EXHIBIT 13

                               1997 ANNUAL REPORT



It is Our Mission to:

   o Be the premier community commercial bank in western Connecticut.

   o Create and deliver  quality  banking  products and services that  represent
exceptional value. o Provide a stimulating and challenging work environment that
encourages, develops and rewards excellence.

   o Serve our local communities with integrity and pride.

   Through  uncompromising  dedication  and  commitment  to the  above,  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.


                                    Contents
                                                                   Page
                                                                   ----

      Financial Highlights.......................................   1

      Message to Stockholders....................................   2

      Community Focus.............................................  4

      Financial Review............................................  8

      Management's Discussion and Analysis........................  9

      Financial Glossary.......................................... 20

      Financial Statements........................................ 21

      Quarterly Results of Operations............................. 35

      Stock Information........................................... 35

      Officers and Board of Directors............................. 36



Offices in:                    in  Fairfield County:      New Haven County:
-----------                    ---------------------      -----------------

Litchfield County              Candlewood Office          Southbury Office
Main Office                    100 Route 37               325 Main Street South
55 Main Street                 New Fairfield, CT  06812   Southbury, CT  06488
New Milford, CT  06776         (203) 746-2443             (203) 264-6463
(860) 355-1171
                               Mill Plain Office          NMBT Telephone Banker
South Seven Office             105 Mill Plain Road        (860) 350-0104
186 Danbury Road               Danbury, CT  06810         (800) 368-6398
New Milford, CT  06776         (203) 748-NMBT
(860) 355-1171
                               Germantown Office
Park Lane Office               30 Germantown Road
100 Park Lane Road             Danbury, CT  06810
New Milford, CT  06776         (203) 743-6004
(860) 355-1171
                               Danbury Towers Office
Kent Office                    30 Main Street
45 North Main Street           Danbury, CT  06810
Kent, CT  06757                (203 )792-bank
(860) 927-4681

Bridgewater Office
29 Main Street South
Bridgewater, CT  06752
(860) 355-1137

Branch Officers
---------------

Michelle Scott Vice
President - Branch  Operations
Nancy Achen  Assistant Vice President &
Manager - Main Office
Ann  Gollsneider
Assistant  Vice  President &
Manager - South Seven Office
Suzanne Lee
Assistant  Vice  President &
Manager - Mill Plain Office

Sharon  Maynard
Assistant  Vice  President &
Manager - Park Lane Office
Glynis Powanda
Assistant  Vice  President &
Manager - Southbury  Office
Linda  Wagner
Assistant  Vice President &
Manager - Germantown  Office
Jean Docktor
Manager - Bridgewater Office

Bonnie Hawthorne
Manager - Kent Office
Candice O'Connell
Manager - Candlewood Office
Florinda Pereira
Manager - Danbury Towers Office
Martha McMahon
Floating Manager
Patrick Perillo
Assistant Manager - Main Office
Renee Lynne Storti
Branch Operations


Advisory Board
--------------

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

* Former member of the
  Board of Directors
<PAGE>

                                                           December 31,
--------------------------------------------------------------------------------
Dollars in thousands, except per share data          1997       1996      1995

For the Year Ended:
Net interest and dividend income                   $13,489    $12,306   $11,379
Noninterest income                                   1,991      1,640     1,275
Noninterest expense                                 10,110     10,385     9,798
Net income                                           2,898      2,792     2,159

At Year End:
Assets                                            $336,566   $305,545  $269,176
Loans                                              223,909    211,686   198,158
Deposits                                           285,595    266,161   247,067
Stockholders' equity                                25,330     22,565    20,157

Per Share:
Basic earnings                                       $1.12      $1.09     $0.85
Diluted earnings                                      1.05       1.04      0.83
Book value                                            9.69       8.72      7.87
Closing bid price                                    20.00      11.75      9.25
Closing ask price                                    22.00      12.50     10.25

Selected Ratios:
Return on average assets                              0.91%      0.98%     0.84%
Return on average equity                              12.25%    13.23%    11.56%
Loan loss allowance to nonperforming loans           110.23%    79.79%    78.57%
Nonperforming assets to total assets                   1.02%     1.48%     2.17%

<PAGE>

MESSAGE TO STOCKHOLDERS

NEW HOLDING COMPANY

     We are pleased to report to you under our new holding  company - NMBT CORP.
In November  1997,  we completed  the  reorganization  of The New Milford Bank &
Trust Company ("NMBT") into a holding company structure.  The holding company is
known as NMBT CORP, a stock corporation under the laws of the State of Delaware.
NMBT CORP will provide us with 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 also provides us with additional flexibility with
respect to  capitalization  and financing,  as well as certain tax advantages by
virtue of the consolidated tax rules as they relate to holding  companies.

     NMBT  CORP  acquired  in  a  single  transaction  all  of  the  issued  and
outstanding shares of NMBT so that, immediately  thereafter,  all shares of NMBT
were converted automatically and without further action by our stockholders into
shares of NMBT CORP. By virtue of the reorganization,  NMBT stockholders now own
shares of NMBT CORP. Stockholders of NMBT may, but are not required to, exchange
their present NMBT  certificates  for new  certificates  representing  NMBT CORP
common stock.

CASH DIVIDEND

     In January 1998,  based upon the financial  results for 1997,  the Board of
Directors declared a quarterly cash dividend of $0.08 per share. This represents
a 45 percent increase over the dividend declared in the previous quarter. We are
proud  to  have  increased  the  cash  dividend  each  year  since  1995.

STOCK PERFORMANCE

     Investor response to our financial results has been gratifying.  During the
past  two  years  NMBT  CORP's  common  stock  has  recorded   excellent   price
appreciation,  closing on December  31, 1997 at $20.00 per share,  up 60 percent
over 1996's  close of $12.50 per share,  and up 105 percent over 1995's close of
$9.75 per share.

FINANCIAL PERFORMANCE

     We are  pleased to report  that NMBT  CORP's  1997 net income  increased  4
percent to  $2,898,203,  or $1.05 diluted  earnings per share for the year ended
December 31, 1997,  as compared to net income of  $2,791,563,  or $1.04  diluted
earnings  per share for fiscal  1996.  Basic  earnings  per share were $1.12 for
1997, as compared to $1.09 for 1996. This represents the fifth  consecutive year
of increased earnings.  The past three years have been record earnings years for
the Company.  For comparative  purposes,  pre-tax income increased 51 percent to
$4,788,203  for the year ended  December 31, 1997, as compared to pre-tax income
of  $3,170,563  for  fiscal  1996.

     The increase in operating earnings was accomplished  despite an increase in
the  effective tax rate from 12 percent in 1996 to  approximately  40 percent in
1997. In addition,  during the fourth quarter the holding company reorganization
was  completed  and we  opened a new  full  service  office  in  Southbury.  The
improvement in net income for fiscal 1997, as compared to 1996, is a reflection
of increased  interest-earning  assets and  continued  improvement  in operating
efficiency. Growth in earning assets is the product of strong loan growth and an
increase in investment securities,


<PAGE>

which  assets were funded by a 7.3 percent  increase in deposits  coupled with a
continuation of a modest leverage  strategy.  Also  contributing to the improved
financial  performance was a 21.4 percent increase in noninterest income, due to
better than  expected  activity in mortgage  banking and  increased  fee income.


NETWORK  EXPANSION

     In 1997,  NMBT  opened  its tenth  full  service  office on Main  Street in
Southbury.  We are targeting the Southbury  area due to its recent and projected
growth. We have installed a new drive-up  automated teller machine ("ATM") as an
added  convenience  for our customers in the Southbury  area. NMBT is making its
debut in New Haven  County  and  intends  to look for other  towns in  Fairfield
County and New Haven County for  expansion in 1998. By opening our newest office
we have  expanded our network by adding  Newtown,  Southbury and Woodbury to our
market territory.  This expansion strategy has enabled NMBT to increase deposits
by $19.4  million,  or 7.3  percent,  in 1997.  We also  added two ATM's  inside
grocery  stores in 1997. We  corroborated  with Deep's Market in Danbury and The
Southbury  Food  Center in an  effort  to  provide  greater  convenience  to our
customers  and the  community at large.

     We  continued to invest in equipment  and  personnel to achieve  growth and
efficiency.  In  1997,  we  generated  almost  $100  million  in new  loans.  In
particular,  our mortgage banking  operation is expanding  rapidly.  Residential
mortgage originations (excluding home equity loans) were $49 million in 1997, an
increase of 75 percent over the previous year. Commercial loans also grew during
1997. Commercial loan officers are focusing on building total relationships with
local businesses  throughout western  Connecticut.

RETIREMENT OF JACK STRAUB

     At the  annual  meeting of  stockholders  scheduled  for May 5, 1998,  Jack
Straub will retire from the Board of Directors after 23 years of service.  Since
NMBT's  inception in 1975, Jack and NMBT have been  synonymous.  Jack was one of
the major  forces that brought  NMBT into  existence.  His hard work helped make
NMBT prosper in the early years. Jack became Chairman of the Board in 1986. Jack
guided  NMBT  through  rough  economic  times in the  late  eighties  and  early
nineties,  the  merger  with  Candlewood  Bank  and  Trust  Company  in 1994 and
ultimately  to  prosperity   and  record   earnings.   On  behalf  of  all  NMBT
stockholders,  employees  and  friends,  we  would  like to  thank  Jack for his
guidance, dedication,  understanding and support. It is an understatement to say
that his presence will be greatly missed.

CLOSING THOUGHTS

     As we look ahead,  the traits that  differentiate  NMBT - teamwork,  strong
credit quality,  personalized service and a strong commitment to the community -
will  continue to serve our  stockholders  well as financial  services  industry
challenges  escalate.  We will continue to focus on bringing more revenue to the
bottom line without  impacting  customer  service and to continue  investing our
capital  wisely.

     Focus on  achievement  of our goals and teamwork  produced the results that
are reflected in our stock price and our asset growth. We want to thank each and
every one of our dedicated  employees for staying  focused on the basics,  which
resulted in another successful year.

    Finally, we want to thank our stockholders,  customers,  suppliers, Board of
Directors  and the  communities  in which we operate  for their  confidence  and
support.


                                       2
<PAGE>

COMMUNITY FOCUS

COMMUNITY BANKING

     NMBT's  success  story  rests  soundly  on  years of  experience  as a true
community  bank.  An original  hometown  bank,  NMBT keeps  banking  local.  All
decisions  are  made  locally.   All  employees  are  neighbors  living  in  the
communities they serve.  Plus we reinvest back into our communities to help them
grow and thrive.

