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, 1998

/ /     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 06-1116165

                                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, 1999, the aggregate market value of the shares outstanding of
Common Stock held by non-affiliates of the Registrant, was $129,143,646 The
number of shares outstanding of the Registrant's Common Stock, $.10 par value,
was 7,031,054 at March 24, 1999.


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DOCUMENTS INCORPORATED BY REFERENCE

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                                                                                             Part Into
                     DOCUMENT                                                           WHICH INCORPORATED
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The information contained in the Registrant's definitive proxy statement (which
is expected to be filed within 120 days of fiscal year-end 1998 and to be used
in connection with the Annual Meeting of Shareholders which is anticipated to be
held on April 20, 1999) 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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                                         TABLE OF CONTENTS

Part I

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         Item 1       Business.....................................................................................
         Item 2       Properties...................................................................................
         Item 3       Legal Proceedings............................................................................
         Item 4       Submission of Matters to a Vote of Security Holders..........................................

Part II

         Item 5       Market for Registrant's Common Equity and

                      Related Stockholder Matters..................................................................
         Item 6       Selected Financial Data......................................................................
         Item 7       Management's Discussion and Analysis of
                      Financial Condition and Results of Operations................................................
         Item 7A      Quantitative and Qualitative Disclosure about Market Risk....................................
         Item 8       Financial Statements and Supplementary Data..................................................

         Item 9       Changes in and Disagreements with Accountants

                      on Accounting and Financial Disclosure.......................................................

Part III

         Item 10      Directors and Executive Officers of the Registrant...........................................
         Item 11      Executive Compensation.......................................................................
         Item 12      Security Ownership of Certain Beneficial Owners

                      and Management...............................................................................
         Item 13      Certain Relationships and Related Transactions...............................................

Part IV

         Item 14      Exhibits, Financial Statement Schedules, and

                      Reports on Form 8-K..........................................................................

Signatures


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                       New England Community Bancorp, Inc.

                             Form 10-K Annual Report
                   For the Fiscal Year Ended December 31, 1998

                                     PART I

ITEM 1.       BUSINESS

General

         New England Community Bancorp, Inc. ("NECB" or the "Company"), is a
multi-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. NECB also owns Olde Port Bank and Trust
("OPBT"), a New Hampshire chartered commercial bank.

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
for these entities. 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.

         In the third quarter 1998, NECB completed the acquisition of OPBT and
Bank of South Windsor ("BSW") of South Windsor, Connecticut. OPBT operates as
NECB's fourth community bank, and BSW was merged with NEBT. The acquisitions of
OPBT and BSW were accounted for as a "pooling of interests" and therefore all
comparative prior periods have been restated as if the acquisitions had been in
effect for all periods presented.

         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 the
Connecticut Banking Commissioner or the New Hampshire 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.

                                       4
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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.

         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.

New Hampshire Regulation

         As a New Hampshire state-chartered trust company, Olde Port is subject
to supervision, regulation and examination by the New Hampshire Bank
Commissioner. This regulation includes, among other things, various reporting
requirements and regulations relating to loans, deposits, investments, services,
and permissible activities.

         The establishment of branches and certain bank combination transactions
are subject to prior approval by the New Hampshire Board of Trust Company
Incorporation ("NHBTCI"). New Hampshire law generally prohibits direct or
indirect acquisitions of banks or bank branches in New Hampshire if, after
giving effect to any such transaction, the acquiring entity and its affiliates
would control more than 20% of the total banking deposits in New Hampshire. This
restriction may be waived by the NNBTCI in certain circumstances.

     Olde Port is prohibited under New Hampshire law from declaring dividends
except from earnings remaining after deductions for expenses, losses and certain
nonperforming loans. Dividends may also be restricted based on considerations of
safety and soundness.


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, 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.

                                       5
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         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 1998 was 5.07%.

         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 4.0% and 8.0%, respectively.
At December 31, 1998, NEBT's Tier 1 and total risk-based capital ratios were
11.4% and 12.7%, respectively, compared to 11.3% and 12.6% at December 31, 1997.
EQBK's Tier 1 and total risk-based capital ratios were 12.1% and 13.3%,
respectively, at December 31, 1998 compared to 11.1% and 12.4% at December 31,
1997. At December 31, 1998, CMBK's Tier 1 and total risk-based capital ratios
were 14.9% and 16.2%, respectively, compared to 9.1% and 10.4% at December 31,
1997. At December 31, 1998, OPBT's Tier 1 and total risk-based capital ratios
were 13.0% and 14.2%, respectively, compared to 14.0% and 15.3% at December 31,
1997. 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 3.0% for the most highly rated institutions and 4.0% to 5.0% for
most institutions. As of December 31, 1998, NEBT's leverage capital ratio was
7.5%, compared to 8.0% as of December 31, 1997; EQBK's leverage capital ratio as
of that date was 10.1%, compared to 8.8% as of December 31, 1997. As of December
31, 1998, CMBK's leverage capital ratio was 8.0%, compared to 6.1% as of
December 31, 1997. As of December 31, 1998, OPBT's leverage capital ratio was
9.4%, compared to 10.0% as of December 31, 1997.

         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 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,
1998, 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.

                                       6
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         Pursuant to FDICIA, in June 1996, 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 1996. 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

         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, 1998, the Company's Tier 1 and total
risk-based capital ratios were 12.1% and 13.3%, respectively, and the Company's
leverage capital ratio was 8.3%, compared to 11.3%, 12.5% and 8.6%,
respectively, as of December 31, 1997. 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.

                                       7
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         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 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.

                                       8
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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.

         NECB currently maintains its executive offices in Windsor, Connecticut.
At December 31, 1998, the Subsidiaries operated out of 21 offices located
primarily in north central Connecticut and two offices in New Hampshire. 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, 1998, NECB, through its Subsidiaries, had gross loans
of $515,980,000, deposits of $664,078,000 and total assets of $803,887,000.

         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 1998, approximately 85% of
residential mortgage loans were sold to the FHLMC as well as other outlets. The
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.

                                       9
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         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 a 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 of 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 305 full-time equivalent employees as of
December 31, 1998, compared to 250 employees at the end of 1997. Management
considers the relationships with employees of the Company to be good.

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.

                                       10
<PAGE>


         There are approximately 26 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 31 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 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 market area for OPBT is
Portsmouth, New Hampshire 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.

                                       11
<PAGE>




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


                                       12


<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:



<TABLE>
<CAPTION>
AT DECEMBER 31,                                             1998         1997         1996    
----------------------------------------------------------------------------------------------
Debt securities issued by the
   U.S. Treasury and other U.S.

<S>                                                      <C>           <C>            <C>     
   government agencies......................             $102,937      $  98,060      $101,519
Mortgage-backed securities..................               33,398         34,293        17,050
Corporate debt securities...................               10,727         10,927        10,648
Asset-backed securities.....................                1,019            527           114
Municipal securities........................               13,417          7,126         3,119
Marketable equity securities................               30,369         11,268         4,002
                                                         --------       --------      --------
   Total                                                 $191,867       $162,201      $136,452
                                                         ========       ========      ========

Held to Maturity:

Debt securities issued by the
   U.S. Treasury and other U.S.

   government agencies......................           $    1,899     $    8,798     $  14,430
Debt securities issued by states and political
   subdivisions of the states...............                2,839          2,841         2,841
Mortgage-backed securities..................                  672          2,461           788
Other debt securities.......................                  265            215           175
                                                       ----------      ---------     ---------
   Total                                               $    5,675      $  14,315     $  18,234
                                                       ==========      =========     =========
     Total investment securities                         $197,542       $176,516      $154,686
                                                         ========       ========      ========


</TABLE>

         The following table presents maturities and weighted average yields at
December 31, 1998. 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 were adjusted to a tax-equivalent basis.

(Amounts in thousands)

Available for Sale(1) (2):


<TABLE>
<CAPTION>

                                                       After One         After Five
                                  Within              But Within         But Within            After
                                 One Year             Five Years          Ten Years           Ten Years          Total          
--------------------------------------------------------------------------------------------------------------------------------
<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......    $  9,254   6.32%      $31,271    6.24%     $60,002   6.58%  $  1,502    7.16%  $102,029     6.55%
Municipal securities........         250   5.82         2,485    7.53        3,387   7.11      7,064    7.34     13,186     7.30%
Mortgage-backed securities..         394   6.71         4,441    6.51        1,491   7.17     26,624    6.82     32,950     6.82%
Corporate debt securities...       1,858   7.18         8,752    6.34                                            10,610     6.37%
Asset-backed securities.....                              500    6.45          134   9.01        352    8.58        986     8.21%
                                 -------              -------              -------           -------           -------
                                 $11,756   6.52%      $47,449    7.45%     $65,014   6.82%   $35,542    7.51%  $159,761     7.25%
                                 =======              =======              =======           =======           ========

</TABLE>


                                       13

<PAGE>


Held to Maturity:

<TABLE>
<CAPTION>
                                                       After One          After Five
                                   Within             But Within          But Within            After
                                  One Year            Five Years           Ten Years           Ten Years          Total          
------------------------------------------------------------------------------------------------------------------------------------
<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                       $   900     6.70%                           $   999   7.54%                   $  1,899      7.49%
Debt securities issued by 
   states and political 
   subdivisions of the states                           $ 1,254     7.54%       1,387   7.21    $   198   9.20%    2,839      7.58%
Mortgage-backed securities                                  442     6.48                            230   6.57       672      6.55%
Other debt securities                                       150     7.83          115   6.97                         265      7.31%
                                  -------               -------               -------           -------         --------
                                  $   900     6.70%     $ 1,846     7.25%     $ 2,501   7.31%   $   428   7.54% $  5,675      7.34%
                                  -------               -------               -------           -------         --------
Total portfolio                   $12,656     6.53%     $49,295     7.44%     $67,515   6.84%   $35,970   7.51% $165,436      7.26%
                                  =======               =======               =======           =======         ========


(1)      Amounts shown at amortized cost.

(2)      Does not include marketable equity securities with an amortized cost basis of $29,826,000.

</TABLE>

                                       14
<PAGE>


                           NECB, Inc. and Subsidiaries
                            S.E.C. GUIDE 3 - ITEM III

                                 LOAN PORTFOLIO


Types of loans at the end of each reporting period.

