<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                            ----------------------

                                   FORM 10-Q


[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934, for the quarter ended March 31, 1999 or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934, for the transition period from ___________ to
     __________.

                       COMMISSION FILE NUMBER 000-23557

                             MECH FINANCIAL, INC.
            (Exact name of registrant as specified in its charter)


           CONNECTICUT                                  06-1500984
(State or other jurisdiction of            (IRS Employer Identification Number)
incorporation or organization)


         100 PEARL STREET
      HARTFORD, CONNECTICUT                               06103
(Address of principal executive offices)                (Zip code)


                                (860) 293-4000
             (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.

                           Yes [X]                            No [ ]


                     Common Stock Par Value $.01 Per Share
                 4,991,565 Outstanding (as of March 31, 1999)
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
Part I.  Item 1. Financial Information                                                        Page
<S>                                                                                           <C> 
     A.     Consolidated Statements of Condition as of March 31, 1999 and                      1
              December 31, 1998                                                                 
                                                                                                
     B.     Consolidated Statements of Operations for the Three Month Periods                  2
              Ended March 31, 1999 and March 31, 1998                                           
                                                                                                
     C.     Consolidated Statements of Changes in Stockholders' Equity for the Three           3
              Month Periods Ended March 31, 1999 and March 31, 1998                             
                                                                                                
     D.     Consolidated Statements of Cash Flows for the Three Month Periods Ended            4
              March 31, 1999 and March 31, 1998                                                 
                                                                                                
     E.     Notes to Consolidated Financial Statements                                         6
                                                                                                
                                                                                                
Part I. Item 2. Management's Discussion and Analysis of                                         
                Financial Condition and Results of Operations                                 13
                                                                                                
Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk                    21
                                                                                                
Part II. Other Information                                                                    22
                                                                                                
Signatures                                                                                    23
                                                                                                
Exhibit                                                                                       24 
</TABLE> 
<PAGE>
 
MECH FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)


<TABLE> 
<CAPTION> 
(dollars in thousands)                                                                    MARCH 31, 1999    DECEMBER 31, 1998
                                                                                         ----------------   ----------------- 
<S>                                                                                      <C>                <C> 
                                    ASSETS

Cash and due from banks:
        Non-interest-bearing deposits and cash                                           $        19,750    $         20,567
        Short-term investments                                                                     1,915               1,420
                                                                                         ----------------   ----------------- 
             Cash and cash equivalents                                                            21,665              21,987
                                                                                                                 
Investments:                                                                                                     
        Available-for-sale, at market value                                                      242,608             205,711
        Held-to-maturity (market value at March 31, 1999 - $78,787;                                              
                              at December 31, 1998 - $80,873)                                     78,389              80,306
Federal Home Loan Bank stock, at cost                                                             14,987              10,487
Loans, net                                                                                       682,321             651,858
Bank premises and equipment                                                                        4,450               4,633
Investment in Real Estate Partnership                                                                  -              13,541
Accrued interest receivable                                                                        5,645               4,957
Foreclosed real estate owned                                                                         938                 902
Cash surrender value life insurance                                                               17,072              16,873
Goodwill                                                                                             730                 759
Other assets                                                                                       7,791               7,355
                                                                                         ----------------   ----------------- 
                                                                                         $     1,076,596    $      1,019,369
                                                                                         ================   ================= 
                                                                                                                 
                     LIABILITIES AND STOCKHOLDERS' EQUITY                                                        
                                                                                                                 
Liabilities:                                                                                                     
        Deposits                                                                         $       689,429    $        706,195
        Borrowings                                                                               287,225             210,225
        Mortgage escrow                                                                            3,961               1,652
        Other liabilities                                                                          6,167               5,929
                                                                                         ----------------   ----------------- 
             Total liabilities                                                                   986,782             924,001
                                                                                         ----------------   ----------------- 
                                                                                                                 
                                                                                                                 
                                                                                                                 
Stockholders' Equity:                                                                                            
        Preferred stock - par value $.01; 1,000,000 shares                                             
             authorized, none issued                                                                   -                   -
        Common stock - par value $.01; 15,000,000 shares                                              
             authorized; 5,301,065 issued at March 31, 1999 and                                                  
             5,297,932 issued at December 31, 1998                                                    53                  53
        Additional paid in capital                                                                51,485              51,430
        Retained earnings                                                                         47,555              44,205
        Accumulated other comprehensive income (loss)                                               (276)                160
        Less:  Treasury stock, at cost, 261,500 shares at March 31, 1999,                                        
             none at December 31, 1998                                                            (8,523)                  -
        Less: Unallocated ESOP shares (48,000 shares)                                               (480)               (480)
                                                                                         ----------------   ----------------- 
             Total stockholders' equity                                                           89,814              95,368
                                                                                         ----------------   ----------------- 
                                                                                         $     1,076,596    $      1,019,369
                                                                                         ================   ================= 
</TABLE> 


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

                                       1
<PAGE>
 
MECH FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands except for earnings per share)                            FOR THE THREE MONTHS ENDED
                                                                     MARCH 31, 1999   MARCH 31, 1998
                                                                     --------------   -------------- 
<S>                                                                  <C>              <C> 
Interest income:
      Interest and fees on loans                                     $       12,738   $       11,686

      Interest and dividends on investment securities:
              Interest on debt securities                                     4,386            3,482
              Dividends on equity securities                                    232              145
                                                                     --------------   -------------- 
                                                                              4,618            3,627
      Other interest income                                                     326              391
                                                                     --------------   --------------
              Total interest income                                          17,682           15,704
                                                                     --------------   -------------- 
Interest expense:
      Interest on deposits:
              Savings deposits                                                  754              707
              Time deposits                                                   4,862            5,231
                                                                     --------------   -------------- 
              Total interest on deposits                                      5,616            5,938

      Interest on borrowings                                                  3,242            2,170
                                                                     --------------   -------------- 
              Total interest expense                                          8,858            8,108
                                                                     --------------   -------------- 
              Net interest income                                             8,824            7,596
Provision for loan losses                                                         -              300
                                                                     --------------   -------------- 
Net interest income after provision for loan losses                           8,824            7,296
                                                                     --------------   -------------- 
Other income:
      Service charges on deposit accounts                                       687              598
      Investment brokerage services commissions                                 604              682
      Appreciation of cash surrender value life insurance                       228              234
      Loan servicing and other fees                                             142              141
      Income from investment in Real Estate Partnership                          13              179
      Gain on sale of headquarters building owned by
           the Real Estate Partnership                                        2,096                -
      Net gain on calls / sales of investment securities                          5                4
      Net gain on sales of loans                                                  3               25
      Other                                                                     274              404
                                                                     --------------   -------------- 
              Total other income                                              4,052            2,267
                                                                     --------------   -------------- 
Other expenses:
      Salaries, commissions and employee benefits                             3,283            3,155
      Occupancy                                                                 775              783
      Data processing                                                           313              277
      Advertising                                                               251              296
      Furniture and equipment                                                   245              240
      Legal and accounting                                                      145              158
      Communications                                                            138              134
      Operation of foreclosed real estate owned                                 103               94
      Write-downs and net losses on sale
           of foreclosed real estate owned                                        -               60
      Amortization of goodwill                                                   29                -
      Other                                                                     696              670
                                                                     --------------   -------------- 
              Total other expenses                                            5,978            5,867
                                                                     --------------   -------------- 
      Income before income taxes and extraordinary item                       6,898            3,696
              Income tax expense                                              2,317            1,413
                                                                     --------------   -------------- 
      Income before extraordinary item                                        4,581            2,283
              Extraordinary item, early extinguishment of
                 borrowings, net of tax   (Note 6)                             (435)            (119)
                                                                     --------------   -------------- 
      Net income                                                     $        4,146    $       2,164
                                                                     ==============   ============== 

