized: 8,000,000
   Shares outstanding: 1998-- 2,663,358; 1997-- 2,614,858                                                       27                26
   Additional paid-in capital                                                                               18,143            17,378
   Retained earnings                                                                                         9,842             7,548
   Accumulated other comprehensive income, net of tax                                                          676               378
------------------------------------------------------------------------------------------------------------------------------------
   Total stockholders' equity                                                                               28,688            25,330
------------------------------------------------------------------------------------------------------------------------------------
   Total liabilities and stockholders' equity                                                             $380,481          $336,566
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       25
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands, except share data


<TABLE>
<CAPTION>
Years Ended December 31,                                                                     1998             1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>              <C>               <C>    
INTEREST AND DIVIDEND INCOME
   Interest and fees on loans                                                             $17,952          $17,791           $16,534
   U.S. Treasury and agency securities                                                      4,832            3,918             3,272
   Municipal securities                                                                       849              591               282
   Corporate securities                                                                        11               --                --
   Dividends on FHLB stock                                                                    118              108                99
   Interest-bearing deposits                                                                  428              301               113
------------------------------------------------------------------------------------------------------------------------------------
     Total interest and dividend income                                                    24,190           22,709            20,300
------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
   Interest-bearing checking                                                                1,536            1,383             1,140
   Savings                                                                                  1,524            1,490             1,602
   Time deposits under $100                                                                 4,152            4,390             3,888
   Time deposits $100 or more                                                                 966              881               625
   FHLB advances and capital leases                                                         1,942            1,076               739
------------------------------------------------------------------------------------------------------------------------------------
     Total interest expense                                                                10,120            9,220             7,994
------------------------------------------------------------------------------------------------------------------------------------

   Net interest and dividend income                                                        14,070           13,489            12,306
   Provision for loan losses                                                                  371              582               390
------------------------------------------------------------------------------------------------------------------------------------
   Net interest and dividend income after provision for loan losses                        13,699           12,907            11,916
------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
   Service charges on deposit accounts                                                      1,011            1,034               965
   Other service charges, commissions and fees                                                381              379               349
   Loan servicing fees                                                                        106               42                23
   Gain on sale of securities                                                                  51               --                --
   Net gains from loans sold                                                                  983              339               178
   Other income                                                                               186              197               125
------------------------------------------------------------------------------------------------------------------------------------
     Total noninterest income                                                               2,718            1,991             1,640
------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
   Compensation, payroll taxes and benefits                                                 6,061            5,381             5,037
   Occupancy                                                                                1,048              961               917
   Furniture and equipment                                                                    823              875               953
   Data processing                                                                            383              268               246
   Stationery, printing and supplies                                                          452              409               438
   Marketing, advertising and investor relations                                              410              381               402
   Legal and professional fees                                                                314              264               412
   Other general and administrative expense                                                 1,504            1,302             1,425
------------------------------------------------------------------------------------------------------------------------------------
     Total general and administrative expense                                              10,995            9,841             9,830
   Operations of real estate owned                                                             52               34               320
   Amortization of intangible assets                                                          235              235               235
------------------------------------------------------------------------------------------------------------------------------------
     Total noninterest expense                                                             11,282           10,110            10,385
------------------------------------------------------------------------------------------------------------------------------------

   Income before provision for income taxes                                                 5,135            4,788             3,171
   Provision for income taxes                                                               1,918            1,890               379
------------------------------------------------------------------------------------------------------------------------------------

   Net income                                                                            $  3,217         $  2,898          $  2,792
====================================================================================================================================

Basic earnings per share                                                                    $1.22            $1.12             $1.09
Diluted earnings per share                                                                  $1.15            $1.05             $1.04
------------------------------------------------------------------------------------------------------------------------------------

Dividends per share                                                                         $0.35            $0.21             $0.17
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.

                                       26
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands

<TABLE>
<CAPTION>

Years Ended December 31,                                                                     1998             1997            1996
------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S>                                                                                     <C>              <C>             <C>
   Net Income                                                                           $   3,217        $   2,898       $   2,792
   Adjustments to reconcile net income to net cash provided by
     operating activities:
       Depreciation and amortization                                                          821              880             982
       Provision for loan losses                                                              371              582             390
       Provision for losses from real estate owned                                             --               26             314
       Net amortization of securities                                                         218              152             100
       Deferred income taxes                                                                  347              (46)           (267)
       Realized securities gains, net                                                         (51)              --              --
       Gains from loans sold, net                                                            (983)            (339)           (178)
       Realized gains from real estate owned sales, net                                       (42)            (133)           (135)
   Loans originated for sale                                                              (89,718)         (26,169)        (14,859)
   Proceeds from loans sold, net                                                           87,038           25,928          14,652
   Increase in interest receivable                                                           (455)            (498)           (331)
   Increase in other assets                                                                  (484)             (37)           (134)
   Increase in interest payable                                                                12               56              82
   Increase (decrease) in other liabilities                                                  (101)             216             282
------------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operating activities                                              190            3,516           3,690
------------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
   Purchases of held to maturity (HTM) securities                                         (22,056)          (7,996)        (28,242)
   Purchases of available for sale (AFS) securities                                       (45,463)         (24,818)         (9,671)
   Proceeds from maturities of AFS securities                                              15,535            5,449           2,924
   Proceeds from maturities of HTM securities                                              17,433            7,539          11,182
   Proceeds from sales of AFS securities                                                    2,370               --              --
   Purchases of FHLB stock                                                                   (220)            (218)             --
   Net loan originations                                                                   (3,107)         (12,129)        (13,764)
   Net purchases of premises and equipment                                                   (426)            (703)           (484)
   Proceeds from sales of real estate owned                                                   267              534             460
------------------------------------------------------------------------------------------------------------------------------------
       Net cash used for investing activities                                             (35,667)         (32,342)        (37,595)
------------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
   Net increase in advances from FHLB                                                      14,527            8,581          14,564
   Net increase (decrease) in time deposits                                                (3,654)           7,586          11,004
   Net increase in checking and savings deposits                                           29,682           11,848           8,090
   Cash dividends                                                                            (923)            (545)           (436)
   Net proceeds from exercise of stock options                                                766              180             145
   Other                                                                                      (19)             (52)            (54)
------------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by financing activities                                           40,379           27,598          33,313
------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                                            4,902           (1,228)           (592)
Cash and cash equivalents, beginning of year                                               22,762           23,990          24,582
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                                   $ 27,664         $ 22,762        $ 23,990
------------------------------------------------------------------------------------------------------------------------------------

CASH PAID DURING YEAR
   Interest to depositors and creditors                                                  $ 10,108        $   9,164       $   7,912
   Income taxes                                                                             1,828            1,474             957

NON-CASH TRANSFERS
   Transfer of loans to real estate owned                                                      25              575             581
   Net change in unrealized gains on AFS securities                                           298              232            (100)
   Financed portion of sales of real estate owned                                              12              433             761
</TABLE>

See notes to consolidated financial statements.

                                     27

<PAGE>


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

In thousands
<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                                    Other                 Additional
                                                                   Retained     Comprehensive     Common    Paid-in       Shares
                                                       Total       Earnings        Income          Stock    Capital     Outstanding
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>             <C>            <C>      <C>            <C>
JANUARY 1, 1996                                      $20,157        $2,839          $246           $26      $17,046        2,563

Net income                                             2,792         2,792
Comprehensive income                                    (100)                       (100)
Cash dividends                                          (436)         (436)
Proceeds from exercise
   of stock options                                      145                                                    145           24
Other                                                      7                                                      7            1
------------------------------------------------------------------------------------------------------------------------------------

DECEMBER 31, 1996                                     22,565         5,195           146            26       17,198        2,588

Net income                                             2,898         2,898
Comprehensive income                                     232                         232
Cash dividends                                          (545)         (545)
Proceeds from exercise
   of stock options                                      180                                                    180           27
------------------------------------------------------------------------------------------------------------------------------------

DECEMBER 31, 1997                                     25,330         7,548           378            26       17,378        2,615

Net income                                             3,217         3,217
Comprehensive income                                     298                         298
Cash dividends                                          (923)         (923)
Proceeds from exercise
   of stock options                                      766                                         1          765           48
------------------------------------------------------------------------------------------------------------------------------------

DECEMBER 31, 1998                                    $28,688        $9,842          $676           $27      $18,143        2,663
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME

In thousands
<TABLE>
<CAPTION>

Years Ended December 31,                        1998                               1997                               1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                                <C>                                <C>
Net Income                                            $3,217                             $2,898                             $2,792
Other comprehensive income, net of tax:
   Unrealized net gains (losses) on securities:
       Unrealized net holding gains
         (losses) arising during period     $332                              $232                             $(100)
       Less: reclassification adjustment
         for gains included in net income    (34)                               --                                --
------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income                               298                                232                               (100)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                  $3,515                             $3,130                             $2,692
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to consolidated financial statements.
                                       28

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT
    ACCOUNTING POLICIES

   NMBT  CORP  (the   "Company")  is  the  bank  holding  company  for  NMBT,  a
state-chartered commercial bank. The Bank is a Connecticut chartered and Federal
Deposit Insurance Corporation (the "FDIC") insured commercial bank headquartered
in  New  Milford,   Connecticut.  The  Bank's  principal  business  consists  of
attracting  deposits from the public and using such deposits,  with other funds,
to make various types of loans and  investments.  The Bank conducts its business
through 10 offices located in Litchfield,  Fairfield and New Haven counties. The
accompanying  consolidated financial statements have been prepared in conformity
with generally  accepted  accounting  principles.  The following is a summary of
significant accounting policies.

