FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON D. C. 20549

/X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 1997

/  /     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 0-14550
                                                -------

                       NEW ENGLAND COMMUNITY BANCORP, INC.
                       -----------------------------------

                       DELAWARE                  6-1116165

                                OLD WINDSOR MALL
                                  P.O. BOX 130
                           WINDSOR, CONNECTICUT 06095

                            Telephone: (860) 610-3600

Securities registered pursuant to Section 12 (b) of the Act:  None

Securities registered pursuant to Section 12 (g) of the Act:  Common  Stock  par
value $.10 per share.

Indicate by checkmark  whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required to file such reports),  and (2) has been subject to filing requirements
for the past 90 days. Yes /X/ No / /

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein,  and will not be contained,  to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. /X/

At March 24,  1998,  the  aggregate  market value of the shares  outstanding  of
Common Stock held by non-affiliates of the Registrant, was $116,337,368.

The number of shares  outstanding  of the  Registrant's  Common Stock,  $.10 par
value, was 5,171,626 at March 24, 1998.

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<PAGE>



                       DOCUMENTS INCORPORATED BY REFERENCE

                                                               Part Into
                     Document                             Which Incorporated
                     --------                             ------------------

The information contained in the
Registrant's definitive proxy statement
(which is expected to be filed within
120 days of fiscal year-end 1997 and to
be used in connection with the Annual
Meeting of Shareholders which is
anticipated to be held on April 21,
1998) under the captions "Election of
Directors," "Executive Compensation,"
"Security Ownership of Directors and
Executive Officers," and "Other
Information Relating to Directors and
Executive Officers." Notwithstanding the
foregoing, the information contained in
the definitive proxy statement pursuant
to Items 402(k) and 402(l) of Regulation
S-K is not incorporated by reference and
is not to be deemed part of this report.                      Part III



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<PAGE>



                                TABLE OF CONTENTS
Part I

<TABLE>
<CAPTION>
<S>      <C>          <C>                                                                                       <C>
         Item 1       Business....................................................................................4
         Item 2       Properties.................................................................................18
         Item 3       Legal Proceedings..........................................................................19
         Item 4       Submission of Matters to a Vote of Security Holders........................................19

Part II

         Item 5       Market for Registrant's Common Equity and
                      Related Stockholder Matters................................................................20
         Item 6       Selected Financial Data....................................................................21
         Item 7       Management's Discussion and Analysis of
                      Financial Condition and Results of Operations..............................................21
         Item 7A      Quantitative and Qualitative Disclosure about Market Risk..................................34
         Item 8       Financial Statements and Supplementary Data................................................34
         Item 9       Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure.....................................................34

Part III

         Item 10      Directors and Executive Officers of the Registrant.........................................35
         Item 11      Executive Compensation.....................................................................35
         Item 12      Security Ownership of Certain Beneficial Owners
                      and Management.............................................................................35
         Item 13      Certain Relationships and Related Transactions.............................................35

Part IV

         Item 14      Exhibits, Financial Statement Schedules, and
                      Reports on Form 8-K........................................................................31


Signatures

</TABLE>
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<PAGE>



                       New England Community Bancorp, Inc.

                             Form 10-K Annual Report
                   For the Fiscal Year Ended December 31, 1997

                                     PART I

ITEM 1.       BUSINESS

General.

         New England Community  Bancorp,  Inc. ("NECB" or the "Company"),  which
was formerly  known as Olde Windsor  Bancorp,  Inc.,  is a bank holding  company
registered  under the Bank  Holding  Company Act of 1956,  as amended.  NECB was
organized  under the laws of Delaware in 1984 and directly owns New England Bank
& Trust Company  ("NEBT"),  The Equity Bank ("EQBK") and Community Bank ("CMBK")
(collectively the "Subsidiaries"), each Connecticut chartered commercial banks.

Recent Growth of NECB.

         NECB has built its  community  banking  network  through both  internal
growth and  acquisitions.  In 1985,  NECB was  formed by Windsor  Bank and Trust
Company ("Windsor Bank") a  Connecticut-chartered  bank and trust company.  NECB
subsequently  acquired all of the capital stock and became the sole  shareholder
of Windsor Bank. In 1986, NECB acquired a second bank subsidiary, NEBT. In 1988,
the two  subsidiaries  were  combined--retaining  the NEBT name.  In 1995,  NECB
created a second  banking  subsidiary  when it acquired  all of the  outstanding
common stock of EQBK, which was founded in 1987. In July, 1996 and August, 1997,
respectively,   the  Company  acquired  all  the  outstanding  common  stock  of
Manchester State Bank ("MSB") and First Bank of West Hartford ("FBWH"),  both of
which were merged with and into NEBT. On December 31, 1997, NECB acquired CMBK.

         The  acquisitions of EQBK, MSB and CMBK were accounted for as purchases
and, as such, prior year comparative data was not revised to include information
about either entity.  Conversely, the acquisition of FBWH was accounted for as a
"pooling of interests"  and therefore  all  comparative  prior periods have been
restated as if the acquisition had been in effect for all periods presented.

         On February  10, 1998,  the Company and Olde Port Bank & Trust  Company
("OPBT") signed a definitive agreement under which the Company will acquire OPBT
in a merger which is intended to be a tax free transaction and which the Company
anticipates will be accounted for as a pooling of interests (the "Merger"). Each
of the  outstanding  shares  of  OPBT  will  be  exchanged  for  shares  of NECB
consisting  of that  number of shares of NECB  common  stock equal to $200.00 in
value, with a resulting  transaction value of approximately  $13.8 million.  The
final  exchange  ratio will be  determined  by  dividing  $200.00 by the average
closing  price of NECB common  stock  supplied by the  National  Association  of
Securities  Dealers  Automated  Quotation System  ("NASDAQ") and reported in THE
WALL STREET JOURNAL as of the end of the ten (10) consecutive trading-day period
ending on the date on which the last of the  regulatory  approvals  required for
the consummation of the Merger occurs.

         Under certain conditions NECB and OPBT may terminate the transaction if
the average closing price (as defined above) of the Company Common Stock is less
than $20.00 or more than $30.00 per


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<PAGE>

share. If the average closing price is below $20.00,  OPBT shall have the option
of reducing the consideration to be received by the holders of OPBT Common Stock
by increasing  the average  closing price for purposes of the exchange  ratio to
equal  $20.00.  If OPBT makes this  election the average  closing  price and the
exchange ratio will be modified accordingly.  Conversely, if the average closing
price  is  above  $30.00,   NECB  shall  have  the  option  of  increasing   the
consideration  to be received  by the  holders of OPBT by  reducing  the average
closing price for purposes of the Exchange to equal  $30.00.  If NEBC makes this
election  the  average  closing  price  and the  exchange  ratio  will  modified
accordingly.

         The Merger is conditioned upon requisite bank regulatory  approvals and
the approval of shareholders of OPBT as well as other customary  conditions.  It
is anticipated that the acquisition will be consummated in the second quarter of
1998.

             On March 19,  1998,  the  Boards of  Directors  of NECB and Bank of
South  Windsor  ("BSW")  approved a  definitive  agreement  whereby  BSW will be
acquired  by  NECB  ("the  Acquisition").  Following  the  consummation  of  the
Acquisition,  BSW will be  merged  with and into  NEBT.  Under  the terms of the
agreement,  BSW  shareholders  will receive a fixed exchange of 1.3204 shares of
NECB Common Stock for each share of BSW Common Stock. Using NECB's closing price
on March 18,  1998 of $25.50 per share,  the  transaction  would have a value of
$33.67  per share to BSW  shareholders  and an  aggregate  transaction  value of
approximately  $32.8  million.  In the event that the average  closing  price of
NECB's Common Stock,  for the twenty days ending on the date of final regulatory
approval,  is less than  $23.48,  the  exchange  ratio will  (subject to certain
qualifications) be adjusted to result in the receipt by BSW shareholders of NECB
shares having a value of $31.00 per share of BSW Common Stock.

         The Acquisition is subject to customary  conditions,  including but not
limited to the approval by federal and state bank regulatory authorities and the
shareholders of both NECB and BSW.

         Management of NECB is continuously  exploring various  opportunities to
prudently  expand  NECB's  earning  potential  through  expansion of its base of
earning assets by the  establishment  or acquisition of banking and  non-banking
operations.  However, there can be no assurance that the Company will be able to
acquire such business enterprises or, if additional acquisitions are undertaken,
that these acquisitions will enhance the profitability of the Company.

Regulation and Supervision

         As  Connecticut-chartered  commercial  banks, the deposits of which are
insured  by  the  Federal  Deposit  Insurance   Corporation  (the  "FDIC"),  the
Subsidiaries  are subject to extensive  regulation  and  supervision by both the
Connecticut  Banking  Commissioner  and the FDIC. The Company also is subject to
certain regulations of the Board of Governors of the Federal Reserve System (the
"Federal  Reserve  Board")  and  the  Connecticut  Banking  Commissioner.   This
governmental  regulation  is intended  primarily to protect  depositors  and the
FDIC's Bank Insurance Fund, not stockholders.

         Connecticut Regulation

         The  Connecticut  Banking  Commissioner   regulates  the  Subsidiaries'
internal  organization  as  well  as  their  deposit,   lending  and  investment
activities.  The approval of the Connecticut  Banking  Commissioner is required,
among  other  things,  for the  establishment  of branch  offices  and  business
combination transactions. The Connecticut Banking Commissioner conducts periodic
examinations of the Subsidiaries. Many of the areas regulated by the Connecticut
Banking Commissioner are subject to similar regulation by the FDIC.


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<PAGE>

         Connecticut  banking laws grant banks broad lending authority--subject
to certain limited exceptions. Total secured and unsecured loans made to any one
obligor  pursuant  to  this  statutory  authority  may  not  exceed  15%  of the
Subsidiary's respective capital, surplus, undivided profits and loss reserves.

         The Subsidiaries are prohibited by Connecticut  banking law from paying
dividends  except from their net profits,  which are defined as the remainder of
all earnings from current  operations.  The total of all  dividends  declared by
each of the  respective  Subsidiaries  in any  calendar  year  may  not,  unless
specifically approved by the Connecticut Banking Commissioner,  exceed the total
of its net profits for that year  combined  with its retained net profits of the
preceding  two  years.  These  dividend  limitations  can  affect  the amount of
dividends payable to stockholders of the Company because  dividends  received by
the  Company  from the  Subsidiaries  are the  primary  source  of funds for the
Company.

         Under  Connecticut  banking  law, no person may acquire the  beneficial
ownership of more than 10% of any class of voting securities of a bank chartered
by the State of Connecticut  or having its principal  office in Connecticut or a
bank holding company thereof,  or after obtaining 10%, increase its ownership to
25% or more,  without the prior  notification  of and lack of disapproval by the
Connecticut Banking Commissioner.

         Any state-chartered  bank meeting statutory  requirements may, with the
approval of the Connecticut Banking Commissioner, establish and operate branches
in any town or towns within the state.

         The Connecticut  Interstate  Banking Act permits  Connecticut  banks to
engage in stock  acquisitions of, and mergers with,  depository  institutions in
other states with reciprocal  legislation.  All of the other New England states,
and a majority of the other states, have enacted reciprocal legislation. Federal
interstate  banking  legislation  extended this  interstate bank holding company
acquisition  authority  nationwide  as of  September  1995.  Several  interstate
mergers and acquisitions  involving  Connecticut bank holding companies or banks
with offices in the  Subsidiaries'  service areas and bank holding  companies or
banks headquartered in other states have been completed.

         FDIC Regulation

         The  Subsidiaries'  deposit  accounts are insured by the Bank Insurance
Fund of the FDIC to a maximum of $100,000  for each insured  depositor.  As with
all  state-chartered   FDIC-insured  banks,  the  Subsidiaries  are  subject  to
extensive  supervision  and examination by the FDIC and also are subject to FDIC
regulations regarding many aspects of their business, including types of deposit
instruments offered and permissible methods for acquisition of funds.

         In  1991, the Federal Deposit Insurance Corporation  Improvement Act of
1991  ("FDICIA") was adopted.  It required each federal banking agency to revise
its risk-based  capital  standards to ensure that those  standards take adequate
account of  interest  rate risk,  concentration  of credit  risk and the risk of
non-traditional  activities.  Pursuant to FDICIA,  in September  1992,  the FDIC
implemented a system of risk-related  deposit insurance  assessments.  Initially
under the new system,  beginning  January 1, 1993,  insurance  premiums  for all
banks varied between .23% and .31% of total deposits, depending upon the capital
level and  supervisory  rating of the  institution.  On May 31,  1995,  when the
desired Bank Insurance  Fund ("BIF")  reserve ratio of 1.25% was achieved by the
FDIC,  a new  risk-based  assessment  rate  schedule  of .04%  to .31% of  total
deposits was established commencing on June 1,



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<PAGE>

1995. The FDIC evaluates the adequacy of the assessment schedule and may
adjust the schedule every six months as the FDIC deems necessary to maintain the
BIF  reserve  ratio at the  designated  level.  Effective  January 1, 1996,  the
schedule was further revised resulting in assessment rates ranging from .000% to
 .270%  of  total  deposits,  subject  to  the  statutory  requirement  that  all
institutions pay at least $2,000 annually for FDIC insurance.

         As a result  of the  Deposit  Insurance  Act of 1996,  a new  Financing
Corporation  ("FICO") Payment Computation was established.  Beginning January 1,
1997,  and for the three  following  years,  BIF-assessable  deposits  are being
charged 20% of the rate imposed on Savings Association Insurance Fund-assessable
deposits. The FICO BIF annual rate for 1997 was .013%.

         The risk-based  insurance  assessment has not had a material  effect on
the financial position of the Company. Both NEBT and EQBK qualify for the lowest
assessment  rate.

         FDIC risk-based capital  requirements became fully effective at the end
of 1992.  Under  these  requirements,  all  FDIC-insured  banks are  required to
maintain  minimum  levels  of  "capital"  based  upon  an  institution's   total
"risk-weighted  assets."  For  purposes  of  these  requirements,  "capital"  is
comprised  of both Tier 1 capital  and Tier 2 capital.  Tier 1 capital  consists
primarily of common stock and limited amounts of perpetual preferred stock. Tier
2  capital  consists  of the  allowance  for loan  losses  (subject  to  certain
limitations),   certain  preferred  stock,  subordinated  debt  and  convertible
securities.  In determining total capital,  the amount of Tier 2 capital may not
exceed the amount of Tier 1 capital. A bank's total  "risk-weighted  assets" are
determined  by assigning the bank's  assets and  off-balance  sheet items (e.g.,
letters  of  credit) to one of four risk  categories  based upon their  relative
credit risk.  Under the  regulations,  the greater the risk  associated  with an
asset,  the greater the amount of such asset that will be subject to the capital
requirements.  All FDIC-insured banks are required to maintain minimum ratios of
Tier 1 and total capital to risk-weighted assets of 4% and 8%, respectively.  At
December 31, 1997, NEBT's Tier 1 and total risk-based  capital ratios were 11.3%
and 12.5%,  respectively,  compared  to 11.8% and 13.1% at  December  31,  1996.
EQBK's  Tier 1 and  total  risk-based  capital  ratios  were  11.1%  and  12.4%,
respectively,  at December 31, 1997  compared to 12.6% and 13.8% at December 31,
1996. At December 31, 1997,  CMBK's Tier 1 and total  risk-based  capital ratios
were 9.1% and 10.4%, respectively, compared to 8.5% and 9.8% at the end of 1996.
Management  believes that the  Subsidiaries  will remain in full compliance with
applicable capital requirements.

         A leverage ratio  requirement  adopted by the FDIC became  effective in
1991.  Under this  requirement,  all  FDIC-insured  institutions are required to
maintain a ratio of common equity,  excluding intangible assets, to total assets
of at least  3% for the most  highly  rated  institutions  and 4% to 5% for most
institutions.  As of December 31, 1997,  NEBT's leverage capital ratio was 8.0%,
compared to 8.1% as of December 31, 1996;  EQBK's  leverage  capital ratio as of
that date was 8.8%, compared to 9.3% as of December 31, 1996. As of December 31,
1997,  CMBK's leverage  capital ratio was 6.1%,  compared to 6.0% as of December
31, 1996.

         In addition,  FDICIA  categorizes  banks based on five separate capital
levels and triggers certain mandatory and  discretionary  federal banking agency
responses  for  institutions  that fall  below  certain  capital  levels.  These
categories  range  from  "well  capitalized"  for the  most  highly  capitalized
institutions  to  "critically   undercapitalized"   for  the  least  capitalized
institutions.  A bank is  categorized  as "well  capitalized"  if it maintains a
leverage  capital ratio of at least 5%, a total capital ratio of at least





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<PAGE>

10%, a Tier 1 risk-based  capital  ratio of at least 6%, and is not subject to a
capital order or directive. Based on their regulatory capital ratios at December
31, 1997, the  Subsidiaries  were well capitalized as defined in federal banking
agency regulations.

         FDICIA also restricts the ability of FDIC-insured  state banks, such as
the Subsidiaries,  to acquire and retain equity  investments.  Generally,  state
banks may hold  equity  securities  only to the extent  permitted  for  national
banks.  However,  FDICIA also permits  certain  state banks to acquire or retain
equity  investments  in an  amount up to 100% of Tier 1  capital  in either  (1)
common or  preferred  stock  listed on a national  securities  exchange,  or (2)
shares of a registered investment company. NEBT has been granted this exception.

         Pursuant  to FDICIA,  in  December  1993,  the FDIC issued a final rule
concerning  activities  of  FDIC-insured  state banks.  Under the final rule, an
insured  state bank must obtain the FDIC's prior  consent  before  directly,  or
indirectly through a majority-owned  subsidiary,  engaging "as principal" in any
activity  that  is  not  permissible  for a  national  bank  unless  one  of the
exceptions  contained  in the  regulation  applies.  The  final  rule  sets  out
application  procedures  for  requesting  FDIC's  consent;  provides a phase-out
period  for  activities  which  are not  approved  by the  FDIC;  and  sets  out
conditions  that  may  be  imposed  at  the  FDIC's  discretion  when  approving
applications.  The final rule has not had a material  impact on the  business of
the Company or its Subsidiaries.

         Pursuant to FDICIA, in June 1995, the federal bank regulatory  agencies
issued  final  rules   establishing   standards  for  safety  and  soundness  at
FDIC-insured  institutions  and their  holding  companies.  These  rules  became
effective  in  August  1995.   These  standards   formalize  in  regulation  the
fundamental standards used by the federal bank regulatory agencies to assess the
operational  and managerial  qualities of an  institution.  The rules  establish
operational,  managerial,  asset quality and earnings standards for FDIC-insured
banks and their holding  companies and standards  that prohibit as an unsafe and
unsound practice the payment of compensation  that is excessive or could lead to
material  financial loss to such  institutions.  These standards are designed to
identify potential safety and soundness concerns and ensure that action is taken
to address  those  concerns  before  they pose a risk to the  deposit  insurance
funds. The Company and its Subsidiaries are in compliance with these standards.

         The Community Reinvestment Act ("CRA") requires lenders to identify the
communities  served by the  institution's  offices and to identify  the types of
credit the institution is prepared to extend within such  communities.  The FDIC
conducts  examinations  of insured  institutions'  CRA compliance and rates such
institutions   as   "Outstanding",   "Satisfactory",   "Needs  to   Improve"  or
"Substantial  Noncompliance."  As of  their  last CRA  examination,  each of the
Subsidiaries received a rating of "Satisfactory".  Failure to receive at least a
"Satisfactory"  rating  may  inhibit an  institution  from  undertaking  certain
activities,  including  acquisitions  of  other  financial  institutions,  which
require regulatory approval based, in part, on CRA compliance considerations.

         FDIC insurance of deposits may be terminated by the FDIC,  after notice
and hearing, upon a finding by the FDIC that the insured institution has engaged
in unsafe or  unsound  practices,  or is in an unsafe or  unsound  condition  to
continue  operations,  or has violated any applicable law,  regulation,  rule or
order of, or  conditions  imposed  by, the FDIC.  Neither  the  Company  nor the
Subsidiaries is aware of any practice, condition or violation that might lead to
termination of deposit insurance.

         Federal Reserve Board Regulation




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<PAGE>

         Under  the  regulations  of  the  Federal  Reserve  Board,   depository
institutions  such as the Subsidiaries are required to maintain reserves against
their transaction accounts.  These regulations generally require the maintenance
of reserves of 3.0% against  transaction  accounts of $52.0  million or less and
10.0% of the amount of such accounts in excess of such amount. These amounts and
percentages are subject to adjustment by the Federal Reserve Board.

         The Company is subject to regulation by the Federal  Reserve Board as a
registered bank holding  company.  The Federal Bank Holding Company Act of 1956,
as amended (the "BHCA"), under which the Company registered, limits the types of
companies  which the Company may acquire or organize and the activities in which
they may engage.  In general,  a bank holding company and its  subsidiaries  are
prohibited  from  engaging in or  acquiring  control of any  company  engaged in
non-banking  activities unless such activities are so closely related to banking
or managing or controlling banks as to be a proper incident thereto. The Company
has not  determined  if it might  seek to engage  in these or other  permissible
non-banking activities.

         The Federal Reserve Board has established  capital adequacy  guidelines
for bank holding  companies that are similar to the FDIC's capital  requirements
described  above.  As of  December  31,  1997,  the  Company's  Tier 1 and total
risk-based capital ratios were 11.5% and 12.8%, respectively,  and the Company's
leverage   capital  ratio  was  9.2%,   compared  to  12.9%,   14.1%  and  8.8%,
respectively,  as of December 31, 1996. All ratios exceed the requirements under
these regulations.

         Under the BHCA,  a bank  holding  company  such as NECB is  required to
obtain the prior approval of the Federal Reserve Board to acquire,  with certain
exceptions,  more than 5% of the  outstanding  voting  stock of any bank or bank
holding company,  to acquire all or substantially all of the assets of a bank or
to merge or consolidate with another bank holding company.

         As described  previously,  the Connecticut  Interstate  Banking Act and
recent  federal   legislation   specifically  permit  Connecticut  bank  holding
companies and banks to acquire or be acquired by banks or bank holding companies
in other states with  reciprocal  merger and  acquisition  laws. As of September
1995,  federal  interstate  banking  legislation  extended this  interstate bank
holding company acquisition authority  nationwide.  Federal antitrust laws place
limitations on the acquisition of banks and other businesses.

         Under  the  BHCA,  the  Company,   the  Subsidiaries,   and  any  other
subsidiaries are prohibited from engaging in certain reciprocal  arrangements in
connection  with any  extension  of  credit  or  provision  of any  property  or
services.  The Subsidiaries are subject to certain  restrictions  imposed by the
Federal Reserve Act on making any  investments in the stock or other  securities
of the  Company  or any of their  subsidiaries,  and the taking of such stock or
securities as collateral for loans to any borrower.

         Each  of the  Subsidiaries  is also  subject  to  certain  restrictions
imposed  by the  Federal  Reserve  Act on the amount of loans it can make to the
Company or other  affiliates.  Such loans must be  collateralized as provided by
the Federal  Reserve  Act.  The total amount of such loans may not exceed 20% of
the capital stock and surplus of the Subsidiary. Loans from a Subsidiary to NECB
or an  affiliate  singly may not exceed 10% of the capital  stock and surplus of
the  Subsidiary.  Since the  formation of the Company,  there have been no loans
made by the Subsidiaries to the Company.