Earnings per share:
       Basic:
              Income before extraordinary item                       $         0.90    $        0.43
              Extraordinary item                                     $        (0.09)   $       (0.02)
              Net income                                             $         0.81    $        0.41

       Diluted:
              Income before extraordinary item                       $         0.87    $        0.43
              Extraordinary item                                     $        (0.08)   $       (0.02)
              Net income                                             $         0.79    $        0.41

Weighted average shares outstanding:
       Basic                                                                  5,099            5,222
       Diluted                                                                5,251            5,300

     The accompanying notes are integral part of these consolidated financial statements
</TABLE> 

                                       2
<PAGE>
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                                                                   ACCUMULATED
                                                                                  ADDITIONAL                          OTHER
                                                                   COMMON          PAID IN         RETAINED       COMPREHENSIVE
(in thousands)                                                      STOCK          CAPITAL         EARNINGS       INCOME (LOSS)
                                                                -------------   --------------   ------------   -----------------
<S>                                                             <C>             <C>              <C>            <C>
Balance at December 31, 1997                                    $         53    $      50,927    $    37,891    $            398
Comprehensive income:
      1998 net income                                                      -                -          2,164                   -
      Net unrealized gains (losses) on securities, net of
           reclassification adjustment                                     -                -              -                  22

Comprehensive income

Exercise of stock options                                                  -               11              -                   -
                                                                -------------   --------------   ------------   -----------------
  Balance at March 31, 1998                                     $         53    $      50,938    $    40,055    $            420
                                                                =============   ==============   ============   =================

Balance at December 31, 1998                                    $         53    $      51,430    $    44,205    $            160
Comprehensive income:
      1999 net income                                                      -                -          4,146                   -
      Net unrealized gains (losses) on securities, net of
           reclassification adjustment                                     -                -              -                (436)

Comprehensive income

Treasury stock purchased (261,500 shares)                                  -                -              -                   -
Dividends paid ($0.15 per share)                                                                        (796)
Exercise of stock options                                                  -               55              -                   -
                                                                -------------   --------------   ------------   -----------------
  Balance at March 31, 1999                                     $         53    $      51,485    $    47,555    $           (276)
                                                                =============   ==============   ============   =================

<CAPTION>
                                                                                 UNALLOCATED
                                                                  TREASURY           ESOP
(in thousands)                                                      STOCK           SHARES          TOTAL
                                                                -------------   --------------   ------------
<S>                                                             <C>             <C>              <C>
Balance at December 31, 1997                                    $           -   $         (720)  $     88,549
Comprehensive income:
      1998 net income                                                       -                -          2,164
      Net unrealized gains (losses) on securities, net of
           reclassification adjustment                                      -                -             22
                                                                                                 ------------
Comprehensive income                                                                                    2,186
                                                                                                 ------------
Exercise of stock options                                                   -                -             11
                                                                -------------   --------------   ------------ 
  Balance at March 31, 1998                                     $           -   $         (720)  $     90,746
                                                                =============   ==============   ============  
 
Balance at December 31, 1998                                    $           -   $         (480)  $     95,368
Comprehensive income:
      1999 net income                                                       -                -          4,146
      Net unrealized gains (losses) on securities, net of
           reclassification adjustment                                      -                -           (436)
                                                                                                 ------------ 
Comprehensive income                                                                                    3,710
                                                                                                 ------------     
Treasury stock purchased (261,500 shares)                              (8,523)               -         (8,523)
Dividends paid ($0.15 per share)                                                                         (796)
Exercise of stock options                                                   -                -             55
                                                                -------------   --------------   ------------ 
  Balance at March 31, 1999                                     $      (8,523)  $         (480)  $     89,814
                                                                =============   ==============   ============  
</TABLE>

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

                                       3
<PAGE>
 
MECH FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE> 
<CAPTION> 
                                                                                                 FOR THE THREE MONTHS ENDED
(in thousands)                                                                                MARCH 31, 1999     MARCH 31, 1998
                                                                                             ----------------   ----------------
<S>                                                                                          <C>                <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:                                                      
     Net income                                                                              $          4,146   $          2,164
                                                                                             ----------------   ---------------- 
     Adjustments to reconcile net income to cash provided by operating                     
         activities:                                                                       
                Provision for loan losses                                                                   -                300
                Depreciation and amortization                                                             256                236
                Amortization of investment security premiums/discounts, net                               (13)                29
                Deferred loan costs, net of amortization                                                 (239)              (172)
                Net gain on sale of loans                                                                  (3)               (25)
                Proceeds from loan sales                                                                  302              5,261
                Originations of loans held for sale                                                      (299)            (5,798)
                Decrease in deferred tax assets                                                             -                629
                Realized gains on calls/sales of securities                                                (5)                (4)
                Increase in interest and dividend receivables                                            (688)              (374)
                Income from investment in Real Estate Partnership                                         (13)              (179)
                Gain on sale of headquarters building owned by the Real Estate Partnership             (2,096)                 -
                Write-downs and net losses on sale of foreclosed real estate owned                          -                 60
                Increase in cash surrender value life insurance                                          (199)              (209)
                Increase in other assets                                                                 (117)               (19)
                Increase (decrease) in other liabilities                                                  238               (645)
                                                                                             ----------------   ---------------- 
                          Total adjustments                                                            (2,876)              (910)
                                                                                             ----------------   ---------------- 
Net cash provided by operating activities                                                               1,270              1,254
                                                                                             ----------------   ---------------- 
                                                                                                                       
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                  
     Proceeds from sale of available-for-sale securities                                                    -             15,753
     Proceeds from principal payments on available-for-sale securities                                 18,255             10,696
     Proceeds from principal payments on held-to-maturity securities                                   10,152             10,969
     Proceeds from maturities and calls of available-for-sale securities                                3,000              6,552
     Proceeds from maturities and calls of held-to-maturity securities                                  6,000              5,000
     Purchases of available-for-sale securities                                                       (58,905)           (43,253)
     Purchases of held-to-maturity securities                                                         (14,189)           (38,485)
     Purchases of Federal Home Loan Bank stock                                                         (4,500)            (2,237)
     Net originations and purchases of loans                                                          (30,709)           (10,882)
     Proceeds from sale of headquarters building owned by the Real Estate Partnership                  15,610                  -
     Decrease in investment in Real Estate Partnership                                                     40                554
     Proceeds from sale of foreclosed real estate owned                                                   448                337
     Purchases of bank premises and equipment                                                             (73)              (126)
                                                                                             ----------------   ---------------- 
Net cash used in investing activities                                                                 (54,871)           (45,122)
                                                                                             ----------------   ---------------- 
                                                                                                                       
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                  
     Net increase in demand deposits, money market and savings accounts                                 2,898              4,490
     Net (decrease) increase in certificates of deposit                                               (19,664)            13,730
     Net increase in mortgage escrow                                                                    2,309              2,085
     Increase in FHLB borrowings                                                                      345,540             75,068
     Repayments of FHLB borrowings                                                                   (268,540)           (43,323)
     Issuance of common stock                                                                              55                 11
     Dividends paid                                                                                      (796)                 -
     Purchases of treasury stock                                                                       (8,523)                 -
                                                                                             ----------------   ---------------- 
Net cash provided by financing activities                                                              53,279             52,061
                                                                                             ----------------   ---------------- 
                                                                                                                       
Net (decrease) increase in cash and cash equivalents                                                     (322)             8,193
                                                                                             ----------------   ---------------- 
                                                                                                                       
Cash and cash equivalents at beginning of period                                                       21,987             33,024
                                                                                             ----------------   ---------------- 
                                                                                                                       
Cash and cash equivalents at end of period                                                   $         21,665   $         41,217
                                                                                             ================   ================ 
</TABLE> 