     Each NMBT branch is staffed with dedicated personnel thoroughly trained and
educated to provide  leading-edge  financial  services to consumer  and business
customers.   Exceptional  banking  services,  combined  with  personal  customer
service,  is the driving  force  behind the success of NMBT.  And it's  working.
Starting  from a united town effort to create a bank that meets the needs of the
community,  NMBT opened in New Milford in 1975.  From that one branch  emerged a
community bank that has grown to serve the surrounding  communities from Kent to
Danbury to Southbury.

REINVESTING IN THE COMMUNITY

     NMBT's  accomplishments  rest in the  generations  of tradition  set in our
local  communities.  NMBT  customers  are  quick to  identify  - and  reward - a
community  bank that  recognizes  the needs of area  residents  and  businesses.
"Reinvesting  resources in the community is a good  investment," said Michael D.
Carrigan, President and CEO of NMBT. "But more importantly, it's the right thing
to do."

     NMBT has long been a cornerstone of the  communities  it serves,  providing
not only the necessary loans and  investments to grow the community,  but with a
fundamental  dedication  which  manifests  itself in volunteer  work and gifting
programs.

NEW MILFORD HOSPITAL'S RADIATION ONCOLOGY PROJECT

     "I want to express deep  appreciation  for your  support for our  Radiation
Oncology Project.  I truly believe that the commitment NMBT has made will insure
our  success  and will be a gift that will keep on giving for  decades to come,"
said Richard E. Pugh, President and CEO of New Milford Hospital.

     New  Milford  Hospital  and  Columbia  -  Presbyterian  Medical  Center are
completing  the  final  phase  of their  Comprehensive  Cancer  Center  with the
addition of one of the finest radiation therapy programs  available in the State
of Connecticut.  Serving the needs of cancer  patients and their families,  this
center  will  expand  radiation  therapy  services  to  patients  who now  drive
considerable distances for treatment.  NMBT was one of the leading institutional
donors with a pledge of $200,000 to get the project funding off to a start.

     "NMBT is proud to do our small part by donating  much needed  funds to this
phenomenal  project," said Mr. Carrigan.  "NMBT considers such  contributions as
part of its corporate  goals:  Effectively  servicing the communities  with more
than sound financial advice and services. With daily gratitude as well."


                                       3
<PAGE>


COMMUNITY FOCUS

NMBT SOUTHBURY 10K FALL CLASSIC

     The newest NMBT branch opened in September of 1997 in  Southbury,  and NMBT
became the major sponsor of Southbury's  community  road race.  Launched 8 years
ago by the  Southbury  Business  Association,  the NMBT 10K Fall  Classic is the
funding  vehicle for scholarship  funds for Pomperaug High School.  "This year's
race raised funds for a deserving  Southbury  high school  student," said Glynis
Powanda, Assistant Vice President and Southbury Branch Manager of NMBT. "It's an
outpouring  of  community   support,"  Ms.  Powanda  said.   "Over  250  runners
participated,  and hundreds of local residents rallied to donate time, money and
the best food at any race in Connecticut."

ANN'S PLACE - HOME OF I CAN

     Founded in 1991 by cancer  survivors for cancer  survivors,  I CAN has long
provided   services  and  support  groups  for  the  residents  of  Danbury  and
surrounding towns whose lives have been affected by cancer.  "It's always been a
dream of I CAN to have a free-standing  home to be easily  recognized,  on a bus
route, accessible to the clients served," said Nancy K. Dolan, Vice President of
Business  Development  for NMBT.  In  December,  NMBT with the City of  Danbury,
donated the land and building at 24 Padanaram Road to I CAN.



                                       4
<PAGE>

"Our  commitment  to I CAN does not stop with this  donation,"  Ms.  Dolan said.
"This is  where it  starts.  My job is to  organize  the  entire  community  for
restoration  and  construction  of a new  building.  This is an ongoing  support
commitment  from NMBT."

FUTURE TRENDS

     With  technology  ever-changing,  NMBT is  committed  to  keep up with  the
technologies and provide the most  sophisticated  banking services  available to
the communities we serve.  Offering Cash  Management for  Businesses,  Corporate
Lines of Credit,  Telephone Banking and  MasterMoney(TM)  Debit Cards keeps NMBT
current with even the "biggest" bank.

     With record  growth,  successful  new branches,  and thousands of satisfied
customers, we highly anticipate a prosperous future for NMBT. We look forward to
expansive opportunities in Fairfield and New Haven counties as we expand to meet
the  needs of these  Connecticut  neighbors.  By  growing  with  technology  and
maintaining  superior customer  service,  more and more of our neighbors look to
NMBT for a stronger,  more  personal,  more  reliable  banking  relationship.  A
community relationship.

     "By  reinvesting  in the  communities  we serve,  we are  investing  in our
customer's  future,  and  subsequently  our own future.  It's a priority amongst
individual NMBT branches as well as the company as a whole:  It's part of who we
are."


                                       5
<PAGE>

FINANCIAL REVIEW

The following selected financial data for the five years ended December 31, 1997
is derived from the consolidated financial statements of NMBT CORP. Balances are
as of and for the years ended December 31.

<TABLE>
<CAPTION>

Dollars in thousands, except for per share data                  1997        1996         1995         1994         1993
--------------------------------------------------------------------------------------------------------------------------
Statements of condition:
--------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>          <C>          <C>          <C>
Assets                                                        $336,566    $305,545     $269,176     $252,485     $202,244
Securities                                                      84,005      63,761       40,206       38,859       41,111
Loans, net                                                     220,372     208,474      194,605      186,946      140,392
Deposits                                                       285,595     266,161      247,067      225,758      176,324
Stockholders' equity                                            25,330      22,565       20,157       17,546       16,775

Statements of operations:
--------------------------------------------------------------------------------------------------------------------------
Interest and dividend income                                  $ 22,709    $ 20,300     $ 18,463     $ 14,797     $ 12,673
Interest expense                                                 9,220       7,994        7,084        4,757        4,965
Net interest income                                             13,489      12,306       11,379       10,040        7,708
Provision for loan losses                                          582         390          160          240          155
Noninterest income                                               1,991       1,640        1,275        1,214        1,154
Noninterest expense                                             10,110      10,385        9,798        9,336        7,899
Income before income taxes                                       4,788       3,171        2,696        1,678          808
Provision for income taxes                                       1,890         379          537          339           52
Net income                                                       2,898       2,792        2,159        1,339          756

Common stock data:
--------------------------------------------------------------------------------------------------------------------------
Book value per share                                             $9.69       $8.72        $7.87        $6.93        $6.63
Tangible book value per share                                     9.49        8.43         7.48         6.40         6.63
Basic earnings per share                                          1.12        1.09         0.85         0.53         0.30
Diluted earnings per share                                        1.05        1.04         0.83         0.53         0.30
Cash dividends per share                                          0.21        0.17         0.13         0.00         0.00

Selected ratios:
--------------------------------------------------------------------------------------------------------------------------
Return on average assets                                          0.91%       0.98%        0.84%        0.58%        0.37%
Return on average equity                                         12.25%      13.23%       11.56%        7.83%        4.74%
Net interest spread                                               4.21%       4.33%        4.50%        4.50%        3.87%
Net interest margin                                               4.67%       4.73%        4.82%        4.74%        4.12%
Stockholders' equity to total assets                              7.53%       7.39%        7.49%        6.95%        8.29%
Nonperforming assets to total assets                              1.02%       1.48%        2.17%        2.62%        3.76%
</TABLE>


                                       6
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

     NMBT CORP (the "Company"),  a Delaware  corporation  formed in 1997, is the
registered  bank  holding  company  for The  New  Milford  Bank & Trust  Company
("NMBT"),  a wholly-owned  subsidiary formed in 1975. The Company's  activity is
currently limited to the holding of NMBT's outstanding common stock. 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, 1997,  the Company had total assets of $336.57  million,
up from $305.55  million as of December  31,  1996.  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 $12.22  million or 5.8 percent,  mainly in higher  yielding  commercial and
installment  loans.  During 1997, the Company's Board of Directors declared four
quarterly cash dividends totaling $0.54 million, or $0.21 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 $2.90 million
or $1.05  diluted  earnings per share for 1997,  compared to net income of $2.79
million  or $1.04  diluted  earnings  per share for 1996 and net income of $2.16
million or $0.83 diluted  earnings per share for 1995. The 4 percent rise in net
income from 1996 to 1997 results primarily from the increase in interest-earning
assets,  continuation  of a modest leverage  strategy and marked  improvement in
operating  efficiency.  The 29  percent  rise in net  income  from  1995 to 1996
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, 1997 AND 1996

NET INTEREST AND DIVIDEND INCOME

     Net interest and dividend income  (interest  income less interest  expense)
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



                                       7
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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.

COMPARISON OF YEARS ENDED
DECEMBER  31, 1996 AND 1995

NET INTEREST AND DIVIDEND  INCOME

     Net interest and dividend income  increased  $0.93 million,  or 8.1 percent
from 1995 to 1996. The net interest margin decreased during that same time frame
from 4.82 percent in 1995 to 4.73 percent in 1996.  The increase in net interest
income is the product of strong loan growth and an increase in securities, which
assets were funded by a $19.09  million,  or 7.7  percent,  increase in deposits
coupled with a modest  leverage  strategy using $14.56 million in FHLB advances.
Loans grew more than $13.53 million, fueled mainly by commercial and installment
loans, almost all variable rate in nature. This caused net interest and dividend
income to accelerate at a pace, which  outdistanced  the nominal  contraction in
the net interest spread.  The decrease in the spread was primarily the result of
increased  competition  and the  addition  of FHLB  advances  to fund the modest
leverage  strategy.  These  FHLB  advances  were used to fund  securities  at an
average spread between 1 and 2 percent, thereby lowering the overall spread.

     Beginning  in 1996,  the FDIC has all but  eliminated  the federal  deposit
premiums  banks pay to insure  deposits.  This  elimination of FDIC premiums for
most of the  nation's  banks may  encourage  banks to raise core  deposit  rates
without  negatively  impacting  earnings.   If  disintermediation   accelerates,
financial  institutions  may be forced to raise core  deposit  rates to maintain
deposits. This could negatively impact NMBT's net interest income and spread.