PRINCIPLES OF CONSOLIDATION

   The consolidated  financial  statements  include those of the Company and its
subsidiary  after  elimination of all  intercompany  accounts and  transactions.
Certain  reclassifications  have been made to prior years' amounts to conform to
the 1998 financial presentation.

BASIS OF FINANCIAL STATEMENT PRESENTATION

   The financial  statements  have been prepared in  accordance  with  generally
accepted  accounting   principles.   In  preparing  the  financial   statements,
management is required to make extensive use of estimates and  assumptions  that
affect the  reported  amounts of assets  and  liabilities  as of the date of the
statement of condition, and revenues and expenses for the period. Actual results
could differ  significantly  from those estimates.  Material  estimates that are
particularly  susceptible to  significant  change in the near term relate to the
determination  of the allowance for loan losses and the valuation of real estate
owned ("REO") in connection  with  foreclosures  or in satisfaction of loans. In
connection  with the  determination  of the  allowance  for loan  losses and the
valuation of REO,  management  obtains  independent  appraisals for  significant
properties.

   The Company's  loans are generally  collateralized  by real estate located in
western  Connecticut.  In addition,  substantially  all of the REO is located in
that market.  Accordingly,  the ultimate collectibility of a substantial portion
of the  Company's  loan  portfolio  and  REO  acquired  through  foreclosure  is
particularly susceptible to changes in local market conditions.

   While management uses available  information to recognize losses on loans and
REO, future additions to the allowance for loan losses or write-downs of REO may
be necessary  based on changes in economic  conditions,  particularly in western
Connecticut.  In addition,  various regulatory agencies,  as an integral part of
their examination process,  periodically review the Company's allowance for loan
losses and the  valuation  of REO.  Such  agencies  may  require  the Company to
recognize  additions to the allowance or write-downs based on their judgments of
information available to them at the time of their examination.

   Effective January 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 125 (SFAS 125),  Accounting for Transfers and
Servicing  of  Financial  Assets and  Extinguishment  of  Liabilities.  SFAS 125
provides  accounting  and  reporting  standards  for  transfers and servicing of
financial  assets and  extinguishment  liabilities  occurring after December 31,
1996,  except for  certain  provisions  deferred  by SFAS 127,  Deferral  of the
Effective  Date of Certain  Provisions  of SFAS 125.  The  Company  adopted  the
deferral  provisions  effective January 1, 1997. The adoption of these standards
did not have a material effect on the Company's  financial  condition or results
of operations.

SECURITIES

   Securities  that  may be sold as part  of the  Company's  asset/liability  or
liquidity  management,  or in  response  to or in  anticipation  of  changes  in
interest rates and resulting  prepayment risk, or for other similar factors, are
classified as available for sale and carried at fair value.  Unrealized  holding
gains and losses on such  securities are reported net of related taxes,  if any,
in other comprehensive  income.  Securities that the Company has the ability and
positive  intent to hold to maturity  are  classified  as held to  maturity  and
carried at amortized cost.  Realized gains and losses on the sales of securities
are  reported in earnings and computed  using the specific  identification  cost
basis. There are no trading account securities.

LOANS

   Loans  are  reported  at  their  outstanding  principal  balance,  net of any
charge-offs,  deferred loan origination fees and costs and unamortized  premiums
or  discounts on purchased  loans.  Loan  origination  and  commitment  fees and
certain direct loan origination  costs are deferred and recognized over the life
of the related  loan as an  adjustment  of yield,  or taken into income when the
related loan is sold.

   Mortgage  loans held for sale are valued at the lower of cost or market value
as determined by  outstanding  commitments  from  investors or current  investor
yield  requirements  calculated  on an  aggregate  loan basis.  Decreases in the
carrying  value,  if any,  are  reported in earnings as a reduction of net gains
from  loans  sold.  Realized  gains and  losses on sales of  mortgage  loans are
reported in earnings in the period the sale occurs.

   The accrual of interest on loans is generally  discontinued when principal or
interest  is past due by 90 days or more,  or earlier  when,  in the  opinion of
management,  full  collection of principal and interest is unlikely  unless such
loans are well  collateralized and in the process of collection.  When a loan is
placed on nonaccrual,  interest  previously accrued but not collected is charged
against  current  income.  Income on such loans is then  recognized  only to the
extent that cash is received and future collection of principal is probable.

   Loans are restored to accrual status when principal and interest payments are
brought  current  and  future  payments  are  reasonably  assured,  following  a
sustained period of repayment performance by the borrower in accordance with the
loan's contractual terms.

   Troubled  debt  restructurings  ("TDR")  are  renegotiated  loans  for  which
concessions,  such as the reduction of interest  rates,  deferral of interest or
principal payments, or partial forgiveness of principal and interest,  have been
granted due to deterioration in a borrower's
                                       29

<PAGE>

financial  condition.  Interest to be paid on a deferral or contingent  basis is
reported in earnings only as collected.

ALLOWANCE FOR LOAN LOSSES

   The Company  periodically  reviews the  allowance for loan losses in order to
maintain the allowance at a level  sufficient to absorb  probable credit losses.
The Company's  review is based upon a detailed  evaluation of the loan portfolio
through a process which considers  numerous factors  including  estimated credit
losses based upon internal and external  portfolio  reviews,  delinquency levels
and  trends,   estimates  of  the  current  value  of   underlying   collateral,
concentrations,  portfolio volume and mix, changes in lending policy, historical
loan loss experience,  current economic conditions and examinations performed by
regulatory  authorities.  The  allowance  for loan losses is  increased  through
charges to earnings in the form of a provision for loan losses. When a loan or a
portion  of a  loan  is  determined  to be  uncollectible,  the  portion  deemed
uncollectible  is charged  against the allowance and subsequent  recoveries,  if
any,  are  credited to the  allowance  for loan  losses.  While the Company uses
available  information  to recognize  losses on loans,  future  additions to the
allowance may be necessary based on changes in regional economic  conditions and
related factors.

   The  Company  measures  impaired  loans  based  on the  present  value of the
expected future cash flows discounted at the loan's effective  interest rate, or
the fair value of the collateral,  less estimated  selling costs, if the loan is
collateral dependent.  The Company recognizes impairment by creating a valuation
allowance. A loan is impaired when, based on current information, it is probable
that the Company  will be unable to collect all  amounts  due  according  to the
contractual terms of the loan.

   Smaller-balance  homogeneous  loans  consisting of residential  mortgages and
consumer  loans  are  evaluated  for  collectibility  based on  historical  loss
experience rather than on an individual  loan-by-loan basis.  Impaired loans are
primarily commercial mortgages secured by real estate.

REAL ESTATE OWNED

   Real  estate  acquired  through  foreclosure  is  stated at the lower of cost
(principally the loan amount) or fair value,  minus estimated  selling expenses.
When a loan is reclassified as real estate owned, any excess of the loan balance
over its fair  value,  less  estimated  selling  costs,  is charged  against the
allowance  for loan losses.  Costs  relating to the  subsequent  development  or
improvement  of a  property  are  capitalized  but not in excess of fair  value.
Holding costs and any  subsequent  provisions to reduce the carrying  value of a
property  to fair value minus  selling  expenses  are  charged to  earnings  and
classified as real estate owned expenses. Fair value ordinarily is determined by
a current appraisal for collateral dependent loans.

PREMISES AND EQUIPMENT

   Premises and equipment,  including  capital  leases,  are stated at cost less
accumulated  depreciation  and  amortization.  Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized over the period of the related lease or the
useful life of the improvement, whichever is shorter.