         The Company is required  under the BHCA to file  reports of  operations
annually  with the  Federal  Reserve  Board.  In  addition,  the Company and the
Subsidiaries  are subject to  examination  by





                                    Page -9-


<PAGE>

the Federal Reserve Board. The Company, as a bank holding company, is registered
with the Connecticut  Banking  Commissioner  under the Connecticut  Bank Holding
Company and Bank Acquisition Act.

         Effect of Governmental Policy

         Banking is a business  that depends in large  measure on interest  rate
differentials.  One of the most significant  factors affecting the Company's and
the Subsidiaries' earnings is the difference between (1) the interest rates paid
by the  Subsidiaries  on their  deposits and their other  borrowings and (2) the
interest rates received by the Subsidiaries on loans extended to their customers
and securities held in the Subsidiaries'  investment  portfolios.  The value and
yields of their assets and the rates paid on their  liabilities are sensitive to
changes in prevailing market rates of interest. Thus, the earnings and growth of
the  Company  and  its  Subsidiaries  will be  influenced  by  general  economic
conditions,  the  monetary  and fiscal  policies of the federal  government  and
policies of regulatory  agencies,  particularly  the Federal Reserve Board.  The
nature  and  impact  of any  future  changes  in  monetary  policies  cannot  be
predicted.

         The present bank regulatory climate is undergoing  significant  change,
both as it affects the  banking  industry  itself and as it affects  competition
between banks and non-banking financial institutions. There has been significant
change in the regulation of and operations by savings associations,  in the bank
merger and acquisition  area, in the products and services banks can offer,  and
in the  non-banking  activities in which bank holding  companies can engage.  In
part as a result of these changes, banks are competing actively with other types
of depository  institutions and with non-bank  financial  institutions,  such as
money market funds,  brokerage  firms,  insurance  companies and other financial
services  enterprises.  It is not  possible  at this time to assess  what impact
these changes in the regulatory  climate ultimately will have on the Company and
its Subsidiaries.

         Moreover,  certain  legislative  and  regulatory  proposals  that could
affect the Company,  the  Subsidiaries  and the banking  business in general are
pending,  or  may  be  introduced,   before  the  United  States  Congress,  the
Connecticut General Assembly and various governmental agencies.  These proposals
include   measures  that  may  alter  further  the  structure,   regulation  and
competitive  relationship  of financial  institutions,  and that may subject the
Company  and/or  the  Subsidiaries  to  increased  regulation,   disclosure  and
reporting  requirements.  In addition,  the various banking regulatory  agencies
frequently  propose  rules and  regulations  to implement  and enforce  existing
legislation.  It  cannot  be  predicted  whether  or not  and in what  form  any
legislation or  regulations  will be enacted or the extent to which the business
of the Company and/or its Subsidiaries will be affected thereby.

Description of Business.

         The Company exists primarily to hold the stock of its Subsidiaries.  In
addition,  NECB, through NEBT,  indirectly owns one additional  subsidiary.  The
historical  growth  of, and  regulations  affecting,  each of NECB's  direct and
indirect subsidiaries are described above in this Item 1.

         NECB is a legal entity separate from its Subsidiaries. The stock of the
Subsidiaries  is NECB's  principal  asset and the dividends  from these entities
represent the primary source of its income.  As explained  above in this Item 1,
legal and regulatory limitations are imposed on the amount of dividends that may
be paid by the Subsidiaries to NECB.



                                    Page -10-


<PAGE>


         NECB currently maintains its executive offices in Windsor, Connecticut.
At December  31,  1997,  the  Subsidiaries  operated  out of 14 offices  located
primarily in north central  Connecticut.  In November  1995,  NECB  purchased an
18,000 square foot building in East Hartford, Connecticut to house the Company's
data processing and other support operations.

         At December 31, 1997, NECB, through its Subsidiaries,  had  gross loans
of $408,535,000,  deposits of $522,644,000 and total assets of $606,170,000.

         The   strategy   of   NECB   is  to   operate   its   Subsidiaries   as
community-oriented  banking  institutions  dedicated to  providing  personalized
service.  NECB  believes  that its  maintenance  of  professional,  personalized
service has  resulted in its ability to obtain and service  many of the small to
medium-sized  desirable  commercial  credits in its market area.  As part of its
growth  strategy,  NECB  intends to  continue  to provide  personalized  banking
services whether  expansion  occurs through internal growth,  de novo expansion,
reorganization  or acquisition.  The Company's  profitability  and its financial
condition may be significantly impacted by the continuing  implementation of its
acquisition strategy and by the completion,  and subsequent integration,  of its
recent and/or pending acquisitions. See "Recent Growth of NECB" above.

         The  Subsidiaries  are full  service  commercial  banks  and  offer the
services generally  performed by commercial banks of similar size and character,
including  checking,  savings,  and time  deposit  accounts,  24-hour  telephone
banking,  cash management  services,  safe deposit boxes,  secured and unsecured
personal and commercial loans,  residential and commercial real estate loans and
letters of credit.  The  Subsidiaries'  deposit  accounts are competitive in the
current  environment and include money market accounts and a variety of interest
and  noninterest-bearing  transaction  accounts.  The Subsidiaries provide these
services to a diverse  range of customers  and do not rely on any one  depositor
for a significant percentage of deposits made in their respective  institutions.
Management  believes that the business of each  institution  will continue to be
broad-based  and will not depend on the business of one or a few customers,  the
loss of any or all of which could materially and adversely affect its business.

         The lending policy of NECB's subsidiary banks is designed to correspond
with its mission of remaining a  community-oriented  bank.  The loan policy sets
forth  accountability  for lending  functions in addition to  standardizing  the
underwriting,  credit and documentation procedures. The typical loan customer is
an individual or small business which has a deposit relationship.  NECB, through
its  subsidiary  banks,  strives  to  provide  an  appropriate  mix in its  loan
portfolios of commercial loans and loans to individual consumers.

         The largest sector of consumer lending has traditionally  been mortgage
loans secured by single family residential properties.  This includes both first
and second  mortgages.  Second  mortgages  consist of equity lines of credit and
closed-end loans, such as home improvement and construction loans. Historically,
single  family  mortgage  loans are  considered  to involve  the least risk to a
lending  institution.  On loans in  excess  of 80% of the  value of  collateral,
borrowers are required to obtain  mortgage  insurance  covering the portion over
80%.  Interest  rates charged for mortgage  loans are primarily set according to
secondary  market  conditions,  and  terms  generally  follow  the  underwriting
requirements  of the Federal  Home Loan  Mortgage  Corporation  ("FHLMC") in the
granting  of  residential  mortgage  loans.  During  1997  approximately  85% of
residential mortgage loans were sold to the FHLMC as well as other outlets. The



                                    Page -11-


<PAGE>

sale of fixed rate mortgage loans in the secondary market provides  liquidity to
make additional loans,  revenues for servicing the sold loans (when servicing is
retained), and premiums and discounts to par upon the sale of such loans.

         The  Subsidiaries originate a variety of consumer loans such  as short-
term  demand loans, automobile  and student loans. The vast majority of Consumer
loans are made on    secured  basis.  Interest  rates charged on consumer  loans
are primarily  determined by  competitive  loan rates offered  in  their lending
areas. The primary risk in such loans is the borrower's ability  to repay.  Such
loans  are  typically   made  for  small  amounts,  which   provides   for  risk
diversification.

         The portfolios of commercial loans of the Subsidiaries  include various
products.  The Subsidiaries'  target market, with respect to commercial lending,
consists  businesses  with annual  sales up to ten million  dollars.  Commercial
mortgages are granted on owner-occupied  and investment  properties up to 75% of
the lesser of the cost or appraised value of the property.  Short-term  business
loans are made on a demand  basis to finance  various  cash needs of  customers.
Construction and land development  financing is available to qualified borrowers
for  development of  sub-divisions  or single family  residences.  Financing for
capital expenditures,  such as equipment, is provided on an amortizing basis for
terms up to five years or more. The  Subsidiaries  offer revolving  credit lines
and commercial letters of credit primarily used for performance bonding. NEBT is
also a preferred lender of Small Business Administration ("SBA") loans.

         The  Subsidiaries'  deposits are insured by the FDIC and are  primarily
invested  in   investment   securities   and  loans  to  borrowers   within  the
Subsidiaries'  respective  market area. Each of the  Subsidiaries is a member of
the  Federal  Home Loan Bank  ("FHLB")  through  the  Federal  Home Loan Bank of
Boston.  The FHLB  encourages  and  supports  residential  mortgage  lending  by
allowing  member  banks to borrow  money  long-term  at favored  rates  based on
certain lending ratios and the ownership of shares in the FHLB.

         Fee income is generated  through  traditional  deposit related services
such as checking account charges, overdraft fees, stop payment and returned item
fees. NECB maintains automated teller machines ("ATMs"), which also generate fee
income. While the majority of the ATMs are located at the Subsidiaries' offices,
several  machines are located  offsite  including  two at Bradley  International
Airport in Windsor Locks,  Connecticut and four others in a local grocery chain.
The ATMs at branch  locations are primarily for efficient  utilization of branch
personnel resources and customer convenience, while machines located off-premise
are  primarily  utilized by  non-customers  and provide  the  Subsidiaries  with
greater revenues than do the ATMs located at branch locations.  NECB also offers
a corporate on-line cash management product, called ACCESS, which is a fee-based
service.  The servicing of loans sold on the secondary  market and the rental of
safe deposit boxes to customers also provide fee revenues.

         NECB and its Subsidiaries had 250 full-time  equivalent employees as of
December 31,  1997,  compared to 185  employees  at the end of 1996.  Management
considers the relationships with employees of the Company to be good.



                                    Page -12-


<PAGE>

Competition and General Business Conditions.

         The banking  business in  Connecticut  remains  intensely  competitive.
After  shifting its focus in the  mid-1990's  from  improving  asset quality and
expense  reduction  efforts,  the industry is now  concentrating  on growth.  As
widely  reported,  Connecticut-based  financial  institutions had been adversely
affected by the economic  downturn and  devaluation of real estate.  Many of the
banks  in  Connecticut  and  the  region  had  spent  much of the  early  1990's
strengthening  their balance sheets in order to either  position  themselves for
future  opportunities or, in some cases,  simply to survive.  The combination of
bank failures and regulatory  takeovers  together with mergers and  acquisitions
has served to greatly  reduce the number of  competitors  within  NECB's  market
area. In  conjunction  with the erosion of the barriers to  interstate  banking,
many Connecticut-based  institutions were acquired by institutions based outside
of Connecticut.  As a result, NECB has come into competition with new and larger
banks.

         Federal  legislation   permits  adequately   capitalized  bank  holding
companies to venture across state lines to offer banking  services  through bank
subsidiaries to a wider geographic  market. In light of this, it is now possible
for large  super-regional  organizations to enter many new markets including the
market served by the Subsidiaries. Many of these competitors, by virtue of their
size and resources,  may enjoy certain  efficiencies and competitive  advantages
over  NECB in the  pricing,  delivery,  and  marketing  of  their  products  and
services.

         There  are   approximately   25  commercial   banks   headquartered  in
Connecticut.  In addition,  large out-of-state banks compete for the business of
Connecticut  residents  and  businesses  located  in the  Subsidiaries'  primary
markets. A number of other depository  institutions  compete for the business of
individuals and commercial  enterprises in Connecticut  including savings banks,
savings and loan associations, brokerage houses, financial subsidiaries of other
industries  and credit  unions.  Other  financial  institutions,  such as mutual
funds, consumer finance companies,  factoring companies and insurance companies,
also compete with the Subsidiaries for both loans and deposits.  Competition for
depositors'  funds and for creditworthy  loan customers is intense.  A number of
larger banks are increasing their efforts to serve smaller commercial borrowers.
Competition among financial  institutions is based upon interest rates and other
credit and service charges, the quality of services rendered, the convenience of
banking  facilities  and, in the case of loans to larger  commercial  borrowers,
relative lending limits. As in the past, NECB's future earnings will be affected
by changes in the  prevailing  interest  rates,  as well as  competition,  other
financial  market  developments  and regulatory  controls  beyond the control of
NECB's Management.

         Beginning  in  the  late  1980's  and   continuing  to  this  day,  the
Connecticut  banking  industry has become more  concentrated  with over 30 banks
ceasing operations as a result of reorganizations or failure.  Increasingly, the
industry  consists of a few very large,  regional,  super-regional  and national
institutions,  and a number  of  smaller  community-based  banks  whose  success
depends upon providing customer-focused products and services.

         The continued growth of large  institutions and the potential for large
out-of-area banking organizations to enter the local banking market may increase
opportunities  for  efficiently  operated,   service-oriented,   community-based
banking  organizations to serve customers which large organizations do not serve
well or which do not want to bank with such institutions.

         NECB believes that to be  successful,  community  banks must be able to
offer their customers  competitive products and services of their own initiation
or through strategic alliances and contractual



                                    Page -13-


<PAGE>

relationships  with third parties.  While offering desired products and services
is important in attracting and maintaining customer relationships,  the delivery
of such products in a convenient,  friendly,  professional and responsive manner
is  essential to the success of a community  bank.  NECB's  management  team and
staff  continue to strive to meet the needs of customers and the community  with
innovative products and friendly, responsive service at convenient locations.

         Despite  competition with  institutions  commanding  greater  financial
resources,  the  Subsidiaries'  supply  of  funds  has  imposed  no  substantial
impediment to their normal lending functions. While the Subsidiaries are limited
to making  commercial  loans to a single  borrower  in an  amount  not to exceed
fifteen  percent of their capital and have a "house limit"  significantly  below
that level, they have, on occasion, arranged for participation by other banks in
larger loan accommodations.

         NECB operates banks which are  community-oriented  with a commitment to
customer service,  sound community  relations and professional  excellence.  The
target market of the Subsidiaries  consists of individual  consumers and locally
based businesses. Emphasis is placed upon "relationship banking" as NECB's banks
strive to provide the  majority  (if not all) of their  clients'  borrowing  and
deposit  needs.   NEBT's  primary  market  area  is  located  in  north  central
Connecticut.  The  primary  market  area  of  EQBK  consists  of  the  Towns  of
Wethersfield  and Rocky Hill,  Connecticut.  The area of Hartford  south of Park
Street forms the secondary  market of EQBK. The market area for CMBK is Bristol,
Connecticut and its surrounding communities.

         The  Subsidiaries'  focus  remains  on  being an  integral  part of the
communities they serve.  Officers and employees are trained to meet the needs of
their  customers  and  emphasis is placed on  addressing  the needs of the local
communities served.



                                    Page -14-


<PAGE>

Executive Officers of the Registrant.

         The following  table sets forth certain  information  on each executive
officer of NECB who is not a director:

<TABLE>
<CAPTION>

Name, Age and                              Officer of                                                Principal Occupation
Position with NECB                         NECB Since                                              During Past Five Years
-------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                                    <C>
Donat A. Fournier, 49                      1993                                            Prior to employment with NECB,
Vice President and Senior Loan Officer                                                  Mr. Fournier was Senior Executive
                                                                                   Vice President with Eastland Financial
                                                                                  Corporation in Woonsocket, Rhode Island
Anson C. Hall, 60                           1993                                           Prior to employment with NECB,
Vice President, Chief Financial Officer                                           Mr. Hall owned and operated a business,
and Treasurer                                                                            Bestway Management, a management
                                                                                                          consulting firm
</TABLE>

Statistical  Disclosure  Required  Pursuant to Securities  Exchange Act of 1934,
Industry Guide 3.

         The  statistical  disclosures  for  a  bank  holding  company  required
pursuant to Industry Guide 3, not contained in Item  7--Management's  Discussion
and Analysis of Financial Condition and Results of Operations--contained herein,
are presented on the following pages of this Report on Form 10-K:

                                                                     Page(s) of
             Item of Guide 3                                        This Report
             ---------------                                        -----------
      II.    Investment Portfolio............................................16

     III.    Loan Portfolio..................................................17

       V.    Deposits........................................................18

      VI.    Return on Equity and Assets.....................................18



                                    Page -15-


<PAGE>

                           NECB, Inc. and Subsidiaries

                            S.E.C. GUIDE 3 - ITEM II
                              INVESTMENT PORTFOLIO

         The following  table  presents the book value of  investments as of the
end of each reported period:

(Amounts in thousands)
AVAILABLE FOR SALE:

At December 31,                                1997         1996         1995
-------------------------------------------------------------------------------
Debt securities issued by the
   U.S. Treasury and other U.S.
     government agencies................   $   76,948    $   82,638   $   56,139
Mortgage-backed securities..............       12,730        10,380       11,388
Corporate debt securities...............       10,053         8,003        9,668
Asset-backed securities.................          527           114
Municipal securities....................                                   1,008
Marketable equity securities............       20,190         4,002       15,201
                                           ----------    ----------   ----------
   Total                                      120,448       105,137       93,404
                                           ----------    ----------   ----------

HELD TO MATURITY:

Debt securities issued by the
   U.S. Treasury and other U.S.
     government agencies.................       6,398        10,317       11,225
Debt securities issued by states
     and political subdivisions
        of the states....................       2,841         2,841        1,565
Mortgage-backed securities...............       1,882
Other debt securities....................         215           175          175
                                           ----------    ----------   ----------
   Total                                       11,336        13,333       12,965
                                           ----------    ----------   ----------
Total Investment securities                 $ 131,784    $  118,470   $  106,369
                                            =========    ==========   ==========

         The following table presents  maturities and weighted average yields at
December 31, 1997. The weighted average yields were calculated based on the cost
and effective  yields to maturity of each security.  The weighted average yields
on income from municipal  obligations  and equity  securities were adjusted to a
tax-equivalent basis.

(Amounts in thousands)
<TABLE>
<CAPTION>
AVAILABLE FOR SALE(1)(2):


                                            Weighted   After One  Weighted  After Five  Weighted            Weighted       Weighted
                                    Within   Average  But Within   Average  But Within   Average      After  Average        Average
                                  One Year     Yield  Five Years     Yield   Ten Years     Yield  Ten Years    Yield  Total   Yield
-----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>     <C>            <C>    <C>            <C>    <C>         <C>    <C>       <C>
Debt securities issued by the
   U.S. Treasury and other U.S.
     government agencies........ $  6,477    5.51%   $  41,425      6.48%   $  26,832      7.14% $   1,639   7.43%  $  76,373 6.91%
Mortgage-backed securities......      411    7.84        4,392      6.82        2,781      6.95      5,001   6.86      12,585 6.87
Corporate debt securities.......    2,497    5.85        7,471      6.48                                                9,968 6.45
Asset-backed securities.........                           527      6.32                                                  527 6.32
                                 --------            ---------              ---------             ---------         ---------
                                 $  9,385    5.64%   $  53,815      6.51%   $  29,613      7.13%  $   6,640  6.97%  $  99,453 6.88%
                                 --------            ---------              ---------             ---------         ---------

</TABLE>



                                    Page -16-


<PAGE>
<TABLE>
<CAPTION>

                                            Weighted   After One  Weighted  After Five  Weighted            Weighted       Weighted
                                    Within   Average  But Within   Average  But Within   Average      After  Average        Average
                                  One Year     Yield  Five Years     Yield   Ten Years     Yield  Ten Years    Yield  Total   Yield
-----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>     <C>            <C>     <C>          <C>     <C>        <C>     <C>       <C>

HELD TO MATURITY:
Debt securities issued by the
   U.S. Treasury and other U.S.
     government agencies........                   $    5,399      6.42%    $     999    7.55%                      $  6,398  6.75%
Debt securities issued by states
     and political subdivisions
        of the states...........                        1,006      7.35         1,587    6.58    $     248   7.54%     2,841  7.08
Mortgage-backed securities...... $     880  6.00%         765      6.48           237    6.69                          1,882  6.56
Corporate debt securities.......                           75      8.00           140    7.25                            215  7.40
                                 ---------         ----------              ----------            ---------         ---------
                                 $     880  6.00%  $    7,245      6.59%   $    2,963    6.94%   $     248   7.54% $  11,336  6.86%
                                 ---------         ----------              ----------            ---------         ---------
Total portfolio(2).............. $  10,265  5.67%  $   61,060      6.52%   $   32,576    7.11%   $   6,888   7.00% $ 110,789  6.88%
                                 =========         ==========              ==========            =========         =========
</TABLE>

(1) Amounts shown at amortized cost.
(2) Does  not include  Marketable Equity  Securities with a carrying  amount of
    $19,072,000


                           NECB, Inc. and Subsidiaries

                            S.E.C. GUIDE 3 - ITEM III
                                 LOAN PORTFOLIO

         Types of loans at the end of each reporting period.
<TABLE>
<CAPTION>
(Amounts in thousands)

At December 31,                                    1997            1996           1995           1994            1993
-----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>           <C>             <C>             <C>
Commercial and financial................          $102,105       $ 89,544       $ 66,811        $ 58,990       $ 52,691
Real estate:
   Construction.........................            19,620         12,250         12,841           1,883            830
   Residential..........................           111,321         78,510         64,210          51,615         51,433
   Commercial...........................           133,803        116,188         83,590          43,467         42,696
Consumer................................            41,686         39,712         36,310          23,640         23,434
                                                  --------       --------       --------        --------       --------
   Loans outstanding....................          $408,535       $336,204       $263,762        $179,595       $171,084
                                                  ========       ========       ========        ========       ========
</TABLE>


         The following table shows the maturity and sensitivity of the Company's
loan portfolio outstanding as of December 31, 1997.

<TABLE>
<CAPTION>

                                                                           After One
                                                          One Year      Year Through            After
(Amounts in thousands)                                     or Less        Five Years       Five Years       Total Loans
-----------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>                <C>              <C>
Commercial and financial..........................      $   40,905        $   48,896        $  12,304        $  102,105
   Real estate:
     Construction.................................          19,009                                611            19,620
     Residential..................................          58,045            29,320           23,956           111,321
     Commercial...................................          57,717            46,114           29,972           133,803
Consumer..........................................          30,936             5,478            5,272            41,686
                                                        ----------        ----------        ---------        ----------
Total Loans.......................................      $  206,612        $  129,808        $  72,115        $  408,535
                                                        ----------        ----------        ---------
   Allowance for possible loan losses.............                                                               (9,257)
                                                                                                             ----------
Total loans, net..................................                                                           $  399,278
                                                                                                             ==========

</TABLE>

         Of  those  loans  due  after  one year or  $201,923,000,  approximately
$72,692,000 have predetermined  interest rates and $129,231,000 have floating or
adjustable interest rates.