(Amounts in thousands)

<TABLE>
<CAPTION>

AT DECEMBER 31,                                    1998            1997           1996           1995            1994  
-----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>            <C>            <C>             <C>   
Commercial and financial................          $146,962       $126,686       $108,421       $  84,219      $  73,682
Real estate:

   Construction.........................            23,862         23,914         14,969          15,761          3,109
   Residential..........................           123,446        160,057        129,488         114,431        107,537
   Commercial...........................           176,139        180,347        159,748         124,205         83,593
Consumer................................            45,571         47,178         46,978          44,975         32,374
                                                  --------       --------       --------        --------       --------
   Loans outstanding....................          $515,980       $538,182       $459,604        $383,591       $300,295
                                                  ========       ========       ========        ========       ========


</TABLE>





The following table shows the maturity and sensitivity of the Company's 
loan portfolio outstanding as of December 31, 1998.

<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..........................
   Real estate:

     Construction.................................
     Residential..................................
     Commercial...................................

Consumer..........................................
Total Loans.......................................

   Allowance for possible loan losses.............
Total loans, net..................................

</TABLE>

Of those loans due after one year or $_______________, approximately
$_____________ have predetermined interest rates and $______________ have
floating or adjustable interest rates.




                                       15

<PAGE>


                           NECB, Inc. and Subsidiaries
                             S.E.C. GUIDE 3 - ITEM V
                                    DEPOSITS

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

(Amounts in thousands)
                                                        1998                       1997                     1996
                                                        ----                       ----                     ----
                                                Average                    Average                   Average
                                                BALANCE       RATE         BALANCE       RATE        BALANCE       RATE
-----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>         <C>            <C>        <C>             <C>
Demand deposits.........................       $147,118                   $121,408                  $103,013
Regular savings deposits................        153,861       2.25%        136,771       2.35%       132,604        2.20%
NOW accounts............................         72,020       1.30          74,973       1.42         65,765        1.35
Money markets...........................          2,403       2.41          13,986       2.23         14,582        2.26
                                               --------                   --------                  --------
   Total savings deposits...............        375,402       1.18         347,138       1.32        315,964        1.31
Time deposits...........................        283,042       5.46         254,624       5.24        240,283        5.40
                                               --------                   --------                  --------
         Total Deposits.................       $658,444       3.02        $601,762       2.98       $556,247        3.08
                                               ========                   ========                  ========

</TABLE>
<TABLE>
<CAPTION>

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

3 months or less                                           $20,072
 3 to 6 months                                              11,175
 6 to 12 months                                             10,476
 > 12 months                                                 7,976
                                                         ---------
         Total                                             $49,699
</TABLE>

                           NECB, Inc. and Subsidiaries
                            S.E.C. GUIDE 3 - ITEM VI
                           RETURN ON EQUITY AND ASSETS

<TABLE>
<CAPTION>

Years Ended December 31,                              1998           1997           1996            1995           1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>            <C>            <C>           <C>  
Return on average assets....................        0.95%            0.93%          1.10%          1.06%         0.36%
Return on average equity....................       10.38             9.91          12.50          13.15          5.46
Equity to assets............................        9.12             8.47           8.99           8.39          7.23


</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, East Hartford, East Windsor, Ellington, Enfield, Manchester
(2), Somers, Suffield, South Windsor, West Hartford, East Hartford and Vernon.
Of these offices, 4 are leased and 7 are owned properties. The Enfield office
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. Olde Port Bank and Trust operates its main office in Portsmouth and a
branch office in Hampton, New Hampshire.

         During the year ended December 31, 1998 the aggregate rental expenses
paid by NECB for all its office properties was approximately $1,533,000. All
properties are considered to be in good condition and adequate for the purposes
for which they are used.

                                      16
<PAGE>


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 1998 fiscal year.

PART II

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

         As of December 31, 1998, there were 7,031,054 shares of NECB Common
Stock issued and outstanding which were held by approximately 5,200 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:

                                                            1998
                                                            ----
                                                 HIGH                    LOW
                                                 ----                    ---
1st Quarter.........................            $26.875                $23.375
2nd Quarter.........................             26.00                  21.625
3rd Quarter.........................             24.25                  17.00
4th Quarter.........................             21.00                  13.938

                                                            1997*
                                                            -----
                                                 HIGH                     LOW  
                                                 ----                     ---
1st Quarter.........................            $16.71                  $13.52
2nd Quarter.........................             15.91                   13.64
3rd Quarter.........................             22.50                   15.33
4th Quarter.........................             23.41                   19.03

*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:

               1998                                           1997
               ----                                           ----
Q1.........................     $0.09   Q1............................     $0.07
Q2.........................      0.10   Q2............................      0.08
Q3.........................      0.10   Q3............................      0.08
Q4.........................      0.10   Q4............................      0.09

         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.

                                       17


<PAGE>


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,                               1998          1997           1996            1995           1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>            <C>             <C>            <C>    
Earnings:
Interest income                                    $59,784       $54,212        $47,982         $34,600        $28,755
Interest expense                                    22,608        19,504         17,457          12,380          9,110
Net interest income                                 37,176        34,708         30,525          22,220         19,645
Provision for loan losses                            1,303         1,636          2,687           2,125          3,291
Noninterest income                                   9,190         5,459          4,824           3,646          3,182
Noninterest expense                                 32,359        27,870         22,709          18,679         17,533
Income tax expense                                   5,150         4,162          3,111             254            481
Net income                                           7,554         6,499          6,842           4,808          1,522

Per Share Data:
Net income per share - basic                         $1.07         $0.93          $1.06           $0.97          $0.39
Net income per share - diluted                        1.05          0.92           1.06            0.97           0.39
Dividends declared                                    0.39          0.326          0.255           0.186         0.045

Balance Sheet Data (as of end of year):
Loans                                             $515,980      $538,182       $459,604        $383,591       $300,295
Allowance for loan losses                           10,092        12,081          9,355           9,199          7,944
Goodwill                                             4,847         5,238          4,464             402              0
Assets                                             803,887       806,888        692,628         584,378        446,288
Deposits                                           664,078       694,946        615,148         529,602        408,497
Shareholders' equity                                73,350        68,341         62,263          49,017         32,274
Nonperforming assets                                 6,976        13,034         11,814          11,971         13,282

Operating Ratios:
Return on average assets                              0.95%         0.93%          1.10%           1.06%          0.36%
Return on average equity                             10.38          9.91          12.50           13.15           5.46
Net interest margin                                   5.19          5.36           5.32            5.30           5.03
Total equity to total assets                          9.12          8.47           8.99            8.39           7.23
Tangible equity to total assets                       8.52          7.82           8.34            8.32           7.23

</TABLE>
                                       18

<PAGE>

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 1998 of $7,554, or $1.05 per share - diluted, compared to $6,499,
or $0.92 reported in 1997. Return on assets ("ROA") and return on equity ("ROE")
were .95% and 10.38%, respectively, for 1998 compared to .93% and 9.91%,
respectively, in 1997. During 1998 the Company acquired Olde Port Bank and Trust
("OPBT") and Bank of South Windsor ("BSW"). Expenses related to these
acquisitions totaled $2,627,000 (tax effected), or $0.37 per share - diluted.
Net operating income, which excludes the impact of these charges, amounted to
$10,181,000 or $1.41 per share - diluted. This represents an increase of
$1,933,000 or 23% over net operating income for 1997. On an earnings per share
basis (using net operating income), 1998 increased 21% over the $1.17 earnings
per share - diluted for 1997. ROA and ROE were 1.45% and 15.81%, respectively in
1998, excluding the acquisition-related charges. The acquisitions of OPBT and
BSW were accounted for as "pooling of interests" and as such all comparative
prior periods have been restated as if the acquisitions had been in effect for
all periods presented. [Please see Acquisition Summary below 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
$37,742,000 for 1998 compared to $34,941,000 in 1997. The net interest margin
for 1998 was 5.19% versus 5.36% in 1997. The increase in net interest income is
due to growth in average earning assets. Much of this growth resulted from the
1998 acquisitions while the decrease in net interest margin resulted primarily
from an increase in the cost of interest-bearing liabilities.

         The provision for loan losses was $1,303,000 compared to $1,636,000 in
1997. The decrease is largely due to an improvement in asset quality and the
decrease in loans outstanding during 1998.

         Noninterest income increased to $9,190,000 in 1998 from $5,459,000 in
1997. The 68% improvement resulted from the combined effect of the $1,289,000
increase in securities gains and increased mortgage banking revenues of
$2,296,000.

         Noninterest expense totaled $32,359,000 in 1998 compared to $27,870,000
in 1997. The increase primarily resulted from the acquisitions, 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 60.05% for 1998 compared to 61.76% for 1997. By
comparison, the efficiency ratio in 1996 was 62.2%.

         Total loans at December 31, 1998 amounted to $515,980,000 compared to
$538,182,000 at December 31, 1997 while total deposits amounted to $664,078,000
at December 31, 1998 compared to $694,946,000 at December 31, 1997. Early in
1998 NECB completed a bulk sale of approximately $13,000,000 in nonperforming
and underperforming loans. These loans were accumulated primarily through
previous three acquisitions. Throughout much of 1998 declining long term
interest rates caused a marked increase in mortgage loan refinancings as
homeowners sought to lower interest expense. NECB saw a decrease in mortgages
during this period of $38,000,000 due primarily to the practice of selling newly
originated fixed rate mortgages in the secondary market. Another core product,
commercial loans increased $20,000,000 during 1998.

         Shareholders' equity increased $5,009,000 from $68,341,000 at December
31, 1997 to $73,350,000 at year-end 1998. Reflecting the acquisitions, the ratio
of equity to assets increased to 9.12% at December 31, 1998 compared to 8.47% a
year earlier.

                                       19
<PAGE>


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 for
these entities. In 1998 NECB acquired all the outstanding common stock of OPBT
and BSW. OPBT became a fourth banking subsidiary and BSW was merged with and
into NEBT. As previously noted, the acquisitions of FBWH, OPBT and BSW were
accounted for as a "pooling of interests" and therefore all comparative prior
periods have been restated as if the acquisitions had been in effect for all
periods presented.

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 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.