INCOME TAXES

   Deferred income taxes are provided for  differences  arising in the timing of
income  and  expenses  for  financial  reporting  purposes  and for  income  tax
reporting  purposes  using the  asset/liability  method of accounting for income
taxes.  Deferred income taxes and tax benefits are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period the change is enacted.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

   The Company paid a premium for the net assets  acquired in the 1994  purchase
transaction of Candlewood Bank and Trust Company. The premium is being amortized
on a  straight-line  basis over seven  years.  Accumulated  amortization  of the
excess cost over fair value of net assets acquired was $1,096,520 as of December
31, 1998. On an ongoing basis,  management  assesses the  recoverability of this
asset. If recoverability  should become impaired,  a charge to the statements of
operations would be recorded.

EARNINGS PER SHARE

   SFAS 128,  Earnings  Per  Share,  establishes  standards  for  computing  and
presenting  earnings  per share.  The  statement  requires  disclosure  of basic
earnings  per share (i.e.  common  stock  equivalents  are not  considered)  and
diluted earnings per share (i.e.  common stock  equivalents are considered using
the treasury  stock  method) on the face of the statement of  operations,  along
with a  reconciliation  of the  numerator and  denominator  of basic and diluted
earnings per share.

   Basic  earnings  per share is computed by dividing net income by the weighted
average number of common shares  outstanding  during the period. The computation
of diluted  earnings per share is similar to the  computation  of basic earnings
per share  except that the  denominator  is  increased  to include the number of
additional  common  shares  that would  have been  outstanding  if the  dilutive
potential common shares, consisting solely of stock options, had been issued.

   Weighted  average  common  shares  outstanding  used to  calculate  basic and
diluted  earnings per share for the three years ended  December 31, 1998 were as
follows:

In thousands                            1998      1997     1996
---------------------------------------------------------------
Basic                                  2,643     2,596    2,568
Effect of dilutive stock options         156       156      116
---------------------------------------------------------------
Diluted                                2,799     2,752    2,684
---------------------------------------------------------------

   Effective  December 31, 1997,  the Company  adopted SFAS 129,  Disclosure  of
Information  about  Capital  Structure.   SFAS  129  establishes  standards  for
disclosing information about an entities capital structure. The adoption of this
standard did not have a material effect on the Company's financial statements.

                                       30
<PAGE>

MORTGAGE SERVICING RIGHTS

   The Company's  mortgage  servicing  portfolio  totaled $79.0  million,  $20.9
million and $12.2 million for the benefit of  third-party  investors  (primarily
Federal  National  Mortgage  Association)  at December 31, 1998,  1997 and 1996,
respectively.  The  Company  records  the sale of loans  in which  servicing  is
retained on the basis of the  proceeds  received  with normal  servicing  rights
retained.  The  Company  recognizes  an asset for the right to service  mortgage
loans for others,  however  those  servicing  rights are  acquired.  The Company
assesses its capitalized  mortgage  servicing rights for impairment based on the
fair value of those rights. No impairment of servicing assets was experienced in
1998, 1997 or 1996. Prior to 1996, the Company did not record a servicing asset.
The Company recognized servicing assets for originated mortgages and the related
amortization as follows:

In thousands                            1998      1997     1996
-----------------------------------------------------------------
Mortgage servicing rights,
   beginning balance              $  176,255 $  69,636 $     --
Mortgage servicing rights recorded   877,286   130,649   76,954
Amortization of mortgage
   servicing rights                 (115,391)  (24,030)  (7,318)
-----------------------------------------------------------------
Mortgage servicing rights,
   ending balance                 $  938,150  $176,255  $69,636
-----------------------------------------------------------------

STATEMENTS OF CASH FLOWS

   For definitional  purposes,  cash and cash  equivalents  include cash and due
from  banks,  interest-bearing  deposits  at other  financial  institutions  and
overnight federal funds sold.

STATEMENTS OF COMPREHENSIVE INCOME

   SFAS 130, Reporting  Comprehensive  Income, became effective as of January 1,
1998. SFAS 130 establishes  standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
It requires that all items that are required to be recognized  under  accounting
standards  as  components  of  comprehensive  income be  reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  Comprehensive  income  is  defined  as "the  change  in equity of a
business  enterprise  during a period  from  transactions  and other  events and
circumstances from non-owner sources. It includes all changes in equity during a
period,  except those resulting from investments by owners and  distributions to
owners."  Comprehensive  income is reported in the  accompanying  statements  of
comprehensive income.

SEGMENT INFORMATION

   SFAS  131,   Disclosures   about   Segments  of  an  Enterprise  and  Related
Information,  became  effective  as of  January 1,  1998.  SFAS 131  establishes
standards for the way that public business  enterprises report information about
operating  segments  in annual  financial  statements  and  requires  that those
enterprises  report selected  information  about  operating  segments in interim
financial  reports issued to stockholders.  SFAS 131 also establishes  standards
for related disclosures about products and services,  geographic areas and major
customers.  The Company has one operating segment,  "Community  Banking." All of
the Company's  activities are  interrelated,  and each activity is dependent and
based on how each of the  activities  of the  Company  support  the  other.  For
example,  commercial  lending is dependent upon the ability of the banks to fund
themselves  with retail  deposits and other  borrowings.  This situation is also
similar  for  personal  and  residential  mortgage  lending.   Accordingly,  all
significant  operating  decisions  are based upon analysis of the Company as one
operating segment or unit.

   General  information  required by SFAS 131 is disclosed  in the  consolidated
financial  statements and  accompanying  notes. The Company operates only in the
U.S.  domestic  market.  For 1998,  there is no customer that accounted for more
than 10% of the Company's revenue.

RECENT ACCOUNTING PRONOUNCEMENTS

   In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging  Activities.  SFAS 133 is effective  for all fiscal years  beginning
after June 15,  1999.  SFAS 133  requires  that all  derivative  instruments  be
recorded on the balance sheet at their fair value.  Changes in the fair value of
derivative  instruments  are recorded  each period in current  earnings or other
comprehensive income, depending on whether a derivative is designated as part of
hedge  transaction  and,  if it is,  the type of hedge  transaction.  Management
anticipates that, due to its limited use of derivative instruments, the adoption
of SFAS 133 will not have a  significant  effect on  results  of  operations  or
financial position.


<PAGE>

2. SECURITIES

     The  aggregate  amortized  cost and  estimated  fair  values of  securities
available for sale at December 31, 1998 and 1997 are as follows:

December 31, 1998
<TABLE>
                                       Gross     Gross  Estimated
                          Amortized Unrealized Unrealized Fair
Dollars in thousands        Cost       Gains     Losses   Value
--------------------------------------------------------------------------------
<S>                        <C>        <C>         <C>   <C>
U.S. Treasury and agency   $50,204    $  434      $140  $50,498
Municipal                   20,797       698         2   21,493
Mortgage-backed              1,236        19        --    1,255
Corporate                    1,085        15        --    1,100
--------------------------------------------------------------------------------
Total debt securities       73,322     1,166       142   74,346
FHLBStock                    1,980        --        --    1,980
--------------------------------------------------------------------------------
Total securities
   available for sale      $75,302    $1,166      $142  $76,326
--------------------------------------------------------------------------------
</TABLE>

December 31, 1997
<TABLE>
<CAPTION>
                                       Gross     Gross  Estimated
                          Amortized Unrealized Unrealized Fair
Dollars in thousands        Cost       Gains     Losses   Value
--------------------------------------------------------------------------------
<S>                        <C>         <C>         <C>  <C>
U.S. Treasury and agency   $24,615     $  99       $19  $24,695
Municipal                   16,968       418         1   17,385
Mortgage-backed              4,213        80         4    4,289
--------------------------------------------------------------------------------
Total debt securities       45,796       597        24   46,369
FHLBStock                    1,760        --        --    1,760
--------------------------------------------------------------------------------
Total securities
   available for sale      $47,556      $597       $24  $48,129
--------------------------------------------------------------------------------
</TABLE>

                                       31

<PAGE>


   The aggregate  amortized cost and estimated fair values of securities held to
maturity at December 31, 1998 and 1997 are as follows:

December 31, 1998
<TABLE>
<CAPTION>
                                       Gross     Gross  Estimated
                          Amortized Unrealized Unrealized Fair
Dollars in thousands        Cost       Gains     Losses   Value
--------------------------------------------------------------------------------
<S>                        <C>          <C>        <C>  <C>
U.S. Treasury and agency   $25,008      $250       $24  $25,234
Mortgage-backed             14,308       207        17   14,498
Corporate                    1,048        --        11    1,037
--------------------------------------------------------------------------------
Total securities
   held to maturity        $40,364      $457       $52  $40,769
--------------------------------------------------------------------------------
</TABLE>

December 31, 1997
<TABLE>
<CAPTION>
                                       Gross     Gross  Estimated
                          Amortized Unrealized Unrealized Fair
Dollars in thousands        Cost       Gains     Losses   Value
--------------------------------------------------------------------------------
<S>                        <C>         <C>         <C>  <C>
U.S. Treasury and agency   $13,492     $  96       $33  $13,555
Mortgage-backed             22,384       310         9   22,685
--------------------------------------------------------------------------------
Total securities
   held to maturity        $35,876      $406       $42  $36,240
--------------------------------------------------------------------------------
</TABLE>

   The aggregate  amortized  cost and estimated  fair values of debt  securities
available  for sale at December  31,  1998,  by  contractual  maturity are shown
below.  Actual  maturities  will  differ  from  contractual  maturities  because
borrowers may have the right to prepay obligations without prepayment penalties.