                                    Page -17-


<PAGE>

                           NECB, Inc. and Subsidiaries

                             S.E.C. GUIDE 3 - ITEM V
                                    DEPOSITS

         The following  table sets forth average  deposits and average rates for
each of the years indicated:
<TABLE>
<CAPTION>

(Amounts in thousands)

                                                        1997                       1996                     1995
                                                        ----                       ----                     ----
                                                Average                    Average                   Average
                                                Balance       Rate         Balance       Rate        Balance       Rate
-----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>              <C>       <C>             <C>      <C>              <C>
Demand deposits.........................    $    87,239                $    72,832               $    49,544
                                            -----------                -----------               -----------
Regular savings deposits................        105,375      2.32%          98,395      2.12%         68,986      2.30%
NOW accounts............................         58,933      1.34%          50,325      1.22%         35,089      1.29%
Money market deposits...................          4,055      1.16%           5,014      1.10%          5,047      1.82%
                                            -----------                -----------               -----------
   Total savings deposits...............        168,363      1.95%         153,734      1.79%        109,122      1.96%
                                            -----------                -----------               -----------
Time deposits...........................        180,755      5.15%         176,381      5.38%        104,745      5.28%
                                            -----------                -----------               -----------
      Total Deposits....................    $   436,357      2.89%     $   402,947      3.04%    $   263,411      2.91%
                                            ===========                ===========               ===========
</TABLE>

         The following  table sets forth the time  remaining  until maturity for
time deposits in amounts of $100,000 and more:


3 months or less .......................        $13,372
3 to 6 months ..........................          7,259
6 to 12 months .........................          8,474
More than 12 months ....................          6,824
                                                -------
Total                                           $35,929
                                                =======


                           NECB, Inc. and Subsidiaries

                            S.E.C. GUIDE 3 - ITEM VI
                           RETURN ON EQUITY AND ASSETS

<TABLE>
<CAPTION>

Years Ended December 31,                            1997             1996           1995           1994          1993
--------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>            <C>             <C>            <C>
Return (loss) on average assets.............        0.91%            1.21%          1.26%          0.56%        (0.13)%
Return (loss) on average equity.............        9.01            13.00          14.64           8.85         (2.20)
Dividend payout ratio.......................       35.06            21.43          14.04           0.06          0.00
Equity to assets............................        8.88             9.52           8.87           7.51          5.85
</TABLE>


ITEM 2.       PROPERTIES

         NECB  is  the  owner  of  an   operations   center  in  East   Hartford
Connecticut--located  at 20 Founders  Plaza,  East  Hartford,  Connecticut.  The
18,000 square foot  facility  houses the data and item  processing  and customer
service  functions  and is adequate to support the  foreseeable  processing  and
support needs of NECB.

         NEBT's designated main office is located at 176 Broad Street,  Windsor,
Connecticut.  In addition to the  designated  main office,  NEBT has  additional
branches in Windsor and Canton,  East Windsor,  Ellington,  Enfield,  Manchester
(2), Somers,  Suffield and West Hartford.  Of these offices, four are leased and
four are owned  properties.  The Enfield has a ground lease only.  EQBK operates
out of a single leased office in Wethersfield, Connecticut and CMBK operates two
offices, in Bristol and Plymouth, Connecticut. The Bristol office is owned while
the Plymouth facility is leased.



                                    Page -18-


<PAGE>


         During the year ended December 31, 1997 the aggregate  rental  expenses
paid by NECB for all its  office  properties  was  approximately  $786,000.  All
properties  are considered to be in good condition and adequate for the purposes
for which they are used.

ITEM 3.       LEGAL PROCEEDINGS

         There are no pending  material  adverse  legal  proceedings  other than
ordinary routine litigation  incidental to normal business to which NECB and its
Subsidiaries are a party to or which any of their properties are subject.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of NECB's 1997 fiscal year.



                                    Page -19-


<PAGE>

                                     PART II

ITEM 5.       MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
              HOLDER MATTERS

         As of December 31,  1997,  there were  5,160,626  shares of NECB Common
Stock issued and outstanding which were held by approximately 4,000 shareholders
of record.

NECB's  Common  Stock is listed on the Nasdaq  National  Market.  The  following
represents  the high and low sale prices from each  quarter  during the last two
years*:

                                                            1997
                                                            ----
                                               High                         Low
                                               ----                         ---
1st Quarter.........................          $18 3/8                    $14 7/8
2nd Quarter.........................           17 1/2                         15
3rd Quarter.........................           24 3/4                     16 7/8
4th Quarter.........................           25 3/4                   20 15/16

                                                            1996
                                                            ----
                                               High                         Low
                                               ----                         ---
1st Quarter.........................          $11 1/4                     $9 3/4
2nd Quarter.........................               13                     10 1/2
3rd Quarter.........................               13                     11 1/2
4th Quarter.........................           15 3/8                     12 5/8

*Not adjusted for 10% stock dividend paid on January 16, 1998 to shareholders of
record December 31, 1997.

         The  following  table shows per share  quarterly  cash  dividends  NECB
declared upon the Common Stock over the last two years:

               1997                                        1996
               ----                                        ----
Q1.........................    $0.07     Q1............................   $0.06
Q2.........................     0.08     Q2............................    0.06
Q3.........................     0.08     Q3............................    0.06
Q4.........................     0.09     Q4............................    0.07

         Dividends are generally  declared  within 45 days prior  to the payable
date, to  shareholders  of record l0 to 15 days after the declaration date.

         Reference  should be made to page 5 of this  Report on Form 10-K  for a
discussion  of  Restrictions  on Dividend Payments.

ITEM 6.       SELECTED FINANCIAL DATA

         Reference  should  be made to page 4 of this  Report on Form 10-K for a
discussion  of  recent  acquisitions  which  affect  the  comparability  of  the
information contained in this table.

(amounts in thousands; except per share data)

<TABLE>
<CAPTION>
Years Ended December 31,                              1997           1996           1995            1994           1993
--------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>             <C>            <C>            <C>
EARNINGS:
Net interest income                              $  25,452      $  22,544       $ 14,395       $  12,153      $  11,651
Provision for loan losses                            1,248          2,209          1,200           1,436          2,614
Noninterest income                                   4,079          3,416          2,343           2,356          3,062
Noninterest expense                                 20,531         15,964         11,872          11,095         12,619
Income tax expense (benefit)                         3,117          2,299            (24)            468             72
Cumulative effect of change
  in accounting principal                                                                                          (228)
Net income (loss)                                    4,635          5,488          3,690           1,510           (364)

PER SHARE DATA:
Net income (loss) per share--basic               $    0.91      $    1.19       $   1.19       $    0.74      $   (0.18)
Net income (loss) per share--diluted                  0.90           1.19           1.18            0.74          (0.18)
Dividends declared                                    0.326          0.255          0.186           0.045          0.00

BALANCE SHEET DATA (AS OF END OF YEAR):
Loans                                            $ 399,278      $ 329,544       $257,887       $ 175,458      $ 170,183
Allowance                                            9,257          6,660          5,875           4,137          4,413
Goodwill                                             5,238          4,464            402               0              0
Assets                                             606,170        516,754        418,868         290,474        281,601
Deposits                                           522,644        457,004        377,403         266,638        262,779
Shareholders' equity                                53,823         49,220         37,148          21,826         16,460
Nonperforming assets                                11,945          8,757          8,315           8,551          9,780

OPERATING RATIOS:
Return on average assets                              0.91%          1.21%          1.26%           0.56%         (0.13)%
Return on average equity                              9.01          13.00          14.64            8.85          (2.20)
Net interest margin                                   5.43           5.40           5.39            4.92           4.57
Total equity to total assets                          8.88           9.52           8.87            7.51           5.85
Tangible equity to total assets                       8.02           8.66           8.77            7.51           5.85

</TABLE>

ITEM 7.       MANAGEMENT'S DISCUSSION  AND  ANALYSIS OF  FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

OVERVIEW

         New England Community Bancorp,  Inc. ("NECB" or the "Company") reported
net  income  for 1997 of  $4,635,000,  or $0.91 per  share--basic,  compared  to
$5,488,000,  or $1.19  reported in 1996.  Return on assets ("ROA") and return on
equity  ("ROE") were 0.91% and 9.01%,  respectively,  for 1997 compared to 1.21%
and 13.00%,  respectively,  in 1996. During 1997 the Company acquired First Bank
of West Hartford ("FBWH") and Community Savings Bank ("CMBK").  Expenses related
to  these  acquisitions   totaled  $1,750,000  (tax  effected),   or  $0.34  per
share--basic.  Net operating income, which excludes the impact of these charges,
amounted to $6,385,000 or $1.25 per share--basic. This represents an increase of
$897,000 or 16% over net  operating  income for 1996.  On an earnings  per share
basis (using net operating  income),  1997  increased 6% over the $1.19 earnings
per  share--basic  for 1996. ROA and ROE were 1.26% and 12.41%,  respectively in
1997,  excluding the  acquisition-related  charges.  The acquisition of FBWH was
accounted  for as a "pooling of  interests"  and as such all  comparative  prior
periods  have been  restated  as if the  acquisition  had been in effect for all
periods  presented.  Conversely,  the  acquisition  of CMBK was  accounted for a
purchase and as such prior year  comparative data was not revised to include the
results  of  operations  of CMBK.  [Please  see  Acquisition  Summary  below



                                   Page -20-
<PAGE>
and  Footnote  2  to  the  consolidated  financial  statements  for  information
concerning the Company's merger and acquisitions.]

         Net interest income on a fully taxable-equivalent ("FTE") basis totaled
$25,630,000  for 1997 compared to $22,784,000  in 1996. The net interest  margin
for 1997 was 5.43% versus 5.40% in 1996. The increase in net interest  income is
due to growth in average earning  assets,  much of this growth resulted from the
July 1996  acquisition of Manchester  State Bank ("MSB") while the 3 basis point
improvement in net interest  margin  resulted  primarily from an improved mix of
interest-earning  assets coupled with a decrease in the cost of interest-bearing
liabilities.

         The  provision  for  possible  loan losses was  $1,248,000  compared to
$2,209,000  in 1996.  The  decrease  is largely  due to a sharp  decrease in net
charge-offs  during 1997 which  amounted to $759,000  compared to  $3,434,000 in
1996.

         Noninterest  income  increased to $4,079,000 in 1997 from $3,416,000 in
1996.  The  19%  improvement  resulted  from  the  combined  effect  of the  MSB
acquisition  (which is primarily  reflected in the $592,000  increase in service
charges, fees and commissions) and the $308,000 increase in securities gains.

         Noninterest expense totaled $20,531,000 in 1997 compared to $15,964,000
in 1996. The increase primarily  resulted from the MSB acquisition,  net of cost
reductions  derived  from the  elimination  of  duplicate  operations  and other
expense reduction initiatives  undertaken by the Company.  Illustrative of these
initiatives particularly,  NECB's efficiency  ratio--excluding the effect of the
restructure  charge--equaled  59.7% for 1997  compared  to 59.4%  for  1996.  By
comparison, the efficiency ratio in 1995 was 67.9%.

         Total loans at December 31, 1997 amounted to  $408,535,000  compared to
$336,204,000 at December 31, 1996 while total deposits  amounted to $522,644,000
at December 31, 1997 compared to  $457,004,000 at December 31, 1996. In addition
to the $54,921,000 in loans provided by the CMBK  acquisition,  NECB was able to
add  $17,410,000 to loans  outstanding  during 1997.  Absent the effect of CMBK,
which added  $63,006,000  in deposits,  deposits  would have  increased a modest
$2,634,000 in 1997.

         Shareholders'  equity increased $4,603,000 from $49,220,000 at December
31, 1996 to $53,823,000 at year-end 1997. Reflecting the CMBK acquisition (which
was an all cash transaction), the ratio of equity to assets decreased to 8.9% at
December 31, 1997 compared to 9.5% a year earlier.

ACQUISITION SUMMARY

         In November  1995,  NECB created a second  banking  subsidiary  when it
acquired The Equity Bank ("EQBK"). In July, 1996 and August, 1997, respectively,
the Company  acquired all the outstanding  common stock of MSB and FBWH, both of
which were merged with and into NEBT. On December 31, 1997,  NECB acquired CMBK,
establishing  a  third  banking  subsidiary.  With  the  exception  of the  FBWH
acquisition,  each of the  transactions  were accounted for as purchases and, as
such, prior year comparative data was not revised to include  information  about
either entity. As previously noted, the acquisition of FBWH was accounted for as
a "pooling of interests" and therefore all  comparative  prior periods have been
restated as if the acquisition had been in effect for all periods presented.

         On February  10, 1998,  the Company and Olde Port Bank & Trust  Company
("OPBT") of Portsmouth,  New Hampshire signed a definitive agreement under which
the Company will acquire OPBT.  The Merger is  conditioned  upon  requisite bank
regulatory  approvals and the approval of  shareholders of OPBT as well as other
customary conditions. It is anticipated that the acquisition will be consummated
in the second quarter of 1998.

INCOME STATEMENT ANALYSIS
Net Interest Income

         Net  interest  income,  which  is  defined  as the  difference  between
interest  earned on earning assets and interest paid on deposits and borrowings,
represents  the largest  component of NECB's  operating  income.  The  principal
earning  assets  of the  Company  are  the  loan  portfolios  of its  subsidiary
banks--which  are  primarily   comprised  of  loans  to  finance  operations  of
businesses  located  within  our market  area,  mortgage  loans to  finance  the
purchase or improvement of properties  used by businesses and mortgage loans and
personal loans to  individuals.  Representing  approximately  one-quarter of the
Company's earning assets,  NECB's  investment  portfolio also plays an important
part in the management of



                                   Page -21-
<PAGE>
the Company's  balance sheet.  These funds are used to provide reserves and meet
the liquidity needs of the Company while  providing a source of revenue.  Excess
reserves are available to meet the borrowing  needs of the communities we serve.
For  the  following  discussion,   interest  income  is  presented  on  a  fully
taxable-equivalent ("FTE") basis. FTE interest income restates reported interest
income on tax exempt loans and  securities as if such interest were taxed at the
applicable State and Federal income tax rates for all periods presented.

(Amounts in thousands)
Years Ended December 31,                    1997          1996         1995
                                            ----          ----         ----
Interest income (financial statements)  $  38,981      $ 35,051    $  22,107
Tax equivalent adjustment                     178           240          121
Interest expense                          (13,529)      (12,507)      (7,712)
                                        ---------      --------    ---------
Net interest income--FTE                $  25,630      $ 22,784    $  14,516
                                        =========      ========    =========

         In 1997, net interest income  increased  $2,846,000,  or 12% over 1996.
The increase in 1997 is largely due to growth in earning assets which  increased
a  substantial  $49,605,000  or  12%  compared  to the  1996  average.  The  MSB
acquisition added approximately $38,000,000 to the average while internal growth
provided the remainder. The interest-bearing liabilities acquired with MSB added
to interest costs while the combined effect of changes to interest rates of both
earning assets and interest-bearing  liabilities served to decrease net interest
income by $437,000 in 1997.



                                   Page -22-
<PAGE>
NET INTEREST MARGIN AND INTEREST RATE SPREAD

<TABLE>
<CAPTION>
(amounts in thousands)
                                              1997                               1996                             1995
                                           Interest                          Interest                         Interest
                                 Average    Earned/               Average     Earned/              Average     Earned/
Years Ended December 31,         Balance       Paid     Rate      Balance        Paid    Rate      Balance        Paid     Rate
-------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>         <C>        <C>       <C>          <C>        <C>      <C>         <C>         <C>
Assets:
  Interest-earning assets:
   Federal funds sold           $  7,352    $   400    5.44%     $  9,544     $   506    5.30%    $ 12,513    $   713     5.70%
   Investment securities         120,107      7,850    6.54%      114,487       7,070    6.18%      68,603      4,155     6.06%
   Loans (A)                     344,227     30,909    8.98%      298,050      27,715    9.30%     187,993     17,360     9.23%
                                --------    -------              --------     -------             --------    -------
     Total interest-earning
     assets                      471,686     39,159    8.30%      422,081      35,291    8.36%     269,109     22,228     8.26%
                                            -------                           -------                         -------
  Allowance for loan losses       (7,100)                          (5,360)                          (3,951)
  Cash & due from banks           19,220                           15,417                           12,305
  Other assets                    23,446                           21,468                           14,178
                                --------                         --------                         --------
     Total Assets               $507,252                         $453,606                         $291,641
                                ========                         ========                         ========

Liabilities and Equity:
  Interest-bearing liabilities:
   Regular savings deposits     $105,375    $ 2,449    2.32%     $ 98,395     $ 2,088    2.12%    $ 68,986    $  1,588    2.30%
   NOW accounts                   58,933        791    1.34%       50,325         612    1.22%      35,089         454    1.29%
   Money market deposits           4,055         47    1.16%        5,014          55    1.10%       5,047          92    1.82%
                                --------    -------              --------      ------             --------      ------
      Total savings deposits     168,363      3,287    1.95%      153,734       2,755    1.79%     109,122       2,134    1.96%
   Time deposits                 180,755      9,312    5.15%      176,381       9,490    5.38%     104,745       5,529    5.28%
   Short-term borrowings           6,802        319    4.69%        1,583          95    6.00%         811          49    6.04%
   Long-term debt                  9,726        611    6.28%        2,662         167    6.27%
                                --------     ------              --------      ------             --------      ------
     Total interest-bearing
     liabilities                 365,646     13,529    3.70%      334,360      12,507    3.74%     214,678       7,712    3.59%
                                             ------                            ------                           ------
  Demand deposits                 87,239                           72,832                           49,544
  Other liabilities                2,924                            4,198                            2,209
                                --------                         --------                         --------
     Total Liabilities           455,809                          411,390                          266,431
Equity                            51,443                           42,216                           25,210
                                --------                         --------                         --------
     Total Liabilities & Equity $507,252                         $453,606                         $291,641
                                ========                         ========                         ========

Net interest income                         $25,630                           $22,784                         $14,516
                                            =======                           =======                         =======
Net interest spread                                    4.60%                            4.62%                             4.67%
Net interest margin                                    5.43%                            5.40%                             5.39%
</TABLE>

(A) Average loans include nonaccruing loans.

         The net interest  margin  measures the  difference in yield on, and the
mix of, interest-earning assets and interest-bearing  liabilities.  Net interest
margin is affected  by a number of factors  including  the  volume,  pricing and
maturity of earning assets and  interest-bearing  liabilities  and interest rate
fluctuations.  Changes in nonperforming assets,  together with interest lost and
recovered on those assets also affect comparisons of net interest income.

         The net  interest  margin for 1997  increased  3 basis  points to 5.43%
compared  to 5.40% in 1996,  primarily  from an improved  mix of earning  assets
which  were  funded  by  a  greater  percentage  of  interest-free  liabilities.
Investment  securities  represented  25.46% of  average  earning  assets in 1997
compared  to  27.12%  in 1996  while  characteristically  higher-yielding  loans
represented  72.98%  and  70.61%  of  average  earning  assets in 1997 and 1996,
respectively.

Average Earning Asset Mix--Insert Pie Chart
                           1997                      1996
                           ----                      ----
Securities                  25%                       27%
Loans                       73%                       71%
Other                       2%                        2%


                                   Page -23-
<PAGE>

         Average interest-bearing liabilities increased to $365,646,000 in 1997,
from $334,360,000 in 1996, primarily due to the acquisition of MSB. The interest
rates paid on these  liabilities  decreased 4 basis points and averaged 3.70% in
1997  compared  to 3.74% in  1996.  Average  total  savings  deposits  increased
$14,629,000  in 1997 compared to 1996.  Reflecting an  increasingly  competitive
market for core deposits the interest rate paid on these  deposits rose 16 basis
points in 1997 to 1.95% from 1.79% in 1996.  More than  offsetting this increase
was a decrease in the cost of time deposits.

         Through the increased use of repurchase  agreements (for its commercial
customers)  and the  greater use of Federal  Home Loan Bank of Boston  ("FHLBB")
borrowings,  NECB significantly  expanded its use of alternative funding sources
in  1997.   Short-term  borrowings  increased  markedly  in  1997  and  averaged
$6,802,000,  compared to  $1,583,000  in 1996,  as increased  use of  repurchase
agreements  was  used  to meet  NECB's  funding  requirements.  In  addition  to
providing  a source of funds,  repurchase  agreements  allow  NECB's  commercial
deposit customers to earn interest on excess cash balances. With the majority of
the increase in short-term  borrowings occurring in repurchase agreements (which
paid an  average  of 3.58% in  1997),  the rate paid on  short-term  liabilities
decreased from 1996 and equaled 4.69%. As noted,  during 1997 NECB increased its
long-term debt with advances from the FHLBB.  NECB's  borrowings were fixed rate
and had maturities ranging from 2 to 6 years. In addition, FBWH had 3 loans with
maturities  ranging  from 3 to 10  years.  The  cost of these  liabilities  were
virtually unchanged and equaled 6.28% in 1997 compared to 6.27% in 1996.

RATE/VOLUME ANALYSIS

         Changes  in net  interest  income  between  years is  divided  into two
components--the change resulting from the change in average balances of interest
earning assets and interest-bearing  liabilities (or "volume") and the change in
the rates earned or paid on these  balances.  The change in interest  income and
interest  expense  attributable to changes in both volume and rate, which cannot
be segregated,  has been allocated proportionately to the absolute values of the
changes due to volume and rate. The following table is presented on a FTE basis.

<TABLE>
<CAPTION>
(amounts in thousands)
                                                     1997                                        1996
                                      ---------------------------------           ---------------------------------
                                                        Change due to                               Change due to
                                         Increase        Change in:                  Increase        Change in:
                                                         ---------                                   ---------
Years Ended December 31,               (Decrease)       Rate     Volume            (Decrease)       Rate     Volume
-------------------------------------------------------------------------------------------------------------------
<S>                                      <C>        <C>        <C>                   <C>        <C>        <C>
Interest-earning assets:
Federal funds sold                       $   (106)  $     10   $   (116)             $   (207)  $    (40)  $   (167)
Investment securities                         780        422        358                 2,915        133      2,782
Loans                                       3,194     (1,069)     4,263                10,355        191     10,164
                                         --------   --------   --------              --------   --------   --------
Total interest income change                3,868       (637)     4,505                13,063        284     12,779
                                         --------   --------   --------              --------   --------   --------
Interest-bearing liabilities:
Regular savings deposits                 $    361   $    206   $    155              $    500   $   (168)  $    668
NOW account deposits                          179         71        108                   158        (38)       196
Money market deposits                          (8)         3        (11)                  (37)       (37)         0
                                         --------   --------   --------              --------   --------   --------
      Total savings deposits                  532        280        252                   621       (243)       864
Time deposits                                (178)      (409)       231                 3,961        179      3,782
Short-term borrowings                         224        (72)       296                    46         (1)        47
Long-term debt                                444          1        443                   167         84         83
                                         --------   --------   --------              --------   --------   --------
Total interest expense change               1,022       (200)     1,222                 4,795         19      4,776
                                         --------   --------   --------              --------   --------   --------
Net interest income change               $  2,846   $   (437)  $  3,283              $  8,268   $    265   $  8,003
                                         ========   ========   ========              ========   ========   ========
</TABLE>

         As is shown above,  the majority of the increase in net interest income
in both 1997 and 1996 is  attributable  to changes in volume  which is primarily
the result of the  acquisitions  accounted for as  purchases.  Noteworthy in the
above  analysis  is the  $1,069,000  decrease  in  interest  income  on the loan
portfolio.  As noted above,  increased market  competition for new loans has had
the double  effect of  increasing  origination  expense  (e.g.,  marketing)  and
increased  pricing  pressure.  This taken  together with a stable  interest rate
environment  has served to reduce the yield on loans by 32 basis points in 1997.
Also noteworthy in 1997 is the pick-up in rates paid on interest bearing savings
deposits in 1997 (particularly in commercial deposits) and the decrease in rates
paid on time deposits.




                                   Page -24-
<PAGE>
NONINTEREST INCOME

         NECB's income from noninterest  revenue  activities  increased a strong
19% in 1997 and represented  9.5% of net revenues  compared to 8.9% in 1996. The
increase in fee based revenue follows  industry trends of the past several years
for  shifting  dependence  away from  interest  sources of income.  Through  the
expansion of existing  business lines and the  introduction  of new products and
services,  NECB's objective is to increase the percentage of income derived from
noninterest  income sources to at least 15% of total net revenue within the next
two years.