<TABLE>
<CAPTION>
(Amounts in thousands)
Years Ended December 31,                                                       1998               1997            1996  
                                                                            ---------          ---------       ---------
<S>                                                                           <C>                <C>             <C>    
Interest income (financial statements)                                        $59,784            $54,212         $47,982
Tax equivalent adjustment                                                         566                233             246
Interest expense                                                              (22,608)           (19,504)        (17,457)
                                                                             --------           --------        --------
Net interest income - FTE                                                     $37,742            $34,941         $30,771
                                                                              =======            =======         =======

</TABLE>

         In 1998, net interest income increased $2,801,000 or 8.02% over 1997.
The increase in 1998 is largely due to growth in earning assets which increased
a substantial $75,294,000 or 11.55% compared to the 1997 average. The
acquisition of Community Bank added approximately $62,000,000 to the average
while internal growth provided the remainder.

                                       20

<PAGE>


Net Interest Margin and Interest Rate Spread

(amounts in thousands)
<TABLE>
<CAPTION>
                                                         1998                           1997                          1996
                                                       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 and other            $  8,476    $   391   4.61%   $ 12,295     $   677   5.51%   $ 14,984     $   805   5.37%
   Investment securities                    185,929     12,229   6.58     167,814      11,030   6.57     146,431       9,109   6.22
   Loans (A)                                532,946     47,730   8.96     471,948      42,738   9.06     417,141      38,314   9.18
                                           ----------------------------------------------------------------------------------------
      Total interest-earning assets         727,351     60,350   8.30     652,057      54,445   8.35     578,556      48,228   8.34
   Allowance for loan losses                (10,494)                       (9,888)                        (8,491)
   Cash & due from banks                     35,911                        27,614                         23,582                   
   Other assets                              39,580                        29,719                         28,370                   
                                           --------                      --------                       --------
      Total assets                         $792,348                      $699,502                       $622,017                   
                                           ========                      ========                       ========

Liabilities and Equity:
   Interest-bearing liabilities:
   Regular savings deposits                $153,861    $ 3,457   2.25%   $136,771     $ 3,210   2.35%   $132,604     $ 2,913   2.20%
   NOW accounts                              72,020        933   1.30      74,973       1,061   1.42      65,765         891   1.35
   Money market                               2,403         58   2.41      13,986         312   2.23      14,582         330   2.26
                                           ----------------------------------------------------------------------------------------
      Total savings deposits                228,284      4,448   1.95     225,730       4,583   2.03     212,951       4,134   1.94
   Time deposits                            283,042     15,445   5.46     254,624      13,345   5.24     240,283      12,987   5.40
   Short-term borrowings                     32,050      1,400   4.37      14,609         790   5.41       2,962         169   5.71
   Long-term debt                            21,256      1,315   6.19      13,336         786   5.89       2,662         167   6.27
                                           ----------------------------------------------------------------------------------------
      Total interest-bearing liabilities    564,632     22,608   4.00     508,299      19,504   3.84     458,858      17,457   3.80
   Demand deposits                          147,118                       121,408                        103,013                   
   Other liabilities                          7,849                         4,201                          5,389                   
                                           --------                      --------                       --------
      Total liabilities                     719,599                       633,908                        567,260                   
Equity                                       72,749                        65,594                         54,757                   
                                           --------                      --------                       --------
      Total liabilities & equity           $792,348                      $699,502                       $622,017                   
                                           ========                      ========                       ========

Net interest income                                    $37,742                        $34,941                        $30,771       
                                                       =======                        =======                        =======
Net interest spread                                              4.30%                          4.51%                          4.54%
Net interest margin                                              5.19%                          5.36%                          5.32%
</TABLE>
(A)  Average loans include nonaccruing loans and loans held-for-sale.

                                       21

<PAGE>

     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 1998  decreased to 5.19%  compared to 5.36% in
1997,  (primarily from an improved mix of earning assets) which were funded by a
greater   percentage  of  interest-free   liabilities.   Investment   securities
represented  25.6% of average  earning  assets in 1998 compared to 25.7% in 1997
while  characteristically  higher-yielding  loans represented 73.3% and 72.4% of
average earning assets in 1998 and 1997, respectively.





                                       22

<PAGE>

Average Earning Asset Mix - Insert Pie Chart

     The average interest-bearing liabilities increased to $564,632,000 in 1998,
from  $508,299,000  in 1997,  primarily due to increases in regular  savings and
time deposits.  The interest rates paid on these liabilities  increased 16 basis
points and  averaged  4.00% in 1998  compared  to 3.84% in 1997.  Average  total
savings  deposits  increased  $2,554,000  in 1998.  Reflecting  an  increasingly
competitive  market for core deposits the interest  rate paid on these  deposits
fell 8 basis  points in 1998 to 1.95% from 2.03% in 1997.  More than  offsetting
this decrease was an increase in the cost of time deposits.

                                 1998                            1997   
                               --------                       --------
Securities                     $185,929                       $167,814
Loans                           532,946                        471,948
Other                             8,476                         12,295

     NECB  continued to expand its use of  alternative  funding  sources in 1998
principally  through  repurchase  agreements (for its commercial  customers) and
Federal Home Loan Bank of Boston  ("FHLBB")  borrowings.  Short-term  borrowings
increased in 1998 and averaged $32,050,000,  compared to $14,609,000 in 1997, as
repurchase agreements were 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.  The rate paid on
short-term  liabilities  decreased from 1997 and equaled 4.37%. As noted, during
1998 NECB  increased  its long-term  debt with  advances  from the FHLB.  NECB's
borrowings  were fixed rate and had  maturities  ranging from 1999 to 2010.  The
average rate paid for these liabilities  increased  modestly in 1998 and equaled
6.19% in 1998 compared to 5.89% in 1997.

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)                                      1998                                             1997      
                                             ---------------------------------              -----------------------------------
                                                              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                             $ (286)     $ (98)       $ (188)               $ (128)       $  21        $ (149)
Investment securities                           1,199          8         1,191                 1,921          537         1,384
Loans                                           4,992       (295)        5,287                 4,424         (531)        4,955
                                               ------      -----        ------                ------         ----        ------
Total interest income change                    5,905       (385)        6,290                 6,217           27         6,190
                                               ------      -----        ------                ------         ----        ------

Interest-bearing liabilities:
Regular savings deposits                          247       (128)          375                   297          203            94
NOW account deposits                             (128)       (87)          (41)                  170           41           129
Money market deposits                            (254)        28          (282)                  (18)          (5)          (13)
                                               ------      -----        ------                ------         ----        ------
      Total savings deposits                     (135)      (187)           52                   449          239           210
Time deposits                                   2,100        566         1,534                   358         (369)          727
Short-term borrowings                             610       (117)          727                   621           (8)          629
Long-term debt                                    529         41           488                   619           (9)          628
                                               ------      -----        ------                ------         ----        ------
Total interest expense change                   3,104        303         2,801                 2,047         (147)        2,194
                                               ------      -----        ------                ------         ----        ------
Net interest income change                     $2,801      $(688)       $3,489                $4,170         $174        $3,996
                                               ======      =====        ======                ======         ====        ======
</TABLE>




                                       23

<PAGE>

     As is shown above,  the  increase in net  interest  income in both 1998 and
1997 is primarily  attributable to changes in volume much of which is the result
of acquisitions.  Growth in average loans,  though both acquisition and internal
growth,  represented  the single  largest  source of new revenues in each of the
past two years.  The growth in earning assets has been supported by a relatively
stable cost of funds in each of the past two years.  Rate related costs actually
declined $147,000 or 1.0% in 1997 and rose $303,000 or 1.5% in 1998.

Noninterest Income

     NECB's income from noninterest  revenue activities  increased 68.3% in 1998
and represented  13.32% of net revenues compared to 9.15% in 1997. This 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 20% of total net revenue within the next
two years.

     For  1998  noninterest   income  increased  68.3%  from  1997  and  totaled
$9,190,000   compared  to  $5,459,000   and   $4,824,000   for  1997  and  1996,
respectively.  The largest  component of this  increase  resulted from growth in
mortgage banking revenues.  NECB formed New England Community  Mortgage Corp. in
1998.  This new unit rapidly  built on the success of the banking  subsidiaries'
mortgage departments by focusing on a service valued by many consumers. This new
unit concentrated upon supporting the needs of home buyers throughout our market
and in several new communities. This market focus resulting in NECM being ranked
17th in  mortgage  production  for all of 1998 even  though it did not  commence
operation until June. Gains realized from the sale of securities rose sharply in
1998  largely as the  result of an  $898,000  gain from the sales of  investment
assets by the parent company.  Service fees grew by approximately 10% in 1998 on
the  acquisition  of Community  Bank and increase  volume of commercial  service
sales.

     NECB  realized net gains from the sale of securities of $1,664,000 in 1998.
This compares to  significantly  smaller amounts recorded in both 1997 and 1996.
As a matter of practice,  in conjunction with the purchase of 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 1998 which  provided  approximately  $1,515,000 in gains in
1998. The likelihood of  profitability of any such gains in the future cannot be
predicted.

     Mortgage  originations reached an all time high for NECB during 1998. Aided
by the  formation  of  NECM  and  the  subsequent  expansion  into  several  new
communities within Connecticut,  originations  reached  $160,000,000 in 1998. Of
this total 83% were provided to finance the purchase of new and existing  homes.
In the  fourth  quarter  NECM  established  a sales  office in  Portsmouth,  New
Hampshire.  Management expects that NECM will continue its two pronged marketing
strategy  over the next  several  years.  By  expanding  its  ability to service
markets currently served by our banking  subsidiaries and concurrently  entering
new market areas where we do not currently have a presence.

Mortgage Originations--Insert Bar Graph
(amounts in thousands)

         1998           1997            1996
         ----           ----            ----

       $180,000       $65,000         $40,000



                                       24

<PAGE>


Noninterest Expense

     Noninterest  expense was  $32,359,000  in 1998 compared to  $27,870,000  in
1997. Included in these amounts were non-recurring  acquisition related expenses
of  $3,593,000  in  1998  and  $2,197,000  in  1997.  Excluding  these  charges,
noninterest expenses amounted to $28,766,000 in 1998 and increased by $3,093,000
or 12.0% over the $25,673,000  reported in 1997. Much of the increase in 1998 is
due to our  acquisition  of Community Bank of Bristol,  Connecticut.  The use of
purchase  accounting for this acquisition  increased expenses in categories such
as salary and  benefit  expense,  occupancy,  equipment  and  outside  services.
Community's expenses (net of cost savings achieved in the acquisition) increased
expenses  throughout all  of 1998.   This  "step-up"  in expense  aggregated  to
$2,011,000 in 1998.