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

                                       4
<PAGE>
 
MECH FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

<TABLE> 
<CAPTION> 
                                                                                           FOR THE THREE MONTHS ENDED
(in thousands)                                                                         MARCH 31, 1999      MARCH 31, 1998
                                                                                      ----------------    ----------------
<S>                                                                                   <C>                 <C>         
Non-cash investing and financing activities                                         
     Change in net unrealized gain (loss) on securities available-for-sale                     $ (753)              $ (39)
     Change in net unrealized gain (loss) on securities held-to-maturity                           27                  51
     Transfer of loans to foreclosed real estate owned                                            580                 331
Supplemental disclosures of cash flow information                                                                   
     Income taxes paid                                                                            503                 813
     Interest paid                                                                              8,748               7,964
</TABLE> 


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

                                       5
<PAGE>
 
MECH FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

On November 25, 1997, the shareholders of Mechanics Savings Bank (the "Bank")
approved the formation of a holding company, MECH Financial, Inc. (the
"Company").  MECH Financial, Inc. provides additional corporate structuring
opportunities and powers to respond to the changing and expanding needs of the
Bank's customers and to the competitive conditions in the financial services
industry.  The holding company structure became effective January 1, 1998, as
approved by the appropriate regulatory agencies.  Shares of common stock of
Mechanics Savings Bank were automatically converted into shares of MECH
Financial, Inc. on a one-for-one tax-free exchange basis on that date.

The accompanying unaudited consolidated financial statements include the
accounts of MECH Financial, Inc. and its wholly-owned subsidiary, Mechanics
Savings Bank.  Mechanics Savings Bank and its wholly-owned subsidiaries include
Mech Corporation, Mech Two Corporation, Mech Three Corporation, Eighty Pearl
Street Corporation, Mechanics Investment Services, Inc. and Mechanics Mortgage
Company ("MMC") which was funded January 1, 1999.

MMC was formed to take advantage of a recent change in the Connecticut tax
statutes.  The State of Connecticut enacted tax law changes in May 1998,
allowing for the formation of Passive Investment Companies by financial
institutions.  This new legislation exempts certain Passive Investment Companies
from state income taxation in Connecticut, as well as exempting from taxation
the dividends paid from a Passive Investment Company to a related financial
institution.   The law permits the Bank to contribute certain mortgage assets to
its Passive Investment Company so as to achieve the tax benefits.  The Bank
qualifies as a financial institution under the new statute and formed MMC, as a
Passive Investment Company, in 1998.  The legislation is effective for tax years
beginning on or after January 1, 1999.  The formation of MMC is expected to
significantly reduce the Company's state income tax expense.

The condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and with the instructions to Form
10-Q.  Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.  For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's 1998 Annual Report on
Form 10-K.

In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Dollars are presented in thousands, except for per share data, in the following
footnotes.

NOTE 2 - INVESTMENTS

The amortized cost and market values as of March 31, 1999 of available-for-sale
securities were as follows:

                                       6
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            GROSS                 GROSS             ESTIMATED
                                                      AMORTIZED           UNREALIZED            UNREALIZED            MARKET
                                                        COST                GAINS                 LOSSES               VALUE
                                                      ---------           ----------            ----------          --------- 
<S>                                                   <C>                 <C>                   <C>                 <C>
U. S. Government and agency securities                 $  8,995           $       14            $       41          $   8,968
Mortgage-backed securities                              210,934                  706                   546            211,094
Debt securities issued by foreign governments               350                    -                     -                350
Corporate debt securities                                 2,996                    -                    66              2,930
Marketable equity securities                              3,186                   99                   376              2,909
Mutual funds                                             16,455                   36                   134             16,357
                                                      ---------           ----------            ----------          ---------
                                                      $ 242,916           $      855            $    1,163          $ 242,608
                                                      =========           ==========            ==========          ========= 
</TABLE>

The amortized cost and market values as of December 31, 1998 of available-for-
sale securities were as follows:

<TABLE>
<CAPTION>
                                                                            GROSS                  GROSS            ESTIMATED
                                                      AMORTIZED           UNREALIZED            UNREALIZED            MARKET
                                                        COST                GAINS                 LOSSES               VALUE
                                                      ---------           ----------            ----------          ---------  
<S>                                                   <C>                 <C>                   <C>                 <C>
U. S. Government and agency securities                $   4,995           $       34            $        -          $   5,029
Mortgage-backed securities                              174,543                  883                   160            175,266
Debt securities issued by foreign governments               350                    -                     -                350
Corporate debt securities                                 5,996                    -                    84              5,912
Marketable equity securities                              3,187                   85                   272              3,000
Mutual funds                                             16,196                   60                   102             16,154
                                                      ---------           ----------            ----------          ---------  
                                                      $ 205,267           $    1,062            $      618          $ 205,711
                                                      =========           ==========            ==========          =========  
</TABLE> 


The amortized cost and market values as of March 31, 1999 of held-to-maturity
securities were as follows:

<TABLE>
<CAPTION>
                                                                             GROSS                 GROSS             ESTIMATED
                                                      AMORTIZED           UNREALIZED            UNREALIZED            MARKET
                                                        COST                GAINS                 LOSSES              VALUE
                                                      ---------           ----------            ----------          ---------   
<S>                                                   <C>                 <C>                   <C>                 <C>
U. S. Government and agency securities                $  26,996           $       19            $      207          $  26,808
Mortgage-backed securities                               50,393                  709                    68             51,034
Corporate debt securities                                 1,000                    -                    55                945
                                                      ---------           ----------            ----------          ---------  
                                                      $  78,389           $      728            $      330          $  78,787
                                                      =========           ==========            ==========          =========  
</TABLE>


The amortized cost and market values as of December 31, 1998 of held-to-maturity
securities were as follows:

<TABLE>
<CAPTION>
                                                                            GROSS                 GROSS             ESTIMATED
                                                      AMORTIZED           UNREALIZED            UNREALIZED            MARKET
                                                        COST                GAINS                 LOSSES              VALUE
                                                      ---------           ----------            ----------          ---------    
<S>                                                   <C>                 <C>                   <C>                 <C>
U. S. Government and agency securities                $  22,994           $       67            $      120          $  22,941
Mortgage-backed securities                               56,312                  689                    30             56,971
Corporate debt securities                                 1,000                    -                    39                961
                                                      ---------           ----------            ----------          ---------    
                                                      $  80,306           $      756            $      189          $  80,873
                                                      =========           ==========            ==========          =========  
</TABLE>

                                       7
<PAGE>
 
NOTE 3 - ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
                                                    FOR THE THREE MONTHS ENDING
                                                 MARCH 31,                  MARCH 31,
                                                   1999                       1998
                                               --------------           -----------------   
<S>                                            <C>                      <C>
Balance at beginning of year                   $       12,301           $          14,031
Provision for loan losses                                   -                         300
Loan charge-offs                                         (624)                       (802)
Loan recoveries                                           177                         112
                                               --------------           -----------------   
Balance                                        $       11,854           $          13,641
                                               ==============           =================
</TABLE>


NOTE 4 - NON-PERFORMING ASSETS

The components of non-performing assets were as follows:

<TABLE>
<CAPTION>
                                               MARCH 31, 1999           DECEMBER 31, 1998
                                               --------------           ----------------- 
<S>                                            <C>                      <C>
Non-accrual loans                              $        2,209           $           2,949
Accruing loans past due more than 90 days                   -                           -
                                               --------------           -----------------   
     Total non-performing loans                         2,209                       2,949
Foreclosed real estate owned                              938                         902
                                               --------------           -----------------
Total non-performing assets                    $        3,147           $           3,851
                                               ==============           =================
                                                              
Non-performing assets as a                                    
     percentage of total assets                          0.29%                       0.38%
                                               ==============           =================
Non-performing assets as a                                    
     percentage of gross loans and                            
     foreclosed real estate owned                        0.45%                       0.58%
                                               ==============           =================
Allowance for loan losses                                     
     as a percentage of                                       
     non-performing loans                              536.62%                     417.12%
                                               ==============           =================
</TABLE>


NOTE 5 - INVESTMENT IN REAL ESTATE PARTNERSHIP

The Bank's subsidiary, Eighty Pearl Street Corporation owns 50% of Pearl Street
Associates Limited Partnership ("the Real Estate Partnership").  This 
partnership previously owned (see below) the building at 100 Pearl Street,
Hartford, CT which houses the Bank's banking and corporate offices.