         For  1997  noninterest  income  increased  19% from  1996  and  totaled
$4,079,000   compared  to  $3,416,000   and   $2,343,000   for  1996  and  1995,
respectively.  Service charges,  fees and commissions  increased 30% and totaled
$2,551,000 in 1997 compared to $1,959,000 in 1996.  Included in service charges,
fees and  commissions  are fees on deposits,  loan servicing fees and other fees
and charges.  While much of this  increase  resulted  from the MSB  acquisition,
strong  increases in  deposit-related  fees also helped fuel the  increase.  For
example,  aided by widespread  consumer  acceptance,  the  Company's  debit card
program (MasterMoney(TM)) continues to grow dramatically with revenue increasing
by almost 50% from 1996.  Also key to the  increase in deposit  related  fees is
NECB's cash management program--Access. While still producing a modest amount of
revenue for the Company,  the program reflects NECB's ongoing effort to seek out
opportunities for increasing fee income-producing sources of revenue.

         Benefiting  from the strong equities  market,  NECB realized gains from
the sale of  securities  of $315,000  in 1997.  This  compares to  significantly
smaller  amounts  recorded in both 1996 and 1995.  As a matter of  practice,  in
conjunction  with the of purchase common stock,  NECB establishes a target price
objective for the issue. In addition,  through regular reviews of holdings, NECB
evaluates  each stock and  determines  whether to sell or  continue  to hold the
stock.  It is the sale of those issues which  reached their target prices during
1997 which provided  approximately  $495,000 in gains in 1997. The likelihood of
profitability of any such gains in the future cannot be predicted.

         Gains on sales of loans decreased by $216,000 and totaled  $860,000 for
1997  compared to  $1,076,000  for 1996.  The  acquisition  of FBWH in mid-1997,
brought  with it a  small  but  successful  department  specializing  in the SBA
guaranteed  lending  program.  While it had  been  FBWH's  practice  to sell the
guaranteed  portion  in the  secondary  market,  NECB  chose to  retain  all new
production  for its own  portfolio.  Management is confident  that foregoing the
gain on the sale of these loans is outweighed by the continuing  return from the
ownership  of these  assets.  1997 saw the Company  increase its  production  of
mortgages  originated  for  sale by  $13,000,000,  from  $34,000,000  in 1996 to
$47,000,000 in 1997.  The increase is largely due to (i) the Company's  expanded
market area, (ii) participation in a wider variety of loan programs, and (iii) a
very favorable  interest rate environment.  At year-end,  the bellwether 30-year
fixed  mortgage  was under 7%, or  approximately  100-basis  points below 1996's
average.

Mortgage Origination's
(amounts in thousands)
       1997         1996          1995
       ----         ----          ----
      $47,000      $34,000       $23,000

NONINTEREST EXPENSE

         Total   noninterest   expense  was  $20,531,000  in  1997  compared  to
$15,964,000  in  1996.  The  increase  of  $4,567,000   included   non-recurring
acquisition  related  expenses of $2,197,000 in 1997.  Excluding  these charges,
noninterest  expenses  increased  by  $2,370,000  or 14.8% over the  $15,964,000
reported in 1996.  Much of the increase in 1997 is due to our expansion into the
Manchester  market.  The use of purchase  accounting for the  acquisition of MSB
increased  expenses in categories such as salary and benefit expense,  occupancy
and equipment.  MSB's expenses (net of cost savings achieved in the acquisition)
increased  expenses for the second half of 1996 and all of 1997.  This "step-up"
in expense aggregated to approximately $1,100,000 in 1997 and $550,000 in 1996.

         The  largest  component  of  the  noninterest   expense--salaries   and
benefits--totaled  $9,648,000  in 1997  compared  to  $8,320,000  in  1996.  The
increase  is  primarily  due to the  acquisitions  along with  other  salary and
benefit increases. Equipment totaled $1,404,000 in 1997 which is $253,000 or 22%
higher than the  $1,151,000  in 1996.  The  increase is related to higher  lease
expense related to upgrades in the data and item processing activities performed
in the Company's Technology Center. During 1997, NECB migrated to an image-based
system  for  generating  customer  statements.  From the  goodwill  recorded  in
connection with the EQBK and MSB  acquisitions,  intangible  asset  amortization
increased  $159,000 from 1996. Other expenses  increased by $548,000 and totaled
$2,562,000 compared to $2,014,000 in 1996.



                                   Page -25-
<PAGE>
Reflecting NECB's growth,  marketing expense increased from sponsorships  (e.g.,
New England Blizzard) and other promotions  related to new business  initiatives
undertaken in 1997.

INCOME TAXES

         In 1997, the Company  recognized  income tax expense of $3,117,000,  an
effective  tax rate of 40.2%.  This compares to income tax expense of $2,299,000
in 1996, an effective  rate of 29.6%.  The increase in the effective tax rate is
attributable to a reduction in the valuation reserve for deferred tax assets.

BALANCE SHEET ANALYSIS

         Total assets increased to $606,170,000 at December 31, 1997 compared to
$516,754,000  at December 31, 1996. The  $54,921,000 in loans and $63,006,000 in
deposits  the  Company  acquired  in  connection  with the CMBK  acquisition  is
primarily  responsible for the increased asset size. Excluding the effect of the
CMBK acquisition, total assets increased by $19,000,000 or 4% over 1996.

Balance Sheet Highlights (amounts in thousands)
December 31,                    1997             1996            Change
                                ----             ----            ------
Total Assets                $606,170         $516,754             17.3%
Earning Assets               550,912          474,170             16.2%
Securities                   134,761          120,910             11.2%
Loans                        408,535          336,204             21.5%
Total Deposits               522,644          457,004             14.4%
Equity                        53,823           49,220              9.4%

         NECB's  securities   portfolio   increased   $13,851,000  or  11%  from
$120,910,000  at December 31, 1996 to  $134,761,000  at December  31,  1997.  At
year-end the amortized  cost of  securities  available-for-sale  and  securities
held-to-maturity    totaled   $118,525,000   and   $11,336,000,    respectively.
Management's  strategy  for  investment  securities  is to  maintain a very high
quality portfolio with short and intermediate maturities.  Investment securities
classified as  available-for-sale  provide an additional  source of liquidity to
meet the needs of NECB and its customers.  The net unrealized gain on securities
available-for-sale  increased to  $1,923,000  at December  31, 1997  compared to
$368,000 at December 31, 1996. The $1,555,000  improvement  is  attributable  to
declining  interest rates and the strong  performance in the stock market during
1997.

LOANS

         At December  31,  1997,  NECB's loan  portfolio  stood at  $408,535,000
compared  to  $336,204,000  a year  earlier.  Beyond  the  effect  of  the  CMBK
acquisition  and despite the intense  competition in the  marketplace,  NECB was
able to add significantly to loans  outstanding in 1997.  Through loans to small
businesses for the financing of facilities and other business  purposes,  NECB's
lending officers increased loans outstanding by an additional  $17,410,000 or 5%
in 1997. In addition,  the favorable  interest rate  environment  coupled with a
strong economy helped fuel new home construction  which enabled NECB to grow its
real estate  construction  loan  portfolio  by 60% in 1997 from  $12,250,000  at
December 31, 1996 to  $19,620,000  at December 31, 1997. As the preferred  small
business  lender in its service area  together  with NECB's  expansion  into the
Bristol market and a strengthening economy, loans outstanding should continue to
increase.

(amounts in thousands)
Loan Portfolio Composition                       1997              1996
                                                 ----              ----
Commercial and financial                     $102,105           $89,544
Real estate:
   Construction                                19,620            12,250
   Residential                                111,321            78,510
   Commercial                                 133,803           116,188
Consumer                                       41,686            39,712


                                   Page -26-
<PAGE>

         A certain  degree of credit  risk is  inherent  in the  Company's  loan
portfolio.  Credit risk is managed through the Company's credit function,  which
is  designed to insure  adherence  to a high level of credit  standards.  NECB's
credit   function   provides  a  system  of  checks  and   balances  for  NECB's
credit-related  activities by  establishing  and monitoring  all  credit-related
policies and practices within NECB and insuring their uniform application. These
activities are designed to provide (i) for a thorough  analysis of  applications
for credit; (ii)  continuous  examinations  of both  outstanding  and delinquent
loans; and, (iii) an appropriate level of loan  diversification.  NECB endeavors
to identify  potential problem loans early, to take charge-offs  promptly--based
upon realistic  assessment of likely  losses--and to maintain  adequate reserves
for possible loan losses. In addition to being diversified by borrower, as shown
in the table  below,  the  Company's  portfolio is  diversified  by industry and
product.

NONPERFORMING ASSETS

         Nonperforming assets ("NPAs") are assets on which income recognition in
the form of principal  and/or interest has either ceased or is limited,  thereby
reducing the Company's earnings. Maintaining a low level of NPAs is important to
the ongoing  success of NECB.  The  Company's  comprehensive  credit  review and
approval  process is critical  to the  ability to  minimize  NPAs on a long-term
basis.  In addition to the  negative  impact on net  interest  income and credit
losses,  NPAs also increase  operating expenses due to the costs associated with
collection efforts.

         NPAs include  nonaccrual  loans and other real estate  owned  ("OREO").
Generally,  loans are placed in nonaccrual status when they are past due greater
than ninety days or the  repayment of interest or principal is  considered to be
in doubt. OREO consists of properties acquired through foreclosure  proceedings.
These  properties are recorded at the lower of the carrying value of the related
loans or the estimated fair market value less estimated  selling costs.  Charges
to the allowance for loan losses are made to reduce the carrying amount of loans
to the fair market value of the properties less estimated  selling expenses upon
reclassification  as OREO.  Subsequent  reductions,  if needed,  are  charged to
operating  income.  In addition to NPAs, the asset quality of the Company can be
measured by the amount of the provision,  charge-offs and several credit quality
ratios presented in the discussion  concerning  Provision and Allowance for Loan
Losses.

NECB's NPAs at December 31, 1993 through 1997 are presented below:

<TABLE>
<CAPTION>
(amounts in thousands)
                                      1997          1996         1995         1994         1993
-----------------------------------------------------------------------------------------------
<S>                                <C>          <C>          <C>          <C>          <C>
Nonaccrual loans                  $  9,075      $  6,441     $  5,769     $  5,154     $  5,519
Other real estate owned              2,870         2,316        2,546        3,397        4,261
                                  --------      --------     --------     --------     --------
Total nonperforming assets        $ 11,945      $  8,757     $  8,315     $  8,551     $  9,780
                                  ========      ========     ========     ========     ========
</TABLE>

         NPAs  increased  $3,187,000 or 36% to  $11,945,000 at December 31, 1997
from $8,757,000 at December 31, 1996. At December 31, 1997 nonaccrual loans as a
percentage  of total loans and  nonperforming  assets as a  percentage  of total
assets  were  2.20%  and  1.97%,  respectively,  compared  to 1.92% and 1.69% at
December  31, 1996.  The  increase in total NPAs in the year ended  December 31,
1997  primarily  resulted from the CMBK  acquisition  which added  $4,209,000 in
NPAs.

Activity in NPAs
(amounts in thousands)

                                                    1997             1996
                                                    ----             ----
Balance at beginning of year                    $  8,757         $  8,315
Additions                                          5,706            5,841
Changes incident to acquisitions                   4,209            4,945
Reductions:
     Payments                                     (1,733)          (2,981)
     Returned to performing status                  (496)          (1,193)
     Charge-offs/writedowns                       (1,653)          (4,276)
     Sales/other, net                             (2,845)          (1,894)
                                                --------         --------
Balance at end of year                          $ 11,945         $  8,757
                                                ========         ========

                                   Page -27-
<PAGE>
         At  December  31,  1997  loans  past due in excess  of ninety  days and
accruing  interest  amounted  to $951,000  compared to $395,000 at December  31,
1996.  Although these loans are not included in NPAs,  Management  reviews these
loans when  considering  risk elements to determine the overall  adequacy of the
loan loss reserve.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

         NECB's  allowance  for loan losses  represents  amounts  available  for
future  credit  losses.  Management  continually  assesses the adequacy of their
allowances  for loan  losses in response  to current  and  anticipated  economic
conditions,  specific problem loans,  historical net charge-offs and the overall
risk profile of their loan portfolios.  Management allocates specific allowances
to  individual  problem  loans based upon its analysis of the potential for loss
perceived to exist related to such loans. In addition to the specific allowances
for  individual  loans,  a portion of the  allowance is  maintained as a general
allowance.   The  amount  of  the  general   allowance  is  determined   through
Management's  analysis  of the  potential  for loss  inherent in those loans not
considered  problem  loans.  Among the factors  considered by Management in this
analysis  are the  number and type of loans,  nature  and  amount of  collateral
pledged to secure such loans and current economic conditions.  The allowance for
loan losses is not a precise amount but is derived from  judgments  based on the
above factors.

         The  following  table  summarizes  the  activity in the  allowance  for
possible  loan losses for the years ended  December 31, 1993 through  1997.  The
allowance is maintained at a level consistent with identified loss potential and
the perceived risk in the portfolio. It is not considered meaningful to allocate
the allowance  according to geographic area as NECB's market area is homogeneous
and limited in size.

<TABLE>
<CAPTION>
(Amounts in thousands)
Years Ended December 31,                                      1997          1996         1995         1994         1993
--------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>          <C>          <C>          <C>          <C>
Loans charged-off:
     Commercial and financial                              $   619       $ 1,066      $   682      $   452      $   887
     Real estate                                               673         2,610        1,046        1,488        1,664
     Installment loans to individuals                           69           244          118           92          458
                                                           -------       -------      -------      -------      -------
        Total charge-offs                                    1,361         3,920        1,846        2,032        3,009
                                                           -------       -------      -------      -------      -------
Recoveries on loans charged-off:
     Commercial and financial                                  348           188          364          101           48
     Real estate                                               225           258           28          182           22
     Installment loans to individuals                           29            40           31           37           10
                                                           -------       -------      -------      -------      -------
       Total recoveries                                        602           486          423          320           80
                                                           -------       -------      -------      -------      -------
Net loans charged-off                                          759         3,434        1,423        1,712        2,929
                                                           -------       -------      -------      -------      -------
Provision charged to operations                              1,248         2,209        1,200        1,436        2,614
Changes incident to acquisitions                             2,108         2,010        1,961
Balance, at beginning of year                                6,660         5,875        4,137        4,413        4,728
                                                           -------       -------      -------      -------      -------
Balance, at end of year                                    $ 9,257       $ 6,660      $ 5,875      $ 4,137      $ 4,413
                                                           =======       =======      =======      =======      =======
Ratio of net charge-offs during the period to
   average loans outstanding during the period               0.21%         1.15%        0.76%        0.99%        1.56%
Ratio of allowance for loan losses to total loans            2.27%         1.98%        2.23%        2.30%        2.57%
Ratio of allowance for loan losses to
   nonaccrual loans                                        102.01%       103.38%      101.84%       80.27%       79.96%
</TABLE>

         NECB's allowance for loan losses increased $2,597,000 from December 31,
1996 to  $9,257,000  at  December  31,  1997.  Aided by a sharp  decrease in net
charge-offs,  the provision for loan losses in 1997 was  $1,248,000  compared to
$2,209,000 for 1996.  Reflecting the decrease in  charge-offs,  the ratio of net
charge-offs  to average  loans  decreased to 0.21% in 1997  compared to 1.15% in
1996.  While the allowance for loan losses  increased to 2.27% of total loans at
December 31, 1997 from 1.98% at December 31, 1996, management expects this ratio
to decrease to  approximately  2% in 1998.  Those NPAs which were  identified in
NECB's due  diligence of CMBK and for which a specific  reserve was  established
are expected to be resolved in 1998. Management increased the allowance for loan
losses by $800,000 as part of the evaluation of CMBK  consistent with accounting
for the transaction as a purchase.




                                   Page -28-
<PAGE>

         The  following  table  reflects  the  Allowance  for Loan  Losses as of
December 31, 1997 with allocations categorized by loan type:

(Amounts in thousands)                    Allocation of       Percentage of
                                          Allowance for        loan type to
Loans by type                               Loan Losses         total loans
------------------------------------------------------------------------------
Commercial & Financial                           $2,122               25.0%
Real estate:
     Construction                                   510                4.8
     Residential                                  1,803               27.2
Commercial                                        4,727               32.8
Consumer                                             95               10.2
                                                 ------              -----
     Total                                       $9,257              100.0%
                                                 ======              =====

         As noted,  NECB's  subsidiaries  perform  ongoing  reviews  of loans to
determine the required  allowance for possible loan losses at any given date. To
facilitate this process,  an individual  loan rating system is utilized.  In the
review process,  the subsidiaries  assess factors  including the borrower's past
and current financial condition,  repayment ability and liquidity, the nature of
collateral and changes in its value, current and anticipated economic conditions
and  other  factors  deemed  appropriate.   These  reviews  are  dependent  upon
estimates, appraisals and judgments which can change quickly because of changing
economic  conditions and Management's  perception as to how these factors affect
the financial  condition of debtors.  The loan rating process  classifies  loans
according to the subsidiaries' uniform  classification  system. The subsidiaries
consider  performing loans rated as "substandard" and "doubtful" to be potential
problem loans.  "Substandard" loans are characterized by well-defined weaknesses
such as deteriorating or inadequate  collateral or impaired repayment ability. A
loan is considered  "doubtful" when similar conditions exist but are more severe
in nature.

         At December 31, 1997, NECB considered loans  outstanding of $15,968,000
to be potential problems compared to $17,794,000 at December 31, 1996.  Included
in these totals were loans  totaling  $6,894,000 and  $8,719,000,  respectively,
which were not  classified as  nonperforming  because such loans are  performing
according to their terms.

DEPOSITS

         Total  deposits  increased  $65,640,000  or 14%  from  $457,004,000  at
December 31, 1996 to $522,644,000 at December 31, 1997. This increase is largely
attributable to the acquisition of CMBK which provided  $63,006,000 in deposits.
As discussed  earlier,  by utilizing  FHLB as an  alternative  source of funding
interest   earning   assets,   NECB   decreased   its   reliance   upon   retail
deposits--particularly  CD's--as a funding  source.  This taken  together with a
declining  interest rate environment served to reduce rates paid on CD's by more
than  25-basis  points in 1997  compared  to 1996.  The  implementation  of this
strategy had a significant  effect upon renewing CD's acquired in  acquisitions.
For example,  the interest  rate  structure of MSB was at or near the top end of
the rates  offered  throughout  its  market.  This  often  attracted  funds from
depositors  who only sought the  highest  rates then being  offered.  While time
deposits  remain an important  source of funds,  much of this money did not stay
with the  Company.  As a result,  absent  the  effect of the  acquisition,  time
deposits would have decreased by approximately $9,000,000 from 1996. Through its
commercial  focus,  NECB  continues  to target small  businesses  as a source of
growth.  This focus helped shift the mix of deposits from the higher priced time
deposits to noninterest-bearing demand deposits and NOW accounts. The percentage
of noninterest-bearing demand deposits to total deposits increased to 21.9% from
19.6% at December 31, 1997 and 1996, respectively.

INTEREST-RATE RISK

         The   asset/liability   management  process  at  NECB  provides  for  a
structured  process  for  ensuring  that the risk to  earnings  from  changes in
interest rates is prudently managed. The goal of the asset/liability  management
process is to manage the  balance  sheet to provide  maximum  level of  earnings
while  maintaining  a high  quality  balance  sheet  and  acceptable  levels  of
interest-rate  and  liquidity  risk.  Sensitivity  of earnings to interest  rate
changes occur when yields on assets change  differently  from the interest costs
on  liabilities.  To mitigate  this  interest-rate  risk,  the  structure of the
balance  sheet is  managed so that  movements  of  interest  rates on assets and
liabilities   are  highly   correlated   and  produce  an   adequate   level  of
earnings--even in periods of volatile interest rates.

         Key to  NECB's  management  of  interest-rate  risk  are the  following
measurement techniques: (i) interest rate sensitivity "gap" analysis; (ii) "rate
shock" to measure earnings  volatility due to immediate  increase or decrease in
market



                                   Page -29-
<PAGE>

rates of up to 200-basis  points;  and (iii)  simulations of net interest income
under alternative balance sheet and interest rate scenarios.  To further improve
the Company's ability to manage  interest-rate risk, NECB uses computer modeling
software for its measuring and monitoring process. Using computer modeling, NECB
is able to measure the sensitivity of earnings to interest rate changes.  NECB's
Subsidiaries  measure the impact  assuming the  continuation  of current balance
sheet  trends  along with a rate shock.  NECB also uses the model to measure its
earnings   sensitivity  relative  to  management's  most  likely  interest  rate
scenario.  In conjunction  with the installation of the modeling  software,  the
Company  refined its internal  parameters  for  monitoring  gap analysis and the
200-basis point rate shock as well as the assumptions as to the effect of volume
changes, prepayment rates and repricing characteristics for both contractual and
noncontractual assets and liabilities. These guidelines serve as benchmarks for,
determining  actions to balance the current  position  against the  Subsidiaries
strategic  goals.  The results of the simulations are reported to the respective
subsidiary asset/liability committee ("ALCO").

         Gap analysis  provides a  point-in-time  "snapshot" of the maturity and
repricing  characteristics  of the Company's  balance sheet.  The report,  which
follows, is prepared by allocating all assets and liabilities into time horizons
based upon either their  contractual or anticipated  maturity or repricing.  For
floating  rate  instruments,  the  entire  balance is placed at the next date on
which their rates could be reset and for fixed rate instruments the balances are
placed in time  horizon  according to their  principal  repayment  schedule.  In
addition to prepayment assumptions for mortgage-related instruments,  management
also applies  assumptions to  noncontractual  deposits-- such as demand deposits
and savings accounts.  The interest sensitivity gap is determined by subtracting
the amount of liabilities from the amount of assets that reprice in a particular
time interval. A liability sensitive position results when more liabilities than
assets  reprice or mature within a given time period.  Under this  scenario,  as
interest  rates  fall,   increased  net  interest  revenue  will  be  generated.
Conversely,   an  asset  sensitive   position  results  when  more  assets  than
liabilities  reprice  with a given  period.  In such an  instance,  net interest
revenue would benefit from an increasing  interest rate environment.  The impact
of creating a liability or asset sensitive  position depends on the magnitude of
the actual  change in interest  rates  relative to the behavior of borrowers and
depositors.  NECB's policy specifies that the cumulative  one-year gap should be
less than 10% of total  assets.  As is shown in the table below,  as of December
31, 1997, the Company was 4.00%  liability  sensitive at the cumulative one year
gap, well within NECB's policy limits.

<TABLE>
<CAPTION>
INTEREST-RATE GAP ANALYSIS
DECEMBER 31, 1997                                                CUMULATIVELY REPRICED WITHIN
                                                  ------------------------------------------------------
(Amounts in thousands, by repricing date)         3 Months        4 to 12         1 to 5         After 5
                                                   or Less         Months          Years           Years          Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>             <C>             <C>            <C>
Cash and cash equivalents                         $             $               $               $ 39,851       $ 39,851
Securities                                           2,076          9,374         60,188          63,123        134,761
Loans                                               94,367        112,245        129,808          72,115        408,535
Loans held-for sale                                  2,966                                                        2,966
Other assets                                                                                      20,057         20,057
                                                  --------      ---------       --------        --------       --------
  Total assets                                      99,409        121,619        189,996         195,146        606,170
                                                  --------      ---------       --------        --------       --------
Deposits:
  Demand                                            11,451         22,902         34,353          45,804        114,510
  Savings                                           31,291         23,782          9,631         121,889        186,593
  Time                                              65,416         74,388         81,737                        221,541
                                                  --------      ---------       --------        --------       --------
    Total deposits                                 108,158        121,072        125,721         167,693        522,644
Borrowings                                          14,036          2,000          8,666             946         25,648
Other liabilities                                                                                  4,055          4,055
Equity                                                                                            53,823         53,823
                                                  --------      ---------       --------        --------       --------
Total liabilities and shareholders' equity        $122,194      $123,072        $134,387        $226,517       $606,170
                                                  --------      --------        --------        --------       --------
Periodic                                          $(22,785)     $  (1,453)      $ 55,609        $(31,371)
Cumulative gap                                    $(22,785)     $ (24,238)      $ 31,371        $      0
Cumulative gap as % of total assets                  (3.76)%        (4.00)%         5.18%              0%
</TABLE>

         Through both the modeling process and the  complementary  gap analysis,
Management  believes that the exposure of the Company's  income to either a rate
shock or gradual change in interest rates is modest.