NONINTEREST INCOME

     Noninterest income increased from $1.28 million in 1995 to $1.64 million in
1996, principally due to increases in service charge and fee income and expanded
mortgage  banking  activities  since  management  began  a  program  of  selling
principally all fixed rate mortgages servicing-retained in May 1994.

NONINTEREST EXPENSE

     Noninterest  expense  increased  $0.60  million  or 6.1  percent  to $10.39
million in 1996,  up from $9.80  million in 1995.  The  increase  was  primarily
attributable to increased  general  operating  expenses,  which included,  among
other normal expense increases  reflective of volume, a one-time charge of $0.12
million for a reduction in the assumed discount rate used to record the deferred
compensation   liability,   an   increase  of  $0.08   million  in   advertising
expenditures,  $0.10 million for settlement of litigation  and associated  legal
fees, and $0.02 million  related to a robbery of the Mill Plain Office.  Overall
operating  efficiency  improved  from 1995 to 1996 as a result  of  management's
continued focus on cost control,  continued efficiencies derived from the second
full year of combined operating results after the Candlewood  merger,  migration
to  part-time  workers,  technological  upgrades  in  data  processing,  and the
reduction  of  nonperforming  assets.  All of these  factors  served to  control
noninterest  expense and kept their  increase below the increase in asset growth
and revenues.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

     The provision for loan losses  totaled $0.58 million for 1997,  compared to
$0.39 million for 1996 and $0.16 million in 1995.

     Net loan  charge-offs  for fiscal  1997 were $0.24  million,  versus  $0.53
million in 1996 and $0.57  million in 1995.  The  increased  provision  for loan
losses in 1997 and 1996 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 1997 compared to 1996).

     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, 1997 and 1996. 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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
CHANGES IN THE ALLOWANCE FOR LOAN LOSSES
                                                                               YEARS ENDED DECEMBER 31,
                                                                      ------------------------------------------
Dollars in thousands                                                  1997              1996             1995
----------------------------------------------------------------------------------------------------------------

<S>                                                                   <C>               <C>              <C>
Allowance for loan losses at beginning of year                        $3,212            $3,553           $3,965
Provision for loan losses charged against income                         582               390              160
Transfer to liability for estimated losses from off-balance sheet
  credit instruments                                                     (20)             (200)               -
Loan losses, net of recoveries                                          (237)             (531)            (572)

Allowance for loan losses at end of year                              $3,537            $3,212           $3,553
----------------------------------------------------------------------------------------------------------------
Ratio of allowance for loan losses:
  to nonperforming loans                                               110.2%             79.8%            78.6%
  to total loans                                                         1.6%              1.5%             1.8%
Provision for loan losses to average loans                               0.3%              0.1%             0.1%
Loan losses, net of recoveries to average loans                          0.1%              0.3%             0.3%
----------------------------------------------------------------------------------------------------------------
</TABLE>



                                       8
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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. NMBT was examined by the State of Connecticut Department of Banking
as of September 30, 1997, and no additions to the allowance for loan losses were
requested as a result of this  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 1997 included an income tax provision of $1.89
million (a 39.5 percent  effective tax rate),  as compared to the 1996 provision
for income taxes of $0.38  million (a 12.0 percent  effective  tax rate) and the
1995  provision for income taxes of $0.54 million (a 19.9 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 1995  provision  for
income taxes was also  positively  impacted by the  recognition  of deferred tax
benefits.

     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.  As a result, the Company's 1998
fiscal year quarterly earnings will, in all likelihood,  continue to be reported
on a fully taxable basis with an effective tax rate of  approximately 40 percent
of pre-tax income.

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, 1997, 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.



                                       9
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

     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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL

                                             1997                           1996                        1995
                                             ----                           ----                        ----
                                             TAX                            TAX                          TAX
ASSETS                         AVERAGE    EQUIVALENT     YIELD/     AVERAGE  EQUIVALENT  YIELD/   AVERAGE EQUIVALENT   YIELD/
                               BALANCE     INTEREST      RATE       BALANCE   INTEREST   RATE     BALANCE  INTEREST    RATE
------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>           <C>       <C>        <C>        <C>     <C>       <C>         <C>
INTEREST-EARNING ASSETS:                                                                                   Dollars in thousands
Loans (1)                     $216,665     $17,791       8.21%     $203,928   $16,534    8.11%   $193,751  $15,845     8.18%
Taxable securities              60,015       4,026       6.71%       50,952     3,371    6.62%     38,936    2,424     6.23%
Tax-exempt securities           12,959         887       6.85%        6,219       422    6.79%        483       36     7.43%
Interest-bearing deposits        5,612         301       5.37%        2,154       113    5.25%      2,958      170     5.74%
------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets  295,251      23,005       7.79%      263,253    20,440    7.76%    236,128   18,475     7.82%
------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
Cash and due from banks         16,387                               15,312                        13,979
Premises and equipment, ne t     3,641                               3,760                          3,927
Other assets                     5,751                               5,597                          6,005
Allowance for loan losses       (3,434)                             (3,469)                        (3,552)
------------------------------------------------------------------------------------------------------------------------------
        Total                 $317,596                            $284,453                       $256,487
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Deposit                     s $240,000      $8,144       3.39%    $220,137    $ 7,255    3.30%   $210,255  $ 6,869     3.27%
FHLB advances
  and capital leases            17,301       1,076       6.22%      12,376        739    5.97%      3,113      215     6.91%
------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
  liabilities                  257,301       9,220       3.58%     232,513      7,994    3.44%    213,368    7,084     3.32%
------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
Deposits                        34,016                              28,681                         22,605
Other liabilities                2,611                               2,160                          1,844
Total liabilities              293,928                             263,354                        237,817
Stockholders' equity            23,668                              21,099                         18,670
------------------------------------------------------------------------------------------------------------------------------
        Total                 $317,596                            $284,453                       $256,487
------------------------------------------------------------------------------------------------------------------------------
Net interest income                         13,785                            $12,446                      $11,391
Less FTE adjustment                            296                                14                            12
------------------------------------------------------------------------------------------------------------------------------
Net interest income per
  income statement                         $13,489                          $ 12,306                       $11,379
------------------------------------------------------------------------------------------------------------------------------
Interest rate spread (FTE)                               4.21%                           4.33%                         4.50%
------------------------------------------------------------------------------------------------------------------------------

Net interest margin (FTE)                                4.67%                           4.73%                         4.82%
------------------------------------------------------------------------------------------------------------------------------
(1) included in interest income from loans is accretion (amortization ) of net deferred loan fees and costs.
</TABLE>

     The Company maintains a relatively  balanced position for managing interest
rate risk. At December 31, 1997, the one-year  negative gap was -$42.7  million,
or 12.7 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
repricable for purposes  ofcomputing  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  repricable.
Consequently, this causes the gap analysis to indicate liability sensitivity.



                                       10
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

     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.

     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,  1997,
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 5 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, 1997 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 earnimgs 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,
1997 and does not  contemplate  any  actions  the  Company  might  undertake  in
response to changes in market interest rates.

--------------------------------------------------------------------------------
SENSITIVITY TABLE

Change in Interest Rates           Board Limit               Net Interest Income
--------------------------------------------------------------------------------
(Basis points)

         +200                         10.00%                      2.40%
            0                          0.00%                      0.00%
         -200                        (10.00%)                    (4.42%)
--------------------------------------------------------------------------------

     Management currently  anticipates that it will maintain a negative one-year
gap  throughout  1998 to reflect,  among other  things,  the lag in repricing of
checking and savings  deposits,  which deposits are all  considered  immediately
repricable in the gap analysis.

     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  1997 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.

     Stable  interest rates  throughout the year allowed the Company to maintain
the yield earned on assets,  which was offset by increases in  interest-earnings
assets. This increase in assets was funded by mix of  interest-bearing  checking
accounts and higher-cost  certificates of deposit.  Larger fixed rate commercial
loans and longer-term  consumer loans were match funded with FHLB advances.  The
leveraging of the  aforementioned  growth with higher cost deposits and advances
combined to  decrease  the spread  realized  between the yield on assets and the
cost of funds.  Stable rates in 1997 did nothing to slow the continued migration
from savings and transaction  accounts to time deposits.  This changing  deposit
mix is expected to continue into 1998.

     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.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS
                                                   1997 COMPARED TO 1996             1996 COMPARED TO 1995
                                                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                                            $1,044    $213    $1,257            $ 824    ($135)     $689
Taxable securities                                  608      47       655              787      160       947
Tax-exempt securities (FTE)                         461       4       465              389       (3)      386
Interest-bearing deposits                           185       3       188              (43)     (14)      (57)
---------------------------------------------------------------------------------------------------------------
                                                  2,298     267     2,565            1,957        8     1,965
---------------------------------------------------------------------------------------------------------------
Interest paid on:
Deposits                                            669     220       889              326       60       386
FHLB advances and capital leases                    305      32       337              549      (25)      524
---------------------------------------------------------------------------------------------------------------
                                                    974     252     1,226              875       35       910
---------------------------------------------------------------------------------------------------------------

INCREASE (DECREASE) IN NET INTEREST INCOME       $1,324    $ 15    $1,339           $1,082     ($27)   $1,055

</TABLE>


                                       11
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS


SECURITIES

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

<TABLE>
<CAPTION>

SECURITIES                                             DECEMBER 31,
--------------------------------------------------------------------------------

Dollars in thousands                              1997                1996
--------------------------------------------------------------------------------
<S>                                        <C>         <C>      <C>          <C>
U.S. Treasury and agency securities        $38,186     45.5%    $23,777      37.3%
Municipal securities                        17,385     20.7       8,859      13.9
Mortgage-backed securities                  26,674     31.7      29,583      46.4
--------------------------------------------------------------------------------
  Total debt securities                     82,245     97.9      62,219      97.6
FHLB stock                                   1,760      2.1       1,542       2.4
--------------------------------------------------------------------------------
  Total securities                         $84,005    100.0%    $63,761     100.0%
--------------------------------------------------------------------------------
</TABLE>

     At December 31, 1997, 85.2 percent of the securities portfolio was invested
in fixed rate  securities,  12.7 percent in adjustable  rate  securities and 2.1
percent in FHLB stock.  Fixed rate  securities  include US  Treasury  and agency
obligations,   mortgage-backed  securities  ("MBS")  and  Connecticut  municipal
obligations.  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   pre-determined   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, 1997,  securities totaling $48.13 million, or 57.3 percent,
were  classified as available for sale and  securities  totaling  $35.88 million
were  classified  as held to  maturity.  Included  in  stockholders'  equity  at
December 31, 1997 is an adjustment of $0.38 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, 1997,  the maximum amount which the Company could
lend to one borrower (and related entities) was $4.32 million ($7.20 million for
loans fully secured by readily marketable collateral). At December 31, 1997, the
Company had no loans that exceeded either limit.