During the first quarter of 1999, the Real Estate Partnership sold the building
at 100 Pearl Street to New Boston Limited Partnership, an independent third
party.  Eighty Pearl Street Corporation received proceeds of $15.24 million and
recognized a $2.10 million gain on the sale.  The Bank will continue to occupy
its banking and office space at 100 Pearl Street under a long-term lease.

NOTE 6 - BORROWINGS

Advances from the Federal Home Loan Bank of Boston ("FHLB") and the repayment
schedule were as follows:

                                       8
<PAGE>
 
<TABLE>
<CAPTION>
    MATURITY DATE             INTEREST RATE               MARCH 31, 1999             DECEMBER 31, 1998
----------------------       ---------------             ----------------            -----------------
<S>                          <C>                         <C>                         <C>
March 3, 1999                           5.13%            $              -            $          10,000
April 7, 1999                           4.91                       15,000                            -
April 21, 1999                          4.88                       15,000                            -
April 26, 1999                          4.84                       20,000                            -
April 30, 1999                          4.95                       12,000                            -
May 24, 1999                            4.95                        8,000                            -
July 28, 1999                           4.79                        7,000                            -
August 4, 1999                          4.83                       10,000                            -
August 19, 1999                         4.94                       10,000                       10,000
November 15, 1999                       4.94                        7,000                        7,000
June 7, 2000                            4.85                       10,000                       10,000
October 20, 2000                        6.21                            -                       10,000
October 20, 2000                        6.24                            -                       20,000
February 27, 2001                       5.71                        7,000                        7,000
December 15, 2001                       5.95                       10,000                       10,000
November 7, 2002 *                      5.71                       30,000                       30,000
March 12, 2003                          5.78                        8,745                        8,745
March 21, 2003 *                        4.99                       20,000                            -
October 21, 2003 *                      4.19                        5,000                        5,000
November 3, 2004 *                      5.80                       10,000                       10,000
January 10, 2008 *                      4.99                       15,000                       15,000
May 8, 2008 *                           5.52                       10,000                       10,000
June 4, 2008 *                          5.52                       10,000                       10,000
October 6, 2008 *                       4.49                        7,000                        7,000
December 8, 2008 *                      4.33                       20,000                       20,000
April 8, 2013 *                         5.49                       10,000                       10,000
March 24, 2014 *                        3.99%                      10,000                            -
                                                         ----------------            -----------------
                                                         $        286,745            $         209,745
                                                         ================            =================
</TABLE> 
 
* initial call dates ranging from April 1999 to April 2003


During the first quarter of 1999, the Bank prepaid a $20,000 FHLB advance
scheduled to mature October 20, 2000 that carried an interest rate of 6.24%
which resulted in a $432 prepayment penalty.  In addition, the Bank prepaid a
$10,000 FHLB advance scheduled to mature on October 20, 2000 that carried an
interest rate of 6.21% and incurred a $223 prepayment penalty.  Due to these
prepayment penalties, the Company reported a $435 extraordinary item, which is
net of $220 in taxes, due to the early extinguishment of borrowings during the
first quarter of 1999.  This reduced earnings per share by $0.09 and $0.08 on a
basic and diluted basis, respectively.

During the first quarter of 1998, the Bank prepaid an $8,000 FHLB advance
scheduled to mature November 30, 2000 that carried an interest rate of 6.61%
thereby incurring a $192 prepayment penalty. Due to this prepayment penalty, the
Company reported a $119 extraordinary item, which is net of $73 in taxes, due to
the early extinguishment of borrowings.  This reduced earnings per share by
$0.02 on both a basic and diluted basis.  The Bank analyzes its borrowing
portfolio on a regular basis through its asset/liability and investment
committees.  During the quarters noted above, the bank took advantage of

                                       9
<PAGE>
 
fluctuations in interest rates and restructured it's borrowing portfolio
accordingly. Management believes both transactions will improve profitability in
future quarters.

The Bank has access to a pre-approved line of credit up to approximately $15,000
and the capacity to borrow in excess of 40% of the Bank's total assets.  In
accordance with an agreement with the FHLB, the Bank is required to maintain
qualified collateral, as defined in the FHLB Statement of Credit Policy, free
and clear of liens, pledges and encumbrances as collateral for the advances.

The Employee Stock Ownership Plan ("ESOP") borrowed $1,200 to purchase 120,000
shares of the Bank's stock for the ESOP in conjunction with the Bank's
conversion from a Connecticut-chartered mutual savings bank to a Connecticut-
chartered capital stock savings bank, completed on June 25, 1996.  The shares in
the ESOP were converted into shares of MECH Financial, Inc. on January 1, 1998.
At March 31, 1999 and December 31, 1998, this borrowing had an outstanding
balance of $480.  The loan's final principal payment is due on December 31,
2000.  The loan carries an interest rate equal to the prime rate.  The Bank has
fully guaranteed this borrowing.

NOTE 7 - EARNINGS PER SHARE

Earnings per share is computed based upon the weighted average number of shares
of common stock and common stock equivalents (if dilutive) outstanding during
the periods presented.  Common stock equivalents consist of stock options
granted under the 1996 Director and Officer Stock Option Plans. The option
exercise price for the options granted is the market price at the time of the
grant.

The weighted average shares outstanding totaled 5,099,172 and 5,221,585 for the
quarters ended March 31, 1999 and 1998, respectively. The effect of dilutive
stock options was 151,704 and 78,327 shares for the quarters ended March 31,
1999 and 1998, respectively.

NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").  This statement
established accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts,
(collectively referred to as derivatives) and for hedging activities.  The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation.  Under this statement, an
entity that elects to apply hedge accounting is required to establish at the
inception of the hedge the method it will use for assessing the effectiveness of
the hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge.  Those methods must be consistent with the
entity's approach to managing risk.

This statement amends SFAS No. 52 "Foreign Currency Translation" and SFAS No.
107, "Disclosures about Fair Value of Financial Instruments".  This statement
superseded SFAS No. 80, "Accounting for Futures Contracts", SFAS No. 105,
"Disclosure Information about Financial Instruments with Off-balance Sheet Risk
and Financial Instruments with Concentrations of Credit Risk" and SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments".

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.  Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement.  Early adoption is permitted, however, retroactive application is
prohibited. The adoption of SFAS No. 133 is not expected to have a material
impact for the Company.

NOTE 9 - COMPREHENSIVE INCOME

                                       10
<PAGE>
 
In June 1997, the FASB issued  SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130").  SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (such as changes in net unrealized
gain (loss) on securities).  Comprehensive income includes net income and any
change in net equity of a business enterprise during a period from non-owner
sources that bypass the income statement.  The purpose of reporting
comprehensive income is to report a measure of all changes in equity of an
enterprise that result from recognized transactions and other economic events of
the period other than transactions with owners in their capacity as owners.  The
Company's one source of other comprehensive income is the net unrealized gain
(loss) on securities.