                                   Page -30-
<PAGE>

LIQUIDITY RISK

         Management's  objective for liquidity  risk is to ensure the ability of
the  Company and its  Subsidiaries  to meet their cash flow  obligations  and to
capitalize on business opportunities on a timely and cost effective basis. These
cash  flow  obligations  include  the  withdrawal  of  deposits  on demand or at
maturity,  the  repayment of  borrowings  as they mature and the ability to fund
existing  and  new  loan  commitments.  Accordingly,  NECB's  Subsidiaries  have
liquidity  policies which provide  flexibility to meet cash needs. The liquidity
objective is achieved through the maintenance of readily  marketable  investment
securities as well as a balanced flow of asset  maturities,  prudent  pricing on
loan and  deposit  products  and the  sale of  mortgage  loans in the  secondary
market.  Liquidity at NECB is measured and monitored daily,  enabling Management
to identify and respond to trends occurring in the Company's balance sheet.

         All of NECB's  subsidiary  banks are members of the  Federal  Home Loan
Bank of Boston  (FHLBB) making them eligible for both short term lines of credit
and long term  borrowing  facilities.  The FHLBB  provides its member banks with
credit by  accepting  as  collateral  the member  bank's  mortgage  assets.  The
aggregate credit available to the subsidiaries consists of $9,258,000 short-term
and  $139,000,000 in long term. At December 31, 1997,  usage of these facilities
amounted to $11,612,000  providing  $136,646,000  available for future use. NECB
has alternative sources of liquidity available including federal funds purchased
and  repurchase  agreements.   Purchases  of  federal  funds  and  borrowing  on
repurchase  agreements may be utilized to meet short-term  borrowing needs. NECB
believes that its policies will enable it to maintain adequate  liquidity and to
prudently commit funds to loans or investments,  depending upon underlying risk,
demand and rate of return.

         As shown in the Consolidated  Statements of Cash Flows, NECB's cash and
cash equivalents at December 31, 1997 was virtually  unchanged from December 31,
1996 totaling  $39,851,000  and  $39,854,000,  respectively.  This compares to a
decrease of $2,481,000 in 1995,  compared to December 31, 1994.  The increase in
1996  was  largely  due  to  the  acquisition  of MSB  coupled  with a  decrease
throughout the year in interest-bearing account balances.

CAPITAL

         One of management's  primary objectives is to maintain a strong capital
position to merit the confidence of customers, the investing public,  regulators
and its shareholders.  A strong capital position helps NECB withstand unforeseen
adverse developments and take advantage of profitable  investment  opportunities
when they arise.  One such opportunity was the acquisition of CMBK, which was an
all cash transaction,  and enabled NECB to leverage its balance sheet to improve
its earnings  capacity.  At December 31, 1997,  total  shareholders'  equity was
$53,823,000,  an increase of $4,603,000  compared to $49,220,000 at December 31,
1996. The bulk of the increase came from the retention of earnings which, net of
dividends paid, amounted to $3,010,000.  Also increasing capital in 1997 was the
proceeds from the issuance of shares in conjunction  with employee benefit plans
and the  $927,000  increase in the net  unrealized  holding  gain on  securities
available-for-sale.  During 1996,  shareholders' equity increased $12,072,000 to
$49,220,000  from  $37,148,000  at December  31,  1995.  The  increase  resulted
primarily from the MSB acquisition and retained earnings.

         As noted above, the Company  endeavors to maintain an optimal amount of
capital upon which an attractive  return to  shareholders  will be realized over
the short and long run while  meeting all  regulatory  requirements  for minimum
levels of capital.

         As of December 31, 1997, the Company  exceeded all  regulatory  capital
ratios and the Subsidiaries were categorized as "well capitalized." The leverage
ratio is  computed  using the  quarterly  average  assets  and,  based  upon the
December 31, 1997 acquisition date of CMBK, their assets are not included in the
leverage  ratio.  Had CMBK been part of NECB for the  entire  fourth  quarter of
1997, the leverage ratio would have been approximately 8.1%. The various capital
ratios of the Company for December 31, 1997 and 1996 were:

                                                            1997         1996
                                                            ----         ----
Total risk-based capital (10% to be well capitalized).....  12.8%        14.1%
Tier 1 risk-based capital (6% to be well capitalized).....  11.5%        12.9%
Leverage ratio (5% to be well capitalized)................   9.2%         8.8%
Total equity to assets....................................   8.9%         9.5%
Tangible equity to assets.................................   8.0%         8.7%



                                   Page -31-
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income," ("SFAS No. 130").  This statement  establishes  standards for reporting
and  display  of  comprehensive  income  and  its  components  (e.g.,  revenues,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  This  statement  requires  that all items that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other  financial  statements.  This statement does not require a specific format
for the financial  statement  but requires that an enterprise  display an amount
representing  total  comprehensive  income  for the  period  in  that  financial
statement.  SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other  comprehensive  income separately from retained
earnings and additional  paid-in-capital in the equity section of a statement of
financial  position.  SFAS No. 130 is effective for fiscal years beginning after
December 31, 1997.  Reclassification of financial statements for earlier periods
provided for  comparative  purposes is  required. NECB does not expect that upon
adoption,  this  statement  will  have a  material  effect  on its  consolidated
financial statements.

FORWARD LOOKING STATEMENTS

         Certain  statements  contained  in this  Annual  Report  on Form  10-K,
including  those  contained  in this Item 7 and in Item 1, are  forward  looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 are thus prospective. Such forward looking statements are subject to risks,
uncertainties  and other  factors  which  could cause  actual  results to differ
materially  from  future  results  express or implied by such  statements.  Such
factors include, but are not limited to: changes in interest rates,  regulation,
competition and the local and regional economy.

THE YEAR 2000 PROBLEM

         NECB, like all institutions that utilize computer technology, is facing
challenges  associated with the inability of many existing  computer  systems to
process  time-sensitive data accurately beyond the year 1999 (referred to as the
"Year 2000 Problem").  The Year 2000 Problem is the result of computer  programs
using two digits  rather  than four in date  fields  that  define the year.  Any
computer programs used by NECB that have time-sensitive software may recognize a
date  field  using  "00" as the year  1900  rather  than the year  2000.  If not
modified  or  replaced,   these   programs   could  cause  system   failures  or
miscalculations, which could adversely affect NECB's ability to process customer
transactions or provide customer service.

         NECB has conducted a  comprehensive  review of its computer  systems to
identify  all  systems  that  could be  affected  by the Year 2000  Problem  and
developed a comprehensive  project  management  process to modify or replace all
affected  systems  and test  them for Year 2000  compliance.  NECB  relies  upon
third-party  providers  for  its  computer  software.  NECB  is  monitoring  the
activities  of  its  providers  to  ensure  that  appropriate   development  and
implementation  plans to address the Year 2000  Problem  are in place.  NECB has
taken  steps to  identify  alternative  vendors in the event that one or more of
these providers fail to become Year 2000 compliant.  While NECB expects its Year
2000 plan to be completed  on a timely  basis (to allow for adequate  testing in
late  1998 and  1999),  there  can be no  assurance  that the  systems  of other
companies  on which  NECB's  systems may rely also will be completed in a timely
fashion. In addition,  NECB exchanges data with a number of other entities, such
as credit bureaus and  governmental  entities.  The failure of these entities to
adequately  to address  the Year 2000  Problem  could  adversely  affect  NECB's
ability to conduct its business.

         Costs associated with modifying existing system  applications have been
and will continue to be expensed as incurred.  NECB does not expect  incremental
costs associated with any modifications for Year 2000 compliance to be material.

1995 COMPARISON

         NECB  reported  net  income  for  1995  of  $3,690,000,  or  $1.19  per
share--basic.  The ROA and ROE for 1995  were  1.26% and  14.64%,  respectively.
These  performance  ratios reflect the pooling of FBWH which, in 1995, had a tax
benefit from the utilization of its loss carryforward.

                                   Page -32-
<PAGE>

         Net interest  income on an FTE basis in 1995  amounted to  $14,516,000.
The  net   interest   margin  in  1995  was  a  strong   5.39%.   The  yield  on
interest-earning  assets  in 1995 was 8.26%  while the cost of  interest-bearing
liabilities was 3.59%. The subsequent  increase in the cost of  interest-bearing
liabilities in 1996 (to 3.74%) is largely attributable to the MSB acquisition.

         The provision for loan losses  amounted to $1,200,000.  Net charge-offs
amounted to $1,423,000 in 1995, down from $1,712,000 a year earlier,  while NPAs
totaled $8,315,000.

         Noninterest   income  totaled   $2,343,000.   Noninterest   income  was
positively  impacted by increases in service  charges and gains from the sale of
loans originated for sale. During 1995, NECB originated more than $23,000,000 in
these loans. In 1995, noninterest expenses amounted to $11,872,000.

ITEM 7a.       QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The main  components  of market risk for NECB are  interest  rate risk,
liquidity  risk,  equity price risk and credit risk.  The discussion of interest
rate  risk,   liquidity  risk  and  credit  risk  appear  in  Part  II.  Item  7
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  of this  Form  10-K on  pages  29,  31 and 27,  respectively.  Such
information is incorporated herein by reference.

         With regard to equity price risk, the fair value of NECB's common stock
portfolio is expected to fluctuate in a manner similar to price movements in the
S&P 500 index (a broad market index).  For example, a 10% decline in the S&P 500
would be expected to reduce the fair value of NECB's  year-end 1997 portfolio by
approximately  10%, or $2.02 million.  Based on the  portfolio's  net unrealized
gain of $1.12 million at December 31, 1997, a 10% decline in fair value of would
reduce the net  unrealized  gain to an unrealized  loss of  approximately  $0.90
million.

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

         The financial  statements required by this item are filed as a separate
part of this report (see Appendix A)

ITEM 9.       CHANGES  IN  AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

         None.



                                   Page -33-
<PAGE>
                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         NECB's Proxy  Statement under the caption "The NECB Board of Directors"
contains the  information  required by this Item with  respect to directors  and
certain executive  officers of NECB. Such information is incorporated  herein by
reference.  Certain additional information regarding executive officers of NECB,
who are not also directors, appears under Item 1 of this Form 10-K.

ITEM 11.      EXECUTIVE COMPENSATION

         NECB's Proxy  Statement  under the caption  "Compensation  of Executive
Officers"  contains the information  required by this Item. Such  information is
incorporated herein by reference.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         NECB's Proxy Statement  contains under the caption "NECB Stock Owned by
Directors and Executive  Officers" the  information  required by this Item. Such
information is incorporated herein by reference.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         NECB's Proxy Statement under the caption "Other Information Relating to
Directors  and Executive  Officers"  contains the  information  required by this
Item. Such information is incorporated herein by reference.

                                     PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
              ON FORM 8-K

(a) (1) (2)       List of Financial Statements and Schedules.

         The consolidated  financial statements and report of independent public
accounts of New England Community  Bancorp,  Inc. and subsidiaries are listed in
the index appearing on page 34 of this report on Form 10-K.

(a) (3)  List of Exhibits

Exhibit No.       Description

      (3)(i)      Amended  and  Restated  Certificate  of  Incorporation  of New
                  England Community Bancorp,  Inc. was filed on June 20, 1995 as
                  Exhibit  3.1  to  New  England   Community   Bancorp,   Inc.'s
                  Registration  Statement  on  Form  S-4  (No.33-93640)  and  is
                  incorporated herein by reference.

                                   Page -34-
<PAGE>

      (3)(ii)     Bylaws of New England Community Bancorp, Inc.

      (10)(a)     The  Employment  Agreement  between New England Bank and Trust
                  Company and David A. Lentini dated August 9, 1994 was filed as
                  Exhibit 10.3 to Olde Windsor Bancorp, Inc.'s, now known as New
                  England Bancorp,  Inc.'s,  Registration  Statement on Form S-1
                  (No. 33-83622) and is incorporated herein by reference.

      (10)(b)     The  Employment  Agreement by and between New England Bank and
                  Trust  Company and David A. Lentini  dated August 31, 1993 was
                  filed as Exhibit 10.4 to Olde  Windsor  Bancorp,  Inc.'s,  now
                  known as New England Community Bancorp,  Inc.'s,  Registration
                  Statement  on Form  S-1  (No.  33-83622)  and is  incorporated
                  herein by reference.

      (10)(c)     The  Employment  Agreement by and between New England Bank and
                  Trust Company and Donat A. Fournier  dated August 31, 1993 was
                  filed as Exhibit 10.5 to Olde  Windsor  Bancorp,  Inc.'s,  now
                  known as New England Community Bancorp,  Inc.'s,  Registration
                  Statement  on Form S-1  (No.  33-83622)  and are  incorporated
                  herein by reference.

      (10)(d)     The  Employment  Agreement by and between New England Bank and
                  Trust Company and Donat A.  Fournier  dated August 9, 1994 was
                  filed on  October  20,  1994 as  Exhibit  10.6 to New  England
                  Community Bancorp,  Inc.'s Registration  Statement on Form S-1
                  (No.  33-83622),  Amendment 1, and is  incorporated  herein by
                  reference.

      (10)(e)     The  Employment  Agreement by and between New England Bank and
                  Trust Company and Anson C. Hall dated August 9, 1994 was filed
                  on October 20, 1994 as Exhibit  10.7 to New England  Community
                  Bancorp,  Inc.'s  Registration  Statement  on  Form  S-1  (No.
                  33-83622),  Amendment Number 1, and is incorporated  herein by
                  reference.

      (10)(f)     The Employment  Agreement by and between New England Community
                  Bancorp,  Inc.  and Frank A. Falvo dated  December 6, 1996 was
                  filed on  March  31,  1997 as  Exhibit  10(f)  to New  England
                  Community Bancorp, Inc.'s Annual Report filed on Form 10-K.

      (10)(g)     The Executive  Retention  Agreement by and between New England
                  Community Bancorp, Inc. and David A. Lentini dated October 16,
                  1997.

      (10)(h)     The Executive  Retention  Agreement by and between New England
                  Community  Bancorp,  Inc. and Donat A. Fournier  dated October
                  16, 1997.

      (10)(i)     The Executive  Retention  Agreement by and between New England
                  Community  Bancorp,  Inc. and Anson C. Hall dated  October 16,
                  1997.

      (10)(j)     The Executive  Retention  Agreement by and between New England
                  Community  Bancorp,  Inc. and Frank A. Falvo dated October 16,
                  1997.



                                   Page -35-
<PAGE>
             (21)         List of Subsidiaries.

                          Financial Data Schedule.--Fiscal Year End 1997


             (27.1)       Financial Data Schedule.

             (27.2)       Financial Data Schedule.--Fiscal Year Ends 1995, 1996
                          and Ohs, 1, 2, 3 of 1996

             (27.3)       Financial Data Schedule.--Qtrs. 1, 2, 3 of 1997

                                   Page -36-
<PAGE>
(b)      Reports on Form 8-K:

         Form  8-K/A  filed on October  21,  1997.  This 8-K  amended an earlier
filing (made on August 15, 1997) and provided Item 7 (a) Financial Statements of
Businesses Acquired; and 7 (b) Pro Forma Financial Statements disclosure.

         Form 8-K filed on December 19, 1997.  Under Item 5, Other  Matters,  it
was reported that at a meeting held on December 18, 1997, the Board of Directors
of NECB  voted to  declare a 10% stock  dividend  payable  January  16,  1998 to
shareholders of record December 31, 1997.



                                   Page -37-
<PAGE>
                                   APPENDIX A
Index to Financial Statements:

Report of Independent Certified Public Accountants for the Years Ended
     December 31, 1997, 1996 and 1995........................................F-1

Consolidated Balance Sheets at December 31, 1997 and 1996....................F-2

Consolidated Statements of Income for the Years Ended
     December 31, 1997, 1996 and 1995........................................F-3

Consolidated Statements of Changes in Shareholders' Equity for the
     Years Ended December 31, 1997, 1996 and 1995............................F-4

Consolidated Statements of Cash Flows for the Years
     Ended December 31, 1997, 1996 and 1995..................................F-5

Notes to Consolidated Financial Statements for the
     Years Ended December 31, 1997, 1996 and 1995.........................F-6-26



                                   Page -38-
<PAGE>
Shatswell, MacLeod & Company, P.C. [Letterhead]
83 Pine Street
West Peabody, Massachusetts  01960

To the Board of Directors
New England Community Bancorp, Inc.
Windsor, Connecticut

                          INDEPENDENT AUDITORS' REPORT

We have  audited  the  accompanying  consolidated  balance  sheet of New England
Community Bancorp, Inc. and Subsidiaries as of December 31, 1997 and the related
consolidated  statements  of income,  changes in  shareholders'  equity and cash
flows  for the year  ended  December  31,  1997.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of New
England  Community  Bancorp,  Inc. and Subsidiaries as of December 31, 1997, and
the consolidated results of their operations and their cash flows for year ended
December 31, 1997, in conformity with generally accepted accounting principles.

We  previously  audited and  reported on the  consolidated  balance  sheet as of
December 31, 1996 and the related consolidated  statements of income, changes in
shareholders' equity and cash flows for New England Community Bancorp,  Inc. for
the years ended December 31, 1996 and 1995,  prior to their  restatement for the
1997 pooling of  interests  as  described  in Notes 1 and 2 to the  consolidated
financial statements. The contribution of New England Community Bancorp, Inc. to
total assets,  net interest income and net income  represented  84%, 82% and 78%
for 1996 of the respective  restated  totals.  The  contribution  of New England
Community  Bancorp,  Inc. to net interest income and net income  represented 73%
and  54%  for  1995  of  the  respective  restated  totals.  Separate  financial
statements  of  the  other  entity  included  in  the  1996  and  1995  restated
consolidated  statements  were  audited  and  reported  on  separately  by other
auditors.  We have  also  audited,  as to  combination  only,  the  accompanying
consolidated  balance sheet as of December 31, 1996 and the related consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
years ended December 31, 1996 and 1995 after restatement for the 1997 pooling of
interests;  in our opinion,  such  consolidated  statements  have been  properly
combined on the basis described in Notes 1 and 2 to the  consolidated  financial
statements.

s/s Shatswell, MacLeod & Company, P.C.
--------------------------------------
SHATSWELL, MACLEOD & COMPANY, P.C.

West Peabody, Massachusetts
January 29, 1998, except for Note 2,
  as to which the date is February 10, 1998



                                      F-1
<PAGE>
              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(amounts in thousands; except per share data)
December 31,                                                                                     1997              1996
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                <C>
ASSETS:
     Cash and due from banks                                                                $  35,201          $ 24,729
     Federal funds sold                                                                         4,650            15,125
                                                                                            ---------          --------
        Cash and cash equivalents                                                              39,851            39,854
     Securities held-to-maturity, fair values of $11,478 and $13,386 at
        December 31, 1997 and 1996, respectively                                               11,336            13,333
     Securities available-for-sale, at fair value                                             120,448           105,137
     Federal Home Loan Bank stock, at cost                                                      2,977             2,440
     Loans outstanding                                                                        408,535           336,204
        Less: allowance for possible loan losses                                               (9,257)           (6,660)
                                                                                            ---------          --------
           Net loans                                                                          399,278           329,544
     Loans held-for-sale                                                                        2,966             1,931
     Accrued interest receivable                                                                4,395             3,913
     Premises and equipment                                                                    11,064             9,956
     Other real estate owned                                                                    2,870             2,316
     Goodwill                                                                                   5,238             4,464
     Other assets                                                                               5,747             3,866
                                                                                            ---------          --------
Total Assets                                                                                $ 606,170          $516,754
                                                                                            =========          ========

LIABILITIES:
     Deposits:
        Noninterest bearing                                                                 $ 114,510          $ 89,767
        Interest bearing                                                                      408,134           367,237
                                                                                            ---------          --------
           Total deposits                                                                     522,644           457,004
     Short-term borrowings                                                                     14,036             2,278
     Long-term debt                                                                            11,612             3,951
     Other liabilities                                                                          4,055             4,301
                                                                                            ---------          --------
Total Liabilities                                                                             552,347           467,534
                                                                                            ---------          --------

SHAREHOLDERS' EQUITY:
     Serial preferred stock, $.10 par value, 200,000 shares authorized;
        no shares issued
     Common stock, $.10 par value, authorized 10,000,000 shares:
        December 31, 1997, 5,160,626 outstanding;
        December 31, 1996, 4,622,400 outstanding                                                  516               462
     Additional paid-in capital                                                                51,064            38,546
     Retained earnings                                                                          1,107            10,003
     Net unrealized gain on securities available-for-sale                                       1,136               209
                                                                                            ---------          --------
Total Shareholders' Equity                                                                     53,823            49,220
                                                                                            ---------          --------
Total Liabilities & Shareholders' Equity                                                    $ 606,170          $516,754
                                                                                            =========          ========
                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>




                                      F-2
<PAGE>
              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
(amounts in thousands; except per share data)
Years Ended December 31,                                                        1997             1996              1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>              <C>               <C>
INTEREST INCOME:
     Loans, including fees                                                   $30,909          $27,715           $17,360
     Securities:
        Taxable interest                                                       7,317            6,360             3,797
        Interest exempt from federal income taxes                                141              120                49
        Dividends                                                                214              350               188
     Federal funds sold and other interest                                       400              506               713
                                                                             -------          -------           -------
        Total interest income                                                 38,981           35,051            22,107
                                                                             -------          -------           -------

INTEREST EXPENSE:
     Deposits                                                                 12,599           12,245             7,663
     Borrowed funds                                                              930              262                49
                                                                             -------          -------           -------
        Total interest expense                                                13,529           12,507             7,712
                                                                             -------          -------           -------
Net interest income                                                           25,452           22,544            14,395
Provision for possible loan losses                                             1,248            2,209             1,200
                                                                             -------          -------           -------
Net interest income after provision for possible loan losses                  24,204           20,335            13,195
                                                                             -------          -------           -------

NONINTEREST INCOME:
     Service charges, fees and commissions                                     2,551            1,959             1,611
     Securities gains, net                                                       315                7                26
     Gain on sales of loans, net                                                 860            1,076               498
     Other                                                                       353              374               208
                                                                             -------          -------           -------
        Total noninterest income                                               4,079            3,416             2,343
                                                                             -------          -------           -------

NONINTEREST EXPENSE:
     Salaries and employee benefits                                            9,648            8,320             5,543
     Occupancy                                                                 2,069            1,836             1,226
     Furniture and equipment                                                   1,404            1,151               861
     Outside services                                                          1,035            1,152               870
     Postage and supplies                                                        728              759               501
     Insurance and assessments                                                   187              180               630
     Losses, writedowns, expenses - other real estate owned                      387              397               505
     Amortization of goodwill                                                    314              155
     Acquisition expenses                                                      2,197
     Other                                                                     2,562            2,014             1,736
                                                                             -------          -------           -------
        Total noninterest expense                                             20,531           15,964            11,872
                                                                             -------          -------           -------
Income before taxes                                                            7,752            7,787             3,666
Income tax expense (benefit)                                                   3,117            2,299               (24)
                                                                             -------          -------           -------
Net Income                                                                   $ 4,635          $ 5,488           $ 3,690
                                                                             =======          =======           =======