     The Company uses its funds primarily for lending.  Total loans increased by
$12.22 million or 5.8 percent from December 31, 1996 to December 31, 1997.

     The principal categories of the loan portfolio are as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
LOANS                                                     DECEMBER 31,
-------------------------------------------------------------------------------------------

Dollars in thousands                                1997                     1996
-------------------------------------------------------------------------------------------
<S>                                             <C>         <C>      <C>          <C>
Collateralized by one to four family
 residential properties                         $139,787    62.4%    $137,008     64.7%
Collateralized by five or more family
 residential properties                              549     0.2        1,434      0.7
Commercial properties                             48,532    21.7       46,044     21.8
Construction and development                       7,299     3.3        5,999      2.8
Commercial and industrial                         17,818     8.0       13,203      6.2
Installment and education                          8,994     4.0        7,128      3.4
Cash reserve and credit cards                        930     0.4          870      0.4
-------------------------------------------------------------------------------------------
  Total loans                                   $223,909   100.0%    $211,686    100.0%
-------------------------------------------------------------------------------------------
</TABLE>


                                       12
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

     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  residential  mortgage  loans in May 1994,  has had success
building its mortgage servicing portfolio, which grew $8 million in 1997 and now
totals  more than $20 million at December  31,  1997.  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.  Management  currently
intends to emphasize in its portfolio  variable rate loans bearing interest at a
rate adjusted within three years from the origination  date. These  transactions
reflect   implementation   of  a  strategy  to  invest  in  adjustable  rate  or
shorter-duration assets to manage interest rate risk.

     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 three 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 three years from the origination date
and to sell other jumbos through private parties.

     In  order  to  meet  is  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.

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.  As a  result  of less  time  being  spent on
nonperforming  assets, the Company enjoyed growth in this area and is poised for
an even  greater  effort in 1998.  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 in order 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 1998.

     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.


                                       13
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

     Management  is also  aware of the  need to  provide  appropriate  ancillary
services to expand its commercial loan base. Accordingly,  a lock-box program is
in place to facilitate collection of accounts receivable by customers. Corporate
cash  management  via  remote  personal   computers,   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 1997 nonperforming  assets decreased $1.10 million, or 24.4 percent,
to $3.42 million at December 31, 1997,  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, and capital improvements to real
estate owned.

     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, 1995.
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 below.  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  $0.29
million from 1996 to 1997, and totaled $0.21 million at December 31, 1997.  NMBT
actively  markets all real estate  owned and in 1997 sold $0.83  million of real
estate owned from which net gains of $0.02  million were  realized.  During 1997
NMBT provided  $0.03 million to the valuation  allowance.  At December 31, 1997,
the valuation  allowance  totaled $0.06 million,  or 22.2 percent of real estate
owned.  There continues to be an oversupply of commercial and  residential  real
estate in  Connecticut,  and any further decline in the real estate market could
adversely  affect the market values of real estate owned,  requiring  additional
provisions to the valuation allowance.

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, 1997,  liquid assets totaled $71.13 million,  or
21.1 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, 1997,  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, 1997, NMBT had approximately  $59.05 million in loan
commitments  outstanding.  It is expected deposits, loan repayments and maturing
investments will fund these future loans.

DEPOSITS AND BORROWINGS

     For the year ended  December  31, 1997,  total  deposits  increased  $19.43
million, or 7.3 percent,  while FHLB borrowings increased $8.58 million, or 58.9
percent.  During 1997, the deposit mix shifted to interest  bearing checking and
certificates of deposit.  There was virtually no net growth in savings  accounts
or  noninterest-bearing  checking.  These  changes in mix are due in part to the
continuing  interest  rate  differential  between  certificates  of deposit  and
savings  accounts,  which have caused savers to reach for yield in certificates.
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.  These trends are increasing the overall cost of funds
and reducing the net interest spread.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
                                                  NONPERFORMING     REAL ESTATE      NONPERFORMING     % OF
                                                     LOANS            OWNED             ASSETS         TOTAL
                                                  -------------      -----------      ------------     -----
Dollars in thousands
------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>               <C>              <C>           <C>
Collateralized by residential properties              $1,617            $122             $1,739        50.8%
Collateralized by commercial properties                1,462              90              1,552        45.4%
Commercial, industrial and all other                     129               -                129         3.8%
------------------------------------------------------------------------------------------------------------------
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%
------------------------------------------------------------------------------------------------------------------
Total nonperforming assets on December 31, 1995       $4,523          $1,314             $5,837       100.0%
------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       14
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

     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 65.2  percent  of total
deposits at December 31, 1997.

CAPITAL MANAGEMENT

STOCKHOLDERS' EQUITY AND CAPITAL RATIOS

     At December  31,  1997,  the Company  had $25.33  million in  stockholders'
equity,  compared  with  $22.57  million at  December  31,  1996.  The growth in
stockholders'  equity from the end of 1996 was due to the following:  receipt of
$0.18  million in proceeds from the exercise of stock  options;  a $0.23 million
positive  adjustment for net unrealized gains on securities  available for sale;
and the retention of $2.90 million in net earnings, less cash dividends of $0.54
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, 1997, 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.  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 on 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, 1997, the Company paid cash dividends of
$0.54 million,  or $0.21 per share,  which  represents  18.8 percent of 1997 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

     Statement of Financial  Accounting  Standards  No. 128 "Earnings Per Share"
("SFAS  128") was issued in February  1997 and is effective  for periods  ending
after  December  15,  1997.  Earlier  application  is not  permitted.  SFAS  128
simplifies the standards for computing earnings per share ("EPS") and makes them
comparable to  international  standards for computing EPS. This statement became
effective in the fourth quarter of 1997 for the Company,  replacing  primary EPS
with a  presentation  of basic and diluted EPS on the face of the  statements of
operations.  All periods  presented in the annual  report have been  restated to
comply with this statement.

     Statement  of  Financial   Accounting  Standards  No.  129  "Disclosure  of
Information  about Capital  Structure"  ("SFAS 129") was issued in February 1997
and is  effective  for  financial  statements  issued for periods  ending  after
December 15, 1997.  SFAS 129  establishes  standards for disclosing  information
about an entity's capital structure. The adoption of this standard had no effect
on  the  Company's  financial  statements.  Statement  of  Financial  Accounting
Standards  No. 130  "Reporting  Comprehensive  Income"  ("SFAS 130") and No. 131
"Disclosures  About  Segments of an Enterprise and Related  Information"  ("SFAS
131") were issued in June 1997. SFAS 130 establishes standards for reporting and
display  of   comprehensive   income  and  its  components  in  a  full  set  of
general-purpose financial statements.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL
                                                             DECEMBER 31,
                                                     -------------------------------
                                                                                        REGULATORY
                                                     NMBT CORP           NMBT           MINIMUM
--------------------------------------------------------------------------------------------------------
<S>      <C>                                           <C>              <C>               <C>
Dollars in thousands
  Risk-based capital ratios:
    Tier 1 capital ratio                               12.19%           12.16%            4.00%
    Total capital ratio                                13.45%           13.42%            8.00%
--------------------------------------------------------------------------------------------------------
Leverage ratio                                          7.36%            7.34%            3.00%
--------------------------------------------------------------------------------------------------------
    Tier 1 capital                                   $24,428          $24,357
Total risk-based capital                             $26,948          $26,876
Total risk-adjusted assets                          $200,322         $200,322
--------------------------------------------------------------------------------------------------------
</TABLE>


                                       15
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

     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." SFAS 130 is effective  for fiscal years  beginning  after  December 15,
1997.  SFAS 131  establishes  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.  This statement is effective for financial  statements for
periods  beginning after December 15, 1997. Both of these  statements  relate to
disclosures  that  public  companies  must make in their  financial  statements.
Accordingly,  implementation  of these statements will not effect the results of
operations or financial condition of the Company.

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.

IMPACT OF THE YEAR 2000 ISSUE

     The Year 2000 issue is the result of computer  programs being written using
two digits rather than four to define the applicable  year. Any of the Company's
computer programs that have  date-sensitive  software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could  result in a system
failure or miscalculations  causing disruptions of operations  including,  among
other things, a temporary inability to process transactions,  send statements or
engage in similar normal business activities.

     The Company has initiated formal communications with all of its significant
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. The
Company  relies on the ability of its outside  suppliers for remedial  action as
none of the Company's  date-sensitive  software has been programmed  internally.
There can be no  guarantee  that the systems of these third party  suppliers  on
which the Company relies will be timely converted,  or that a failure to convert
by another  company,  or a conversion  that is  incompatible  with the Company's
systems, would not have a material adverse effect on the Company.

     The Company will utilize  both  internal and external  resources to replace
and/or test the software for Year 2000 modifications.  The Company plans to have
all its  critical  hardware  and  software  Year 2000  compliant  not later than
December 31,  1998.  The total  remaining  cost of the Year 2000 is estimated at
less than $100,000 and is being funded through operating cash flows. Some or all
of  this  expense  will  be  for  new  hardware  and  software,  which  will  be
capitalized.  To date,  the  Company  has not  incurred  any  costs,  other than
internal  staff  time,  related to the  assessment  and  preliminary  efforts in
connection with the Year 2000 project and the development of a remediation plan.

     The  costs  of the  project  and the  date on which  the  Company  plans to
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources,  third party modification plans and
other factors.  However,  there can be no guarantee that these estimates will be
achieved and actual results could differ  materially from those plans.  Specific
factors that might cause such material  differences include, but are not limited
to, the availability and cost of personnel  trained in this area, the ability to
locate and correct all relevant software issues and similar uncertainties.



                                       16
<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 a 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  pre-tax  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.


                                       17
<PAGE>


FINANCIAL STATEMENTS

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 controls 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   financial   statements.   Management   believes   that   all
representations  made to the independent  auditors 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  auditors,  the  independent
auditors  and  management  to review  the work of each to  ensure  that they are
properly  discharging  their  responsibilities.  The  internal  auditors and the
independent auditors have free access to the Audit Committee, without management
present,  to discuss the results of their audit work,  their  evaluations of the
adequacy of internal controls and the quality of financial reporting.