The following table represents the components and the related tax effects
allocated to other comprehensive income for the first quarter of 1999:

<TABLE>
<CAPTION>
                                                       BEFORE               TAX                 NET OF
                                                        TAX              (EXPENSE)               TAX
                                                       AMOUNT             BENEFIT               AMOUNT
                                                     ---------           ---------            ---------
<S>                                                  <C>                 <C>                  <C> 
Net unrealized gains (losses) on securities
     arising during the period                       $    (753)          $     301            $    (452)
Accretion of unrealized loss on securities
     transferred from available-for-sale to
     held-to-maturity                                       27                 (11)                  16
                                                     ---------           ---------            ---------
Net unrealized gains (losses) on securities          $    (726)          $     290            $    (436)
                                                     =========           =========            =========
</TABLE>


The following table represents components and the related tax effects allocated
to other comprehensive income for the first quarter of 1998:

<TABLE>
<CAPTION>
                                                       BEFORE               TAX                 NET OF
                                                        TAX              (EXPENSE)               TAX
                                                       AMOUNT             BENEFIT               AMOUNT
                                                     ---------           ---------            --------- 
<S>                                                  <C>                 <C>                  <C>
Net unrealized gains (losses) on securities
     arising during the period                       $     (34)          $      14                  (20)
Less:  reclassification adjustment for
     gain realized in net income                             4                  (2)                   2
Adjustment to tax rate on prior periods'
  net unrealized gains on securities                         -                  21                   21
Accretion of unrealized loss on securities
     transferred from available-for-sale to
     held-to-maturity                                       51                 (28)                  23
                                                     ---------           ---------            --------- 
Net unrealized gains (losses) on securities          $      13           $       9            $      22
                                                     =========           =========            =========
</TABLE>


During the first quarter of 1997, the Company reversed the tax expense
associated with its unrealized net gain on securities due to its income tax
position at that time.

NOTE 10 - STOCKHOLDERS' EQUITY

During the first quarter of 1999, the Company announced a stock repurchase
program.  The program authorized the Company to repurchase up to 5% of its
issued and outstanding common stock at prevailing market prices in negotiated
and/or open market purchases.  The Company completed the program and purchased
261,500 shares of common stock at a cost of $8.52 million during the quarter.

                                       11
<PAGE>
 
On April 20, 1999, the Company declared a quarterly dividend of $0.20 per share
on its common stock.  The dividend will be paid on May 14, 1999 to shareholders
of record on May 3, 1999.

                                       12
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements in the following discussions and analysis concerning future
results, performance, expectations, or intentions are forward-looking
statements. Actual results, performance, or developments may differ materially
from forward-looking statements as a result of known or unknown risks,
uncertainties and other factors. Discussion regarding Year 2000 issues
necessarily involve uncertainties in terms of the future consequences to the
Bank of failure of the Bank's suppliers, vendors and customers to effectively
manage their computer issues regarding Year 2000.

OVERVIEW

On November 25, 1997, the shareholders of Mechanics Savings Bank (the "Bank")
approved the formation of a holding company, MECH Financial, Inc. (the
"Company"). MECH Financial, Inc. provides additional corporate structuring
opportunities and powers to respond to the changing and expanding needs of the
Bank's customers and to the competitive conditions in the financial services
industry. The holding company structure became effective January 1, 1998, as
approved by the appropriate regulatory agencies. Shares of common stock of
Mechanics Savings Bank were automatically converted into shares of MECH
Financial, Inc. on a one-for-one tax-free exchange basis on that date.

Effective January 1, 1999, the Company funded Mechanics Mortgage Company
("MMC"). This subsidiary of the Bank was formed to take advantage of a recent
change in the Connecticut tax statutes. The State of Connecticut enacted tax law
changes in May 1998, allowing for the formation of Passive Investment Companies
by financial institutions. This new legislation exempts certain Passive
Investment Companies from state income taxation in Connecticut, as well as
exempting from taxation the dividends paid from a Passive Investment Company to
a related financial institution. The law permits the Bank to contribute certain
mortgage assets to its Passive Investment Company so as to achieve the tax
benefits. The Bank qualifies as a financial institution under the new statute
and formed MMC, as a Passive Investment Company, in 1998. The legislation is
effective for tax years beginning on or after January 1, 1999. The formation of
MMC is expected to significantly reduce the Company's state income tax expense.

During the first quarter of 1999, the Company announced a stock repurchase
program. The program authorized the Company to repurchase up to 5% of its issued
and outstanding common stock at prevailing market prices in negotiated and/or
open market purchases. The Company completed the program and purchased 261,500
shares of common stock at a cost of $8.52 million during the quarter.

The Company reported net income of $4.15 million for the first quarter ended
March 31, 1999 compared to $2.16 million for the same period in 1998. During the
first quarter of 1999, the Real Estate Partnership (50% owned by a Bank
subsidiary) sold its interest in 100 Pearl Street in Hartford, CT which houses
the Bank's banking and corporate offices to New Boston Limited Partnership, an
independent third party. The subsidiary received proceeds of $15.24 million and
recognized a $2.10 million gain on the sale. The Bank will continue to occupy
its banking and office space at 100 Pearl Street under a long-term lease.

FINANCIAL CONDITION

Total assets as of March 31, 1999 were $1,076.60 million representing an
increase of $57.23 million or 5.6% from $1,019.37 million at December 31, 1998.
The Company's Tier 1 leverage ratio was 8.61% at March 31, 1999 compared to
9.63% at December 31, 1998. The Company's total risk-based capital ratio was
14.04% at March 31, 1999 compared to 15.75% at December 31, 1998.

                                       13
<PAGE>
 
Cash and cash equivalents decreased slightly from $21.99 million at December 31,
1998 to $21.67 million at March 31, 1999. The Company continues to efficiently
manage cash and cash equivalents to balance the need for liquidity with the need
for increased yields.

Investment securities increased $34.98 million or 12.2% from $286.02 million at
December 31, 1998 to $321.00 million at March 31, 1999 primarily due to an
increase in the mortgage-backed securities portfolio of $29.91 million and an
increase in U.S. Government and agency securities of $7.94 million. Funds
available for investment increased mainly due to increased Federal Home Loan
Bank ("FHLB") borrowings. At March 31, 1999, the Company held $78.39 million in
securities classified as held-to-maturity in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities".

Due to increased FHLB borrowings, the Company was required to purchase
additional shares of stock totaling $4.50 million from the FHLB during the first
three months of 1999. The Company believes that these shares provide above
average dividend yields for the risk characteristics of such investments.

Net loans increased $30.46 million or 4.7% from $651.86 million at December 31,
1998 to $682.32 million at March 31, 1999. The majority of the increase came
from a $20.46 million increase in loans secured by one- to four-family real
estate, a $4.70 million increase in the installment loan portfolio and a $4.19
million increase in commercial real estate mortgages. The allowance for loan
losses totaled $11.85 million at March 31, 1999 compared to $12.30 million at
December 31, 1998. There were no provisions for loan losses recorded during the
three months ended March 31, 1999 and net charge-offs totaled $447,000. The
allowance for loan losses as a percentage of non-performing loans was 417.12%
and 536.62% at December 31, 1998 and March 31, 1999, respectively.

The Bank's subsidiary, Eighty Pearl Street Corporation owns 50% of Pearl Street
Associates Limited Partnership ("the Real Estate Partnership"). During the first
quarter of 1999, the Real Estate Partnership sold the building at 100 Pearl
Street to New Boston Limited Partnership, an independent third party. Eighty
Pearl Street Corporation received proceeds of $15.24 million and recognized a
$2.10 million gain on the sale. The Bank will continue to occupy its banking and
office space at 100 Pearl Street under a long-term lease.

Foreclosed real estate owned increased from $902,000 at December 31, 1998 to
$938,000 at March 31, 1999. The Company sold eight properties totaling $448,000
during the three months ended March 31, 1999. There were no write-downs and net
losses on sale of foreclosed real estate owned for the first three months of
1999, compared to $60,000 for the same period in 1998.