     Salaries and benefits -the largest  component of the noninterest  expense -
totaled  $15,645,000  in 1998 compared to  $13,325,000  in 1997. The increase is
primarily due to the acquisitions along with other salary and benefit increases.
During 1998 NECB completed a sale of non-performing and  under-performing  loans
which  resulted  in  a  net  expense  of  $715,000.  Equipment  expense  totaled
$1,972,000  in 1998 which is $110,000 or 6.2% higher than 1997.  Other  expenses
increased by $337,000 and totaled  $3,867,000  compared to  $3,530,000  in 1997.
Other expenses include items such as marketing, business development,  corporate
contributions, community service and other general and administrative expenses.

Income Taxes

     In 1998,  the  Company  recognized  income tax  expense of  $5,150,000,  an
effective  tax rate of 40.5%.  This compares to income tax expense of $4,162,000
in 1997, an effective rate of 39.1%.

BALANCE SHEET ANALYSIS

     Total assets  decreased to  $803,887,000  at December 31, 1998  compared to
$806,888,000  at December 31, 1997.  This modest change in total assets reflects
the attitude and  accomplishment of NECB in focusing upon earnings growth rather
than a specific growth target for total assets.  During 1998 the overall size of
the company, as measured by total assets, remained essentially unchanged.  Quite
a bit of change,  occurred  within the balance sheet,  however.  During the year
residential  mortgage loans  decreased  $37,000,000  as accelerated  prepayments
followed an abrupt decline in long term interest rates. Meanwhile our commercial
lending  group  continued  to expand with a net increase of  $20,000,000.  Other
changes,  including the sale of problem  loans early in the year,  amounted to a
reduction of  $6,000,000.  Higher cost time deposits were allowed to run off and
were replaced by borrowed funds and earned equity.

Balance Sheet Highlights (amounts in thousands)
December 31,                          1998             1997             Change
                                   ---------        ---------          --------
Total Assets                       $ 803,887        $ 806,888          $ (3,001)
Earning Assets                       740,383          740,116               267
Securities                           203,117          182,276            20,841
Loans                                515,980          538,182           (22,202)
Total Deposits                       664,078          694,946           (30,868)
Borrowed Funds                        62,127           38,581           (23,546)
Equity                                73,350           68,341             5,009

     NECB's   securities   portfolio   increased   $20,841,000   or  11.4%  from
$182,276,000  at December 31, 1997 to  $202,423,000  at December  31,  1998.  At
year-end the amortized  cost of  securities  available-for-sale  and  securities
held-to-maturity totaled $189,587,000 and $5,675,000, 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  decreased  slightly  to  $2,280,000  at  December  31,  1998
compared to $2,288,000 at December 31, 1997.


                                       25

<PAGE>

Loans

     At December 31, 1998, NECB's loan portfolio stood at $515,980,000  compared
to  $538,182,000  a  year  earlier.  Despite  the  intense  competition  in  the
marketplace,  NECB  was  able  to  add  significantly  to its  commercial  loans
outstanding in 1998. As the preferred  small business lender in its service area
together  with  NECB's  expansion  into the Bristol  market and a  strengthening
economy, commercial loans outstanding should continue to increase. Most borowers
able to do so, have completed refinancing their residential mortgages.

(amounts in thousands)
Loan Portfolio Composition                    1998                 1997
                                              ----                 ----
Commercial and financial                  $146,962             $126,686
Real estate:
   Construction                             23,862               23,914
   Residential                             123,446              160,057
   Commercial                              176,139              180,347
Consumer                                    45,571               47,178
                                          --------            ---------
                                          $515,980             $538,182
                                          ========            =========

     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.


                                       26

<PAGE>

NECB's NPAs at December 31, 1993 through 1998 are presented below:

(amounts in thousands)
                                  1998      1997      1996      1995      1994
--------------------------------------------------------------------------------
Nonaccrual loans                 $ 5,340   $ 9,838   $ 8,156   $ 8,837   $ 9,357
Other real estate owned            1,636     3,196     3,658     3,134     3,925
                                 -----------------------------------------------
Total nonperforming assets       $ 6,976   $13,034   $11,814   $11,971   $13,282
                                 ===============================================

     NPAs decreased  $6,058,000 or 46.5% to $6,976,000 at December 31, 1998 from
$13,034,000  at December 31, 1997.  At December 31, 1998  nonaccrual  loans as a
percentage  of total loans and  nonperforming  assets as a  percentage  of total
assets  were  1.03%  and  .87%,  respectively,  compared  to 1.83%  and 1.62% at
December  31, 1997.  The  decrease in total NPAs in the year ended  December 31,
1998  primarily  resulted  from the bulk sale of problem loans early in 1998 and
the overall improvement in quality of the current portfolio.

Activity in NPAs
(amounts in thousands)

                                                           1998            1997
                                                           ----            ----
Balance at beginning of year                             $13,034          11,814
Additions                                                  9,464           6,622
Changes incident to acquisitions                                           4,209
Reductions:
   Payments                                                5,367           2,046
   Returned to performing status                             328             713
   Charge-offs/writedowns                                  4,999           2,203
   Sales/other, net                                        4,828           4,649
Balance at end of year                                   $ 6,976         $13,034

     At December  31, 1998 loans past due in excess of ninety days and  accruing
interest  amounted to $977,000  compared to  $1,060,000  at December  31,  1997.
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.





                                       27

<PAGE>

     The following  table  summarizes the activity in the allowance for possible
loan losses for the years ended December 31, 1994 through 1998. 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,                                                  1998         1997         1996         1995         1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>          <C>          <C>          <C>    
Loans charged-off:
   Commercial and financial                                             $ 2,302      $   729      $ 1,279      $   871      $   625
   Real estate                                                            1,723          972        3,573        2,270        1,884
   Installment loans to individuals                                         173          130          406          178          178
                                                                        -------      -------      -------      -------      -------
      Total charge-offs                                                   4,198        1,831        5,258        3,319        2,687
                                                                        -------      -------      -------      -------      -------
Recoveries on loans charged-off:
   Commercial and financial                                                 596          389          294          397          180
   Real estate                                                              247          360          342           56          212
   Installment loans to individuals                                          63           64           81           35           38
                                                                        -------      -------      -------      -------      -------
     Total recoveries                                                       906          813          717          488          430
                                                                        -------      -------      -------      -------      -------
Net loans charged-off                                                     3,292        1,018        4,541        2,831        2,257
                                                                        -------      -------      -------      -------      -------
Provision charged to operations                                           1,303        1,636        2,687        2,125        3,291
Changes incident to acquisitions                                              0        2,108        2,010        1,961
Balance, at beginning of year                                            12,081        9,355        9,199        7,944        6,910
                                                                        -------      -------      -------      -------      -------
Balance, at end of year                                                 $10,092      $12,081      $ 9,355      $ 9,199      $ 7,944
                                                                        =======      =======      =======      =======      =======

Ratio of net charge-offs during the period to
   average loans outstanding during the period                             0.62%        0.22%        1.09%        0.91%        0.78%
Ratio of allowance for loan losses to total loans                          1.96         2.24         2.04         2.40         2.65
Ratio of allowance for loan losses to nonaccrual loans                   188.99       122.80       114.70       104.10        84.90
</TABLE>

NECB's allowance for loan losses decreased  $1,989,000 from December 31, 1997 to
$10,092,000  at December 31,  1998.  The  provision  for loan losses in 1998 was
$1,303,000  compared  to  $1,636,000  for  1997.   Reflecting  the  increase  in
charge-offs,  the ratio of net charge-offs to average loans increased to .62% in
1998 compared to .22% in 1997.  While the allowance for loan losses decreased to
1.96% of total loans at  December  31,  1998 from 2.24% at  December  31,  1997,
management expects this ratio to decrease to approximately 1.90% in 1999.



                                       28

<PAGE>

     The following  table  reflects the Allowance for Loan Losses as of December
31, 1998 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                          3,004                       28%
Real estate:
   Construction                                   412                        5
   Residential                                  1,698                       24
   Commercial                                   4,910                       37
Consumer                                          168                        9
                                               ------                      ---
   Total                                       10,192                      100%
                                               ======                      ===

     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, 1998,  NECB considered  loans  outstanding of $16,081 to be
potential  problems compared to $15,359 at December 31, 1997.  Included in these
totals  were loans  totaling  $5,340 and  $6,064,  respectively,  which were not
classified as nonperforming because such loans are performing according to their
terms.

Deposits

     Total deposits decreased  $30,868,000 or 4.4% from $694,946,000 at December
31,  1997 to  $664,078,000  at  December  31,  1998.  This  decrease  is largely
attributable  to the outflow of maturing time deposits,  principally of acquired
companies,  bearing  above  market  interst  rates.  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  20-basis  points in 1998  compared to
1997. The continuing use of this strategy had a significant effect upon renewing
CD's of acquired  companies.  The interest rate  structure of CMBK was very near
the  top end of the  rates  offered  throughout  its  market.  This  tactic  had
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.  Through  its  commercial  focus,  NECB
continues to target small  businesses as a source of growth.  This focus shifted
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 24.2% from 22.0% at December 31, 1998
and 1997, respectively.

                                       29

<PAGE>

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 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, 1998, the Company was 12.00% liability  sensitive at the cumulative one year
gap, slightly over NECB's policy limits.

                                       30

<PAGE>

<TABLE>
<CAPTION>
Interest-Rate Gap Analysis
December 31, 1998                                                                   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                                $  13,516        $     717        $                $  38,611      $  52,844
Securities                                                   6,000           14,926           46,510          135,681        203,117
Loans                                                      106,467          121,269          197,043           91,201        515,980
Loans held-for sale                                          7,721                                                             7,721
Other assets                                                                                                   24,225         24,225
                                                         ---------        ---------        ---------        ---------      ---------
   Total assets                                          $ 133,704        $ 136,912        $ 243,553        $ 289,718      $ 803,887
                                                         =========        =========        =========        =========      =========
Deposits:
   Demand                                                $  16,088        $  32,175        $  48,263        $  64,350      $ 160,876
   Savings                                                  24,491           48,982           85,718           85,719        244,910
   Time                                                     71,904          128,560           57,828          258,292
                                                         ---------        ---------        ---------        ---------      ---------
           Total deposits                                  112,483          209,717          191,809          150,069        664,078
Borrowings                                                  36,848            7,700           11,671            5,908         62,127
Other liabilities                                                                                               4,332          4,332
Equity                                                                                                         73,350         73,350
                                                         ---------        ---------        ---------        ---------      ---------

Total liabilities and shareholders' equity               $ 149,331        $ 217,417        $ 203,480        $ 233,659      $ 803,887
                                                         =========        =========        =========        =========      =========
Periodic                                                 $ (15,627)       $ (80,505)       $  40,073        $  56,059
Cumulative gap                                           $ (15,627)       $ (96,132)       $ (56,059)
Cumulative gap as % of total assets                          (1.94)%         (11.96)%          (6.97)%
</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.