December 31, 1998
<TABLE>
<CAPTION>
                                            Amortized       Fair
Dollars in thousands                             Cost      Value
--------------------------------------------------------------------------------
<S>                                          <C>        <C>
Due in one year or less                      $  8,009   $  8,062
Due after one year through five years          18,869     19,052
Due after five years through ten years         44,123     44,877
Due after ten years                             1,085      1,100
--------------------------------------------------------------------------------
                                               72,086     73,091
Mortgage-backed                                 1,236      1,255
--------------------------------------------------------------------------------
   Total debt securities available for sale   $73,322    $74,346
--------------------------------------------------------------------------------
</TABLE>

   The aggregate  amortized  cost and estimated  fair values of debt  securities
held to maturity at December 31, 1998, by contractual  maturity are shown below.
Actual maturities will differ from contractual  maturities because borrowers may
have the right to prepay obligations without prepayment penalties.

December 31, 1998
<TABLE>
<CAPTION>
                                            Amortized       Fair
Dollars in thousands                             Cost      Value
--------------------------------------------------------------------------------
<S>                                          <C>        <C>
Due in one year or less                      $  2,000   $  2,000
Due after one year through five years              --         --
Due after five years through ten years         24,056     24,273
Due after ten years                                --         --
--------------------------------------------------------------------------------
                                               26,056     26,273
Mortgage-backed                                14,308     14,496
--------------------------------------------------------------------------------
   Total debt securities held to maturity     $40,364    $40,769
--------------------------------------------------------------------------------
</TABLE>

     Proceeds from sales of debt securities were, in thousands,  $2,370 in 1998.
Gross gains, in thousands, of $51 were realized on these sales.

   Securities  with a carrying  value of $3.0 million were pledged as collateral
for public deposits as of December 31, 1998.  Mortgage-backed securities include
participation   certificates   issued  by  the  Government   National   Mortgage
Association  (GNMA), the Federal Home Loan Mortgage  Corporation (FHLMC) and the
Federal National Mortgage Association (FNMA).
   As required by the Federal  Home Loan Bank,  the Company must hold FHLB stock
equal to 1% of assets  secured by residential  housing.  As of December 31, 1998
and 1997, the Company was in compliance with the FHLB stock requirement.


<PAGE>

3. LOANS AND ALLOWANCE FOR
    LOAN LOSSES

<TABLE>
<CAPTION>
December 31,                                     1998       1997
----------------------------------------------------------------
<S>                                          <C>        <C>
Dollars in thousands
Loans:
Collateralized by one to four
   family residential properties             $143,760   $139,787
Collateralized by five or more
   family residential properties                  530        549
Commercial properties                          48,091     48,532
Construction and development                   13,443      7,299
Commercial and industrial                      16,107     17,818
Installment and education                       7,137      8,994
Cash reserve and credit cards                     877        930
----------------------------------------------------------------
     Total loans                              229,945    223,909

Less allowance for loan losses                  3,839      3,537
----------------------------------------------------------------
     Loans, net                              $226,106   $220,372
----------------------------------------------------------------
</TABLE>

     Included in total loans are net deferred  loan  origination  costs of $0.64
million and $0.41 million as of December 31, 1998 and 1997, respectively.

   Information regarding impaired loans is as follows:

<TABLE>
<CAPTION>

Dollars in thousands                   1998      1997       1996
----------------------------------------------------------------
<S>                                  <C>       <C>        <C>
Impaired loans at December 31:
   With valuation allowance          $2,819    $3,588     $3,598
   With no valuation allowance           --        --         --
   Valuation allowance                  323       378        490
Income recorded on impaired loans
   during the portion of the year
   that they were impaired               74        24         75
Income recorded on impaired loans
   recognized on the cash basis           6         --         4
Average investment in impaired loans  2,951     3,728      3,953
----------------------------------------------------------------
</TABLE>
                                       32
<PAGE>

   Nonaccrual  loans at December 31, 1998,  1997 and 1996, and related  interest
income data are summarized as follows:

<TABLE>
<CAPTION>
Dollars in thousands                   1998      1997       1996
----------------------------------------------------------------
<S>                                  <C>       <C>        <C>
Nonaccrual loans                     $2,694    $3,208     $4,025
Nonaccrual loans
   considered impaired               $2,050    $2,215     $2,812
----------------------------------------------------------------
Interest income in accordance
   with original terms              $   277   $   325     $  309
Interest income recorded                 56        33         30
----------------------------------------------------------------
Reduction in interest income        $   221    $  292     $  279
----------------------------------------------------------------
</TABLE>

   Loans to executive officers, principal stockholders,  directors, companies of
which directors are principal  owners,  and individuals  directly  related to or
affiliated with directors and executive  officers  aggregated  $2.50 million and
$2.35 million at December 31, 1998 and 1997,  respectively.  During 1998, new or
renewed  loans  totalling  $1.56  million  were  granted,  and payments of $1.41
million were received.

   The Company's  loans consist  primarily of residential  and  commercial  real
estate loans located  principally in western  Connecticut.  The Company offers a
broad range of loan and credit  facilities  to  borrowers  in its service  area,
including residential mortgage loans, commercial real estate loans, construction
loans,  working capital loans,  and a variety of consumer loans,  including home
equity lines of credit,  and installment and collateral  loans.  All residential
and commercial mortgage loans are collateralized by first or second mortgages on
real estate.  The ability and  willingness  of  borrowers to satisfy  their loan
obligations  is dependent in large part upon the status of the regional  economy
and regional real estate market.  Accordingly,  the ultimate collectability of a
substantial  portion of the loan  portfolio  and the  recovery of a  substantial
portion of real estate acquired is susceptible to changes in market conditions.

   Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
December 31,                           1998      1997      1996
---------------------------------------------------------------
<S>                                  <C>       <C>       <C>
Dollars in thousands
Allowance for loan losses at
   beginning of year                 $3,537    $3,212    $3,553
Provision for loan losses
   charged against income               371       582       390
Transfer to liability for estimated
   losses from off-balance sheet
   credit instruments                  (110)      (20)     (200)
Loan losses, net of recoveries           41      (237)     (531)
---------------------------------------------------------------
   Allowance for loan
     losses at end of year           $3,839    $3,537    $3,212
---------------------------------------------------------------
</TABLE>


4. REAL ESTATE OWNED

   Real  estate  acquired  through  foreclosure  is  stated  net of a  valuation
allowance. Real estate owned properties consisted of the following:

<TABLE>
<CAPTION>
December 31,                                     1998      1997
---------------------------------------------------------------
<S>                                             <C>      <C>
Dollars in thousands
One-to-four family residential                  $  26    $  182
Commercial                                         --        90
---------------------------------------------------------------
Total real estate owned                          $ 26       272
   Less: valuation allowance                       26        60
---------------------------------------------------------------
   Real estate owned, net                        $ --   $   212
---------------------------------------------------------------

Changes in the Valuation Allowance
Valuation allowance at beginning of year         $ 60    $  420
Provision for real estate owned losses
   charged against income                          --        26
Real estate owned losses                          (34)     (386)
---------------------------------------------------------------
Valuation allowance at end of year               $ 26   $    60
---------------------------------------------------------------
</TABLE>

<PAGE>

5. PREMISES AND EQUIPMENT

<TABLE>
<CAPTION>
                                      Owned   Capital
December 31, 1998                  Property    Leases     Total
---------------------------------------------------------------
<S>                                  <C>         <C>     <C>
Dollars in thousands
Premises and improvements            $3,928      $401    $4,329
Equipment and furniture               5,050        --     5,050
---------------------------------------------------------------
                                      8,978       401     9,379
Less accumulated depreciation
   and amortization                   5,432       401     5,833
---------------------------------------------------------------
Premises, equipment and
   capital leases, net               $3,546      $ --    $3,546
---------------------------------------------------------------

                                      Owned   Capital
December 31, 1997                  Property    Leases     Total
---------------------------------------------------------------
Premises and improvements            $3,927      $401    $4,328
Equipment and furniture               4,856        --     4,856
---------------------------------------------------------------
                                      8,783       401     9,184
Less accumulated depreciation
   and amortization                   5,085       393     5,478
---------------------------------------------------------------
Premises, equipment and
   capital leases, net               $3,698     $   8    $3,706
---------------------------------------------------------------
</TABLE>