Michael D. Carrigan,                   Jay C. Lent,
President & CEO                        Executive Vice President, Secretary & CFO

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, 1997 and 1996, and
the related  consolidated  statements of  operations,  cash flows and changes in
stockholders'  equity for each of the three years in the period  ended  December
31, 1997. 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, 1997 and 1996, and the consolidated results of their operations and
their cash flows for each of the three years in the period  ended  December  31,
1997, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE  LLP

Stamford, Connecticut
January 20, 1998



                                       18
<PAGE>

                      CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                             ---------------------------------------
                                                                                    1997                   1996
                                                                             ---------------------------------------
ASSETS                                                                       Dollars in thousands, except share data
<S>                                                                               <C>                     <C>
Cash and due from banks                                                           $18,737                 $17,855
Interest-bearing deposits                                                           4,025                   6,135
--------------------------------------------------------------------------------------------------------------------
         Cash and cash equivalents                                                 22,762                  23,990
--------------------------------------------------------------------------------------------------------------------
Securities:
      Available for sale, at fair value (amortized cost of $47,556 in 1997
         and $28,020 in 1996)                                                      48,129                  28,240
   Held to maturity, at amortized cost (fair value of $36,240 in 1997
         and $35,611 in 1996)                                                      35,876                  35,521
--------------------------------------------------------------------------------------------------------------------
         Total securities                                                          84,005                  63,761
--------------------------------------------------------------------------------------------------------------------
Loans                                                                             223,909                 211,686
Less allowance for loan losses                                                      3,537                   3,212
--------------------------------------------------------------------------------------------------------------------
         Loans, net                                                               220,372                 208,474
Real estate owned, net                                                                212                     496
Premises, equipment and capital leases, net                                         3,706                   3,648
Excess of cost over fair value of net assets acquired, net                            506                     741
Accrued interest and other assets                                                   5,003                   4,435
--------------------------------------------------------------------------------------------------------------------
         Total assets                                                            $336,566                $305,545
--------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits:
         Noninterest-bearing checking                                            $ 36,999                $ 36,013
         Interest-bearing checking                                                 88,501                  76,989
         Savings                                                                   60,782                  61,432
         Time deposits under $100                                                  81,902                  79,320
         Time deposits $100 or more                                                17,411                  12,407
--------------------------------------------------------------------------------------------------------------------
         Total deposits                                                           285,595                 266,161
--------------------------------------------------------------------------------------------------------------------
Advances from Federal Home Loan Bank of Boston (FHLB)                              23,145                  14,564
Accrued interest and other liabilities                                              2,496                   2,255
--------------------------------------------------------------------------------------------------------------------
         Total liabilities                                                        311,236                 282,980
--------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
         Common stock, $0.01 par value
         Shares authorized:    8,000,000
         Shares outstanding:  1997 - 2,614,858; 1996 - 2,588,058                       26                      26
         Additional paid-in capital                                                17,378                  17,198
         Retained earnings                                                          7,548                   5,195
         Unrealized gain on securities available for sale, net of tax                 378                     146
--------------------------------------------------------------------------------------------------------------------
         Total stockholders' equity                                                25,330                  22,565
--------------------------------------------------------------------------------------------------------------------
         Total liabilities and stockholders' equity                              $336,566                $305,545
--------------------------------------------------------------------------------------------------------------------
See notes to financial statements.

</TABLE>


                                       19
<PAGE>


                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                             ----------------------------------------------------
                                                                                    1997                   1996           1995
                                                                             ----------------------------------------------------
                                                                             Dollars in thousands, except share data
<S>                                                                               <C>                     <C>             <C>
INTEREST AND DIVIDEND INCOME
         Interest and fees on loans                                                       $17,791           $16,534       $15,845
         U.S. Treasury and agency securities                                                3,918             3,272         2,315
         Municipal securities                                                                 591               282            24
         Dividends on FHLB stock                                                              108                99           109
         Interest-bearing deposits                                                            301               113           170
-----------------------------------------------------------------------------------------------------------------------------------
              Total interest and dividend income                                           22,709            20,300        18,463
-----------------------------------------------------------------------------------------------------------------------------------
 Interest Expense
         Interest-bearing checking                                                          1,383             1,140         1,185
         Savings                                                                            1,490             1,602         1,724
         Time deposits under $100                                                           4,390             3,888         3,423
         Time deposits $100 or more                                                           881               625           537
         FHLB advances and capital leases                                                   1,076               739           215
-----------------------------------------------------------------------------------------------------------------------------------
              Total interest expense                                                        9,220             7,994         7,084
-----------------------------------------------------------------------------------------------------------------------------------
         Net interest and dividend income                                                  13,489            12,306        11,379
         Provision for loan losses                                                            582               390           160
-----------------------------------------------------------------------------------------------------------------------------------
         Net interest and dividend income after provision for loan losses                  12,907            11,916        11,219
-----------------------------------------------------------------------------------------------------------------------------------
 Noninterest Income
         Service charges on deposit accounts                                                1,034               965           766
         Other service charges, commissions and fees                                          379               349           278
         Loan servicing fees                                                                   42                23             8
         Net gains from loans sold                                                            339               178            60
         Other income                                                                         197               125           163
-----------------------------------------------------------------------------------------------------------------------------------
              Total noninterest income                                                      1,991             1,640         1,275
-----------------------------------------------------------------------------------------------------------------------------------
  Noninterest Expense
         Compensation, payroll taxes and benefits                                           5,381             5,037         4,959
         Occupancy                                                                            961               917           905
         Furniture and equipment                                                              875               953           971
         Data processing                                                                      268               246           204
         Stationery, printing and supplies                                                    409               438           343
         Marketing, advertising and investor relations                                        381               402           343
         Legal and professional fees                                                          264               412           224
         Other general and administrative expense                                           1,302             1,425         1,351
-----------------------------------------------------------------------------------------------------------------------------------
              Total general and administrative expense                                      9,841             9,830         9,300
-----------------------------------------------------------------------------------------------------------------------------------
         Operations of real estate owned                                                       34               320           263
         Amortization of intangible assets                                                    235               235           235
              Total noninterest expense                                                    10,110            10,385         9,798
         Income before provision for income taxes                                           4,788             3,171         2,696
         Provision for income taxes                                                         1,890               379           537
-----------------------------------------------------------------------------------------------------------------------------------
         Net income                                                                        $2,898            $2,792        $2,159
-----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share                                                                    $1.12             $1.09         $0.85
Diluted earnings per share                                                                  $1.05             $1.04         $0.83
-----------------------------------------------------------------------------------------------------------------------------------
Average shares outstanding                                                                  2,596             2,568         2,534
Average shares and share equivalents outstanding                                            2,752             2,684         2,590
-----------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements.

</TABLE>


                                       20
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                             ----------------------------------------------------
                                                                                    1997              1996           1995
                                                                             ----------------------------------------------------
                                                                                                  Dollars in thousands
<S>                                                                               <C>              <C>            <C>
OPERATING ACTIVITIES
Net Income                                                                       $2,898              $2,792         $2,159
Adjustments to reconcile net income to net cash provided by
     operating activities:
         Depreciation and amortization                                              880                 982            957
         Provision for loan losses                                                  582                 390            160
         Provision for losses from real estate owned                                 26                 314            207
         Net amortization of securities                                             152                 100            100
         Deferred income tax benefit                                                (46)               (267)          (241)
         Loans originated for sale                                              (26,169)            (14,859)       (10,342)
         Proceeds from loans sold, net                                           25,928              14,652          9,809
         Gains from loans sold, net                                                (339)               (178)           (60)
         Realized gains from real estate owned, net                                (133)               (135)           (80)
         Net increase in interest receivable                                       (498)               (331)          (113)
         Net increase in other assets                                               (37)               (134)          (288)
         Net increase in interest payable                                            56                  82             59
         Net increase in other liabilities                                          216                 282             63
         Net cash provided by operating activities                                3,516               3,690          2,390
         Investing Activities
Purchases of held to maturity (HTM) securities                                   (7,996)            (28,242)        (5,006)
Net loan originations                                                           (12,129)            (13,764)        (7,583)
Purchases of available for sale (AFS) securities                                (24,818)             (9,671)       (11,274)
Net purchases of permises and equipment                                            (703)               (484)          (568)
Proceeds from sales of real estate owned                                            534                 460            483
Proceeds from maturities of AFS securities                                        5,449               2,924            672
Proceeds from maturities of HTM securities                                        7,539              11,182         11,816
Proceeds from sales and early redemptions of AFS securties                            -                   -          2,960
Purchases of FHLB stock                                                            (218)                  -              -
         Net cash used for investing activities                                 (32,342)            (37,595)        (8,500)
Financing Activities
Net increase (decrease) in advances from FHLB                                     8,581              14,564         (7,304)
Net increase in time deposits                                                     7,586              11,004         16,603
Net increase in checking and savings deposits                                    11,848               8,090          4,707
Cash dividends                                                                     (545)               (436)          (329)
Other                                                                               128                  91            245
         Net cash provided by financing activities                               27,598              33,313         13,922
Increase (decrease) in cash and cash equivalents                                 (1,228)               (592)         7,812
Cash and cash equivalents, beginning of year                                     23,990              24,582         16,770
Cash and cash equivalents, end of year                                          $22,762             $23,990        $24,582
 Cash Paid During Year
Interest to depositors and creditors                                             $9,164              $7,912         $7,026
Income taxes                                                                      1,474                 957            778
Non-Cash Transfers
Transfer of loans to real estate owned                                              575                 581            683
Net change in unrealized gains (losses) on AFS securities                           232                (100)           489
Financial portion of sales and real estate owned                                    433                 761            327

</TABLE>

See notes to financial statements.



                                       21
<PAGE>

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                            Unrealized
                           Additional                Gain (Loss)

         Shares   Common   Paid-in  Retainedon Securities

         Outstanding       Stock    Capital Earnings Available for Sale   Total
January 1, 1995   2,531    $26      $16,754 $1,009   ($243)   $17,546
Net income                                  2,159             2,159
Net change in unrealized

     gain (loss) on securities

     available for sale                                       489      489
Cash dividends                              (329)             (329)
Proceeds from exercise
     of stock options      32               286                        286
Other                      6                         6
December 31, 1995 2,563    26       17,046  2,839    246      20,157
Net income                                  2,792             2,792
Net change in unrealized
  gain (loss) on securities

     available for sale                                       (100)    (100)
Cash dividends                              (436)             (436)
Proceeds from exercise
     of stock options      24               145                        145
Other    1                 7                         7
December 31, 1996 2,588    26       17,198  5,195    146      22,565
Net income                                  2,898             2,898
Net change in unrealized
    gain (loss) on securities

       available for sale                                     232      232
Cash dividends                              (545)             (545)
Proceeds from exercise
      of stock options     27               180                        180

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


In thousands

 26

See notes to financial statements.