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 $9,225,000 short-term and $153,891,000
in long term.  At  December  31,  1998,  usage of these  facilities  amounted to
$27,279,000   providing   $135,837,000   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, 1998  decreased  from  December  31, 1997  totaling
$52,844,000 and $61,030,000,  respectively. The decrease in 1998 was largely due
to a decrease in federal funds sold in 1998.


                                       31

<PAGE>

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, 1998,  total  shareholders'  equity was
$73,350,000,  an increase of $5,009,000  compared to $68,341,000 at December 31,
1997. The bulk of the increase came from the retention of earnings which, net of
dividends  paid,  amounted to  $5,021,000.  During  1997,  shareholders'  equity
increased  $6,078,000 to $68,341,000  from $62,263,000 at December 31, 1996. The
increase resulted primarily from retention of 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, 1998, 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 for 1997. The various  capital ratios of the Company for December 31, 1998
and 1997 were:

                                                                 1998      1997
                                                                 ----      ----
Total risk-based capital (10% to be well capitalized) ......     13.3%     12.5%
Tier 1 risk-based capital (6% to be well capitalized) ......     12.1      11.3
Leverage ratio (5% to be well capitalized) .................      8.3       8.6
Total equity to assets .....................................      9.1       8.5
Tangible equity to assets ..................................      8.5       7.8

Recent Accounting Pronouncements

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative   Instruments  and  Hedging   Activities"   ("SFAS  133").  SFAS  133
establishes  new  accounting and reporting  standards for  derivative  financial
instruments and for hedging  activities.  SFAS 133 requires an entity to measure
all  derivatives  at fair value and to recognize them in the balance sheet as an
asset or liability,  depending on the entity"  rights or  obligations  under the
applicable derivative contract. NECB will designate each derivative as belonging
to one  of  several  possible  categories,  based  on  the  intended  use of the
derivative. The recognition of changes in fair value of a derivative that affect
the income  statement will depend on the intended use of the derivative.  If the
derivative  does not  qualify as a hedging  instrument,  the gain or loss on the
derivative will be recognized currently in earnings. If the derivative qualifies
for special hedge accounting, the gain or loss on the derivative will either (1)
be recognized in income along with an offsetting  adjustment to the basis of the
item  being  hedged  or  (2) be  deferred  in  other  comprehensive  income  and
reclassified  to earnings in the same period or periods  during which the hedged
transaction affects earnings.  SFAS 133 will be effective for NECB no later than
the quarter ending March 31, 2000. SFAS 133 may not be applied  retroactively to
financial  statements  of  prior  periods.  SFAS 133 is not  expected  to have a
material impact on NECB's consolidated results of operations, financial position
or cash flows.

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,  continues to
deal with the  challenges  associated  with the  possibility  that many existing
computer systems may not function properly when processing  time-sensitive  data
beyond the year 1999 (referred to as the Y2K  Problem).    The Year 2000 Problem
is the result of  computer  programs  using two 



                                       32
<PAGE>

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  recognizes  several  risks which could have  adverse  impact upon the
safety and soundness of banks generally, and NECB subsidiaries in particular. Of
primary  concern is the ability of NECB  companies to  adequately  perform their
duties in meeting  the needs of their  customers.  Additionally  there is a risk
that some of its borrowing  customers may experience  difficulty in dealing with
the problem, such that repayment of outstanding loans could be jeopardized. To a
somewhat lesser degree customers  maintaining deposit accounts with the bank may
experience difficulty in their record keeping systems. To combat these exposures
NECB formed a Y2K committee  consisting of 23 senior  middle-managers.  This Y2K
committee,  using  ample  resources  made  available,  designs,  implements  and
validates  the tests  necessary  to ensure  NECB  preparedness  to cope with the
Problem.

     Costs associated with implementing procedures and 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.

1996 Comparison

     The pattern of acquisitions throughout the past three years has resulted in
significant  changes to the NECB's  performance  when compared to prior periods.
Shown here, NECB reported net income for 1996 of $6,842,000,  or $1.06 per share
- diluted. The ROA and ROE for 1996 were 1.10% and 12.50%,  respectively.  These
performance ratios reflect the pooling of BSW and OPBT.

     Net interest  income on an FTE basis in 1996 amounted to  $30,771,000.  The
net interest  margin in 1996 was a strong 5.32%.  The yield on  interest-earning
assets in 1996 was  8.34%  while the cost of  interest-bearing  liabilities  was
3.80%.

     The  provision  for loan losses  amounted to  $2,687,000.  Net  charge-offs
amounted to $4,541,000 in 1996,  up from  $2,831,000 a year earlier,  while NPAs
totaled $11,814,000.

     Noninterest  income totaled  $4,824,000.  Noninterest income was positively
impacted by increases in service charges and mortgage banking  revenues.  During
1996, NECB originated  more than  $50,000,000 in residential  mortgage loans. In
1996,  noninterest  expenses  amounted  to  $22,709,000.  There were no specific
provisions  for the costs  related to the purchase of  Manchester  State bank in
July 1996 which was accounted for as a purchase.  Expenses incurred prior to the
date of acquisition were not included in the 1996 financial statements of NECB.



                                       33


<PAGE>

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 1998 portfolio by
approximately  10%, or $1 million.  Based on the portfolio's net unrealized gain
of $543  thousand at  December  31,  1998,  a 10% decline in fair value of would
reduce the net  unrealized  gain to an  unrealized  loss of  approximately  $457
thousand.

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.

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
accountants of New England Community  Bancorp,  Inc. and Subsidiaries are listed
in the index appearing on page 34 of this report on Form 10-K.


                                       34

<PAGE>

(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.

    (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  and  is
               incorporated herein by reference.

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

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

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

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


                                       35


<PAGE>

    (21)       List of Subsidiaries.

    27.1       Financial Data Schedule--Fiscal Year End 1998
    27.2       Restated Financial Data Schedule--Fiscal Year Ends 1997
                 
    
APPENDIX A Index to Financial Statements:

Report of Independent Certified Public Accountants for the Years Ended
      December 31, 1998, 1997 and 1996...................................... F-1

Consolidated Balance Sheets at December 31, 1998 and 1997................... F-2

Consolidated Statements of Income for the Years Ended
      December 31, 1998, 1997 and 1996...................................... F-3

Consolidated Statements of Changes in Shareholders' Equity for the
      Years Ended December 31, 1998, 1997 and 1996..................... F-4, F-5

Consolidated Statements of Cash Flows for the Years
      Ended December 31, 1998, 1997 and 1996................................ F-6

Notes to Consolidated Financial Statements for the
      Years Ended December 31, 1998, 1997 and 1996..................... F-7-F-27




                                       36

<PAGE>

Financial Highlights

(amounts in thousands; except per share data)
Years Ended December 31,                         1998        1997         1996
-------------------------------------------------------------------------------

Earnings:
Net interest income                            $ 37,176    $ 34,708    $ 30,525
Provision for loan losses                         1,303       1,636       2,687
Noninterest income                                9,190       5,459       4,824
Noninterest expense                              32,359      27,870      22,709
Income tax expense                                5,150       4,162       3,111
Net income                                        7,554       6,499       6,842

Per share data:
Net income per share - basic                   $   1.07    $   0.93    $   1.06
Net income per share - diluted                     1.05        0.92        1.06
Dividends declared                                 0.39       0.326       0.255

Balance sheet data (as of end of year):
Loans, net                                     $505,888    $526,101    $450,249
Assets                                          803,887     806,888     692,628
Deposits                                        664,078     694,946     615,148
Shareholders' equity                             73,350      68,341      62,263

Operating ratios:
Return on average assets                           0.95%       0.93%       1.10%
Return on average equity                          10.38        9.91       12.50
Net interest margin                                5.19        5.36        5.32

                                       37

<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 30, 1999.

                                 NEW ENGLAND COMMUNITY BANCORP, INC.



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



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



                                       38

<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 30, 1999
-----------------------------    Chief Executive Officer
(David A. Lentini)           


s/s John C. Carmon               Director                        March 30, 1999
-----------------------------
(John C. Carmon)


s/s James A. Cotter, Jr.         Director                        March 30, 1999
-----------------------------
(James A. Cotter, Jr.)


s/s Gary J. DeNino               Director                        March 30, 1999
-----------------------------
(Gary J. DeNino)


s/s Frank A. Falvo               Director                        March 30, 1999
-----------------------------
(Frank A. Falvo)


s/s Dominic J. Ferraina          Director                        March 30, 1999
-----------------------------
(Dominic J. Ferraina)


s/s P. Anthony Giorgio           Director                        March 30, 1999
-----------------------------
(P. Anthony Giorgio)


s/s John R. Harvey               Director                        March 30, 1999
-----------------------------
(John R. Harvey)


s/s Solomon Kerensky             Director                        March 30, 1999
-----------------------------
(Solomon Kerensky)


s/s Angelina J. McGillivray      Director                        March 30, 1999
-----------------------------
(Angelina J. McGillivray)


s/s J. Brian Smith               Director                        March 30, 1999
-----------------------------
(J. Brian Smith)

                                       39

<PAGE>

To the Board of Directors
New England Community Bancorp, Inc.
Windsor, Connecticut
                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

We have audited the accompanying consolidated balance sheets of New England
Community Bancorp, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1998. The consolidated financial statements give retroactive effect to the
mergers of the Company with First National Bank of West Hartford (FBWH) on
August 7, 1997, Olde Port Bank & Trust (OPBT) on July 10, 1998 and Bank of South
Windsor (BSW) on August 14, 1998 which have been accounted for using the pooling
of interests method described in the notes to the consolidated financial
statements. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the 1996
financial statements of FBWH which statements reflect net income of 17.9% of the
related consolidated net income for the year ended December 31, 1996. We did not
audit the 1997 and 1996 financial statements of BSW which statements reflect
total assets of 19.2% and net income of 15.0% of the related consolidated
financial statements as of December 31, 1997 and for the two years then ended.
These statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to data included for
FBWH and BSW, is based solely on the reports of the other auditors. We
previously audited and reported on the financial statements of OPBT for the
years ended December 31, 1997 and 1996.