                                       33
<PAGE>


6. ADVANCES FROM FHLB
<TABLE>
<CAPTION>
                                                December 31,
                                                ---------------
Maturity Date                       Rate         1998      1997
--------------------------------------------------------------------------------
<S>                                    <C>   <C>        <C>
Dollars in thousands
January 30, 1998                       5.69% $     --   $ 3,100
February 20, 1998                      5.64        --     5,575
October 1, 1998                        5.87        --     3,000
February 5, 1999                       5.19     2,000        --
May 6, 1999                            5.81     2,000        --
September 30, 1999                     4.98     5,000        --
November 1, 1999                       6.05     1,138     2,310
November 1, 1999                       6.36     1,192     2,414
June 11, 2001                          7.03       550       550
June 19, 2001                          6.65     2,234     3,000
December 31, 2002                      6.25     1,611     1,650
January 15, 2003                       5.88       855        --
August 14, 2003                        6.02       472        --
March 19, 2007                         6.95       878       953
February 13, 2008                      5.96     1,888        --
February 24, 2008                      5.25    10,000        --
February 26, 2008                      6.08       756        --
March 18, 2008                         6.46       552       593
May 8, 2008                            5.52     3,000        --
May 28, 2008                           6.25       744        --
August 21, 2008                        6.18       447        --
October 9, 2008                        5.41       695        --
October 22, 2008                       5.50       878        --
October 29, 2008                       5.68       782        --
--------------------------------------------------------------------------------
                                              $37,672   $23,145
--------------------------------------------------------------------------------
</TABLE>

   The Company has access to a  preapproved  line of credit with the FHLB for up
to 2% of its total assets.  In accordance  with an agreement with FHLB,  NMBT is
required to  maintain  qualified  collateral,  as defined in FHLB  Statement  of
Credit Policy, free and clear of liens, pledges and encumbrances,  as collateral
for the advances and the preapproved line of credit.

7. STOCK OPTION PLANS

   The Company has two stock option plans for the benefit of employees, officers
and directors.  The 1988 Non-Statutory Stock Option Plan (the 1988 Plan) permits
a maximum of 93,786 shares of common stock to be issued at exercise prices at or
above 85% of the fair market value at the date of grant. The 1994  Non-Qualified
Stock Option Plan (the 1994 Plan) permits a maximum of 300,000  shares of common
stock to be issued at fair market value at the date of grant.

   The Board of Directors determine when such options will be granted,  and when
they will  become  exercisable,  with the term of each option not to exceed five
years  under the 1988 Plan and ten years  under the 1994  Plan.  The Plans  also
provide for the issuance of stock appreciation  rights, at the discretion of the
Board of  Directors,  concurrent  with the  issuance of  options.  The number of
shares of common stock reserved,  and  outstanding,  for stock options and stock
appreciation  rights  will be  adjusted  for any  stock  splits  declared  after
establishment  of the Plans.  Options have been granted to purchase common stock
principally  at the fair  market  value at the date of the  grant.  Options  are
exercisable immediately after the grant. Upon the exercise of options,  proceeds
received in excess of par value are credited to additional paid-in capital.

   Stock option transactions under the Plans were as follows:
<TABLE>
<CAPTION>
                        Shares    Exercise   Weighted
                      Underlying  Price Per  Average Price    Maturity
Outstanding Options     Options  Share Range Per Share    Range
--------------------------------------------------------------------------------
<S>                      <C>       <C>          <C>       <C>
As of January 1, 1996     311,300  $5.875-$9.75   $  6.018  1999-2004
Granted                     7,500       $11.875   $ 11.875       2004
Cancelled or expired         (600)        $6.00   $  6.000       1999
Exercised                 (24,600) $5.875-$6.00   $  5.914  1999-2004
--------------------------------------------------------------------------------
As of December 31, 1996   293,600  $5.875-$11.875 $  6.177  1999-2004
Granted                    33,000         $12.75  $ 12.750  1997-2002
Cancelled or expired       (1,200)        $ 6.00  $  6.000       1999
Exercised                 (26,800) $5.875-$12.75  $  6.677  1997-2004
--------------------------------------------------------------------------------
As of December 31, 1997   298,600  $5.875-$12.75  $  6.859  1999-2004
Granted                   100,000  $19.437        $ 19.437       2008
Cancelled or expired        --
Exercised                (48,500)  $5.875-$12.75  $  6.651  1999-2004
--------------------------------------------------------------------------------
As of December 31, 1998  350,100   $5.875-$19.437 $ 10.481  1999-2008
--------------------------------------------------------------------------------
</TABLE>

<PAGE>

   Effective  January 1, 1996,  the Company  adopted  SFAS 123,  Accounting  for
Stock-Based  Compensation.  As  permitted by SFAS 123, the Company has chosen to
apply APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and
related   interpretations   in  accounting  for  its  Plans.   Accordingly,   no
compensation  expense has been  recognized for options  granted under its Plans.
Had  compensation  cost for the Plans been determined based on the fair value at
the grant dates for awards  under the Plans  consistent  with the method of SFAS
123,  net income and diluted  earnings  per share would have been reduced to the
pro forma amounts indicated below.


<TABLE>
<CAPTION>

                                                    Earnings per
Year Ended December 31,                 Net incomeshare, diluted
--------------------------------------------------------------------------------
Dollars in thousands, except per share data
1998
<S>                                         <C>            <C>
   As reported                              $3,217         $1.15
   Pro forma                                 2,778          0.99
1997
   As reported                               2,898          1.05
   Pro forma                                 2,808          1.02
1996
   As reported                               2,792          1.04
   Pro forma                                 2,759          1.03
</TABLE>

   The fair value of each option grant was  estimated on the date of grant using
the  Black-Scholes  option-pricing  model  with  dividends,  with the  following
weighted average assumptions used for grants:
<TABLE>
<CAPTION>

                                  1998        1997        1996
--------------------------------------------------------------------------------
<S>                                  <C>         <C>         <C>
Dividend yield                       1.80%       1.60%       1.60%
Expected volatility                 25.13%      27.80%      30.10%
Risk-free interest rate              5.27%       5.75%       7.00%
Expected lives, years               10.00        7.80        8.67
Fair value of options granted
   during year                      $7.00       $4.48       $4.97
</TABLE>

                                       34
<PAGE>

8. STOCKHOLDERS' EQUITY
CAPITAL REQUIREMENTS

   The Company and NMBT are subject to various regulatory  capital  requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements  can  initiate  certain   mandatory  --  and  possibly   additional
discretionary -- actions by regulators that, if undertaken,  could have a direct
material effect on their financial statements. Under capital adequacy guidelines
and the  regulatory  framework  for  prompt  corrective  action,  they 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.  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 NMBT to maintain  minimum  amounts and ratios
(set forth in the table  below) of total and Tier 1 capital  (as  defined in the
regulations)  to  risk-weighted  assets (as defined),  and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1998, that both the Company and NMBT meet all capital  adequacy  requirements to
which they are subject.

   As of December 31, 1998, NMBT was categorized as  well-capitalized  under the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as
well-capitalized NMBT must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events  since that  notification  that  management  believes  have  changed  the
institution's category.

   Actual capital amounts and ratios are presented in the table.

<TABLE>
<CAPTION>
                                                       To Be Well
                                                       Capitalized Under
                                      For Capital      Prompt Corrective
                         Actual    Adequacy Purpose    Action Provision
                         ------    ----------------    ----------------
Dollars in thousands  AmountRatio   Amount Ratio       Amount Ratio
----------------------------------------------------------------------------------------------------------------
CONSOLIDATED
AS OF DECEMBER 31, 1998:
<S>                  <C>       <C>  <C>     <C>                            <C>
Total Risk-Based     $30,351   14.1%$17,183   LESS THAN GREATER THAN       8.0%
Tier 1 Risk-Based     27,647   12.9% 8,591    LESS THAN GREATER THAN       4.0%
Tier 1 Leverage       27,647    7.4%14,945    LESS THAN GREATER THAN       4.0%
----------------------------------------------------------------------------------------------------------------

NMBT Only
AS OF DECEMBER 31, 1998:
Total Risk-Based     $29,573   13.8%$17,175  LESS THAN GREATER THAN 8.0% $21,468 LESS THAN GREATER THAN 10.0%
Tier 1 Risk-Based     26,871   12.5% 8,587   LESS THAN GREATER THAN 4.0%  12,881 LESS THAN GREATER THAN  6.0%
Tier 1 Leverage       26,871    7.2%14,944   LESS THAN GREATER THAN 4.0%  18,680 LESS THAN GREATER THAN  5.0%
----------------------------------------------------------------------------------------------------------------