Net Income per share--Basic                                                  $  0.91          $  1.19           $  1.19
Net Income per share--Diluted                                                $  0.90          $  1.19           $  1.18

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



                                      F-3
<PAGE>
              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
(amounts in thousands)
                                                                                            Net Unrealized
                                                                                               Gain (Loss)
                                                                      Additional             on Securities
                                                   Common Stock          Paid-in     Retained   Available-        Total
                                               Shares        Value       Capital     Earnings     for-Sale       Equity
--------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>       <C>          <C>          <C>          <C>          <C>
Balance, December 31, 1994                      2,581     $    258     $  20,394    $   2,519    $  (1,345)   $  21,826
   Net income                                                                           3,690                     3,690
   Dividends declared--$0.186 per share                                                  (481)                     (481)
   Cash dividends declared by pooled
      company prior to acquisition                                                        (37)                      (37)
   Common stock issued in connection with:
      Acquisition of The Equity Bank            1,004          100         9,407                                  9,507
      Common stock offering                       256           26         1,075                                  1,101
      Common stock warrants                         2                          8                                      8
   Net change in unrealized loss on
      securities available-for-sale                                                                  1,534        1,534
                                            ---------     --------     ---------    ---------    ---------    ---------
Balance, December 31, 1995                      3,843          384        30,884        5,691          189       37,148
   Net income                                                                           5,488                     5,488
   Dividends declared--$0.255 per share                                                  (952)                     (952)
   Cash dividends declared by pooled
      company prior to acquisition                                                       (224)                     (224)
   Common stock issued in connection with:
      Acquisition of Manchester State Bank        549           56         6,254                                  6,310
      Employee benefit plans                       37            3           184                                    187
      Common stock warrants                       193           19         1,224                                  1,243
   Net change in unrealized gain on
      securities available-for-sale                                                                     20           20
                                            ---------     --------     ---------    ---------    ---------    ---------
Balance, December 31, 1996                      4,622          462        38,546       10,003          209       49,220
   Net income                                                                           4,635                     4,635
   Dividends declared--$0.326 per share                                                (1,471)                   (1,471)
   Cash dividends declared by pooled
      company prior to acquisition                                                       (154)                     (154)
   Common stock retired in connection
      with acquisition of First Bank of
      West Hartford                               (21)          (2)         (110)                                  (112)
   Common stock issued in connection with
      employee benefit plans                       91            9           797                                    806
   Ten percent stock dividend                     469           47        11,831      (11,906)                      (28)
   Net change in unrealized gain on
      securities available-for-sale                                                                    927          927
                                            ---------     --------     ---------    ---------    ---------    ---------
Balance, December 31, 1997                      5,161     $    516     $  51,064    $   1,107    $   1,136    $  53,823
                                            =========     ========     =========    =========    =========    =========

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



                                      F-4
<PAGE>
              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(amounts in thousands)
Years Ended December 31,                                                      1997              1996              1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>               <C>
OPERATING ACTIVITIES:
   Net income                                                               $  4,635         $  5,488          $  3,690
   Adjustment for noncash charges (credits):
     Provision for depreciation and amortization                               1,003              959               721
     Losses from sale or disposal and provisions to reduce
        the carrying value of other real estate owned, net                       187              372              420
     Securities gains, net                                                      (315)              (7)              (26)
     Gain on sales of premises and equipment                                    (333)             (12)
     Accretion of discounts and amortization of premiums
        on bonds, net                                                              3              100               104
     Accretion, net of amortization, of purchase accounting adjustments         (213)            (191)
     Amortization of goodwill                                                    314              155
     Provision for possible loan losses                                        1,248            2,209             1,200
     (Increase) decrease in accrued interest receivable and
       other assets, net                                                        (491)              90              (297)
     Increase in loans held-for-sale                                          (1,035)             (72)           (1,677)
     Increase (decrease) in accrued interest payable and
       other liabilities, net                                                 (1,034)            (793)              725
                                                                            --------         --------           -------
        Net cash provided by operating activities                              3,969            8,298             4,860
                                                                            --------         --------           -------

FINANCING ACTIVITIES:
   Net increase (decrease) in noninterest-bearing accounts                    12,369            2,473            (3,659)
   Net increase (decrease) in interest-bearing accounts                      (15,449)          (6,914)            7,029
   Net increase (decrease) in short-term borrowings                           11,758            1,661              (633)
   Net increase in long-term debt                                              6,921            3,951
   Issuance of common stock                                                      232            1,431             1,108
   Cash and cash equivalents acquired in the acquisitions, net                 7,888           14,236             7,790
   Cash dividends paid                                                        (1,464)          (1,042)             (453)
                                                                            --------         --------          --------
         Net cash provided by financing activities                            22,255           15,796            11,182
                                                                            --------         --------          --------

INVESTING ACTIVITIES:
   Loans originated, net of principal collections                            (19,407)          (8,941)           (2,124)
   Loans purchased from other lenders                                                            (828)           (4,871)
   Net (increase) decrease in interest-bearing time deposits                                    3,000            (2,802)
   Purchase of Federal Home Loan Bank stock                                     (175)            (687)
   Proceeds from sales of loans                                                   38              456
   Purchases of securities available-for-sale                                (52,296)         (63,886)          (57,126)
   Proceeds from sales of securities available-for-sale                       23,662           19,905            27,325
   Proceeds from maturities of securities available-for-sale                  18,556           34,152            19,324
   Purchases of securities held-to-maturity                                      (25)          (4,667)           (8,765)
   Proceeds from maturities and repayments of securities held-to-maturity      2,020            5,312            10,056
   Proceeds from sales of other real estate owned                              1,796            2,581             1,978
   Purchases of premises and equipment                                          (821)          (1,368)           (1,518)
   Proceeds from sales of premises and equipment                                 486               12
   Capitalization of expenditures on other real estate owned                     (61)             (45)
                                                                            --------         --------          --------
         Net cash used for investing activities                              (26,227)         (15,004)          (18,523)
                                                                            --------         --------          --------

Increase (decrease) in cash and cash equivalents                                  (3)           9,090            (2,481)
Cash and cash equivalents, beginning of year                                  39,854           30,764            33,245
                                                                            --------         --------          --------
Cash and cash equivalents, end of year                                      $ 39,851         $ 39,854          $ 30,764
                                                                            ========         ========          ========

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



                                      F-5
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

     New  England   Community   Bancorp,   Inc.  (the  "Company"),   a  Delaware
Corporation,   is  a  multi-bank  holding  company.  Each  of  its  wholly-owned
subsidiary  banks are chartered by the State of Connecticut.  New England Bank &
Trust Company ("NEBT") is headquartered  in Windsor,  Connecticut,  and provides
commercial and consumer  banking services from its eleven offices located in the
towns of Canton,  East Windsor,  Ellington,  Enfield,  Manchester  (2),  Somers,
Suffield,  West Hartford and Windsor (2), Connecticut.  The Equity Bank ("EQBK")
provides   commercial  and  consumer   banking   services  from  its  office  in
Wethersfield,  Connecticut.  Community  Bank  ("CMBK"),  which was  acquired  in
December 1997, provides similar services from its two offices located in Bristol
and Plymouth, Connecticut.

BASIS OF PRESENTATION

     The consolidated  financial statements of the Company have been prepared in
conformity  with  generally  accepted  accounting  principles  and  include  its
accounts  and  those  of its  subsidiaries,  after  elimination  of  significant
intercompany balances and transactions.

     In preparing the consolidated financial statements,  Management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities as of the date
of the financial  statements  and the reported  amounts of revenues and expenses
during the reporting period. Actual results could differ from the estimates.

ACQUISITIONS

     On August 7, 1997,  First Bank of West  Hartford  ("FBWH")  was acquired by
NECB and merged  with and into NEBT.  The  transaction  was  accounted  for as a
pooling of interests and,  accordingly,  the financial information for all prior
periods  presented  have  been  restated  to  present  the  combined   financial
information as though the Company and FBWH had operated as a combined entity for
all periods presented.

     On December  31,  1997,  Community  Savings  Bank was  acquired by NECB and
renamed  Community  Bank. The  acquisition  was accounted for using the purchase
method of accounting.  As such, the comparative  statements do not include prior
operating results of the acquired entity.

     A summary of financial  information  relating to the above  transactions is
presented in Note 2.

SECURITIES

     Investments in debt  securities are adjusted for  amortization  of premiums
and accretion of discounts computed on the effective  interest method.  Gains or
losses on sales of investment securities are computed on a specific asset basis.

     The  Company  classifies  debt  and  equity  securities  into  one  of  two
categories: held-to-maturity or available-for-sale. This security classification
may be modified after  acquisition only under certain specified  conditions.  In
general,  securities may be classified as  held-to-maturity  only if the Company
has the  positive  intent  and  ability  to hold  them to  maturity.  All  other
securities  must be  classified as  available-for-sale.  With respect to how the
Company accounts for and reports these securities, refer to the table below:

Security Classification        Accounting and Reporting Treatment
--------------------------------------------------------------------------------
Held-to-maturity               These  securities  are measured at amortized cost
                               on the balance  sheet.  Unrealized  holding gains
                               and losses are not  included  in earnings or in a
                               separate  component  of capital.  They are merely
                               disclosed   in  the   notes   to  the   financial
                               statements.


                                      F-6
<PAGE>
Available-for-sale             These securities are carried at fair value on the
                               balance  sheet.   Unrealized  holding  gains  and
                               losses  are not  included  in  earnings,  but are
                               reported as a net amount (less expected tax) in a
                               separate component of capital until realized.

LOANS RECEIVABLE

     Loans  are  stated at their  principal  amount  outstanding  and are net of
unearned  income  on  discounted  loans.  Interest  on  nondiscounted  loans  is
recognized  on the  simple  interest  method  based  upon the  principal  amount
outstanding except for those loans in a nonaccrual  status.  Loans are generally
placed in a nonaccrual  status when they become past due ninety days or whenever
the ultimate  collection  of principal or interest is considered to be in doubt.
When the accrual of  interest  ceases,  previously  recognized  and  uncollected
interest is reversed against interest  income.  Payments  received on nonaccrual
loans are first applied to the remaining  principal balance and are next applied
to interest income.

     Loan  origination and commitment  fees and certain direct loan  origination
costs are deferred and the net amount  amortized as  adjustments  to the related
loans' yield. These amounts are being amortized over the contractual life of the
related loans. Upon sale of loans in the secondary market,  the related deferred
fees or costs are recorded in income. Commitment fees based on a percentage of a
customer's  unused line of credit and fees related to standby  letters of credit
are recognized over the commitment period.

ALLOWANCE FOR POSSIBLE LOAN LOSSES

     The allowance for possible  losses on loans is established  through charges
against income and is maintained at a level  considered  adequate to provide for
probable  loan losses  based on  management's  evaluation  of known and inherent
risks in the loan  portfolio.  When a loan or a portion of a loan is  considered
uncollectible,  it is  charged-off  against the  allowance.  Recoveries of loans
previously charged-off are credited to the allowance when received.

     Management's evaluation of the allowance is based on a continuing review of
the loan  portfolio  which  includes many  factors,  such as  utilization  of an
individual loan rating system to assess trends in asset quality;  identification
and review of  individual  problem  situations  which may affect the  borrower's
ability to repay;  review of overall portfolio quality through analytical review
of current  charge-offs,  delinquency  and  nonperforming  loan data;  review of
regulatory  authority  examinations  and  evaluation of loans;  an assessment of
current economic  conditions;  and changes in the size and character of the loan
portfolio. These reviews are dependent upon estimates,  appraisals and judgments
which  can  change  quickly   because  of  changing   economic   conditions  and
Management's  perception as to how these factors affect the financial  condition
of debtors.

     In May 1993, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan"  (SFAS No.  114) which was  amended in October  1994 by SFAS No. 118,
"Accounting  by Creditors  for  Impairment  of a  Loan--Income  Recognition  and
Disclosure."  The  Statements  are  effective for fiscal years  beginning  after
December 15, 1994. The Company  adopted SFAS No. 114 and SFAS No. 118 on January
1, 1995.  These  Statements  apply to all loans,  except large groups of smaller
balance  homogeneous  loans that are collectively  evaluated for impairment,  or
loans otherwise  carried at fair value or the lower of cost or fair value.  Both
Statements  specifically  exclude  leases  and other  debt  securities  from its
valuation standards. These Statements require that loans which are impaired (due
to the inability to collect all contractual  amounts due) be measured and valued
based upon (i) the present value of expected future cash flows discounted at the
loan's  effective  interest rate,  (ii) the loan's  observable  market price, or
(iii) the fair  value of the  collateral  if the loan is  collateral  dependent.
Because  of the  methods  required  by SFAS No.  114 and SFAS No.  118 and those
previously used by the Company to evaluate  impaired loans,  the adoption of the
Statements did not have a material impact on the Company's financial statements.
Interest income on impaired loans is generally recognized in accordance with the
Company's  existing  income  recognition  policy.  Management  believes that the
valuation allowance for impaired loans is adequate.

LOANS HELD-FOR-SALE

     Loans  held-for-sale  are  carried at the lower of  aggregate  cost or fair
value.

     Effective  January 1, 1996, the Company  adopted SFAS No. 122,  "Accounting
for Mortgage Servicing Rights". On January 1, 1997, the Company adopted SFAS No.
125 which  supersedes SFAS No. 122. Under SFAS No. 125, the distinction  between
"normal" and "excess"  servicing is eliminated.  SFAS No. 125 distinguishes only
between the benefits



                                      F-7
<PAGE>
of servicing,  the amounts that will be received  only if the servicing  work is
performed to the  satisfaction  of the loans' owner and other  amounts  retained
after  the  sale of the  loans.  Such  other  amounts  are  accounted  for  like
interest-only  strips and are  subsequently  measured like  investments  in debt
securities classified as available-for-sale or trading. These Statements require
that a mortgage banking  enterprise  recognize,  as a separate asset,  rights to
service loans for others--either through the acquisition of those rights or from
the sale or  securitization of loans with the servicing rights retained on those
loans--based  on their relative market value. To determine the fair value of the
servicing rights created,  the Company uses (when available) market prices under
comparable  servicing sale contracts,  or  alternatively  uses a valuation model
that  calculates  the present  value of future cash flows to determine  the fair
value of the  servicing  rights.  In using this  valuation  method,  the Company
incorporates assumptions that market participants would use in estimating future
net servicing income,  which includes  estimates of the cost of servicing loans,
the discount rate, ancillary income, prepayment speeds and default rates.

     The cost of servicing  rights is amortized on a  straight-line  basis which
has  substantially the same effect as amortizing the rights in proportion to and
over the period of the estimated net servicing revenues. Impairment of servicing
rights is assessed  based upon the fair value of those  rights.  Fair values are
estimated using discounted cash flows based upon a current market interest rate.
For the  purposes  of  measuring  impairment,  the rights are  stratified  based
primarily upon the interest rate risk  characteristics  of the underlying loans.
The  amount of  impairment  recognized  is the  amount by which the  capitalized
servicing rights for a stratum exceed their fair value.

OTHER REAL ESTATE OWNED

     Other real estate owned consists of properties acquired through, or in lieu
of, mortgage loan foreclosure proceedings.  These properties are recorded at the
lower of the carrying  value of the related loans or the  estimated  fair market
value less estimated selling costs. Charges to the allowance for loan losses are
the measure by which  properties are reduced to fair market value less estimated
selling  costs upon  reclassification  as other real  estate  owned.  Subsequent
reductions in carrying  value,  as well as operating  expenses,  are included in
losses, writedowns, expenses--other real estate owned.

     Beginning in 1995, in  accordance  with  Statement of Financial  Accounting
Standards  No. 114,  "Accounting  by Creditors  for  Impairment  of a Loan," the
Company  classifies  loans as  in-substance  repossessed  or  foreclosed  if the
Company  receives  physical  possession  of the debtor's  assets  regardless  of
whether formal foreclosure proceedings take place.

PREMISES AND EQUIPMENT

     Land is carried at cost.  Premises  and  equipment  are stated at cost less
accumulated  depreciation and amortization  computed by the straight-line method
for financial  reporting and under accelerated  methods for income tax purposes.
Asset lives for premises are from 15 to 30 years and for furniture and equipment
from 3 to 7 years while leasehold improvements are amortized over the shorter of
the estimated useful life or the life of the lease.

INTANGIBLES

     Intangible  assets arising from the acquisitions  under the purchase method
of  accounting  consist of goodwill.  Goodwill is  amortized on a  straight-line
basis over a period of 14 years.

INCOME TAXES

     The Company  recognizes  income taxes under the asset and liability method.
Under this method,  deferred tax assets and  liabilities are established for the
temporary  differences  between  the  accounting  basis and the tax basis of the
Company's  assets and  liabilities at enacted tax rates expected to be in effect
when the amounts related to such temporary  differences are realized or settled.
The  Company's  policy  is to  continually  evaluate  the  realizability  of any
deferred tax assets resulting from the use of the asset and liability method.

EARNINGS PER SHARE

     In the year ended  December  31,  1997,  the Company  adopted  SFAS No. 128
"Earnings  per Share"  ("EPS").  The  Statement  simplifies  the  standards  for
computing earnings per share. It replaces the presentation of "Primary EPS" with
"Basic EPS" which excludes dilution and is computed by dividing income available
to  common  shareholders



                                      F-8
<PAGE>

by the  weighted-average  number of common  shares  outstanding  for the period.
Diluted EPS, if applicable,  reflects the potential dilution that could occur if
securities or other contracts of issue common stock (e.g., stock options granted
to employees)  were  exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the  earnings of the entity.  While
SFAS No. 128 does require  restatement of all prior-period  EPS, the adoption of
the Statement had no material effect on the Company's financial statements.  EPS
for 1996 and 1995 was  restated to reflect the December  1997 ten percent  stock
dividend.

CASH FLOWS

     For the purpose of the  statements  of cash flows,  the Company has defined
cash  equivalents  as those  amounts  included  in cash and due from  banks  and
federal funds sold.

STOCK-BASED COMPENSATION

     Prior to 1996, the Company recognized  stock-based  compensation expense in
the basic financial statements using the "intrinsic value" approach as set forth
in Accounting  Principles  Board ("APB")  Opinion No. 25. As of January 1, 1996,
the Company had the option,  under SFAS No 123 of changing its accounting method
for  stock-based  compensation  from the APB No. 25  method to the "fair  value"
method introduced in SFAS No. 123. The Company elected to continue using the APB
No. 25 method. Entities electing to remain with the accounting in Opinion No. 25
must make pro forma  disclosure  of net income and, if  presented,  earnings per
share,  as if the fair value based method of accounting in SFAS No. 123 had been
applied.  The  Company has made the pro forma  disclosures  required by SFAS No.
123.

NOTE 2--ACQUISITIONS

     As previously disclosed, the acquisition of FBWH was completed on August 7,
1997. Under the terms of the acquisition,  approximately  995,000 shares of NECB
common stock were exchanged for all of the outstanding  common shares of FBWH at
an exchange  ratio of 0.62 shares of NECB for each share of FBWH.  The financial
information  for all prior  periods has been  restated  to present the  combined
financial  condition  and  results of  operations  of both  companies  as if the
acquisition had been in effect for all periods presented.

     On  December  31,  1997,  NECB  acquired  CMBK.  Under  the  terms  of  the
acquisition,  NECB paid $5.30 in cash for each of the outstanding  common shares
of CMBK.  As  previously  disclosed,  the  acquisition  was  accounted  for as a
purchase.  In purchase  accounting,  consolidated  income includes income of the
acquired entity from the date of acquisition.  Since the date of acquisition was
December 31, 1997,  the results of  operations  for CMBK are not included in the
consolidated  financial  statements.  Goodwill reflected by purchase  accounting
amounted to $1,089,000 and is being amortized over fourteen (14) years.

     The  following   summary,   prepared  on  an  unaudited  pro  forma  basis,
approximates the consolidated results of operations as if CMBK had been acquired
as of the  beginning  of 1997 and  1996,  respectively,  and  includes  purchase
accounting adjustments.

(amounts in thousands)
                                                         1997            1996
                                                         ----            ----
Net interest income after provision for loan losses   $ 26,223         $  22,522
Noninterest income                                       4,316             3,633
                                                      --------         ---------
    Total                                               30,539            26,155
Noninterest expense                                     22,861            18,318
                                                      --------         ---------
Income before income taxes                               7,678             7,837
Income taxes                                             3,117             2,250
                                                      --------         ---------
Pro forma net income                                  $  4,561         $   5,587
                                                      ========         =========

     The pro forma results are not necessarily indicative of what actually would
have  occurred  if the  acquisitions  had been in effect for the entire  periods
presented.  In  addition,  they are not  intended to be a  projection  of future
results and do not reflect any  synergies  that might be achieved  from combined
operations.

     On November 30, 1995, the Company acquired EQBK by issuing 1,003,617 shares
of the  Company's  common  stock in exchange for all of the  outstanding  common
shares (less 69,486 shares not exchanged by  dissenting  shareholders)  of



                                      F-9
<PAGE>
EQBK. The dissenting  shareholders  and the Company  settled in full in 1997. On
July 11, 1996,  NECB acquired  Manchester  State Bank ("MSB") by issuing 549,300
shares of the  Company's  common stock and paying  $3,525,000 in cash for all of
the outstanding  common shares of MSB. Both of these acquisitions were accounted
for as purchases,  and thus the results of operations for both entities are only
included  in  the  consolidated  financial  statements  since  the  date  of the
respective  transactions.  Goodwill reflected by purchase accounting amounted to
$840,000 and $3,752,000 for the EQBK and MSB acquisitions,  respectively, and in
both cases is being amortized over fourteen (14) years.

     On February 10, 1998,  NECB signed a definitive  agreement to purchase Olde
Port  Bank  &  Trust  Company  ("OPBT")  in  Portsmouth,   New  Hampshire.  NECB
anticipates  that  the  transaction  will  be  accounted  for  as a  pooling  of
interests.  Each of the outstanding  shares of OPBT will be exchanged for shares
of NECB  consisting  of that  number  of shares of NECB  common  stock  equal to
$200.00 in market  value,  with the final  exchange  ratio to be  determined  by
dividing  $200.00 by the average  closing price of NECB common stock supplied by
the National  Association  of  Securities  Dealers  Automated  Quotation  System
("NASDAQ") and reported in The Wall Street Journal as of the end of the ten (10)
consecutive  trading-day  period  ending  on the date on  which  the last of the
regulatory  approvals  required for the consummation of the Merger occurs.  NECB
anticipates  that the  acquisition  will  close on or about June 30,  1998.  The
agreement is subject to the approval of regulators and the shareholders of OPBT.