                                       22
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NMBT CORP (the "Company"),  a Delaware Corporation formed in November 1997,
is the bank holding company for The New Milford Bank & Trust Company ("NMBT"), a
state-chartered  commercial bank. The Company's activity is currently limited to
the holding of NMBT's  outstanding  common stock. 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 1997 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  extinguishing  liabilities  occurring  after December 31,
1996,  except for  certain  provisions  deferred  by SFAS 127  "Deferral  of the
Effective Date of Certain Provisions of SFAS Statement No. 125." The adoption of
these  standards  did not have a  material  effect  on the  Company's  financial
condition or results of operations.

     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.

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,
as a separate component of stockholders' equity. 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  principal  outstanding  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 as
determined by outstanding  commitments  from investors or current investor yield
requirements  calculated  on an  aggregate  loan basis.  Changes in the carrying
value are reported in earnings as net gains from loans sold.  Realized gains and
losses on sales of mortgage loans are reported in earnings when the proceeds are
received from investors.

     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  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.

     Effective  January 1, 1995,  the Company  adopted SFAS 114  "Accounting  by
Creditors for  Impairment of a Loan," as amended by SFAS 118  "Accounting  for a
Loan - Income Recognition and Disclosure." When a loan is impaired,  the Company
measures impairment 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.

     As permitted,  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.



                                       23
<PAGE>

REAL ESTATE OWNED

     Real estate acquired through foreclosure,  forgiveness of debt or otherwise
in lieu of debt ---  otherwise  known as "real estate owned" -- 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  to  the  extent
realizable.  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 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 Company  provides
deferred taxes for the estimated  future tax effects  attributable  to temporary
differences and  carry-forwards  when realization is assured beyond a reasonable
doubt.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

     Because of the  earning  power or special  values of  certain  assets,  the
Company paid  amounts in excess of the fair value of net assets  acquired in the
1994 purchase transaction of Candlewood Bank and Trust Company. Such amounts are
being  amortized  on  a  straight-line  basis  over  seven  years.   Accumulated
amortization  of the  excess  cost over fair value of net  assets  acquired  was
$861,552 as of December 31, 1997. 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

     Effective  December 31, 1997,  the Company  adopted SFAS 128  "Earnings Per
Share". SFAS 128 establishes standards for computing and presenting earnings per
share.  SFAS 128 is applicable to all United States  entities with publicly held
common stock or potential  common stock.  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. SFAS 128 replaces Accounting Principles Board No. 15, issued
by the American Institute of Certified Public Accountants,  as the authoritative
guidance for  calculation  and disclosure of earnings per share.  Restatement of
prior  periods is  required.  The  adoption  of SFAS 128 did not have a material
effect on the Company's earnings per share amounts.

     Basic  earnings  per share  are  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, 1997 were as
follows:

--------------------------------------------------------------------------------
                                                         1997     1996     1995
--------------------------------------------------------------------------------
Weighted average common shares:
Basic                                                    2,596    2,568    2,534
Effect of stock options                                    156      116       56
Diluted                                                  2,752    2,684    2,590
--------------------------------------------------------------------------------

MORTGAGE SERVICING RIGHTS

     In May 1995, the FASB issued  Statement of Financial  Accounting  Standards
No. 122 (SFAS 122),  "Accounting for Mortgage Servicing Rights". SFAS 122 amends
SFAS 65 "Accounting for Certain Mortgage Banking Activities" to require that the
Company  recognize  an asset for rights to service  mortgage  loans for  others,
however those  servicing  rights are  acquired.  It also requires the Company to
assess its capitalized  mortgage  servicing  rights for impairment  based on the
fair value of those  rights.  SFAS 122, as  superseded  by SFAS 125, was applied
prospectively beginning January 1, 1996. The Company recognized servicing assets
for originated mortgages totalling $130,649 during 1997 and $76,954 during 1996.
$24,030 was  amortized  in 1997 and $7,318 was  amortized  in 1996.  An asset of
$176,255 and $69,636 is recorded for  mortgage  servicing  rights as of December
31, 1997 and 1996,  respectively.  These amounts are included in other assets on
the statement of condition.

STATEMENT 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.

RECENT ACCOUNTING  PRONOUNCEMENTS

     SFAS 130 "Reporting Comprehensive Income" was issued in June 1997. 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." SFAS 130 is
effective  for fiscal  years  beginning  after  December  15, 1997 and  requires
reclassification of financial statements for all prior periods presented.

     SFAS  131  "Disclosures   about  Segments  of  an  Enterprise  and  Related
Information"  was issued in June 1997.  SFAS 131 establishes 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.  This statement is
effective for financial  statements  for periods  beginning  after  December 15,
1997.

     Both of these  statements  relate to disclosures that public companies must
make  in  their  financial  statements.  Accordingly,  implementation  of  these
statements  will not effect the results of operations or financial  condition of
the Company.

                                       24
<PAGE>

  2.  Securities  The aggregate  amortized  cost and estimated  fair
values of  securities  available  for sale at December  31, 1997 and 1996 are as
follows:

-------------------------------------------------------------------------------
DECEMBER 31, 1997
                                             GROSS      GROSS      ESTIMATED
                                AMORTIZED  UNREALIZED  UNREALIZED    FAIR
Dollars in thousands              COST       GAINS       LOSSES     VALUE
-------------------------------------------------------------------------------
U.S. Treasury and agency
  securities                    $24,615       $99          $19     $24,695
Municipal securities             16,968       418            1      17,385
Mortgage-backed securities        4,213        80            4       4,289
Total debt securities            45,796       597           24      46,369
FHLB Stock                        1,760         -            -       1,760
Total securities
  available for sale            $47,556      $597          $24     $48,129
--------------------------------------------------------------------------------
DECEMBER 31, 1996
                                             GROSS      GROSS      ESTIMATED
                                AMORTIZED  UNREALIZED  UNREALIZED    FAIR
Dollars in thousands              COST       GAINS       LOSSES     VALUE
-------------------------------------------------------------------------------
U.S. Treasury and agency

  securities                     $12,527      $75           $-      $12,602
Municipal securities               8,785       82            8        8,859
Mortgage-backed securities         5,166       80            9        5,237
--------------------------------------------------------------------------------
Total debt securities             26,478      237           17       26,698
FHLB Stock                         1,542        -            -        1,542
--------------------------------------------------------------------------------
Total securities
  available for sale             $28,020     $237          $17      $28,240
--------------------------------------------------------------------------------

The aggregate  amortized  cost and estimated  fair values of securities  held to
maturity at December 31, 1997 and 1996 are as follows:

-------------------------------------------------------------------------------
DECEMBER 31, 1997
                                             GROSS      GROSS      ESTIMATED
                                AMORTIZED  UNREALIZED  UNREALIZED    FAIR
Dollars in thousands              COST       GAINS       LOSSES     VALUE
-------------------------------------------------------------------------------
U.S. Treasury and agency
  securities                     $13,492       $96        $33     $13,555
Mortgage-backed securities        22,384       310          9      22,685
Total securities
  held to maturity               $35,876      $406        $42     $36,240
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
DECEMBER 31, 1997
                                             GROSS      GROSS      ESTIMATED
                                AMORTIZED  UNREALIZED  UNREALIZED    FAIR
Dollars in thousands              COST       GAINS       LOSSES     VALUE
-------------------------------------------------------------------------------
U.S. Treasury and agency
  securities                    $11,175       $30        $70       $11,135
Mortgage-backed securities       24,346       196         66        24,476
Total securities
  held to maturity              $35,521      $226       $136       $35,611


     The  aggregate  amortized  cost and  estimated  fair  values of  securities
available  for sale at December 31, 1997 and 1996, 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, 1997
                                                AMORTIZED     FAIR
Dollars in thousands                              COST        VALUE
-------------------------------------------------------------------------------
Due in one year or less                         $6,307        $6,331
Due after one year through five years           14,092        14,178
Due after five years through ten years          21,184        21,571
Due after ten years                                  -             -
--------------------------------------------------------------------------------
                                                41,583        42,080
Mortgage-backed securities                       4,213         4,289
--------------------------------------------------------------------------------
    Total debt securities available for sale   $45,796  $46,369
--------------------------------------------------------------------------------

-------------------------------------------------------------------------------
DECEMBER 31, 1997
                                                AMORTIZED     FAIR
Dollars in thousands                              COST        VALUE
-------------------------------------------------------------------------------
Due in one year or less                          $4,495      $4,520
Due after one year through five years             9,792    9,851
Due after five years through ten years            7,025    7,090
Due after ten years                                   -        -
                                                 21,312   21,461
Mortgage-backed securities                        5,166    5,237
    Total debt securities available for sale    $26,478  $26,698
--------------------------------------------------------------------------------

     The aggregate  amortized cost and estimated fair values of debt  securities
held to maturity at December  31, 1997 and 1996,  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, 1997
                                                AMORTIZED     FAIR
Dollars in thousands                              COST        VALUE
-------------------------------------------------------------------------------
Due in one year or less                       $     -        $      -
Due after one year through five years           5,000           4,988
Due after five years through ten years          8,492           8,567
Due after ten years                                 -               -
                                               13,492          13,555
Mortgage-backed securities                     22,384          22,685
    Total debt securities held to maturity    $35,876         $36,240
--------------------------------------------------------------------------------
DECEMBER 31, 1997
                                                AMORTIZED     FAIR
Dollars in thousands                              COST        VALUE
-------------------------------------------------------------------------------
Due in one year or less                       $      -       $       -
Due after one year through five years             5,000          4,950
Due after five years through ten years            6,175          6,185
Due after ten years                                   -              -
                                                 11,175         11,135
Mortgage-backed securities                       24,346         24,476
    Total debt securities held to maturity      $35,521        $35,611
-------------------------------------------------------------------------------

     Securities with a carrying value of $5.0 million were pledged as collateral
for public deposits as of December 31, 1997.