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

In our opinion, based on our audits and the reports of other auditors, 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.



                                             SHATSWELL, MacLEOD & COMPANY, P.C.

West Peabody, Massachusetts
January 29, 1999


<PAGE>




              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

(amounts in thousands; except per share data)
December 31,                                                                                        1998            1997
--------------------------------------------------------------------------------------------------------------------------
ASSETS:
<S>                                                                                               <C>            <C>      
   Cash and due from banks                                                                        $ 39,279       $  44,338
   Short-term investments                                                                           12,080           7,858
   Interest bearing deposits with banks                                                                                109
   Federal funds sold                                                                                1,485           8,725
                                                                                                  --------       ---------
     Cash and cash equivalents                                                                      52,844          61,030
   Interest bearing time deposits                                                                      694             879
   Securities held-to-maturity, fair values of $5,831 and $14,433 at
     December 31, 1998 and 1997, respectively                                                        5,675          14,315
   Securities available-for-sale, at fair value                                                    191,867         162,201
   Federal Home Loan Bank stock, at cost                                                             4,881           4,881
   Loans outstanding                                                                               515,980         538,182
     Less: allowance for loan losses                                                               (10,092)        (12,081)
                                                                                                  --------       ---------
         Net loans                                                                                 505,888         526,101
   Loans held-for-sale                                                                               7,721           2,966
   Accrued interest receivable                                                                       5,635           5,480
   Premises and equipment                                                                           13,932          13,301
   Other real estate owned                                                                           1,636           3,196
   Goodwill                                                                                          4,847           5,238
   Other assets                                                                                      8,267           7,300
                                                                                                  --------        --------
Total Assets                                                                                      $803,887        $806,888
                                                                                                  ========        ========

LIABILITIES:
   Deposits:
     Noninterest bearing                                                                          $160,876        $152,951
     Interest bearing                                                                              503,202         541,995
                                                                                                  --------        --------
         Total deposits                                                                            664,078         694,946
   Short-term borrowings                                                                            34,848          16,272
   Long-term debt                                                                                   27,279          22,309
   Other liabilities                                                                                 4,332           5,020
                                                                                                  --------        --------
Total Liabilities                                                                                  730,537         738,547
                                                                                                  --------        --------

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, 1998, 7,031,054 issued and outstanding;
     December 31, 1997, 7,017,332 issued and outstanding                                               703             702
   Additional paid-in capital                                                                       61,268          61,308
   Retained earnings                                                                                 9,995           4,974
   Accumulated other comprehensive income                                                            1,384           1,357
                                                                                                  --------        --------
Total Shareholders' Equity                                                                          73,350          68,341
                                                                                                  --------        --------
Total Liabilities & Shareholders' Equity                                                          $803,887        $806,888
                                                                                                  ========        ========
</TABLE>


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


                                       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,                                                         1998              1997             1996
--------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S>                                                                            <C>               <C>               <C>    
   Loans, including fees                                                       $47,730           $42,738           $38,315
   Securities:
     Taxable interest                                                           10,336            10,231             8,308
     Interest exempt from federal income taxes                                     531               256               135
     Dividends                                                                     796               310               420
   Federal funds sold and other interest                                           391               677               804
                                                                              --------        ----------        ----------
     Total interest income                                                      59,784            54,212            47,982
                                                                              --------          --------          --------

INTEREST EXPENSE:
   Deposits                                                                     19,893            17,928            17,121
   Borrowed funds                                                                2,715             1,576               336
                                                                              --------         ---------        ----------
     Total interest expense                                                     22,608            19,504            17,457
                                                                              --------          --------          --------
Net interest income                                                             37,176            34,708            30,525
Provision for loan losses                                                        1,303             1,636             2,687
                                                                              --------         ---------         ---------
Net interest income after provision for loan losses                             35,873            33,072            27,838
                                                                              --------          --------          --------

NONINTEREST INCOME:
   Service charges, fees and commissions                                         4,069             3,638             2,973
   Securities gains, net                                                         1,664               375                23
   Mortgage banking revenues                                                     3,179               883             1,077
   Other                                                                           278               563               751
                                                                              --------        ----------        ----------
     Total noninterest income                                                    9,190             5,459             4,824
                                                                              --------         ---------         ---------

NONINTEREST EXPENSE:
   Salaries and employee benefits                                               15,645            13,325            11,511
   Occupancy                                                                     2,773             2,870             2,610
   Furniture and equipment                                                       1,972             1,862             1,613
   Outside services                                                              1,827             1,952             1,971
   Postage and supplies                                                          1,135             1,046             1,093
   Insurance and assessments                                                       414               319               316
   Losses, writedowns, expenses - other real estate owned                           27               455               582
   Amortization of goodwill                                                        391               314               155
   Loss on sale of portfolio loans                                                 715
   Acquisition expenses                                                          3,593             2,197
   Other                                                                         3,867             3,530             2,858
                                                                             ---------          --------         ---------
     Total noninterest expense                                                  32,359            27,870            22,709
                                                                              --------          --------          --------
Income before taxes                                                             12,704            10,661             9,953
Income tax expense                                                               5,150             4,162             3,111
                                                                              --------          --------         ---------
Net income                                                                    $  7,554          $  6,499          $  6,842
                                                                              ========          ========          ========

Net income per share--Basic                                                   $   1.07          $    .93          $   1.06
Net income per share--Diluted                                                 $   1.05          $    .92          $   1.06


</TABLE>

                                       3


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


<PAGE>



              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                          Additional                      Other
                                                     Common Stock           Paid-in     Retained     Comprehensive         Total
(Amounts in thousands)                               SHARES    VALUE         CAPITAL    EARNINGS      INCOME (LOSS)        EQUITY 
                                                     ---------------      ------------- --------     ---------------     ---------
<S>                                                   <C>        <C>         <C>        <C>              <C>              <C>     
Balance, December 31, 1995, as restated               5,709      $571        $41,787    $   6,490        $   169          $49,017
Comprehensive income:
   Net income                                                                               6,842
   Net change in unrealized gain on securities
     available-for-sale, net of tax effect of $14                                                           (168)
       Comprehensive income                                                                                                 6,674
Dividends declared ($0.255 per share)                                                        (952)                           (952)
Cash dividends declared ($0.218 per share)
     by pooled companies prior to acquisition                                                (241)                           (241)
Common stock retired in connection with
   acquisition of First Bank of West Hartford            (2)                     (22)                                         (22)
Common stock issued in connection with:
     Acquistion 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
Stock issued by pooled company prior to acquisition       7         1             46                                           47
                                                   --------    ------    ----------- ------------     ----------      -----------
Balance, December 31, 1996                            6,493       650         49,473       12,139              1           62,263
Comprehensive income:
   Net income                                                                               6,499
   Net change in unrealized gain on securities    
     available-for-sale, net of tax effect of $856                                                         1,356
       Comprehensive income                                                                                                 7,855
Dividends declared ($0.326 per share)                                                      (1,471)                         (1,471)
Cash dividends declared ($0.235 per share)
   by pooled companies prior to acquisition                                                  (287)                           (287)
Common stock retired in connection with
   acquisition of Bank of South Windsor                 (64)       (6)        (1,010)                                      (1,016)
Common stock issued in connection with
   employee benefit plans                                91         9            797                                          806
Stock dividend                                          469        47         11,831      (11,906)                            (28)
Stock issued by pooled company prior to acquisition       5                       65                                           65
Exercise of stock options by pooled
   company prior to acquisition                          23         2            152                                          154
                                                    -------    ------     -----------------------     ----------       ----------
Balance, December 31, 1997                            7,017       702         61,308        4,974          1,357           68,341
Comprehensive income:
   Net income                                                                               7,554
   Net change in unrealized gain on securities
     available-for-sale, net of tax effect                                                                    27
       Comprehensive income                                                                                                 7,581
Dividends declared $0.39 per share                                                         (2,388)                         (2,388)
Cash dividends declared ($0.11 per share)
   by pooled company prior to acquisition                                                    (145)                           (145)
Exercise of stock options by pooled company prior
   to acquisition                                                                310                                          310
Settlement of stock options                                        (4)          (648)                                        (652)
Common stock issued in connection with
   employee benefit plans                                14         5            298                                          303
                                                    -------   -------     -----------------------     ----------       ----------
Balance, December 31, 1998                            7,031      $703        $61,268     $  9,995         $1,384          $73,350
                                                      =====      ====        =======     ========         ======          =======
</TABLE>


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

                                       4


<PAGE>



              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                   (continued)

(Amounts in thousands)
Reclassification disclosure for the year ended December 31, 1998:

Net unrealized gains on available-for-sale securities                    $1,656
Less reclassification adjustment for realized gains in net income        (1,664)
   Other comprehensive loss before income tax effect                         (8)
Income tax benefit                                                           35
                                                                        -------
Total other comprehensive income, net of tax                                 27
                                                                        =======


Accumulated other comprehensive income as of December 31, 1998, 1997 and 1996
consists of net unrealized holding gains on available-for-sale securities, net
of taxes.