NOTE 3--SECURITIES

     Debt and equity securities have been classified in the consolidated balance
sheets according to Management's  intent.  The carrying amount of securities and
their approximate fair values at December 31 follow:

<TABLE>
<CAPTION>
(amounts in thousands)
                                                                               Gross            Gross
                                                         Amortized        Unrealized       Unrealized              Fair
                                                              Cost             Gains           Losses             Value
                                                        ----------        ----------        ---------        ----------
<S>                                                     <C>               <C>               <C>              <C>
Available-for-sale securities:
   December 31, 1997
     Marketable equity securities..................     $   19,072        $    1,354        $     236        $   20,190
     Debt securities issued by the U.S. Treasury
        and other U.S. government agencies.........         76,373               651               76            76,948
     Corporate debt securities.....................          9,968                88                3            10,053
     Asset-backed securities.......................            527                                                  527
     Mortgage-backed securities....................         12,585               165               20            12,730
                                                        ----------        ----------        ---------        ----------
                                                        $  118,525        $    2,258              335        $  120,448
                                                        ==========        ==========        =========        ==========

   December 31, 1996
     Marketable equity securities..................     $    3,689        $      329        $      16        $    4,002
     Debt securities issued by the U.S. Treasury
        and other U.S. government agencies.........         82,647               445              454            82,638
     Corporate debt securities.....................          8,008                15               20             8,003
     Asset-backed securities.......................            114                                                  114
     Mortgage-backed securities....................         10,311               109               40            10,380
                                                        ----------        ----------        ---------        ----------
                                                        $  104,769        $      898        $     530        $  105,137
                                                        ==========        ==========        =========        ==========

</TABLE>



                                      F-10
<PAGE>

<TABLE>
<CAPTION>
(amounts in thousands)                                                         Gross            Gross
                                                         Amortized        Unrealized       Unrealized              Fair
                                                              Cost             Gains           Losses             Value
                                                        ----------        ----------        ---------        ----------
<S>                                                       <C>              <C>               <C>              <C>
HELD-TO-MATURITY SECURITIES:
   December 31, 1997
     Debt securities issued by the U.S. Treasury
        and other U.S. government agencies...........     $  6,398         $      41         $      9         $   6,430
     Debt securities issued by states and political
        subdivisions of the states...................        2,841               103                              2,944
     Mortgage-backed securities......................        1,882                 4                1             1,885
     Other debt securities...........................          215                 4                                219
                                                          --------         ---------         --------         ---------
                                                          $ 11,336         $     152         $     10         $  11,478
                                                          ========         =========         ========         =========

   December 31, 1996
     Debt securities issued by the U.S. Treasury
        and other U.S. government agencies...........     $ 10,317         $      65         $     63         $  10,319
     Debt securities issued by states and political
        subdivisions of the states...................        2,841                64               13             2,892
     Other debt securities...........................          175                                                  175
                                                          --------         ---------         --------         ---------
                                                          $ 13,333         $     129         $     76         $  13,386
                                                          ========         =========         ========         =========
</TABLE>

     Gross   realized   gains   and   gross   realized   losses   on   sales  of
available-for-sale securities were $495,000 and $180,000, respectively, in 1997;
$79,000  and  $72,000,   respectively,  in  1996;  and  $177,000  and  $155,000,
respectively, in 1995.

     The  scheduled  maturities of securities  held-to-maturity  and  securities
available-for-sale  (other  than  equity  securities)  at  December  31, 1997 is
summarized as follows:

<TABLE>
<CAPTION>
                                                             Available-for-Sale                  Held-to-Maturity
(amounts in thousands)                                   Amortized                          Amortized
                                                              Cost        Fair Value             Cost        Fair Value
                                                        ----------        ----------        ---------        ----------
<S>                                                       <C>             <C>                <C>
Debt securities other than mortgage-backed and
  asset-backed securities:
    Due within one year........................           $  8,974        $    9,011         $                $
    Due after one year through five years......             48,896            49,303            6,480             6,531
    Due after five years through ten years.....             26,832            27,048            2,726             2,790
    Due after ten years........................              1,639             1,639              248               272
Mortgage-backed securities.....................             12,585            12,730            1,882             1,885
Asset-backed securities........................                527               527
                                                          --------        ----------         ---------        ---------
                                                          $ 99,453        $  100,258         $  11,336        $  11,478
                                                          ========        ==========         =========        =========
</TABLE>

     There  were no  securities  of  issuers  whose  aggregate  carrying  amount
exceeded 10% of shareholders' equity at December 31, 1997.

     Securities  having a par value of $27,105,000  and  $11,205,000 at December
31, 1997 and 1996,  respectively,  were pledged to secure treasury, tax and loan
deposits, public deposits or securities sold under agreements to repurchase.



                                      F-11
<PAGE>
NOTE 4--LOANS RECEIVABLE

(amounts in thousands)

Loans consisted of the following at December 31,
                                             1997             1996
                                             ----             ----
Commercial and financial................ $  102,105        $   89,544
Real estate:
    Construction........................     19,620            12,250
    Residential.........................    111,321            78,510
    Commercial..........................    133,803           116,188
Consumer................................     41,686            39,712
                                         ----------      ------------
Loans outstanding....................... $  408,535        $  336,204
                                         ==========        ==========

     The  Company's  loans  receivable  consists  primarily of  residential  and
commercial  real estate  loans  within its primary  market area in  Connecticut.
There are no  concentrations  of credit to borrowers that have similar  economic
characteristics.  The Company's policy for collateral requires that, at the time
of origination, the amount of the loan may not exceed 80% of the appraised value
of the  property.  In cases  where the loan  exceeds  this  percentage,  private
mortgage  insurance is generally required for that portion of the loan in excess
of 80% of the appraised value of the property.

ALLOWANCE FOR POSSIBLE LOAN LOSSES

     Changes in the  allowance  for  possible  loan  losses for the years  ended
December 31 were as follows:

(amounts in thousands)
                                          1997             1996            1995
                                       -------          -------         -------
Balance, beginning of year............ $ 6,660          $ 5,875         $ 4,137
Changes incident to acquisitions......   2,108            2,010           1,961
Provision charged to operations.......   1,248            2,209           1,200
Recoveries............................     602              486             423
Charge-offs...........................  (1,361)          (3,920)         (1,846)
                                       -------          -------         -------
Balance, end of year.................. $ 9,257          $ 6,660         $ 5,875
                                       =======          =======         =======

RESTRUCTURED LOANS

     Loans restructured in a troubled debt restructuring before January 1, 1995,
the  effective  date of SFAS No.  114 that are not  impaired  based on the terms
specified by the restructuring agreement, are as follows as of December 31:

<TABLE>
<CAPTION>
(amounts in thousands)
                                                                                        1997              1996
                                                                                        ----              ----
<S>                                                                                      <C>              <C>
Aggregate recorded investment................................................            $834             $699
Gross interest income that would have been recorded in the year if
     the loans had been current in accordance with their original terms
     and had been outstanding throughout the year or since origination.......              58               45
Interest income on the loans included in net income for the year.............              37               12
</TABLE>

     The Company has no commitments to lend  additional  funds to the debtors in
the above restructured loans.

     Loans whose terms were  modified are not included  above,  if subsequent to
restructuring,  their effective interest rates were equal to or greater than the
rate that the Company was willing to accept for a new loan with comparable risk.



                                      F-12
<PAGE>




IMPAIRED LOANS

     Information  about loans that meet the  definition  of an impaired  loan in
Statement of Financial Accounting Standards No. 114 for the years ended December
31 is as follows:

<TABLE>
<CAPTION>
(amounts in thousands)                                                         1997                         1996
                                                                   --------------------------     ------------------------
                                                                        Recorded     Related        Recorded       Related
                                                                      Investment    Allowance     Investment     Allowance
                                                                     in Impaired   for Credit    in Impaired    for Credit
                                                                           Loans       Losses          Loans        Losses
                                                                     -----------   ----------    -----------    ----------
<S>                                                                     <C>          <C>            <C>           <C>
Loans for which there is a related allowance for credit losses....      $  5,963     $  1,681       $  5,077      $    733
Loans for which there is no related allowance for credit losses...         1,043                         840
                                                                        --------     --------       --------      --------
   Totals.........................................................      $  7,006     $  1,681       $  5,917      $    733
                                                                        ========     ========       ========      ========
Average recorded investment in impaired loans during the
   year ended December 31,........................................      $  6,452                    $  5,108
Related amount of interest income recognized during the time,
   in the year ended December 31, that the loans were impaired:
   Total recognized...............................................      $     75                    $     48
   Amount recognized using a cash-basis method of accounting......      $      8                    $      3
</TABLE>

     The Company considers residential real estate loans and consumer loans that
are  not  individually  significant  to  be  large  groups  of  smaller  balance
homogeneous  loans.  These  loans are  collectively  evaluated  for  impairment.
Factors  considered by  Management in  determining  impairment  include  payment
status,  net worth and collateral  value. An  insignificant  payment delay or an
insignificant  shortfall in payment does not in itself result in the review of a
loan for impairment.  The Company applies SFAS No. 114 on a loan-by-loan  basis.
The Company does not apply SFAS No. 114 to  aggregations of loans that have risk
characteristics  in common with other impaired loans.  Interest on a loan is not
generally  accrued  when the loan  becomes  ninety or more  days  past due.  The
Company may place a loan on  nonaccrual  status but not classify it as impaired,
if (i)  it is  probable  that  the  Company  will  collect  all  amounts  due in
accordance  with  the  contractual  terms  of the  loan or (ii)  the  loan is an
individually  insignificant residential mortgage loan or consumer loan. Impaired
loans are charged-off when Management  believes that the  collectibility  of the
loan's principal is remote.  Substantially  all of the Company's loans that have
been identified as impaired have been measured by the fair value of the existing
collateral.

RELATED PARTIES

     Loans  to  the   Company's   executive   officers,   directors,   principal
shareholders  and their associates  aggregated  $2,746,000 at December 31, 1997.
The  following  table  summarizes  the related  party loan activity for the year
ended  December 31, 1997 (Note:  beginning  balance  does not include  executive
officers or directors who are not affiliated with the Company at year-end):

(amounts in thousands)

Balance, beginning of year....................................         $  2,596
Additions.....................................................            1,484
Repayments....................................................           (1,334)
                                                                       --------
Balance, end of year..........................................         $  2,746
                                                                       ========


LOAN SERVICING

     Loans  serviced  for others are not  included in the  accompanying  balance
sheets.  The  unpaid  principal  balances  of loans  serviced  for  others  were
$88,168,000 and $86,662,000 as of December 31, 1997 and 1996, respectively.

     Servicing  rights of $290,000 and  $381,000  were  capitalized  in 1997 and
1996, respectively. Amortization of servicing rights totaled $71,000 in 1997 and
$57,000 in 1996.

     No valuation  allowance for  capitalized  servicing  rights was required in
1997 or 1996.



                                      F-13
<PAGE>



NOTE 5--PREMISES AND EQUIPMENT

     Components of properties and equipment in the  consolidated  balance sheets
at December 31, were as follows:

(amounts in thousands)

Cost:                                                1997              1996
                                                     ----              ----
    Land.........................................  $  2,101         $  1,651
    Premises.....................................     9,030            7,604
    Furniture and equipment......................     6,934            5,967
    Leasehold improvements.......................     2,338            2,261
                                                   --------         --------
       Total cost................................    20,403           17,483
Less accumulated depreciation and amortization...    (9,339)          (7,527)
                                                   --------         --------
    Net book value...............................  $ 11,064         $  9,956
                                                   ========         ========

NONCANCELABLE LEASES

     The Company and its  subsidiaries  occupy certain premises and are provided
equipment under noncancelable  leases that are accounted for as operating leases
and that have  expiration  dates  through  2011.  These leases are renewable for
either three or five-year terms at the Company's  option.  Certain of the leases
contain  escalation clauses for additional rentals based upon increases in local
property  taxes and  inflationary  measures.  Rental  expense under these leases
aggregated  $1,048,000  in 1997,  $828,000  in 1996 and  $539,000 in 1995 and is
recorded in occupancy expenses.

     The aggregate  minimum rental  commitments under all leases at December 31,
1997 are $5,401,000 as indicated below:

(amounts in thousands)

  In year...                          ...the minimum commitment is...
  ----------                          -------------------------------
    1998..............................               $  993
    1999..............................                  869
    2000..............................                  488
    2001..............................                  308
    2002..............................                  223
    Years thereafter..................                2,520
                                                     ------
                                                     $5,401
                                                     ------

     EQBK leases its premises from a former director.

NOTE 6--DEPOSITS

     The  aggregate  amounts of time  deposit  accounts  (including  CDs) with a
minimum  denomination of $100,000 or more were $35,929,000 and $29,096,000 as of
December 31, 1997 and 1996,  respectively.  For all time deposits as of December
31, 1997,  the aggregate  amount of maturities  for each of the following  three
years ended December 31, and thereafter are:

(amounts in thousands)
                  1998.........................     $  166,814
                  1999.........................         34,077
                  2000.........................         13,428
                  Years thereafter.............          7,182
                  Add:  Unamortized premium....             42
                                                     ---------
                                                     $ 221,543
                                                     =========


                                      F-14
<PAGE>
NOTE 7--SHORT-TERM BORROWINGS

     Short-term  borrowings  consisted  of  treasury,   tax  and  loan  deposits
generally repaid within one to 120 days from the transaction date and securities
sold under  agreements to  repurchase.  Short-term  borrowings  consisted of the
following as of December 31:

(amounts in thousands)
                                                        1997            1996
                                                        ----            ----
Treasury, tax and loan deposits...................  $  7,318        $  2,146
Securities sold under agreements to repurchase....     6,718             132
                                                    --------        --------
   Total..........................................  $ 14,036        $  2,278
                                                    ========        ========

Information  concerning  securities  sold  under  agreements  to  repurchase  is
summarized as follows:

(amounts in thousands)
                                                         1997           1996
                                                         ----           ----
Average balance during the year.....................$   4,601       $    185
Maximum month-end balance during the year...........$  13,078       $    293

Average interest rate during the year...............    3.58%          3.47%

US Treasury obligations underlying the
     agreements at year-end:
     Carrying value and estimated fair value........  $13,495           $498

     The  underlying  securities  were under the  control  of the  Company as of
December 31, 1997.

NOTE 8--LONG-TERM DEBT

Notes payable to the Federal Home Loan Bank are  collateralized  by Federal Home
Loan Bank stock and first mortgage real estate loans. All of the notes are fixed
rate and have a weighted  average  interest  rate of 6.28%.  The  following is a
schedule of maturities:

(amounts in thousands)

                  1998.........................     $    2,116
                  1999.........................          3,124
                  2000.........................          2,133
                  2001.........................          3,141
                  2002.........................            152
                  Years thereafter.............            877
                  Add:  Unamortized premium....             69
                                                    ----------
                                                    $   11,612
                                                    ==========



                                      F-15
<PAGE>



NOTE 9--EMPLOYEE BENEFITS

STOCK COMPENSATION

     As indicated in Note 1, the Company  applies APB Opinion No. 25 and related
interpretations  in accounting for stock options.  Accordingly,  no compensation
expense  has  been  recognized  for  the  fixed  stock  options   granted.   Had
compensation  expense been determined based on the fair value at the grant dates
for awards  consistent  with the method of SFAS No. 123 (also  discussed in Note
1), the  Company's  net income and earnings per share would have been reduced to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                                                          1997              1996            1995
                                                                          ----              ----            ----
<S>                                         <C>                           <C>              <C>               <C>
Net income (in thousands)                   As reported..............     $4,635           $5,488            $3,690
                                            Pro forma................      4,524            5,426             3,680

Earnings per share                          As reported..............      $0.91            $1.19             $1.19
                                            Pro forma................       0.89             1.18              1.18

Earnings per share, assuming dilution       As reported..............      $0.90            $1.19             $1.18
                                            Pro forma................       0.87             1.17              1.18
</TABLE>


     All of the  following  information,  including  share  amounts and exercise
prices,  have been adjusted to reflect the issuance of the 10% stock dividend in
December 1997.

     During 1993, the Board of Directors of the Company granted stock options to
two  executive  officers to purchase  37,400 shares of common stock at $4.55 per
share.  These options were all exercised in 1996. In January 1995,  the Board of
Directors  of the  Company  voted  to grant  stock  options  to three  executive
officers  to  purchase  33,000  shares of common  stock at $7.05 per share after
January 24, 1996 and prior to January 24, 1998.  These options were exercised in
1997.  On  January  31,  1996,  the  Board  of  Directors  formed  an  Executive
Compensation  Committee (the  "Committee")  to administer the 1996 Incentive and
Nonqualified  Compensatory  Stock  Option  Plan  (the  "1996  Plan"),  which  is
described  below.  The Committee and the 1996 Plan were approved by shareholders
on May 21, 1996.

     Under the 1996 Plan, the Committee may grant either Incentive Stock Options
or Non-Statutory Stock Options to key managerial employees to purchase shares of
common  stock of the Company.  The 1996 Plan  expires on January 31,  2006.  The
aggregate  number  of shares  which may be  optioned  is  825,000  shares of the
Company's  common stock.  The option price is fixed by the Committee at the time
of the grant and may not be less than 100  percent of the fair  market  value of
the stock,  as determined by the Committee,  in good faith as of the grant date.
Each option may be first exercised in five equal annual installments  commencing
from  the date  set  forth  in the  Stock  Option  Agreement  for such  options;
provided,  however,  that no option be exercised beyond ten years after the date
of the grant.

     The fair value of each option grant is estimated on the date of grant using
the  Black-Sholes  Option  Pricing  Model  with the  following  weighted-average
assumptions used for grants in 1997, 1996 and 1995:

    Dividend yield...............     2.1 percent for all years
    Expected volatility..........     25 percent for all years
    Risk-free interest rate......     5.89 percent, 5.17 percent and 7.43
                                      percent in 1997, 1996 and 1995,
                                      respectively.
    Expected lives...............     8 years  for the 1997 and 1996 options
                                      granted  and 3 years  for the 1995 options
                                      granted

                                      F-16

<PAGE>

     A summary of the status of all the  Company's  stock options as of December
31,  1997,  1996 and 1995 and changes  during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>

                                                             1997                    1996                    1995
                                                     --------------------    --------------------    --------------------
<S>                                                   <C>        <C>         <C>         <C>         <C>         <C>
                                                                 Weighted                Weighted                Weighted
                                                                  Average                 Average                 Average
                                                                 Exercise                Exercise                Exercise
                                                        Shares      Price       Shares      Price       Shares      Price
                                                        ------      -----       ------      -----       ------      -----
Outstanding, beginning of year..............           187,000    $  8.92       70,400      $5.72       37,400      $4.55
Granted.....................................           255,750      17.33      154,000       9.32       33,000       7.05
Exercised...................................           (33,000)      7.05      (37,400)      4.55
                                                      --------               ---------               ---------
Forfeited...................................
Outstanding, end of year ...................           409,750     $14.32      187,000      $8.92       70,400      $5.72
                                                      --------               ---------               ---------

Options exercisable at year-end.............            30,800                  33,000                  37,400
Weighted-average fair value of options
   granted during the year..................             $5.71                   $2.89                   $1.60
</TABLE>



     The  following  table  summarizes  information  about fixed  stock  options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>

                             Options Outstanding                                               Options Exercisable
 ---------------------------------------------------------------------------    ------------------------------------
                      Number        Weighted-Average                                  Number
                    Outstanding         Remaining          Weighted-Average         Exercisable        Weighted-Average
Exercise Price    as of 12/31/97    Contractual Life       Exercisable Price      as of 12/31/97        Exercise Price
--------------    --------------    ----------------       -----------------      --------------        --------------
     <S>             <C>                 <C>                      <C>                   <C>                    <C>
    $ 9.32            154,000             8 years                $ 9.32                 30,800                 $9.32
     17.27            252,450            10 years                 17.27
     21.70              3,300            10 years                 21.70
                     --------                                                         --------
                      409,750             9 years                 14.32                 30,800                  9.32
                     ========                                                         ========
</TABLE>


         Not included in the above tables are 66,000 options granted in 1997 and
approved by the Board of Directors at an exercise price of $17.27.  These grants
were under the 1997 Non-officer  Directors' Stock Option Plan (the "1997 Plan"),
which is described  below.  The 1997 Plan became  effective upon its August 1997
Board approval provided,  however,  that if the 1997 Plan is not approved by the
shareholders  prior to its expiration of the one-year  period  commencing on the
August 1997 effective date, the 1997 Plan and options granted  thereunder  shall
be null and void and shall be of no effect.

     Under the 1997 Plan,  the Committee may grant stock options to  non-officer
members of the Board who are not  otherwise  employees  of the  Company.  Unless
sooner terminated, the 1997 Plan expires in August of 2007. The aggregate number
of shares  that may be optioned  is  330,000.  The option  price is fixed by the
Committee  at the time of the grant and may not be less than 100  percent of the
fair market value of the stock, as determined by the Committee, in good faith as
of the grant  date.  The  options may be first  exercised  in five equal  annual
installments beginning one year after the grant date.

DEFINED CONTRIBUTION PLAN

         During 1996, the Company converted its defined contribution plan into a
401(k)  plan  (the  "Plan").  Employees  over the age of 21 and with one year of
service are eligible to participate in the Plan. To encourage systematic savings
by employees,  the Company  matches  employee  contributions  to the Plan on the
following basis:  100% of the first 3% of employee  contributions and 50% of the
next 2%.  Both  employee  and  Company  matches  immediately  vest in the  Plan.
Additionally, funds which were previously not vested in the defined contribution
plan vested with the transfer into the Plan. Expense for both the 401(k) as well
as the defined  contribution plan amounted to approximately  $214,000,  $175,000
and $237,000 for the years ended December 31, 1997, 1996 and 1995, respectively.


                                      F-17
<PAGE>



NOTE 10--EARNINGS PER SHARE ("EPS")

The following is a  reconciliation  of the  numerators and  denominators  of the
basic and diluted per share computations for the net income:
<TABLE>
<CAPTION>
(amounts in thousands; except per share data)

                                                                             Income           Shares           Per-Share
                                                                           (Numerator)     (Denominator)        Amount
                                                                           -----------     -------------        ------
<S>                                                                           <C>              <C>              <C>
Year ended December 31, 1997
   Basic EPS
     Net income and income available to common stockholders                   $4,635              5,105          $0.91
     Effect of dilutive stock options                                                                70
                                                                             -------           --------
   Diluted EPS
     Income available to common shareholders and assumed conversions          $4,635              5,175          $0.90
                                                                             =======           ========         ======

Year ended December 31, 1996--as restated
   Basic EPS
     Net income and income available to common shareholders                   $5,488              4,605          $1.19
     Effect of dilutive stock options                                                                20
                                                                             -------           --------
   Diluted EPS
     Income available to common shareholders and assumed conversions          $5,488              4,625          $1.19
                                                                             =======           ========          =====

Year ended December 31, 1995--as restated
   Basic EPS
     Net income and income available to common shareholders                   $3,690              3,112          $1.19
     Effect of dilutive stock options                                                                 2
                                                                             -------           --------
   Diluted EPS
     Income available to common shareholders and assumed conversions          $3,690              3,114          $1.18
                                                                             =======           ========          =====
</TABLE>


NOTE 11--INCOME TAX EXPENSE (BENEFIT)

     The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>

(amounts in thousands)
Years ended December 31,                                                        1997             1996              1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>              <C>
Current:
     Federal                                                               $   2,472         $  1,247         $     725
     State                                                                       882              434               282
                                                                           ---------         --------         ---------
                                                                               3,354            1,681             1,007
                                                                           ---------         --------         ---------
Deferred:
     Federal                                                                     213              727              (720)
     State                                                                        18              251              (125)
                                                                           ---------         --------         ---------
                                                                                 231              978              (845)
                                                                           ---------         --------         ---------
Change in valuation allowance                                                   (335)            (360)             (186)
                                                                           ---------         --------         ---------
Benefit of operating loss carryforward                                          (133)
                                                                           ---------         --------         ---------
        Total income tax expense (benefit)                                 $   3,117         $  2,299         $     (24)
                                                                           =========         ========         =========
</TABLE>

                                      F-18

<PAGE>



     The following  reconciles  the income tax provision from the statutory rate
to the amount reported in the consolidated statements of income:
<TABLE>
<CAPTION>

(amounts in thousands)
Years ended December 31,                                                          1997              1996             1995
--------------------------------------------------------------------------------------------------------------------------

<S>                                                                               <C>              <C>               <C>
Federal income tax at statutory rate                                              34.0%            34.0%             34.0%
Increase (decrease) resulting from:
   Tax-exempt income                                                              (0.6)            (0.6)             (0.5)
   Dividends received deduction                                                   (0.6)            (1.1)             (1.4)
   Unallowable goodwill amortization and other reorganization expense, net         3.0
   Other adjustments                                                                                                 (0.9)
   Unallowable expenses                                                            0.3              0.5               0.6
   Change in valuation allowance                                                  (1.4)           (10.0)            (40.5)
   Benefit of operating loss carryforward                                         (0.6)
State tax, net of federal tax benefit                                              6.1              6.8               8.0
                                                                                ------           ------            ------
                                                                                  40.2%            29.6%             (0.7)%
                                                                                ======           ======            ======
</TABLE>

     At December 31, the Company had deferred tax assets and gross  deferred tax
liabilities as follows:
<TABLE>
<CAPTION>

(amounts in thousands)
                                                                                1997             1996              1995
                                                                                ----             ----              ----
<S>                                                                        <C>               <C>                 <C>
Deferred tax assets:
    Accrued interest on nonperforming loans                                  $   120         $    145           $   118
    Accrued deferred compensation                                                 60               63                63
    Accrued expenses                                                                                                103
    Allowance for loan losses                                                  1,397              813             1,412
    Loan origination fees                                                        181              205               257
    Depreciation                                                                                  137               149
    Other real estate owned valuation                                            206              348               412
    Purchase accounting                                                          108
    Transaction costs                                                            386
    Operating loss carryforward                                                  918              842               890
                                                                             -------         --------           -------
       Gross deferred tax assets                                               3,376            2,553             3,404
Valuation allowance                                                                              (335)             (695)
                                                                             -------         --------           -------
                                                                               3,376            2,218             2,709
                                                                             -------         --------           -------
Deferred tax liabilities:
    Mortgage servicing rights                                                   (173)             (75)
    Purchase accounting                                                                          (261)             (253)
    Other adjustments                                                            (32)             (75)              (31)
    Net unrealized gain on securities available-for-sale                        (786)            (158)             (134)
                                                                             -------         --------           -------
       Gross deferred tax liabilities                                           (991)            (569)             (418)
                                                                             -------         --------           -------
Net deferred tax assets                                                      $ 2,385         $  1,649           $ 2,291
                                                                             =======         ========           =======
</TABLE>

     Net  deferred tax assets at December  31, 1997  include  deferred  taxes of
$1,267,000 from the CMBK acquisition.