     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, 1997
and 1996, the Company was in compliance with the FHLB stock requirement.



                                       25
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     3.  Loans and Allowance for Loan Losses
--------------------------------------------------------------------------------
                                                         December 31,

Dollars in thousands                                  1997        1996
Loans
Collateralized by one to four family
  residential properties                            $139,787   $137,008
Collateralized by five or more family
  residential properties                                 549      1,434
Commerical properties                                 48,532     46,044
Construction and development                           7,299      5,999
Commercial and industrial                             17,818     13,203
Installment and education                              8,994      7,128
Cash reserve and credit cards                            930        870
         Total loans                                 223,909    211,686
Less allowance for loan losses                         3,537      3,212
         Loans, net                                 $220,372   $208,474
--------------------------------------------------------------------------------

     Included in total loans are net deferred  loan  origination  costs of $0.41
million and $0.29 million as of December 31, 1997 and 1996 respectively.

     As described in Note 1, effective January 1, 1995, the Company adopted SFAS
114 which  defines when a loan is  considered  to be impaired and requires  such
loans to be measured at the lower of cost or fair value. The recorded investment
in impaired  loans was, in thousands,  $3,588 at December 31, 1997 and $3,598 at
December 31, 1996 and consists of loans for which  allowances  of, in thousands,
$378 and $490, respectively have been established.

     Generally,  the fair value of impaired loans was determined  using the fair
value of the underlying collateral of the loan.

     Additional information regarding impaired loans is as follows:

--------------------------------------------------------------------------------
                                                         1997        1996
--------------------------------------------------------------------------------
Income recorded on impaired loans during
the portion of the year that they were impaired            $24      $75

Income recorded on impaired loans recognized on
 the cash basis                                              -        4

Average investment in impaired loans                     3,728    3,953
--------------------------------------------------------------------------------

     Nonaccrual  loans at December 31, 1997, 1996 and 1995, and related interest
income data are summarized as follows:

--------------------------------------------------------------------------------
                                                  1997        1996       1995

Nonaccrual loans                                 $3,208      $4,025     $4,523
--------------------------------------------------------------------------------
Interest income in accordance with
  original terms                                   $325        $309       $169

Interest income recorded                             33          30         37

Reduction in interest income                       $292        $279       $132

     Nonaccrual  loans at December  31,  1997 and 1996  include,  in  thousands,
$2,215 and $2,812 of loans considered to be impaired under SFAS 114.

     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
$2.82 million at December 31, 1997 and 1996,  respectively.  During 1997, new or
renewed  loans  totalling  $0.89  million  were  granted,  and payments of $1.21
million were received.

Changes in the allowance for loan losses were as follows:
--------------------------------------------------------------------------------
                                                           December 31,
                                                     1997      1996     1995

Allowance for loan losses at beginning of year       $3,212   $3,553   $3,965
Provision for loan losses charged against income        582      390      160
Transfer to liability for estimated losses from
  off-balance sheet credit instruments                  (20)    (200)       -
Loan losses, net of recoveries                         (237)    (531)    (572)
         Allowance for loan losses at end of year    $3,537   $3,212   $3,553
--------------------------------------------------------------------------------

4.  Real Estate Owned

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

--------------------------------------------------------------------------------
                                                             December 31,
                                                             1997     1996
One-to-four family residential                               $182    $511
Commercial                                                     90     405
Total real estate owned                                       272     916
         Less: valuation allowance                             60     420
         Real estate owned, net                              $212    $496
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Changes in the Valuation Allowance

Valuation allowance at beginning of year                     $420    $364
Provision for real estate owned losses
  charged against income                                       26     314
Real estate owned losses                                     (386)   (258)
Valuation allowance at end of year                            $60    $420
--------------------------------------------------------------------------------

5. Premises and Equipment December 31, 1997
--------------------------------------------------------------------------------
DECEMBER 31, 1997
                                          Owned    Capital
Dollars in thousands                     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
--------------------------------------------------------------------------------
DECEMBER 31, 1996
                                          Owned    Capital
Dollars in thousands                     Property   Leases   Total

Premises and improvements                  $3,751   $401    $4,152
Equipment and furniture                     4,420      -     4,420
                                            8,171    401     8,572
Less accumulated depreciation
  and amortization                          4,552    372     4,924
Premises, equipment and capital
  leases, net                              $3,619    $29    $3,648
--------------------------------------------------------------------------------


                                       26
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.  Advances from FHLB
--------------------------------------------------------------------------------

                                   December 31
Maturity Date            Rate     1997     1996

     January  30, 1997 5.46% $ - $4,200 June 9, 1997 6.11% - 1,685 June 11, 1997
6.09% - 1,000  January 30,  1998 5.69%  3,100 - February  20, 1998 5.64% 5,575 -
October 1, 1998 5.87% 3,000 - November  1, 1999 6.05%  2,310  3,412  November 1,
1999 6.36%  2,414 - June 11,  2001 7.03% 550 550 June 19, 2001 6.65% 3,000 3,717
December  31, 2002 6.25% 1,650 - March 19, 2007 6.95% 953 - March 18, 2008 6.46%
593                    -                     $23,145                     $14,564
--------------------------------------------------------------------------------
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.  NMBT maintained  qualified
collateral  well  in  excess  of  the  amount  required  to  collateralize   the
outstanding advances at December 31, 1997.

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.

     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.  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:

--------------------------------------------------------------------------------
                             Shares   Exercise     Weighted
                          Underlying  Price Per  Average Price   Maturity
Outstanding Options        Options  Share Range      Per Share    Range
As of January 1, 1995      336,620  $5.00 - $6.00    $5.889   1995 - 2004
Granted                     10,000     $9.75         $9.750       2004
Cancelled or expired        (3,550) $5.00 - $6.00    $5.338   1995 - 1999
Exercised                  (31,770) $5.00 - $6.00    $5.893   1995 - 1999

As of December 31, 1995    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
--------------------------------------------------------------------------------

     In  October  1995,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123
establishes   financial  accounting  and  reporting  standards  for  stock-based
compensation plans. SFAS 123 defines a fair value based method of accounting for
an  employee  stock  option or similar  equity  instrument  and  encourages  all
entities  to adopt that method of  accounting  for all of their  employee  stock
compensation  plans.  However,  SFAS 123 also  allows the Company to continue to
measure  compensation  costs  for  stock-based   compensation  plans  using  the
intrinsic value based method of accounting  prescribed by APB No. 25 "Accounting
for Stock Issued to  Employees"  (APB 25) and make pro forma  disclosure  of net
income and earnings per share,  as if the fair value based method of  accounting
defined in SFAS 123 had been  applied.  The Company has elected not to adopt the
accounting  requirements  of SFAS 123 and  continue to account  for  stock-based
compensation  plans in  accordance  with APB 25. Had  compensation  cost for the
Company's  stock  option  plans been  determined  based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS 123,
the  Company's  net income and earnings per share would have been reduced to the
pro forma amounts indicated below:

--------------------------------------------------------------------------------
                                                        1997     1996     1995

Net income                    As reported              $2,898   $2,792   $2,159
                              Pro forma                $2,808   $2,759   $2,125
Basic earnings per share      As reported               $1.12    $1.09    $0.85
                              Pro forma                 $1.08    $1.07    $0.84
Diluted earnings per share As reported                  $1.05    $1.04    $0.83
                              Pro forma                 $1.02    $1.03    $0.82
--------------------------------------------------------------------------------

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes  option-pricing  model with dividends.  The following weighted
average  assumptions were used for grants in 1997, 1996 and 1995,  respectively:
dividend yield of 1.6%; expected volatility of 27.8%, 30.1% and 30.1%; risk-free
interest rate of 5.75%,  7% and 7%; and an expected term of 7, 8 and 8.67 years.
The  1997,  1996  and  1995  option  grants  expire  in  2002,  2004  and  2004,
respectively.  The weighted  average fair value of options granted in 1997, 1996
and 1995 were $4.48, $4.97 and $4.21, respectively.

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, 1997, that
both the Company and NMBT meet all capital  adequacy  requirements to which they
are subject.

     As of December 31, 1997, NMBT was categorized as well-capitalized under the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as
well-capitalized NMBT must



                                       27
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Purposes:       Action Provisions:
                              Amount     Ratio     Amount   Ratio         Amount        Ratio

<S>                           <C>        <C>      <C>       <C>
Consolidated
As of December 31, 1997:
Total Capital
(to Risk-Weighted Assets)     $26,948    13.5%    $16,026 _ 8.0%
Tier 1 Capital
(to Risk-Weighted Assets)      24,428    12.2   %   8,013 _ 4.0%
Tier 1 Capital
(to Average Assets)            24,428     7.4%     13,276 _ 4.0%
---------------------------------------------------------------------------------------------------
NMBT Only
As of December 31, 1997:
Total Capital
(to Risk-Weighted Assets)     $26,876    13.4%    $16,026 _ 8.0%    $20,032 _ 10.0%
Tier 1 Capital
(to Risk-Weighted Assets)      24,357    12.2%     8,013  _ 4.0%     12,019 _  6.0%
Tier 1 Capital
(to Average Assets)            24,357     7.3%    13,276  _ 4.0%     16,595 _  5.0%
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets)     $23,997    13.0%   $14,770  _ 8.0%    $18,462 _ 10.0%
Tier 1 Capital
(to Risk-Weighted Assets)      21,678    11.7%     7,385  _ 4.0%     11,077 _ 6.0%
Tier 1 Capital
(to Average Assets)            21,678     7.2%    12,002  _ 4.0%     15,002 _ 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.  Connectict  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  dvidend  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:

--------------------------------------------------------------------------------
Reconciliation of the Provision for Income Taxes

                                                      Years Ended December 31,
                                                        1997     1996    1995
Federal income tax provision
  at statutory rate                                   $1,628   $1,078   $917
Increase (decrease) in income taxes resulting from:
  State income taxes, net of federal tax effect          426      142    153
  Changes in valuation allowance and other
    deferred tax adjustments                               -     (701)  (640)
  Other                                                 (164)    (140)   107

Actual provision for income taxes                      $1,890    $379    $53
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Components of the Provision for Income Taxes

                                             Years Ended December 31,
                                               1997     1996    1995
Current income tax expense:
  Federal                                     $1,291    $431     $546
  State                                          645     215      232
                                               1,936     646      778
 Deferred income tax benefit                     (46)   (267)    (241)

Total provision for income taxes              $1,890    $379     $537

--------------------------------------------------------------------------------

     The tax effect of temporary  differences giving rise to deferred tax assets
and liabilities at December 31, 1997 and 1996 are as follows:

Dollars in thousands                        1997              1996
Deferred tax assets
  Allowance for loan losses                 $997              $771
  Deferred compensation                      485               452
  Capital loss carryforward                  105               105
  Deferred loan fees                        (130)              (83)
  Real estate owned                           24               165
  Other                                      (48)              (25)
  Total deferred tax assets                 1,433            1,385
Deferred tax liabilities
  Securities                                 (227)            (106)
  Total deferred tax liabilities             (227)            (106)
  Valuation allowance                        (105)            (105)
  Net deferred tax assets                  $1,101           $1,174
--------------------------------------------------------------------------------

     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. In
1996, the Company  reduced the valuation  allowance to  approximately  6% of the
deferred tax asset to  recognize  the  remaining  available  Federal  income tax
benefits  together with the remaining  available State income tax benefits which
the Company expected to utilize,  and other book/tax temporary  differences.  At
December 31, 1997 and 1996, 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 Thift 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 $0.24  million,  $0.23 million and $0.21 million in
1997, 1996 and 1995,  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, 1997 was $1.06  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.