Non-performing assets totaled $3.15 million at March 31, 1999 compared to $3.85
million at December 31, 1998. Charge-offs on non-performing loans reduced
non-performing assets by $624,000. Sales of foreclosed real estate owned
accounted for an additional $448,000 of the reductions. There were other
reductions of non-performing assets of $1.12 million due to payoffs, payments
and loans returning to accrual status. These reductions were offset by $1.49
million in additions to non-performing assets since December 31, 1998.
Non-performing assets as a percentage of total assets was 0.38% at December 31,
1998 and 0.29% at March 31, 1999. Non-performing assets as a percentage of total
loans and foreclosed real estate owned was 0.58% at December 31, 1998 and 0.45%
at March 31, 1999.

Deposits decreased 2.4% from $706.20 million at December 31, 1998 to $689.43
million at March 31, 1999. The decrease was mainly in one year certificates of
deposits.

Borrowings from the FHLB increased $77.00 million from December 31, 1998 to
March 31, 1999. These borrowings were mainly used to fund investments and loans.
The Company's $286.75 million of FHLB advances carry a weighted average rate of
5.08% and have a weighted average contractual maturity of 4.3 years. At December
31, 1998, FHLB advances totaled $209.75 million and carried a weighted average
rate of 5.38% and a weighted average contractual maturity of 5.2 years. In
addition, $147.00 million or 51.3% 

                                       14
<PAGE>
 
of the FHLB borrowings at March 31, 1999 were callable and had call dates
ranging from April 1999 to April 2003.

During the first quarter of 1999, the Bank prepaid a $20,000 FHLB advance
scheduled to mature October 20, 2000 that carried an interest rate of 6.24%
which resulted in a $432 prepayment penalty. In addition, the Bank prepaid a
$10,000 FHLB advance scheduled to mature on October 20, 2000 that carried an
interest rate of 6.21% and incurred a $223 prepayment penalty. Due to these
prepayment penalties, the Company reported a $435 extraordinary item, net of
$220 in taxes due to the early extinguishment of debt during the first quarter
of 1999. This reduced earnings per share by $0.09 and $0.08 on a basic and
diluted basis, respectively.

During the first quarter of 1998, the Bank prepaid an $8,000 FHLB advance
scheduled to mature November 30, 2000 that carried an interest rate of 6.61%
thereby incurring a $192 prepayment penalty. Due to this prepayment penalty, the
Company reported a $119 extraordinary item, net of $73 in taxes due to the early
extinguishment of debt. This reduced earnings per share by $0.02 on both a basic
and diluted basis. The Bank analyzes its borrowing portfolio on a regular basis
through its asset/liability and investment committees. During the quarters noted
above, the Bank took advantage of fluctuations in interest rates and
restructured it's borrowing portfolio accordingly. Management believes both
transactions will improve profitability in future quarters.

LIQUIDITY

The Company's liquidity is dependent on dividends provided by the Bank.
Connecticut banking laws limit the amount of annual dividends that the Bank may
pay to an amount no greater than the Bank's net profit for the then current
year, plus the Bank's retained net profit for the prior two years, unless
specifically approved by the Banking Commissioner ("net profit" is defined as
the remainder of all earnings from current operations). The Bank is also
prohibited from paying a cash dividend if the effect thereof would reduce its
capital accounts below minimum regulatory requirements or below the amount
required to be maintained in the liquidation account.

The Bank manages its liquidity position to ensure that there is sufficient
funding available at all times to meet both anticipated and unanticipated
deposit withdrawals, new loan originations, securities purchases and other
operating cash outflows. The Bank monitors its liquidity in accordance with
guidelines established under its asset/liability management policy and
applicable regulatory requirements. On a monthly basis, management monitors the
Bank's liquidity position by analyzing the amount of securities available for
repurchase agreements, the Bank's borrowing capacity at the FHLB, the expected
level of cash flows from loans and mortgage-backed securities, the expected
prepayments from loans and mortgage-backed securities, and the Bank's levels of
cash and short-term investments. At March 31, 1999, management believes its
current liquidity level is sufficient to meet normal operating needs.

ASSET/LIABILITY MANAGEMENT

The Company's objective in managing interest rate risk is to produce a high and
stable net interest margin in varying interest rate environments while
maintaining the flexibility to take advantage of opportunities that may arise
from the fluctuations of interest rates. The Company's exposure to interest rate
risk is managed strategically through the use of balance sheet simulation.

The Company models its forecasted balance sheet using interest rate ramps,
shocks and a most likely interest rate scenario over a 24 month time horizon. In
accordance with its funds management policy, the Company measures its interest
rate sensitivity by ramping interest rates in one hundred basis point increments
from -400 to +400 basis points from the current rate environment. From this 800
basis point grid, the asset/liability committee selects the most likely 400
basis point interest rate range based on the current interest rate environment,
as well as other economic factors. The Company will accept equal to or less than
a 10% change in net interest income over the next 12 months within the selected
400 basis point 

                                       15
<PAGE>
 
band. At March 31, 1999, the Company was within its policy guideline, and the
Company believes its level of interest rate sensitivity was appropriate.

CAPITAL RESOURCES

At March 31, 1999, the Company's stockholders' equity totaled $89.81 million
representing a 5.8% decrease from the $95.37 million in capital at December 31,
1998. At March 31, 1999, the Company had a Tier 1 leverage capital ratio of
8.61% and a total risk-based capital ratio of 14.04%. The Company's Tier 1
leverage capital ratio was 9.63% and its total risk-based capital ratio was
15.75% at December 31, 1998.

During the first quarter of 1999, the Company announced a stock repurchase
program. The program authorized the Company to repurchase up to 5% of its issued
and outstanding common stock at prevailing market prices in negotiated and/or
open market purchases. The Company completed the program and purchased 261,500
shares of common stock at a cost of $8.52 million during the quarter.

As of December 31, 1998 and March 31, 1999, the Company meets all capital
adequacy requirements to which it is subject and was classified, as of its most
recent notification, as "well capitalized". The Company believes its current
capital is adequate to support operations and anticipated future growth.

YEAR 2000

MECH Financial, Inc. is committed to ensure that the Company will be well
prepared to handle the date change which will occur at midnight on December 31,
1999. The Board of Directors approved a plan for implementing and monitoring
Year 2000 ("Y2K") compliance. The Company expects all testing and implementation
of critical systems to be completed by June 30, 1999.

The Company has fully completed the awareness and assessment phases of its Y2K
project. During the assessment period, the Company identified over 140
vendors/systems (both information technology ("IT") and non-IT) that would
possibly need to be addressed concerning Y2K. Non-IT systems include equipment
with embedded technology such as elevators, fire safety, ventilation and
security systems. The Company received documentation from virtually all of these
vendors, designating timeframes consistent with the Company's timetable for Y2K
compliance. The Company maintains a Y2K inventory, which is updated regularly,
monitoring vendor compliance levels.

The Company has no internally developed software, therefore no internal
renovation has occurred. Renovation, the actual changing of computer code, is
being monitored closely through regular vendor correspondence. At March 31,
1999, the Company estimates its vendors' software was 90% renovated.

The Company's core processing system is outsourced to Fiserv, Inc., based in
Milwaukee, Wisconsin. Fiserv is a leading data processor for banks and services
approximately 7,000 financial services providers worldwide. The Company
maintains regular contact with Fiserv to ensure progress toward each stage of
completing the Y2K compliance process. Fiserv stated that they completed the
renovation of their system, and placed the system into production. Fiserv tested
the system internally, and determined it to be Y2K compliant. The Company tested
the system on a companywide basis in October 1998 and noted no significant
issues pertaining to Y2K. The Company expects to test its core processing system
again with a focus on multiple future date testing during May 1999.

The completion of the successful Fiserv test constitutes a large part of the
Company's internal testing. The Company has also tested substantially all of its
computer hardware, as well as many of its other IT and non-IT systems. The
Company estimates its testing to be 70% complete after the Fiserv test.