CONSOLIDATED
As of December 31, 1997:
Total Risk-Based     $26,948   13.5%$16,026  LESS THAN GREATER THAN  8.0%
Tier 1 Risk-Based     24,428   12.2% 8,013   LESS THAN GREATER THAN  4.0%
Tier 1 Leverage       24,428    7.4%13,276   LESS THAN GREATER THAN  4.0%
----------------------------------------------------------------------------------------------------------------

NMBT Only
As of December 31, 1997:
Total Risk-Based     $26,876   13.4%$16,026  LESS THAN GREATER THAN  8.0%  $20,032 LESS THAN GREATER THAN  10.0%
Tier 1 Risk-Based     24,357   12.2% 8,013   LESS THAN GREATER THAN  4.0%   12,019 LESS THAN GREATER THAN   6.0%
Tier 1 Leverage       24,357    7.3%13,276   LESS THAN GREATER THAN  4.0%   16,595 LESS THAN GREATER THAN   5.0%
----------------------------------------------------------------------------------------------------------------
</TABLE>


DIVIDENDS

   The Company's  ability to pay dividends is dependent on NMBT's ability to pay
dividends  to the  Company.  There are  certain  restrictions  on the payment of
dividends by NMBT to the Company.  Connecticut  Banking Laws limit the amount of
annual dividends that NMBT may declare on its common stock to net income for the
current  year and  retained  net income  for the  preceding  two  years,  net of
dividends  previously  paid during those periods.  NMBT is also  prohibited from
paying a cash  dividend  that would  reduce its  capital  ratios  below  minimum
regulatory requirements. In addition, the FRB may impose further restrictions on
dividends on the Company.

9. INCOME TAXES

   The following table represents a  reconciliation  of the provision for income
taxes as shown in the statements of operations with that which would be computed
by applying the statutory  federal income tax rate (34%) to income before income
taxes:

<PAGE>

RECONCILIATION OF THE PROVISION FOR INCOME TAXES

<TABLE>
<CAPTION>
Years Ended December 31,               1998      1997      1996
--------------------------------------------------------------------------------
Dollars in thousands
Federal income tax provision
<S>                                  <C>       <C>       <C>
   at statutory rate                 $1,746    $1,628    $1,078
Increase (decrease) in income
   taxes resulting from:
   State income taxes, net of
     federal tax effect                 346       426       142
   Changes in valuation allowance
     and other deferred tax
     adjustments                         --        --      (701)
   Other                               (174)     (164)     (140)
--------------------------------------------------------------------------------
Actual provision for income taxes    $1,918    $1,890    $  379
--------------------------------------------------------------------------------

COMPONENTS OF THE PROVISION FOR INCOME TAXES

Years Ended December 31,               1998      1997      1996
--------------------------------------------------------------------------------
Dollars in thousands Current income tax expense:
   Federal                           $1,047    $1,291     $ 431
   State                                524       645       215
--------------------------------------------------------------------------------
                                      1,571     1,936       646
Deferred income tax benefit             347       (46)     (267)
--------------------------------------------------------------------------------
Total provision for income taxes     $1,918    $1,890     $ 379
--------------------------------------------------------------------------------
</TABLE>

                                       35
<PAGE>

   The tax effect of temporary  differences giving rise to deferred tax assets
and liabilities at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
Dollars in thousands                             1998      1997
--------------------------------------------------------------------------------
Deferred tax assets
<S>                                            <C>       <C>
   Allowance for loan losses                   $1,052    $  997
   Deferred compensation                          464       485
   Capital loss carryforward                      105       105
   Deferred loan fees                            (235)     (130)
   Real estate owned                               10        24
   Other                                         (337)      (48)
--------------------------------------------------------------------------------
   Total deferred tax assets                    1,059     1,433
--------------------------------------------------------------------------------

Deferred tax liabilities
   Securities                                    (354)     (227)
--------------------------------------------------------------------------------
   Total deferred tax liabilities                (354)     (227)
--------------------------------------------------------------------------------
   Valuation allowance                           (105)     (105)
--------------------------------------------------------------------------------
   Net deferred tax assets                     $  600    $1,101
--------------------------------------------------------------------------------
</TABLE>

   The  Company  will only  recognize  a  deferred  tax asset  when,  based upon
available evidence,  realization is more likely than not. A valuation reserve is
established for tax benefits available but for which realization is in doubt. At
December 31, 1998 and 1997, the Company  maintains a valuation  reserve  against
100% of the State and Federal  capital  loss  carryforwards  which NMBT does not
expect to utilize.

10. BENEFIT PLANS

   The Company has a defined contribution  Retirement and Thrift 401(k) Plan for
its  employees  who meet  certain  length of service and age  requirements.  The
provisions of the 401(k) Plan allow eligible  employees to contribute between 1%
and 15% of their  annual  salary,  with a matching  contribution  by the Company
equal to 100% of the employee's  contribution,  up to 4% of annual  salary.  The
Company can also make  discretionary  contributions  to the Plan.  The Company's
expense  under this plan was $0.25  million,  $0.24 million and $0.23 million in
1998, 1997 and 1996, respectively.

   In  1985  and  1986,  the  Board  of  Directors  of  NMBT  approved  Deferred
Compensation Agreements for its Directors and selected Executive Officers. These
agreements  permitted the Directors and selected  Executive  Officers to defer a
portion of their cash  compensation.  The accrued liability at December 31, 1998
was $0.88 million.  In connection with this  liability,  NMBT has purchased life
insurance contracts on the applicable parties. NMBT is the owner and beneficiary
of such  contracts.  Although  NMBT may be obligated  for certain cash  payments
prior to the receipt of proceeds from the  purchased  life  insurance  policies,
NMBT should ultimately be reimbursed in whole from such life insurance proceeds.

   Distributions  under the Plan are  payable by NMBT as either a lump sum, in a
maximum of ten equal annual installments,  or in either 120 or 180 equal monthly
installments  depending upon the basis for the distribution.  In cases of death,
attaining normal retirement age or other terminations, lump sum distributions or
installment  payments are  authorized.  Retirement  distributions  are made upon
attaining normal retirement age. NMBT's aggregate distributions in 1998 pursuant
to this Plan totaled $0.25 million.

   In 1997,  the Board of Directors of NMBT  approved a  Supplemental  Executive
Retirement  and Deferred  Compensation  Plan to provide its senior  officers and
directors with  additional  retirement  and tax deferral  benefits to the extent
benefits under the qualified  retirement plans of NMBT are limited by applicable
law or regulation.  The  Supplemental  Plan will permit  additional  deferral of
compensation  and  matching   contributions  (as  determined  by  the  Board  of
Directors) to the extent the supplemental deferral has been made into the 401(k)
Plan. No matching contributions were made in 1998.

11. COMMITMENTS AND CONTINGENCIES
OFF-BALANCE SHEET COMMITMENTS

   NMBT is party to financial  instruments  with  off-balance  sheet risk in the
normal course of business to meet the financing needs of its customers and, from
time to time,  to reduce its own  exposure to  fluctuations  in interest  rates.
These  financial  instruments  include  commitments  to extend  credit,  standby
letters of credit and financial guarantees. These financial instruments involve,
to varying  degrees,  elements of credit and interest rate risk in excess of the
amount recognized in the statements of condition.  The contract amounts of those
instruments  reflect the extent of involvement NMBT has in particular classes of
financial  instruments.   NMBT's  exposure  to  credit  loss  in  the  event  of
nonperformance by the other party to the financial instrument for commitments to
extend credit, standby letters of credit and financial guarantees is represented
by the  contractual  amount  of those  instruments.  NMBT  uses the same  credit
policies  in  making  commitments  and  conditional  obligations  as it does for
on-balance sheet instruments.

   Commitments and conditional obligations were as follows:

                                                  December 31,
-------------------------------------------------------------------
Dollars in thousands                             1998       1997
-------------------------------------------------------------------
Financial Instrument Whose Contract
Amounts Represent Credit Risk
Commitments to extend credit                  $91,679    $56,459
Letters of credit                               3,317      2,587
-------------------------------------------------------------------

   Commitments  to extend credit are agreements to lend to a customer as long as
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.   NMBT   evaluates   each   customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,  if
deemed necessary by NMBT upon the extension of credit,  is based on management's
credit  evaluation  of  the  counterparty.   Collateral  held  varies,   but  is
principally real estate and other income producing property.

   Letters of credit and financial guarantees are conditional commitments issued
by NMBT to  guarantee  the  performance  of a customer to a third  party.  Those
guarantees are primarily issued to support  commercial  borrowing  arrangements.
Most  guarantees  are for twelve  months.  The credit  risk  involved in issuing
letters of credit is  essentially  the same as that  involved in extending  loan
facilities to customers.  NMBT holds  certificates  of deposit or real

                                       36

<PAGE>

estate as collateral supporting those commitments for which collateral is deemed
necessary.  NMBT generally requires an initial loan to value ratio of no greater
than 80% when real estate collateralizes a loan commitment.