                                       28
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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 1997 pursuant
to this Plan  totaled  $0.14  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  addtional  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 1997.

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  at
December 31, 1997 were as follows:

--------------------------------------------------------------------------------
Dollars in thousands                        Contract Amount
Financial Instrument Whose Contract
Amounts Represent Credit Risk

Commitments to extend credit                   $56,459
Letters of credit 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 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   (83%)  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  capital  and
operating lease agreements. Rent expense for operating leases was, in thousands,
$304,  $253 and $233 for the  years  ended  December  31,  1997,  1996 and 1995,
respectively.  The present value of future  minimum lease payments under capital
leases is included in other  liabilities.

     The future  minimum lease  payments by year,  and in the  aggregate,  under
capital  and  noncancelable  operating  leases  consisted  of the  following  at
December 31, 1997:

--------------------------------------------------------------------------------
                                                      Capital  Operating
Dollars in thousands                                   Leases   Leases
Years Ended December 31:
         1998                                            $20      $354
         1999                                             -        370
         2000                                             -        290
         2001                                             -        302
         2002                                             -        288
         2003 and thereafter                              -      1,269
Total future minimum lease payments                     $20     $2,873
Amounts representing interest                           (1)
Present value of future minimum
  lease payments                                       $19
==========================================================

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 $6.7  million  and $5.7  million at
December 31, 1997 and 1996,  respectively.  These reserve balances averaged $6.2
million and $5.1 million in 1997 and 1996, respectively.

EMPLOYMENT CONTRACTS

     NMBT has employment  agreements with certain members of senior  management.
The agreements  provide for an initial term of one year expiring on December 31,
1997, 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 one time 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).


                                       29
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

     FHLB Advances:  The carrying amounts for FHLB advances approximate the fair
value  because  rates  currently  available  for  advances  with  similar  terms
approximate actual rates on advances.  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:

                                       1997                       1996
                                  Contract  Estimated        Contract Estimated
Dollars in thousands              Amount   Fair Value       Amount   Fair Value
Off-Balance Sheet
Financial Instruments
  Commitments to extend credit      $56,460     $663            $51,327  $564
  Letters of credit                   2,587       52              3,152    63
                                   1997                       1996
--------------------------------------------------------------------------------
                                       Carrying  Estimated    Carrying Estimated
Dollars in thousands                    Value   Fair Value    Value   Fair Value
Financial Assets
  Cash and due from banks               $18,737  $18,737      $17,855  $17,855
  Interest-bearing deposits               4,025    4,025        6,135    6,135
  Securities available for sale          48,129   48,129       28,240   28,240
  Securities held to maturity            35,876   36,240       35,521   35,611
  Loans, net                            220,372  219,854      208,474  206,655
  Accrued interest receivable             2,421    2,421        1,923    1,923
Financial Liabilities
  Noninterest-bearing checking          $36,999  $36,999      $36,013  $36,013
  Interest-bearing checking              88,501   88,501       76,989   76,989
  Savings                                60,782   60,782       61,432  61,432
  Time deposits                          99,313   98,954       91,727  91,399
  Accrued interest payable                  392      392          336     336
  FHLB advances                          23,145   23,145       14,564  14,564

13.  Parent Company Only Financial Statements

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

Dollars in thousands       December 31, 1997
Assets

Cash and due from bank     $71
Investment in NMBT         25,259

         Total assets      $25,330
Liabilities and Stockholders' Equity
Stockholders' equity       $25,330

         Total liabilities and stockholders' equity  $25,330

Statement of Operation
         For the Period from
         November 25,1997 to

Dollars in thousands         December 31, 1997
Equity in undisturbed earnings of NMBT      $398

         Net Income        $398

Statement of Cash Flows
         For the Period from
         November 25,1997 to

Dollars in thousands         December 31, 1997

Operating Activities
Net Income        $398

Adjustments  to  reconcile   net  income  to  net  cash  provided  by  operating
         activities:

                  Equity in undisturbed earnings of NMBT      (398)
                  Net cash provided by operating activities   -

Financing Activities

Proceeds from exercise of stock options     71
                  Net cash provided by financing activities   71

Increase in cash and cash equivalents       71
Cash and cash equivalents, beginning of period       -
Cash and cash equivalents, end of year      $71

27

Notes to Consolidated Financial Statements

 28

Notes to Consolidated Financial Statements

29

Notes to Consolidated Financial Statements

 30

Notes to Consolidated Financial Statements

31

Notes to Consolidated Financial Statements

 32

Notes to Consolidated Financial Statements

33

Notes to Consolidated Financial Statements

 34

Quarterly Results of Operations

Dollars in thousands,
except per share data

         First    Second   Third    Fourth
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 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

1996

Interest and dividend income        $4,804  $4,903   $5,205   $5,388
Interest expense  1,819    1,898    2,106   2,171

Net interest income        2,985    3,005   3,099    3,217
Provision for loan losses  60       90      90       150
Noninterest income         385      392     425      438       3,001
Income before income taxes 792      900     975      504
Noninterest expense       2,518    2,407    2,459
Net income        594     675      731      792
                                                   Per share amounts:

  Basic earnings per share (1)      $0.23   $0.26    $0.29    $0.31
  Diluted earnings per share (1)    $0.22   $0.25    $0.28    $0.29
  Cash dividends per share $0.040   $0.040  $0.045   $0.045
  High bid price  $11.250  $10.000  $12.000 $12.750
  Low bid price   $9.250   $9.000   $9.000  $10.750


35

(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

Stock Transfer Agent

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

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.

Common Stock Listing

NMBT CORP's  common stock is traded on the National  Association  of  Securities
Dealers (NASDAQ) SmallCap Market under the symbol NMBT. As of December 31, 1997,
there were 1,928 stockholders of record.

Officers

Michael  Carrigan  President & Chief  Executive  Officer Jay Lent Executive Vice
President  Chief  Financial  Officer &  Secretary  Peter  Maher  Executive  Vice
President & Chief Lending  Officer  Deborah Fish Vice  President & Treasurer Don
Mallozzi Senior Vice President - Consumer  Lending Steven Breiner Vice President
- Commercial  Lending Roberta Buddle Vice President - Human Resources Nancy Dohl
Vice  President  - Sales &  Production  Nancy  Dolan Vice  President  - Business
Development

Donna Downs

Vice  President  -  Consumer  Lending  Mary  Kay  Duus  Vice  President  -  Loan
Administration  James  Matthiessen  Vice  President  -  Data  Processing  Joseph
Morrissey  Vice  President -  Commercial  Lending  Linda Reyes Vice  President -
Commercial  Lending Alfred  Schlemmer,  Jr. Vice President - Commercial  Lending
Anthony  Ambrogio  Assistant  Vice  President  - Internal  Audit  Nancy  Bentley
Assistant  Vice  President - Lending  Eric  Erdtmann  Assistant  Vice  President
Commercial Lending

Rosemary Bradshaw
Consumer Loan Officer & Underwriter
Linda Hall
Loan Servicing Officer
Donna Moreau
Consumer Loan Officer & Underwriter
Rosemary Plue
Executive Assistant

James Silver, Sr.
Data Services
Dana Smith
Data Processing
Linda Smith
Deposit Operations
Janet Wittmann
Assistant Treasurer

Board of Directors
(Back Row from Left to Right)
Robert Martin
Jack Straub
Terry Pellegrini
Michael Carrigan
Lawrence Greenhaus

(Front Row from Left to Right)
Walter Southworth
Kevin Dumas

Louis Funk, Jr.
Ruth Henderson
Arthur Weinshank
Harry Taylor, Jr.

 36

Branch Officers

Michelle Scott Vice  President - Branch  Operations  Nancy Achen  Assistant Vice
President & Manager - Main Office Ann  Gollsneider  Assistant  Vice  President &
Manager - South Seven Office  Suzanne Lee Assistant  Vice  President & Manager -
Mill Plain Office

Sharon  Maynard  Assistant  Vice  President & Manager - Park Lane Office  Glynis
Powanda  Assistant  Vice  President & Manager - Southbury  Office  Linda  Wagner
Assistant  Vice President & Manager - Germantown  Office Jean Docktor  Manager -
Bridgewater Office

Bonnie Hawthorne
Manager - Kent Office
Candice O'Connell
Manager - Candlewood Office
Florinda Pereira

Manager - Danbury Towers Office
Martha McMahon
Floating Manager
Patrick Perillo
Assistant Manager - Main Office
Renee Lynne Storti
Branch Operations

Advisory Board

Frank Benham
Alan Dretel

James Driscoll, III
M. Adela Eads
James Faure
*Norman Flayderman
William Francis
Richard Gabriel
Suzanne Gallup
Maurice Goldstein
Covington Hardee

Kevin Hart
Sanford Kaufman
John Kawulicz
George Kilberg
Robert Kornhaas
*Victor Lautier
Vincent Lucas
Ambrose McGill

Edward Mohr Gerald Nahley Mark Prince *Henry  Perlowsky  Thomas Pilla *Frederick
Planz  Richard  Pugh John  Rountos  Albert  Salame  Thomas  Sheehy  Thomas Sides
Terrence Smith Robert Stebbins John Stetson *Edward Tierney

Dolph Traymon     James Winter

* Former member of the

   Board of Directors