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

                                       5

<PAGE>



              NEW ENGLAND COMMUNITY BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(amounts in thousands)
Years Ended December 31,                                                        1998               1997              1996
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>              <C>               <C>
OPERATING ACTIVITIES:
   Net income                                                                 $  7,554         $  6,499          $  6,842
   Adjustment for noncash charges (credits):
     Provision for depreciation and amortization                                 1,342            1,422             1,405
     Losses from sale or disposal and provisions to reduce
       the carrying value of other real estate owned, net                           86              172               438
     Loss on sale of portfolio loans                                               715
     Securities gains, net                                                      (1,664)            (375)              (23)
     Gain on sales of premises and equipment                                                       (333)              (97)
     Accretion of discounts and amortization of premiums
       on bonds, net                                                               205               74               173
     Net (accretion) amortization of purchase accounting adjustments                72             (213)             (191)
     Amortization of goodwill                                                      391              314               155
     Issuance of stock to directors                                                                  66                47
     Provision for possible loan losses                                          1,303            1,636             2,687
     (Increase) decrease in accrued interest receivable and other assets, net   (1,122)            (299)              313
     Increase in loans held-for-sale                                            (4,755)          (1,035)              (72)
     Decrease in accrued interest payable and other liabilities, net              (863)          (1,222)             (675)
                                                                            ----------         --------        ----------
         Net cash provided by operating activities                               3,264            6,706            11,002
                                                                             ---------         --------          --------

FINANCING ACTIVITIES:
   Net increase in noninterest-bearing deposit accounts                          7,925           15,820             5,465
   Net decrease in interest-bearing deposit accounts                           (38,751)          (4,743)           (3,961)
   Net increase in short-term borrowings                                        18,576           12,478             2,026
   Advances received on long-term debt                                           8,000           20,989             7,000
   Payments made on long-term debt                                              (3,015)          (5,631)              (49)
   Issuance of common stock                                                        613              386             1,431
   Settlement of stock options                                                    (652)
   Cash and cash equivalents acquired in the purchase acquisitions, net                           7,888            14,236
   Cash dividends paid                                                          (2,323)          (1,594)           (1,055)
                                                                             ---------        ---------         ---------
         Net cash provided by (used in) financing activities                    (9,627)          45,593            25,093
                                                                             ---------         --------          --------

INVESTING ACTIVITIES:
   Loans originated, net of principal collections                                6,670          (26,442)          (15,295)
   Loans purchased from other lenders                                                                                (828)
   Net increase in interest-bearing time deposits                                  185              397             2,899
   Purchases of Federal Home Loan Bank stock                                                     (1,004)             (702)
   Proceeds from sales of loans                                                 10,157               38               456
   Purchases of securities available-for-sale                                 (102,552)         (91,389)          (85,717)
   Proceeds from sales of securities available-for-sale                         23,100           48,025            26,556
   Proceeds from maturities of securities available-for-sale                    53,736           22,641            36,088
   Purchases of securities held-to-maturity                                       (674)          (1,026)           (5,110)
   Proceeds from maturities and repayments of securities held-to-maturity        6,815            4,923             6,830
   Proceeds from sales of other real estate owned                                2,854            3,051             3,271
   Purchases of premises and equipment                                          (2,012)          (1,157)           (1,826)
   Proceeds from sales of premises and equipment                                                    486               236
   Capitalization of expenditures on other real estate owned                      (102)             (61)              (45)
                                                                            ----------      -----------       -----------
         Net cash used in investing activities                                  (1,823)         (41,518)          (33,187)
                                                                             ---------         --------          --------

Increase (decrease) in cash and cash equivalents                                (8,186)          10,781             2,908
Cash and cash equivalents, beginning of year                                    61,030           50,249            47,341
                                                                              --------         --------          --------
Cash and cash equivalents, end of year                                         $52,844          $61,030           $50,249
                                                                               =======          =======           =======
</TABLE>

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

                                       6
<PAGE>




 

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

New England Community Bancorp, Inc. (the "Company") or ("NECB"), a Delaware
Corporation, is a multi-bank holding company. Three of its wholly-owned
subsidiary banks are chartered by the state of Connecticut and one is chartered
by the state of New Hampshire. New England Bank & Trust Company ("NEBT") is
headquartered in Windsor, Connecticut, and provides commercial and consumer
banking services from its thirteen offices located in the towns of Vernon, East
Windsor, South Windsor, Ellington, Enfield, Manchester (2), Somers, Suffield,
West Hartford, East Hartford and Windsor (2), Connecticut. The Equity Bank
("EQBK") provides commercial and consumer banking services from its office in
Wethersfield, Connecticut. Community Bank ("CMBK"), provides similar services
from its two offices located in Bristol and Plymouth, Connecticut. Olde Port
Bank and Trust ("OPBT") provides similar services from its two offices located
in Portsmouth and Hampton, New Hampshire. New England Community Mortgage Corp.
("Mortgage Corp.") which was formed in 1998, is a wholly-owned subsidiary of
NEBT. The Mortgage Corp. specializes in the financing of home purchases from its
three offices located in Middlebury and Manchester, Connecticut and Portsmouth,
New Hampshire.

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 July 10, 1998, OPBT was acquired by NECB. On August 14, 1998, Bank of South
Windsor ("BSW") was acquired by NECB and merged with and into NEBT. These
transactions were accounted for as pooling of interests and, accordingly, the
financial information for all prior periods has been restated to present the
combined financial information as though the Company, OPBT and BSW had been
operated as a combined entity for all periods presented.

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 Community Bank.

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.


                                       7

<PAGE>


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.

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 LOAN LOSSES

The allowance for 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.


 
                                      8
<PAGE>



The Company applies Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114) 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. SFAS No. 114 requires 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.
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 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 the Company 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 and expenses of other real estate owned.

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.

                                       9

<PAGE>



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 no more than 15 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 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. In accordance with SFAS No. 128, EPS data for the year ending December
31, 1996 has been restated. The adoption of the Statement had no material effect
on the Company's financial statements. EPS for 1996 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
and cash equivalents as cash, due from banks, short-term investments 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.

                                      10

<PAGE>



NOTE 2 - ACQUISITIONS

As described in Note 1, on July 10, 1998 NECB acquired OPBT. Under the terms of
the acquisition, approximately 586,000 shares of NECB common stock were
exchanged for all OPBT common stock owned at an exchange ratio of 8.6674 shares
of NECB for each share of OPBT. Net income for OPBT reported prior to merger was
as follows:
<TABLE>
<CAPTION>

                                                                          Six Months
                                                                            Ending
(Amounts in Thousands)                                                   June 30, 1998             1997             1996 
                                                                         -------------           -------          -------
Olde Port Bank and Trust:                                                 (Unaudited)
<S>                                                                          <C>                 <C>              <C>   
Net interest income after provision for loan losses                          $1,055               $2,058           $1,864
Noninterest income                                                              153                  247              266
                                                                           --------             --------         --------
    Total                                                                     1,208                2,305            2,130
Noninterest expense                                                             862                1,355            1,241
                                                                           --------              -------          -------
Income before income taxes                                                      346                  950              889
Income taxes                                                                    170                  307              318
                                                                           --------             --------         --------
Net income                                                                  $   176              $   643          $   571
                                                                            =======              =======          =======
</TABLE>
As described in Note 1, on August 14, 1998 NECB acquired BSW. Under the terms of
the acquisition, approximately 1,270,000 shares of NECB common stock were
exchanged for all BSW common stock owned at an exchange rate of 1.3539 shares of
NECB for each share of BSW. Net income for BSW reported prior to merger was as
follows:

<TABLE>
<CAPTION>
                                                                          Six Months
                                                                            Ending
(amounts in thousands)                                                    JUNE 30, 1998            1997              1996 
                                                                         ---------------         -------           -------
Bank of South Windsor:                                                      (unaudited)
<S>                                                                           <C>                 <C>              <C>   
Net interest income after provision for loan losses                           $3,587              $6,810           $5,639
Noninterest income                                                               409               1,133            1,142
                                                                            --------             -------          -------
    Total                                                                      3,996               7,943            6,781
Noninterest expense                                                            2,972               5,984            5,504
                                                                             -------             -------          -------
Income before income taxes                                                     1,024               1,959            1,277
Income taxes                                                                     364                 738              494
                                                                            --------            --------         --------
Net income                                                                   $   660              $1,221          $   783
                                                                             =======              ======          =======
</TABLE>

As described in Note 1, 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. Net income for
FBWH reported prior to merger was as follows:
<TABLE>
<CAPTION>

                                                                                      Six Months
                                                                                        Ending
(amounts in thousands)                                                                JUNE 30, 1997                 1996 
                                                                                     ---------------              -------
First Bank of West Hartford:                                                           (unaudited)
<S>                                                                                      <C>                       <C>   
Net interest income after provision for loan losses                                      $2,106                    $3,775
Noninterest income                                                                          539                     1,038
                                                                                       --------                   -------
    Total                                                                                 2,645                     4,813
Noninterest expense                                                                       1,642                     3,263
                                                                                        -------                   -------
Income before income taxes                                                                1,003                     1,550
Income taxes                                                                                384                       324
                                                                                       --------                  --------
Net income                                                                              $   619                    $1,226
                                                                                        =======                    ======
</TABLE>

The financial information for NECB, OPBT, BSW and FBWH has been restated to
present the combined financial condition and results of operations of all
companies as if the acquisitions had been in effect for all periods presented.


                                       11



<PAGE>



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
described in Note 1, 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 for the year ended December 31, 1997. Goodwill reflected by
purchase accounting amounted to $1,089,000 and is being amortized over fourteen
(14) years.

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 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 fifteen (15) years.

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:

(amounts in thousands)
<TABLE>
<CAPTION>
                                                                             Gross            Gross
                                                         Amortized        Unrealized       Unrealized           Fair
                                                          COST              GAINS           LOSSES             VALUE  
                                                         --------         ---------        ---------         ---------
<S>                                                      <C>                <C>              <C>             <C>
   
AVAILABLE-FOR-SALE SECURITIES:
   December 31, 1998
     Marketable equity securities..................       $ 29,826           $  866            $323            $ 30,369
     Debt securities issued by the U.S. Treasury
        and other U.S. government agencies.........        102,029            1,017             109             102,937
     Debt securities issued by state and political
       subdivision of the states...................         13,186              260              29              13,417
     Corporate debt securities.....................         10,610              147              30              10,727
     Asset-backed securities.......................            986               33                               1,019
     Mortgage-backed securities....................         32,950              499              51              33,398
                                                          --------           ------            ----            --------
                                                          $189,587           $2,822            $542            $191,867
                                                          ========           ======            ====            ========

   December 31, 1997
     Marketable equity securities..................       $ 10,198           $1,306            $236            $ 11,268
     Debt securities issued by the U.S. Treasury
       and other U.S. government agencies..........         97,319              818              77              98,060
     Debt securities issued by the state and political
       subdivisions of the state...................          7,060               76              10               7,126
     Corporate debt securities.....................         10,873               89              35              10,927
     Asset-backed securities.......................            527                                                  527
     Mortgage-backed securities....................         33,936              391              34              34,293
                                                          --------           ------            ----            --------
                                                          $159,913           $2,680            $392            $162,201
                                                          ========           ======            ====            ========
</TABLE>

                                       12




<PAGE>


<TABLE>
<CAPTION>

(amounts in thousands)                                                       Gross            Gross
                                                         Amortized        Unrealized       Unrealized            Fair
                                                          COST              GAINS           LOSSES              VALUE  
HELD-TO-MATURITY SECURITIES:
   December 31, 1998
<S>                                                     <C>                <C>              <C>              <C>      
     Debt securities issued by the U.S. Treasury
        and other U.S. government agencies...........   $    1,899          $    15         $                $    1,914
     Debt securities issued by states and political
        subdivisions of the states...................        2,839              130                               2,969
     Mortgage-backed securities......................          672                6                                 678
     Other debt securities...........................          265                5                                 270
                                                        ----------          -------         -------          ----------
                                                        $    5,675          $   156         $                $    5,831
                                                        ==========          =======         =======          ==========

   December 31, 1997
     Debt securities issued by the U.S. Treasury
        and other U.S. government agencies...........    $   8,798          $    46           $  33           $   8,811
     Debt securities issued by states and political
        subdivisions of the states...................        2,841              103                               2,944
     Mortgage-backed securities......................        2,461                4               6               2,459
     Other debt securities...........................          215                4                                 219
                                                         ---------          -------           -----           ---------
                                                         $  14,315          $   157           $  39           $  14,433
                                                         =========          =======           =====           =========
</TABLE>

Gross realized gains and gross realized losses on sales of available-for-sale
securities were $1,716,000 and $52,000, respectively, in 1998; $622,000 and
$237,000, respectively, in 1997; and $102,000 and $79,000, respectively, in
1996.