The Company expects to be fully compliant with all of its IT and non-IT systems
and vendors by June 30, 1999. The most reasonably likely worst case Y2K scenario
would probably be a low priority vendor's 

                                       16
<PAGE>
 
software program's short term malfunction. The Company has developed contingency
plans to address various Year 2000 disruption scenarios. For a low priority
vendor's software program malfunction, the Company may choose to purchase and
implement a Y2K compliant product from another vendor, or await further
renovation on the currently owned software, depending on the Company's
evaluation of the vendor and the software's day-to-day criticality to the
Company. In either case, the Company would attempt to use other existing Y2K
compliant software in its place until the non-compliant software is successfully
renovated or replaced.

The Company expects Y2K issues to have no material effects on results of
operations, liquidity or financial condition. The Company expects that
expenditures associated with the Y2K effort will not exceed $350,000 with
approximately $200,000 spent to date. These costs will consist primarily of
purchases of new equipment and software which will be depreciated over their
respective useful lives.

The Company, in its attempt to mitigate risk in its commercial loan portfolio,
will identify, evaluate and monitor the risks that Y2K poses on its "material"
commercial borrowers. The Company has determined that a "material" commercial
borrower is a borrower with a total relationship of $400,000 or more as well as
any loan with a risk rating warranting further review. Upon completion, the
Company will have reviewed over 75% (based on dollars) of its commercial
portfolio. As of March 31, 1999, this review was approximately 85% complete.
This review included loan document reviews and borrower interviews. The Company
determined whether the borrower had a Y2K plan, whether the borrower had the
necessary resources to implement its plan, as well as the borrowers' overall
vulnerability to the Y2K issue. Based on the results of these reviews, the
Company did not identify material exposure to the Y2K issue in its commercial
loan portfolio at this time. The Company is following up with its borrowers
concerning Y2K during Spring 1999.

RESULTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998

For the quarter ended March 31, 1999, the Company reported net income of $4.15
million or $0.79 per diluted share compared to $2.16 million or $0.41 per
diluted share for the same period in 1998. Income before income taxes and
extraordinary items was $6.90 million for the first quarter of 1999 compared to
$3.70 million for the first quarter in 1998. During the first quarter of 1999,
the Real Estate Partnership (50% owned by a Bank subsidiary) sold its interest
in 100 Pearl Street in Hartford, CT which houses the Bank's banking and
corporate offices and recognized a $2.10 million gain on the sale. In addition,
net interest income increased $1.22 million from quarter to quarter.

NET INTEREST INCOME

Net interest income totaled $8.82 million for the three months ended March 31,
1999 compared to $7.60 million for the same period in 1998, representing a $1.22
million or 16.2% increase. The net interest margin slightly decreased from 3.69%
for the quarter ended March 31, 1998 to 3.66% for the same period in 1999.
Average interest-earning assets increased $143.40 million while average
interest-bearing liabilities increased $114.09 million. Average net loans and
investment securities increased $88.11 million and $62.54 million, respectively.
U.S. government and agency securities and mortgage-backed securities were the
main reasons for the increase in average investment securities. Average net
loans increased primarily due to a $40.05 million increase in one- to
four-family mortgages, a $17.47 million increase in consumer loans and a $16.31
million increase in average commercial real estate mortgages. Average borrowings
increased $102.21 million from quarter to quarter.

                                       17
<PAGE>
 
The following table sets forth certain information relating to the Company's
average interest-earning assets and interest-bearing liabilities and net
interest income for the quarters ended March 31, 1999 and 1998:

<TABLE> 
<CAPTION> 
                                           AVERAGE BALANCE                 INCOME / EXPENSE                      YIELD             
                                  -------------------------------   ------------------------------   ---------------------------- 
                                       QUARTERS ENDED MARCH 31,         QUARTERS ENDED MARCH 31,        QUARTERS ENDED MARCH 31,    
(in thousands)                          1999              1998            1999            1998            1999            1998      
                                  --------------    -------------   -------------   --------------   ------------    ------------ 
<S>                               <C>               <C>             <C>             <C>              <C>             <C> 
Loans, net                          $   666,157        $ 578,048        $ 12,738         $ 11,686           7.75 %          8.20 %
Investment securities                   306,455          243,920           4,880            3,846           6.46            6.39    
Short-term investments                    5,564           12,813              64              172           4.66            5.44    
                                  --------------    -------------   -------------   --------------   ------------    ------------ 
  Total interest-earning assets         978,176          834,781          17,682           15,704           7.33            7.63    
Other assets                             57,717           70,284                                                                   
                                  --------------    -------------                                                                 
  Total assets                      $ 1,035,893        $ 905,065                                                                  
                                  ==============    =============                                                                 
                                                                                                                                  
Money market checking               $    42,493        $  34,917             119              105           1.14            1.22  
Money market savings                     59,747           53,548             365              312           2.48            2.36    
Savings and other                       108,952          110,081             403              408           1.50            1.50    
Certificates of deposit                 397,767          398,535           4,729            5,113           4.82            5.20    
                                  --------------    -------------   -------------   --------------   ------------    ------------ 
  Total interest-bearing deposits       608,959          597,081           5,616            5,938           3.74            4.03 
Borrowings                              249,709          147,500           3,242            2,170           5.27            5.97  
                                  --------------    -------------   -------------   --------------   ------------    ------------ 
  Total interest-bearing 
      liabilities                       858,668          744,581           8,858            8,108           4.18            4.42

Demand deposits                          80,045           66,414                                                                  
Other liabilities                         5,307            4,221                                                                  
Stockholders' equity                     91,873           89,849                                                                  
                                  --------------    -------------                                                                 
  Total liabilities and equity      $ 1,035,893        $ 905,065                                                                  
                                  ==============    =============                                                                 
                                                                                                                                  
Net interest income                                                     $  8,824         $  7,596                                 
                                                                    =============   ==============                                
Spread on interest-bearing funds                                                                            3.15 %          3.21 %
Net interest margin                                                                                         3.66 %          3.69 %
</TABLE> 

                                       18
<PAGE>
 
The following table presents the changes in interest and dividend income and the
changes in interest expense, attributable to changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
during the periods indicated:


<TABLE> 
<CAPTION> 
                                                  QUARTERS ENDED MARCH 31, 1999 VERSUS 1998
                                                         CHANGE IN INTEREST DUE TO
                                      -------------------------------------------------------------------

(in thousands)                           VOLUME             RATE             VOL/RATE           NET
                                      --------------    -------------      -------------   --------------
<S>                                   <C>               <C>                <C>             <C>     
Loans, net                            $       1,781     $       (633)      $        (96)    $      1,052
Investment securities                           986               38                 10            1,034                       
Short-term investments                          (97)             (25)                14             (108)
                                      --------------    -------------      -------------   --------------
  Total                                       2,670             (620)               (72)           1,978   
                                      --------------    -------------      -------------   --------------


Money market checking                            23               (7)                (2)              14  
Money market savings                             36               15                  2               53              
Savings and other                                (4)              (1)                 -               (5) 
Certificates of deposit                         (10)            (375)                 1             (384) 
Borrowings                                    1,504             (255)              (177)           1,072 
                                      --------------    -------------      -------------   --------------
  Total                                       1,549             (623)              (176)             750 
                                      --------------    -------------      -------------   --------------

Net change to interest income         $       1,121     $          3       $        104    $       1,228
                                      ==============    =============      =============   ==============
</TABLE> 


INTEREST INCOME

Interest income increased $1.98 million or 12.6% due primarily to increased
average volumes of net loans and investment securities of $88.11 million and
$62.54 million, respectively. Overall average yields decreased from 7.63% for
the first quarter of 1998 to 7.33% for the same period in 1999. This was
primarily due to a 45 basis point decrease in the average yields for net loans.