CONCENTRATIONS OF CREDIT RISK

   NMBT  primarily  grants loans to customers  located within its primary market
area  in  western  Connecticut.  The  majority  of  NMBT's  loan  portfolio  and
commitments  (86%)  are  comprised  of loans  collateralized  by real  estate in
western  Connecticut.  Of these loans,  approximately 74% are  collateralized by
residential real estate.

LEASE COMMITMENTS

   NMBT leases  certain of its  premises and  equipment  under  operating  lease
agreements.  Rent expense for operating leases was, in thousands, $406, $304 and
$253 for the years ended December 31, 1998, 1997 and 1996, respectively.

   The future  minimum  lease  payments  by year,  and in the  aggregate,  under
noncancelable operating leases consisted of the following at December 31, 1998:

                                                      Operating
Dollars in thousands                                     Leases
------------------------------------------------------------------
Years Ended December 31:
   1999                                                  $  377
   2000                                                     296
   2001                                                     310
   2002                                                     265
   2003                                                     241
   2004 and thereafter                                    1,033
------------------------------------------------------------------
Total future minimum lease payments                      $2,522
------------------------------------------------------------------

LEGAL PROCEEDINGS

   NMBT is a defendant  in certain  claims and legal  actions  that arose in the
ordinary course of business.  In the opinion of management,  after  consultation
with legal counsel,  these  proceedings,  in the aggregate,  are not expected to
have  a  materially  adverse  effect  on  the  financial  position,  results  of
operations or liquidity of the Company.

CASH AND DUE FROM BANKS

   Cash and due from banks  includes  reserve  balances that NMBT is required to
maintain with the Federal  Reserve Bank of Boston.  These required  reserves are
based  upon  deposits  outstanding  and were $2.0  million  and $6.7  million at
December 31, 1998 and 1997,  respectively.  These reserve balances averaged $5.9
million and $6.2 million in 1998 and 1997, respectively.

EMPLOYMENT CONTRACTS

   NMBT  has  employment   agreements  with  certain  executive  officers.   The
agreements  provide for an initial  term of one year  expiring  on December  31,
1998, and provide for one year  extensions  unless the employee is terminated in
accordance  with the terms  contained  therein.  One agreement  provides for the
payment of cash  severance  equal to three times average annual gross income for
the  previous  five  years,  less one  dollar,  upon  voluntary  or  involuntary
termination  within twelve months  following a "change in control" (as such term
is defined  therein).  The  agreements for two others provide for the payment of
cash  severance  equal to two times the  average  annual  gross  income  for the
previous five years, less one dollar, upon voluntary or involuntary  termination
within  twelve  months  following a "change in control" (as such term is defined
therein).

12.   ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

   SFAS 107,  Disclosures  About Fair Value of Financial  Instruments,  requires
disclosure  of  fair  value  information  for  certain  financial   instruments,
including loans, securities,  deposits and borrowings.  Quoted market prices are
not  available  for a  significant  portion of financial  instruments  and, as a
result,  the fair values  presented may not be  indicative of net  realizable or
liquidation values.

   Fair values are estimates  derived  using  present  value or other  valuation
techniques and are based on judgments regarding future expected loss experience,
current  economic  conditions,   risk  characteristics  and  other  factors.  In
addition,  fair value  estimates are based on market  conditions and information
about the financial instrument at a specific point in time. 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. Such items
include premises and equipment, real estate owned and income taxes. In addition,
the tax ramifications relating to the realization of unrealized gains and losses
may  have a  significant  effect  on fair  value  estimates  and  have  not been
considered in the estimates.

   The  following  is a summary of the  methodologies  and  assumptions  used to
estimate the fair value of financial instruments pursuant to SFAS 107.

   CASH, CASH  EQUIVALENTS  AND OTHER:  The estimated fair value of cash and due
from banks, deposits with banks, federal funds sold, accrued interest receivable
and accrued interest payable, is considered to approximate the book value due to
their short-term nature and negligible credit losses.

     SECURITIES: Securities classified as available for sale are carried at fair
value.  Fair value for securities  held to maturity was determined  generally by
secondary market and independent broker quotations.

     LOANS:  Estimated fair values for loans  collateralized  by real estate are
based on  discounted  projected  cash flows using yield  spreads  determined  by
property type, adjusted for prepayment  assumptions,  changes in credit risk and
interest  rate  parameters  for variable rate loans.  Estimated  fair values for
commercial and consumer loans, not  collateralized by real estate,  are based on
applicable  fixed  yields.  Credit  cards  and cash  reserve  loans are based on
carrying values.

     DEPOSITS:  The  estimated  fair values  disclosed  for checking and savings
deposits  are,  by  definition,  equal to the  amount  payable  on demand at the
reporting date. Estimated fair values for fixed rate certificates of deposit are
estimated using a discounted cash flow  calculation  that applies interest rates
currently  being offered on  certificates  to a schedule of aggregated  expected
monthly maturities on time deposits.

                                       37
<PAGE>

   OFF-BALANCE   SHEET   FINANCIAL   INSTRUMENTS:   Estimated  fair  values  for
off-balance  sheet financial  instruments are based on fees currently charged to
enter into similar  agreements  taking into account the  remaining  terms of the
agreements and the counterparties' credit standing.

   The following  table  summarizes the carrying value and estimated fair values
of on- and off-balance sheet financial instruments at December 31:

<TABLE>
<CAPTION>
                                1998                1997
                          Contract Estimated  Contract Estimated
Dollars in thousands        Amount Fair Value   Amount Fair Value
-----------------------------------------------------------------
Off-Balance Sheet
Financial Instruments:
   Commitments to
<S>                        <C>        <C>      <C>         <C>
     extend credit         $91,679$   1,340    $56,460     $663
   Letters of credit         3,317       66      2,587       52
</TABLE>

<TABLE>
<CAPTION>
                                1998                1997
                          Carrying Estimated  Carrying Estimated
Dollars in thousands         Value Fair Value    Value Fair Value
-----------------------------------------------------------------
Financial Assets:
<S>                                 <C>              <C>       <C>           <C>
   Cash and due from banks            $  13,934      $ 13,934  $  18,737      $  18,737
   Interest-bearing deposits             13,730        13,730      4,025          4,025
   Securities available for sale         76,326        76,326     48,129         48,129
   Securities held to maturity           40,364        40,769     35,876         36,240
   Loans, net                           226,106       226,489    220,372        219,854
   Accrued interest receivable            2,875         2,875      2,421          2,421

Financial Liabilities:
   Noninterest-bearing
     checking                        $  44,414       $ 44,414  $  36,999      $  36,999
   Interest-bearing
     checking                           99,216         99,216     88,501         88,501
   Savings                              72,334         72,334     60,782         60,782
   Time deposits                        95,659         94,913     99,313         98,954
   Accrued interest payable                403            403        392            392
   FHLB advances                        37,672         37,502     23,145         23,145
</TABLE>


13.   PARENT COMPANY ONLY FINANCIAL STATEMENTS

   The unconsolidated  statements of condition of NMBT Corp at December 31, 1998
and 1997,  and its  statements of operations  and cash flows for the period from
inception  (November  25,  1997) to December  31,  1997,  and for the year ended
December 31, 1998 are as follows:

STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
                                                  December 31,
Dollars in thousands                             1998      1997
-----------------------------------------------------------------
Assets
<S>                                         <C>       <C>
Cash and cash equivalents                   $     830 $      71
Investment in NMBT                             27,912    25,259
-----------------------------------------------------------------
   Total assets                               $28,742   $25,330
-----------------------------------------------------------------

Liabilities and Stockholders' Equity
Accrued expenses                           $       54   $    --
Stockholders' equity                           28,688    25,330
-----------------------------------------------------------------
   Total liabilities and stockholders' equity $28,742   $25,330
-----------------------------------------------------------------
</TABLE>

STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
                                                        For the
                                                     Period from
                                                       Nov. 25, 1997
                                           Year Endedto Dec. 31,
Dollars in thousands                         Dec. 31, 1998 1997
---------------------------------------------------------------------
<S>                                            <C>          <C>
Dividends from NMBT                            $1,041       $--
Other Income                                       11        --
Operating expense                                 190        --
---------------------------------------------------------------------
Income before equity in undistributed
   earnings of NMBT                               862         --
Equity in undistributed earnings of NMBT        2,355       398
---------------------------------------------------------------------
   Net income                                  $3,217      $398
---------------------------------------------------------------------
</TABLE>