                                      F-19
<PAGE>



NOTE 12--CONDENSED FINANCIAL INFORMATION OF NEW ENGLAND COMMUNITY BANCORP, INC.

     The condensed balance sheets of New England Community Bancorp, Inc. (parent
company only) as of December 31, 1997 and 1996 and statements of income and cash
flows for each of the three years in the period ended December 31, 1997 follow:

<TABLE>
<CAPTION>
(amounts in thousands)
BALANCE SHEETS
                                                                               1997              1996
                                                                               ----              ----
<S>                                                                          <C>              <C>              <C>
Assets:
     Investment in bank subsidiaries, at equity in net assets                $53,204          $48,693
     Investments                                                               1,039              548
     Cash                                                                        334              284
     Other assets                                                              1,274               12
                                                                             -------          -------
Total Assets                                                                 $55,851          $49,537
                                                                             =======          =======

Other liabilities                                                            $ 2,028          $   317
Shareholders' equity                                                          53,823           49,220
                                                                             -------          -------
Total Liabilities & Shareholders' Equity                                     $55,851          $49,537
                                                                             =======          =======

STATEMENTS OF INCOME
                                                                                1997             1996              1995
                                                                                ----             ----              ----
Equity in (distributed) undistributed net income of bank subsidiaries        $(1,915)         $ 5,056           $ 3,737
Net interest and dividend income                                               7,354              591               293
Income tax benefit                                                               538              177                33
Other expense                                                                 (1,342)            (336)             (373)
                                                                             -------          -------           -------
Net income                                                                   $ 4,635          $ 5,488           $ 3,690
                                                                             =======          =======           =======
</TABLE>

                                      F-20

<PAGE>


<TABLE>
<CAPTION>

(amounts in thousands)
STATEMENTS OF CASH FLOWS
                                                                                1997             1996              1995
                                                                                ----             ----              ----
<S>                                                                         <C>               <C>              <C>
Operating activities:
     Net income                                                             $  4,635          $ 5,488          $  3,690
     Adjustments to reconcile net income to net cash provided by
        operating activities:
          Equity in distributed (undistributed) net income of bank
            subsidiaries                                                       1,915           (5,056)           (3,737)
          Securities gains, net                                                                    (1)
          Net increase (decrease) in other liabilities                           958             (297)              355
          Net (increase) decrease in other assets                               (192)              59               (72)
          Decrease in taxes payable                                             (368)             (70)             (101)
                                                                            --------          -------          --------
            Net cash provided by operating activities                          6,948              123               135
                                                                            --------          -------          --------

Investing activities:
     Purchases of securities                                                    (179)             (98)             (235)
     Proceeds from retirement of FBWH stock                                      110
     Cost of acquisitions                                                                        (277)             (396)
     Proceeds from sales of securities                                                          4,650               850
     Cash paid to shareholders of acquired banks                              (4,832)          (3,520)
     Investment in acquired bank                                                (919)
     Other                                                                                         (5)               (3)
                                                                            --------          -------          --------
           Net cash provided by (used for) investing activities               (5,820)             750               216
                                                                            --------          -------          --------

Financing activities:
     Net proceeds from issuance of common stock                                  232              170
     Dividends paid                                                           (1,310)            (817)             (415)
                                                                            --------          -------          --------
          Net cash used for financing activities                              (1,078)            (647)             (415)
                                                                            --------          -------          --------

Increase (decrease) in cash                                                       50              226               (64)
Cash, beginning of year                                                          284               58               122
                                                                            --------          -------          --------
Cash, end of year                                                           $    334          $   284          $     58
                                                                            ========          =======          ========
</TABLE>


NOTE 13--FINANCIAL INSTRUMENTS

     The Company is party to financial instruments with  off-balance-sheet  risk
to satisfy the financing  needs of its borrowers.  These  financial  instruments
include  commitments to extend credit,  standby  letters of credit and financial
guarantees.  The Company does not anticipate any material  losses as a result of
these transactions.

     Commitments  to extend credit are  agreements to lend to a borrower as long
as  there is not a  violation  of any  condition  established  in the  contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee. Since many of the commitments are expected to
expire  without  being  drawn upon,  the total  commitments  do not  necessarily
represent  future cash  requirements.  The  Company  evaluates  each  borrower's
creditworthiness  on a case-by-case  basis using the same credit policies as for
on-balance-sheet  financial  instruments.  The amount of collateral obtained, if
deemed  necessary  upon  extension of credit,  is based on  Management's  credit
evaluation  of the  counterparty.  Collateral  held varies but may include  real
estate,  accounts  receivable,  inventory,  property,  plant and  equipment  and
income-producing property.

     Standby  letters  of  credit  and  financial   guarantees  are  conditional
commitments issued by the Company's subsidiaries to guarantee the performance of
a borrower to a third party. The evaluations of creditworthiness,  consideration
of need for collateral and credit risk involved in issuing letters of credit are
essentially the same as that involved in extending loans to borrowers.

     Of the total standby  letters of credit  outstanding  at December 31, 1997,
$429,000 are secured by deposit accounts held with the Company's subsidiaries.

                                      F-21

<PAGE>



Disclosures of Fair Values of Financial Instruments

     Statement of Financial  Accounting  Standards No. 107,  "Disclosures  about
Fair Value of Financial  Instruments,"  (SFAS No. 107)  requires  disclosure  of
estimated  fair  values of  financial  instruments.  A financial  instrument  is
defined as cash,  evidence of an ownership  interest in an entity, or a contract
that  conveys or  imposes  the  contractual  right or  obligation  to receive or
deliver  cash or  another  financial  instrument.  Fair  value is defined as the
amount at which a financial  instrument  can be exchanged in a current  exchange
between willing parties, other than in a forced sale or liquidation, and is best
evidenced by a quoted market price, if one exists.

     The Company has  estimated  fair value based on quoted  market prices where
available. In cases where quoted market prices were not available, fair value is
based on  estimates  using the present  value of expected  future cash flows and
certain other  techniques.  These  techniques  are based on certain  assumptions
which are subjective and judgmental in nature. Accordingly,  the results may not
be  substantiated  by  comparison  with  independent  market prices and, in some
cases, cannot be realized in immediate  settlement of the financial  instrument.
Furthermore,  SFAS  No.  107  excludes  certain  financial  instruments  and all
non-financial  instruments from its disclosure  requirements.  Accordingly,  the
fair values  disclosed  should not be interpreted as the aggregate  current fair
market value of the Company.

     The  following  methods  and  assumptions  were  used  by  the  Company  in
estimating the fair value of its financial instruments:


FINANCIAL INSTRUMENT           METHODS AND ASSUMPTIONS
--------------------------------------------------------------------------------
Cash and  cash equivalents     The  carrying  amounts  reported  in the  balance
                               sheet  for cash and due from  banks  and  federal
                               funds sold approximate fair value.

Securities                     The fair value of securities  are based on prices
                               obtained through brokers and independent  pricing
                               services.

Loans                          The fair value of loans was  estimated for groups
                               of  similar  loans  based  on the  type of  loan,
                               interest rate  characteristics and maturity.  The
                               fair value of performing  commercial,  commercial
                               real estate,  installment  loans and  residential
                               mortgage   loans  was  estimated  by  discounting
                               expected  future cash flows using  interest rates
                               currently  being  offered for loans with  similar
                               terms to borrowers of similar credit quality. The
                               fair value of nonaccruing  loans was estimated by
                               determining expected future principal cash flows,
                               adjusted for credit risk.

Deposits                       The fair value of demand deposits, savings, money
                               market  and  NOW  deposits  and  certificates  of
                               deposits   having    variable    interest   rates
                               approximate  their carrying value. The fair value
                               of certificates of deposits with fixed maturities
                               and interest  rates was estimated by  discounting
                               expected  future  cash flows  utilizing  interest
                               rates  currently  being  offered on deposits with
                               similar characteristics and maturities.

Short-term borrowings          The carrying  amounts of federal funds purchased,
                               borrowings under repurchase  agreements and other
                               short-term  borrowings  maturing  within  90 days
                               approximate  fair  values.  Fair  values of other
                               short-term   borrowings   are   estimated   using
                               discounted   cash  flow  analyses  based  on  the
                               Company's current incremental borrowing rates for
                               similar types of borrowing arrangements.

Long-term debt                 The fair values of the Company's  long-term  debt
                               are estimated using discounted cash flow analyses
                               based  on  the  Company's   current   incremental
                               borrowing  rates for similar  types of  borrowing
                               arrangements.

                                      F-22

<PAGE>



     The estimated fair values of the Company's  financial  instruments,  all of
which are held or issued for  purposes  other than  trading,  were as follows at
December 31:

<TABLE>
<CAPTION>

                                                                      1997                               1996
                                                          --------------------------         --------------------------
(amounts in thousands)                                    Carrying              Fair         Carrying              Fair
                                                          Amount               Value           Amount             Value
                                                          ------               -----           ------             -----
<S>                                                       <C>              <C>               <C>              <C>
Financial assets:
     Cash and cash equivalents                            $ 39,851         $  39,851         $ 39,854         $  39,854
     Securities available-for-sale                         120,448           120,448          105,137           105,137
     Securities held-to-maturity                            11,336            11,478           13,333            13,386
     Federal Home Loan Bank stock                            2,977             2,977            2,440             2,440
     Loans                                                 399,278           400,212          329,544           329,326
     Loans held-for-sale                                     2,966             2,966            1,931             1,947
     Accrued interest receivable                             4,395             4,395            3,913             3,913

Financial liabilities:
     Deposits                                              522,644           523,463          457,004           458,297
     Short-term borrowings                                  14,036            14,036            2,278             2,278
     Long-term debt                                         11,612            11,629            3,951             3,945

</TABLE>


     The  carrying  amounts  of  financial  instruments  in the above  table are
included in the consolidated balance sheets under the individual captions.

Off-balance-sheet liabilities:

(amounts in thousands)
                                                              1997        1996
                                                              ----        ----
                                                          Notional    Notional
                                                            Amount      Amount
                                                            ------      ------
Commitments to extend credit                               $45,803     $46,019
Standby letters of credit and financial guarantees           2,387       2,005


     There  is no  material  difference  between  the  notional  amount  and the
estimated fair value of loan  commitments and unadvanced  portions of loans. The
fair value of letters of credit approximates the notional value.

     The  Company  has  no  derivative  financial  instruments  subject  to  the
provisions of SFAS No. 119 "Disclosure  About Derivative  Financial  Instruments
and Fair Value of Financial Instruments".

                                      F-23

<PAGE>



NOTE 14--DISCLOSURE FOR STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

(amounts in thousands)

Supplemental disclosure of cash paid during the period for:                              1997         1996         1995
                                                                                         ----         ----         ----
<S>                                                                                   <C>          <C>           <C>
   Income tax paid                                                                    $ 2,524      $ 2,090       $  813
   Interest paid                                                                       13,431       12,896        7,619

Supplemental disclosure of noncash investing and financing activities:
   Loans charged off, net of recoveries                                                   759        3,434        1,423
   Real estate acquired through foreclosure                                             2,293        2,282        1,049
   Loans originated to facilitate sales of other real estate owned                      1,154        1,071          592

Assets  acquired  and  liabilities  assumed  in  business  combinations  were as
follows:
   Fair value of assets acquired, excluding cash and cash equivalents                  62,422       77,063      111,242
   Cash and cash equivalents acquired                                                   7,888       14,236        7,790
                                                                                      -------       ------        -----
                                                                                       70,310       91,299      119,032
   Liabilities assumed                                                                 64,309       84,989      109,525
                                                                                       ------       ------      -------
      Value of acquired entities                                                        6,001        6,310        9,507
</TABLE>


NOTE 15--REGULATORY MATTERS

RESTRICTIONS ON DIVIDENDS

     The  Company's   principal   assets  are  its   investments   in  its  bank
subsidiaries.   As  such,  the  Company's   ability  to  pay  dividends  to  its
shareholders  is largely  dependent on the ability of the Banks to pay dividends
to the Company.  The  declaration  of cash dividends is dependent on a number of
factors, including regulatory limitations,  and the Banks' operating results and
financial  conditions.  The  Shareholders  of the  Company  will be  entitled to
dividends only when, and if, declared by the Company's Board of Directors out of
funds legally available  therefore.  The declaration of future dividends will be
subject to favorable operating results, financial conditions, tax considerations
and other factors. The Federal Deposit Insurance Corporation regulations require
banks to maintain  certain  capital  ratios as noted  below which may  otherwise
restrict the ability of the Banks to pay dividends to the Company.

MINIMUM CAPITAL REQUIREMENTS

     The Company  and its  subsidiary  Banks are  subject to various  regulatory
capital  requirements  administered by the federal banking agencies.  Failure to
meet minimum capital requirements can initiate certain  mandatory--and  possibly
discretionary--actions  by regulators  that, if undertaken,  could have a direct
material  effect on the Company's  and the Banks'  financial  statements.  Under
capital adequacy  guidelines and the regulatory  framework for prompt corrective
action,  the Company and the Banks must meet specific  capital  guidelines  that
involve  quantitative   measures  of  their  assets,   liabilities  and  certain
off-balance  sheet items as calculated  under regulatory  accounting  practices.
Their  capital  amounts  and  classifications  are also  subject to  qualitative
judgments by the regulators about components, risk weighting and other factors.

     Quantitative  measures established by regulation to ensure capital adequacy
require the Company  and the Banks to maintain  minimum  amounts and ratios (set
forth in the table  below) of total and Tier 1 capital to  risk-weighted  assets
and of Tier 1 capital to average assets. Management believes, as of December 31,
1997, that the Company and the Banks meet all capital  adequacy  requirements to
which they are subject.

     As of December  31,  1997,  the most recent  notification  from the Federal
Deposit  Insurance  Corporation  categorized the Banks as well capitalized under
the  framework  for  prompt  corrective   action.  To  be  categorized  as  well
capitalized Banks must maintain minimum total risk-based,  Tier 1 risk-based and
Tier 1 leverage  ratios as set forth in the table.  There are no  conditions  or
events since that notification that management  believes have changed the Banks'
categories.

                                      F-24

<PAGE>



The actual capital amounts and ratios are also presented in the following table:
<TABLE>
<CAPTION>

                                                                                                           To be Well
(amounts in thousands)                                   Actual              Adequacy Purposes             Capitalized
----------------------                                   ------              -----------------             -----------
                                                    Amount      Ratio         Amount      Ratio         Amount      Ratio
                                                    ------      -----         ------      -----         ------      -----
                                                                                       Greater than             Greater than
                                                                                        or equal to              or equal to
<S>                                                <C>        <C>            <C>          <C>
As of December 31, 1997
   Risk-Based Total Capital:
     CONSOLIDATED                                  $52,568    12.8%          $32,876      8.0%                 N/A
     NEBT                                           35,676    12.5            22,808      8.0          $28,510     10.0%
     EQBK                                           11,253    12.4             7,275      8.0            9,094     10.0
     CMBK                                            4,841    10.4             3,720      8.0            4,651     10.0
   Risk-Based Tier 1 Capital:
     CONSOLIDATED                                   47,407    11.5            16,438      4.0                   N/A
     NEBT                                           32,091    11.3            11,404      4.0           17,106      6.0
     EQBK                                           10,107    11.1             3,638      4.0            5,456      6.0
     CMBK                                            4,241     9.1             1,860      4.0            2,790      6.0
   Leverage:
     CONSOLIDATED                                   47,407     9.2            20,523      4.0                   N/A
     NEBT                                           32,091     8.0            15,980      4.0           19,975      5.0
     EQBK                                           10,107     8.8             4,612      4.0            5,765      5.0
     CMBK                                            4,241     6.1             2,778      4.0            3,472      5.0

</TABLE>

     Under Federal Reserve regulation, the Company's subsidiaries are limited as
to the amount  they may lend or advance to the  Company,  unless  such loans and
advances are  collateralized by specific  obligations.  No advances were made to
the Company by any subsidiary at December 31, 1997 or 1996.


NOTE 16--LITIGATION

     CMBK  is the  defendant  in a  breach  of  employment  contract  suit.  The
Plaintiff  is  seeking  monetary  damages.  The case is in the  early  stages of
discovery.  As such,  management  and legal  counsel are unable to evaluate  the
outcome at the present time.

     NECB is party to various other legal  proceedings  normally incident to the
kind of business conducted.  Management believes that no material liability will
result from such proceedings.

NOTE 17--RECLASSIFICATION

     Certain amounts in the prior years have been  reclassified to be consistent
with the current year's statement presentation.

                                      F-25

<PAGE>


SUPPLEMENTAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
QUARTERLY SUMMARIZED FINANCIAL INFORMATION (Unaudited)

By Quarter                                1997                                                 1996
                                          ----                                                 ----
(Amounts in thousands,
except per share data)        1        2        3         4      Year         1         2         3         4      Year
-----------------------------------------------------------------------------------------------------------------------
<S>                       <C>      <C>       <C>       <C>      <C>         <C>       <C>      <C>       <C>      <C>
Interest income           $9,609   $9,744    $9,827    $9,801   $38,981     $8,123    $7,863   $9,405    $9,660   $35,051
Interest expense           3,287    3,302     3,425     3,515    13,529      2,927     2,852    3,360     3,368    12,507
-------------------------------------------------------------------------------------------------------------------------
Net interest income        6,322    6,442     6,402     6,286    25,452      5,196     5,011    6,045     6,292    22,544
Provision for loan losses    273      285       475       215     1,248        607       532      476       594     2,209
-------------------------------------------------------------------------------------------------------------------------
Net interest income after
   provision for loan
   losses                  6,049    6,157     5,927     6,071    24,204      4,589     4,479    5,569     5,698    20,335
Noninterest income           954      962       853     1,310     4,079        661       987      876       892     3,416
-------------------------------------------------------------------------------------------------------------------------
                           7,003    7,119     6,780     7,381    28,283      5,250     5,466    6,445     6,590    23,751
Noninterest expense        4,597    4,709     5,805     5,420    20,531      3,625     3,707    4,297     4,335    15,964
-------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,406    2,410       975     1,961     7,752      1,625     1,759    2,148     2,255     7,787
Income taxes                 904      910       552       751     3,117        454       510      602       733     2,299
-------------------------------------------------------------------------------------------------------------------------
Net income                $1,502   $1,500    $  423    $1,210    $4,635     $1,171    $1,249   $1,546    $1,522    $5,488
=========================================================================================================================
Net income
  per share--basic         $0.30    $0.29     $0.08     $0.24     $0.91      $0.25     $0.27    $0.34     $0.33     $1.19
=========================================================================================================================
Net income
  per share--diluted       $0.30    $0.29     $0.08     $0.23     $0.90      $0.25     $0.27    $0.34     $0.33     $1.19
=========================================================================================================================
</TABLE>

                                      F-26

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Windsor, Connecticut on
March 19, 1998.

                          NEW ENGLAND COMMUNITY BANCORP, INC.



                          By /s/Anson C. Hall
                             ----------------
                             Anson C. Hall
                             Vice President, Chief Financial Officer



                          By /s/David A. Lentini
                             -------------------
                             David A. Lentini
                             Chairman, President and Chief Executive Officer


<PAGE>



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:

Signature                      Title                                  Date
--------------------------------------------------------------------------------

s/s David A. Lentini           Chairman, President and        March 19, 1998
---------------------------    Chief Executive Officer
(David A. Lentini)


s/s John C. Carmon             Director                       March 19, 1998
---------------------------
(John C. Carmon)


s/s Gary J. DeNino             Director                       March 19, 1998
---------------------------
(Gary J. DeNino)


s/s Frank A. Falvo             Director                       March 19, 1998
---------------------------
(Frank A. Falvo)


s/s Dominic J. Ferraina        Director                       March 19, 1998
---------------------------
(Dominic J. Ferraina)


s/s John R. Harvey             Director                       March 19, 1998
---------------------------
(John R. Harvey)


s/s Angelina J. McGillivray    Director                       March 19, 1998
---------------------------
(Angelina J. McGillivray)


s/s Michael P. Solimene        Director                       March 19, 1998
---------------------------
(Michael P. Solimene)


<PAGE>


                                  EXHIBIT INDEX

Exhibit #      Description                                                Page
---------      -----------                                                ----
  3(ii)        Bylaws of NECB

 10(g)         The Executive Retention Agreement by and between New
               England Community Bancorp, Inc. and David A. Lentini
               dated October 16, 1997.

 10(h)         The Executive Retention Agreement by and between New
               England Community Bancorp, Inc. and Donat A. Fournier
               dated October 16, 1997.

 10(i)         The Executive Retention Agreement by and between New
               England Community Bancorp, Inc. and Anson C. Hall dated
               October 16, 1997.

 10(j)         The Executive Retention Agreement by and between New
               England Community and Frank A. Falvo dated
               October 16, 1997.

 21            List of Subsidiaries
               Financial Data Schedule.--Fiscal Year End 1997


 27.1          Financial Data Schedule.

 27.2          Financial Data Schedule.--Fiscal Year Ends 1995, 1996
               and Ohs, 1, 2, 3 of 1996

 27.3          Financial Data Schedule.--Qtrs. 1, 2, 3 of 1997