INTEREST EXPENSE

Interest expense increased $750,000 or 9.3% from the first quarter of 1998 to
the same period in 1999. The increase was mainly due to higher average balances
of borrowings. This increase was partially offset by lower cost of funds on
certificates of deposit and borrowings. Overall average rates decreased from
4.42% for the first quarter of 1998 to 4.18% for the same period in 1999.

PROVISION FOR LOAN LOSSES

There was no provision for loan losses during the first quarter of 1999 compared
to $300,000 for the first quarter of 1998. The Company's percentage of allowance
for loan losses to non-performing loans was 536.62% at March 31, 1999 compared
to 417.12% at December 31, 1998. The Company's allowance for loan losses to
gross loans was 1.85% at December 31, 1998 compared to 1.71% at March 31, 1999.

                                       19
<PAGE>
 
OTHER INCOME

The Company recorded $4.05 million in other income for the three months ended
March 31, 1999 compared to $2.27 million for the same period in 1998. The
following table shows the components of other income for the quarters ended
March 31, 1999 and 1998:

<TABLE> 
<CAPTION> 
(in thousands)                                                      FOR THE QUARTERS ENDED            $            %
                                                           MARCH 31, 1999       MARCH 31, 1998      CHANGE       CHANGE
                                                         ------------------   ------------------  -----------   --------- 
<S>                                                      <C>                  <C>                 <C>           <C> 
Service charges on deposit accounts                      $              687   $              598  $        89       14.88%
Investment brokerage services commissions                               604                  682          (78)     (11.44)
Appreciation of cash surrender value life insurance                     228                  234           (6)      (2.56)  
Loan servicing and other fees                                           142                  141            1        0.71  
Income from investment in Real Estate Partnership                        13                  179         (166)     (92.74)
Gain on sale of headquarters building owned by
  the Real Estate Partnership                                         2,096                    -        2,096         n/a
Net gain on calls / sales of investment securities                        5                    4            1       25.00 
Net gain on sales of loans                                                3                   25          (22)     (88.00)     
Other                                                                   274                  404         (130)     (32.18)     
                                                         ------------------   ------------------  -----------   
      Total other income                                 $            4,052   $            2,267  $     1,785       78.74%
                                                         ==================   ==================  ===========   =========     
</TABLE> 


Service charges on deposit accounts increased mainly due to an increase in the
rates charged for overdraft fees. Investment brokerage services commissions
decreased primarily due to lower variable annuity sales in the first quarter of
1999. On February 11, 1999, the Real Estate Partnership sold the headquarters
building which resulted in a gain of $2.10 million. Due to the sale, the income
from the investment in Real Estate Partnership decreased from quarter to
quarter. Other income decreased due mainly to a reduced distribution from the
Bank's investment in a small business investment company and due to the
elimination of rental income the Bank received from the Real Estate Partnership
for the use of the land that the headquarters building is built on.

OTHER EXPENSES

Other expenses totaled $5.98 million for the three months ended March 31, 1999
compared to $5.88 million for the same period in 1998. The following table
details the significant components of other expenses for the periods presented:


<TABLE> 
<CAPTION> 
(in thousands)                                                  FOR THE QUARTERS ENDED          $         %
                                                         MARCH 31, 1999     MARCH 31, 1998    CHANGE    CHANGE
                                                        -----------------  ----------------  -------   -------
<S>                                                     <C>                <C>               <C>       <C>     
Salaries, commissions and employee benefits             $           3,283  $          3,155  $   128       4.06%   
Occupancy                                                             775               783       (8)     (1.02)                   
Data processing                                                       313               277       36      13.00                    
Advertising                                                           251               296      (45)    (15.20)                   
Furniture and equipment                                               245               240        5       2.08                    
Legal and accounting                                                  145               158      (13)     (8.23)                   
Communications                                                        138               134        4       2.99                    
Operation of foreclosed real estate owned                             103                94        9       9.57                    
Write-downs and net losses on sale                                                                                                 
  of foreclosed real estate owned                                       -                60      (60)   (100.00)                   
Amortization of goodwill                                               29                 -       29        n/a                    
Other                                                                 696               670       26       3.88                     
                                                        -----------------  ----------------  -------
      Total other expenses                              $           5,978  $          5,867  $   111       1.89%
                                                        =================  ================  =======   ========
</TABLE> 

Salaries, commissions and employee benefits increased primarily due to an
increase in overall salaries. Data processing increased mainly due to increases
in fees from the Bank's core system third party provider as a result of two new
branch openings in July 1998 and Year 2000 costs. Advertising decreased mainly

                                      20
<PAGE>
 
due to print and broadcast expenses. Amortization of goodwill is a result of the
July 1998 purchase of the two branches from Chase Manhattan Bank.

INCOME TAXES

During the first quarter of 1999, the Company recorded tax expense of $2.32
million compared to $1.41 million for the first quarter of 1998. The effective
tax rates for the three months ended March 31, 1999 and 1998 were 33.6% and
38.2%, respectively. The decrease in the effective tax rate is primarily due to
the formation of MMC.


PART I.  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 31, 1999 based upon various earnings simulations, which include 100
basis point to 200 basis point increases and decreases in interest rates,
management has projected the effect on net interest income for the next twelve
months as follows:

<TABLE> 
<CAPTION> 
                                              EFFECT ON NET INTEREST INCOME
                                           ------------------------------------
                                                SHOCK               RAMP
(in thousands)                              SCENARIO (A)        SCENARIO (B)
                                           ----------------   -----------------

<S>                                        <C>                <C>      
200 basis point increase in rates (c)          $   (1,396)          $    (774)
100 basis point increase in rates (d)                (534)               (231)
100 basis point decrease in rates (d)                (278)                (70)
200 basis point decrease in rates (c)                (116)                 91
</TABLE> 

(a) Represents the dollar amount of change in net interest income caused by an
instantaneous repricing of market interest rates. 

(b) Represents the dollar amount of change in net interest income caused by a
gradual repricing of market interest rates in equal monthly increments
throughout the next twelve months.

(c) No adjustments are made to the Bank's passbook rates. Money market rates are
shocked/ramped 50 basis points rather than 200 basis points. 

(d) No adjustments are made to the Bank's passbook rates. Money market rates are
shocked/ramped 25 basis points, rather than 100 basis points.




PART II. ITEM 1.  LEGAL PROCEEDINGS
none

PART II. ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS
none

PART II. ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
none

PART II  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
none

                                       21
<PAGE>
 
PART II ITEM 5.  OTHER INFORMATION
none

PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a)   Exhibits:

     The following exhibit is included herein:
     27 - Financial Data Schedule


b)   Reports on Form 8-K:

     On January 25, 1999, the Company filed a Form 8-K announcing that its Board
     of Directors adopted a stock repurchase program. The program authorized the
     Company to repurchase up to 5% of its issued and outstanding common stock
     at prevailing market rates in negotiated and/or open market purchases.

     On February 19, 1999, the Company filed a Form 8-K announcing the sale of
     their banking and office complex at 100 Pearl Street in Hartford to the New
     Boston Pearl Limited Partnership, an independent third party. The sale
     resulted in $15.2 million in net proceeds and a $2.1 million gain.
     Mechanics Savings Bank will continue to occupy its banking and office space
     at 100 Pearl Street under a long term lease.

                                       22
<PAGE>
 
                                  SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    MECH Financial, Inc.


Date:  5/3/99                       /S/ EDGAR C. GERWIG                     
                                    -------------------
                                    Chairman, President and Chief Executive 
                                    Officer


Date:  5/3/99                       /S/ THOMAS M. WOOD                     
                                    ------------------
                                    Executive Vice President and Treasurer


Date:  5/3/99                       /S/ BRIAN A. ORENSTEIN
                                    ----------------------
                                    Senior Vice President and Controller

                                       23