<PAGE>

STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                         For the
                                                       Period from
                                                       Nov. 25, 1997
                                           Year Ended  to Dec. 31,
Dollars in thousands                         Dec. 31, 1998 1997
---------------------------------------------------------------------
Operating Activities
<S>                                           <C>         <C>
Net Income                                    $ 3,217     $ 398
Adjustments to reconcile net income to
   net cash provided by operating activities:
     Equity in undistributed earnings of NMBT  (2,355)     (398)
     Increase in accrued expenses                  54         --
---------------------------------------------------------------------
     Net cash provided by operating activities    916         --
---------------------------------------------------------------------

Financing Activities
Dividends paid                                   (923)       --
Proceeds from exercise of stock options           766        71
--------------------------------------------------------------------
     Net cash provided by financing activities   (157)       71
--------------------------------------------------------------------

Increase in cash and cash equivalents             759        71
Cash and cash equivalents, beginning of period     71         --
--------------------------------------------------------------------
Cash and cash equivalents, end of year       $    830    $   71
--------------------------------------------------------------------
</TABLE>

                                       38
<PAGE>

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
Dollars in thousands, except per share data                               First            Second            Third            Fourth
------------------------------------------------------------------------------------------------------------------------------------
1998
<S>                                                                    <C>               <C>              <C>               <C>
Interest and dividend income                                           $  5,829          $  6,019         $  6,243          $  6,099
Interest expense                                                          2,435             2,543            2,590             2,552
------------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income                                          3,394             3,476            3,653             3,547
Provision for loan losses                                                   141               125               75                30
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income                                                          568               639              756               755
Noninterest expense                                                       2,711             2,732            2,953             2,886
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                                1,110             1,258            1,381             1,386
Net income                                                                  696               786              850               885
------------------------------------------------------------------------------------------------------------------------------------

Per share amounts:
   Basic earnings per share (1)                                         $  0.26           $  0.30          $  0.32           $  0.34
   Diluted earnings per share (1)                                       $  0.25           $  0.28          $  0.30           $  0.32
   Cash dividends per share                                              $0.080            $0.090           $0.090            $0.090
   High bid price                                                       $20.375           $20.375          $20.000           $19.063
   Low bid price                                                        $17.125           $18.000          $18.750           $14.750
------------------------------------------------------------------------------------------------------------------------------------


1997
Interest and dividend income                                            $ 5,400          $  5,648         $  5,771          $  5,890
Interest expense                                                          2,153             2,241            2,381             2,445
------------------------------------------------------------------------------------------------------------------------------------
Net interest and dividend income                                          3,247             3,407            3,390             3,445
Provision for loan losses                                                   125               120              210               127
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income                                                          432               488              509               562
Noninterest expense                                                       2,493             2,609            2,436             2,572
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                                1,061             1,166            1,253             1,308
Net income                                                                  634               697              765               802
------------------------------------------------------------------------------------------------------------------------------------

Per share amounts:
   Basic earnings per share (1)                                         $  0.24          $   0.27          $  0.30         $    0.31
   Diluted earnings per share (1)                                       $  0.23          $   0.26          $  0.27         $    0.29
   Cash dividends per share                                             $ 0.050          $  0.050          $ 0.055          $  0.055
   High bid price                                                       $11.750          $ 15.000          $18.500           $21.250
   Low bid price                                                        $11.000          $ 11.000          $14.750           $15.000
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The sum of quarterly per share data may not equal the annual  amounts due to
changes in the weighted average shares and share equivalents outstanding.


STOCK INFORMATION

INVESTMENT INFORMATION

Stockholders  are  encouraged  to contact  the  Company  with any  questions  or
comments about their investments. Direct Letters to:

Jay C. Lent
NMBT CORP
100 Park Lane Road
New Milford, CT 06776-2400

COMMON STOCK LISTING
NMBT CORP's  common stock is traded on the National  Association  of  Securities
Dealers (NASDAQ) SmallCap Market under the symbol NMBT.

STOCK TRANSFER AGENT
Requests for changes in the registration of stock  certificates,  replacement of
lost or destroyed  certificates,  or undeliverable  dividend  checks,  should be
referred to the transfer agent.

ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541

Telecommunications  Devices  for the  Deaf  (TDD)  for the  hearing  and  speech
impaired are available by calling (800) 231-5469.

                                       39
<PAGE>
<TABLE>
<CAPTION>
OFFICERS
NMBT CORP
--------------------------------------------------------------------------------
<S>                                             <C>                                          <C>
MICHAEL CARRIGAN                                Jay Lent                                      Deborah Fish
President and Chief Executive Officer           Chief Financial Officer and Secretary         Treasurer


NMBT

MICHAEL CARRIGAN                                NANCY DOLAN                                   ERIC ERDTMANN
President and Chief Executive Officer           Vice President - Business Development         Assistant Vice President -
                                                                                              Commercial Lending
JAY LENT                                        DONNA DOWNS
Executive Vice President,                       Vice President - Consumer Lending             LINDA SMITH
Chief Financial Officer and Secretary                                                         Assistant Vice President - Operations
                                                MARY KAY DUUS
PETER MAHER                                     Vice President - Loan Administration          ROSEMARY BRADSHAW
Executive Vice President and                                                                  Consumer Loan Officer and Underwriter
Chief Lending Officer                           JAMES MATTHIESSEN
                                                Vice President - Data Processing              LINDA HALL
DEBORAH FISH                                                                                  Loan Servicing Officer
Vice President and Treasurer                    JOSEPH MORRISSEY
                                                Vice President - Commercial Lending           ROSEMARY PLUE
DON MALLOZZI                                                                                  Executive Assistant
Senior Vice President - Consumer Lending        LINDA REYES
                                                Vice President - Commercial Lending           DANA SMITH
STEVEN BREINER                                                                                Data Processing
Vice President - Commercial Lending             ALFRED SCHLEMMER, JR.
                                                Vice President - Commercial Lending           CAROL SPOONER
ROBERTA BUDDLE                                                                                Banking Officer
Vice President - Human Resources                ANTHONY AMBROGIO
                                                Assistant Vice President - Internal Audit     JANET WITTMANN
NANCY DOHL                                                                                    Assistant Treasurer
Vice President - Sales & Production             NANCY BENTLEY
                                                Assistant Vice President - Lending

<CAPTION>
BRANCH OFFICERS
NMBT
--------------------------------------------------------------------------------
<S>                                                   <C>                                 <C>
MICHELLE SCOTT                                         SHARON MAYNARD                     FLORINDA PEREIRA
Vice President - Branch Operations                     Assistant Vice President and       Manager - Danbury Towers Office
                                                       Manager - Park Lane Office
NANCY ACHEN                                                                               LORETTA VALLELY
Assistant Vice President and                           GLYNIS POWANDA                     Manager - Bridgewater Office
Manager - Main Office                                  Assistant Vice President and
                                                       Manager - Southbury Office         Martha McMahon
ANN GOLLSNEIDER                                                                           Floating Manager
Assistant Vice President and                           LINDA WAGNER
Manager - South Seven Office                           Assistant Vice President and       CYNTHIA FORBES
                                                       Manager - Germantown Office        Assistant Manager - Main Office
SUZANNE LEE
Assistant Vice President and                           BONNIE HAWTHORNE                   RENEE LYNNE STORTI
Manager - Mill Plain Office                            Manager - Kent Office              Branch Operations

                                                       CANDICE O'CONNELL
                                                       Manager - Candlewood Office
</TABLE>
                                       40
<PAGE>
BOARD OF DIRECTORS

[GRAPHIC OMITTED]
Standing (left to right):  Kevin Dumas,  Walter Southworth,  Harry Taylor,  Jr.,
Robert  Martin,  Louis  Funk,  Jr.,  Arthur  Weinshank  Seated  (left to right):
Lawrence Greenhaus, Ruth Henderson, Michael Carrigan, Terry Pellegrini

<TABLE>
<CAPTION>
ADVISORY BOARD                                              RETIRED DIRECTORS

<S>                           <C>                           <C>
Frank Benham                  Ambrose McGill                Norman Flayderman
Jack Deep                     Edward Mohr                   Victor Lautier
Alan Dretel                   Gerald Nahley                 Henry Perlowsky
M. Adela Eads                 Thomas Pilla                  Frederick Planz
James Faure                   Mark Prince                   Jack Straub
William Francis               Richard Pugh                  Edward Tierney
Richard Gabriel               John Rountos
Suzanne Gallup                Albert Salame
Maurice Goldstein             Thomas Sheehy
Covington Hardee              Thomas Sides
Kevin Hart                    Terrence Smith
Sanford Kaufman               Robert Stebbins
John Kawulicz                 John Stetson
George Kilberg                Dolph Traymon
Robert Kornhaas               James Winter
Vincent Lucas
</TABLE>