The scheduled maturities of securities held-to-maturity and securities
available-for-sale (other than equity securities) at December 31, 1998 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>               <C>   
Debt securities other than mortgage-backed and 
   asset-backed securities:
   Due within one year...............................    $  11,362         $  11,420          $  900            $  906
   Due after one year through five years.............       42,508            43,123           1,404             1,451
   Due after five years through ten years............       63,389            63,846           2,501             2,577
   Due after ten years...............................        8,566             8,692             198               219
Mortgage-backed securities...........................       32,950            33,398             672               678
Asset-backed securities..............................          986             1,019                                  
                                                         ---------         ---------          ------            ------
                                                         $ 159,761         $ 161,498          $5,675            $5,831
                                                         =========         =========          ======            ======

</TABLE>

There were no securities of issuers whose aggregate carrying amount exceeded 10%
of shareholders' equity at December 31, 1998.

Securities having a carrying amount of $49,835,000 at December 31, 1998 were
assigned to secure treasury, tax and loan deposits, public deposits or
securities sold under agreements to repurchase.



<PAGE>



NOTE 4 - LOANS RECEIVABLE

(amounts in thousands)
Loans consisted of the following at December 31,
<TABLE>
<CAPTION>
                                                                                   1998             1997
                                                                                 --------         --------
<S>                                                                              <C>              <C>     
Commercial and financial...............................................          $146,962         $126,686
Real estate:
    Construction.......................................................            23,862           23,914
    Residential........................................................           123,446          160,057
    Commercial.........................................................           176,139          180,347
Consumer...............................................................            45,571           47,178
                                                                                 --------         --------
Loans outstanding......................................................          $515,980         $538,182
                                                                                 ========         ========
</TABLE>

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 LOAN LOSSES

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

<TABLE>
<CAPTION>

(amounts in thousands)                                      1998                1997                  1996 
                                                         ---------           ---------              -------
<S>                                                        <C>                <C>                    <C>   
Balance, beginning of year............................     $12,081             $ 9,355               $9,199
Changes incident to purchase acquisitions.............                           2,108                2,010
Provision charged to operations.......................       1,303               1,636                2,687
Recoveries............................................         906                 813                  717
Charge-offs...........................................      (4,198)             (1,831)              (5,258)
                                                           -------             -------               ------
Balance, end of year..................................     $10,092             $12,081               $9,355
                                                           =======             =======               ======
</TABLE>

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)                                                                 1998              1997
                                                                                       ----              ----
<S>                                                                                     <C>              <C> 
Aggregate recorded investment................................................           $0               $834
Grossinterest  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.......            0                 58
Interest income on the loans included in net income for the year.............            0                 37

As of December 31, 1997, the Company had 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.

</TABLE>


<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)                                                         1998                         1997          
                                                                   --------------------------   --------------------------
                                                                        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....        $3,025         $728         $7,342        $1,951
Loans for which there is no related allowance for credit losses...           231                       1,043              
                                                                          ------         ----         ------        ------
   Totals.........................................................        $3,256         $728         $8,385        $1,951
                                                                          ======         ====         ======        ======
Average recorded investment in impaired loans during the
   year ended December 31,........................................        $3,543                      $7,346
                                                                          ======                      ======
Related amount of interest income recognized during the time, in the year ended
   December 31, that the loans were impaired:
   Total recognized...............................................        $   10                      $  160
                                                                          ======                      ======
   Amount recognized using a cash-basis method of accounting......        $    5                      $    9
                                                                          ======                      ======

</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 $3,866,000 at December 31, 1998. The following table
summarizes the related party loan activity for the year ended December 31, 1998
(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....................................           $4,590
Additions.....................................................              606
Repayments....................................................           (1,330)
                                                                        -------
Balance, end of year..........................................           $3,866
                                                                         ======

LOAN SERVICING

Loans serviced for others are not included in the accompanying balance sheets.
The unpaid principal balances of loans serviced for others were $126,943,000 and
$98,868,000 as of December 31, 1998 and 1997, respectively.



<PAGE>



Activity in the Company's loan servicing asset for the years ended December 31
is as follows:

<TABLE>
<CAPTION>
(amounts in thousands)                                       1998         1997          1996
                                                           -------        ----          ----
<S>                                                         <C>           <C>           <C>
Balance, beginning of year............................      $  423        $183          $
Servicing assets capitalized..........................         815         259           186
Amortization..........................................         (56)        (19)           (3)
                                                            ------        ----          -----
Balance, end of year..................................      $1,182        $423          $183
                                                            ======        ====          ====

</TABLE>

The above year end balances of the loan servicing asset approximate their fair
values.

No valuation allowance for capitalized servicing rights was required in 1998 or
1997.

NOTE 5 - PREMISES AND EQUIPMENT

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

(amounts in thousands)
<TABLE>
<CAPTION>
Cost:                                                                     1998             1997  
                                                                       ---------        ---------
<S>                                                                      <C>              <C>   
    Land......................................................           $ 2,427          $ 2,101
    Premises..................................................            10,893           10,444
    Furniture and equipment...................................             8,960            9,593
    Leasehold improvements....................................             3,616            3,054
                                                                         -------          -------
       Total cost.............................................            25,896           25,192
Less accumulated depreciation and amortization................           (11,964)         (11,891)
                                                                         -------          -------
    Net book value............................................           $13,932          $13,301
                                                                         =======          =======
</TABLE>

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 $1,533,000 in 1998, $1,383,000 in 1997 and $1,146,000 in 1996 and is
recorded in occupancy expenses.

The minimum rental commitments required under operating leases at December 31,
1998 are as follows:

      (amounts in thousands)
      1999..............................                $1,275
      2000..............................                 1,227
      2001..............................                 1,183
      2002..............................                 1,019
      2003..............................                   916
      Years thereafter..................                 3,635
                                                        ------
                                                        $9,255
                                                        ======


<PAGE>



NOTE 6 - DEPOSITS

The aggregate amounts of time deposit accounts (including CDs) with a minimum
denomination of $100,000 or more were $49,699,000 and $40,518,000 as of December
31, 1998 and 1997, respectively. For all time deposits as of December 31, 1998,
the aggregate amount of maturities for each of the following five years ended
December 31, and thereafter are:

(amounts in thousands)
                  1999.........................                $206,847
                  2000.........................                  36,016
                  2001.........................                   7,490
                  2002.........................                   5,217
                  2003.........................                   2,711
                  Years thereafter.............                      11
                                                               --------
                                                               $258,292
                                                               ========

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:

<TABLE>
<CAPTION>
(amounts in thousands)                                                                    1998              1997   
                                                                                       ----------        ----------
<S>                                                                                      <C>               <C>     
Treasury, tax and loan deposits...............................                            $ 4,188           $ 8,018
Securities sold under agreements to repurchase................                             30,660             8,254
                                                                                          -------           -------
   Total......................................................                            $34,848           $16,272
                                                                                          =======           =======
</TABLE>


Securities sold under agreements to repurchase consist of funds borrowed from
customers on a short-term basis secured by portions of the Bank's investment
portfolio. The securities which were sold have been accounted for not as sales
but as borrowings. The securities consisted of debt securities issued by the
U.S. Treasury and other U.S. government corporations and agencies. The
securities were held in safekeeping by a broker, under the control of the Bank.
The purchasers have agreed to sell to the Bank substantially identical
securities at the maturity of the agreements. The agreements mature generally
within three months from date of issue.

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 6.15%. The following is a
schedule of maturities:

(amounts in thousands)

                  1999.........................            $ 6,353
                  2000.........................              5,194
                  2001.........................              3,738
                  2002.........................              5,040
                  2003.........................              4,131
                  Years thereafter.............              2,768
                  Add:  Unamortized premium                     55
                                                           -------
                                                           $27,279
                                                           =======


<PAGE>



NOTE 9 - EMPLOYEE BENEFITS

STOCK COMPENSATION

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

<TABLE>
<CAPTION>
                                                                               1998          1997            1996  
                                                                             -------        -------         -------
<S>                                                     <C>                   <C>            <C>             <C>   
Net income (In thousands)                               As reported           $7,554         $6,499          $6,842
                                                        Pro forma              7,312          6,367           6,779

Earnings per common share                               As reported            $1.07          $0.93          $1.06
                                                        Pro forma               1.04           0.91           1.05

Earnings per common share, assuming dilution            As reported            $1.05          $0.92          $1.06
                                                        Pro forma               1.01           0.90           1.05

</TABLE>

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 all exercised
in 1997. On January 31, 1996 the Board of Directors formed the Executive
Compensation Committee (Committee) to administer the 1996 Incentive and
Nonqualified Compensatory Stock Option Plan (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% 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 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 may be exercised ten years after the date of grant.

Under the 1997 Non-Officer Directors' Stock Option Plan (1997 Plan), the
Executive Compensation 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% 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 exercised in five equal annual installments
commencing from the date set forth in the Stock Option Agreement for such
option; and shall remain in effect in accordance with their terms. Each
individual who was a Participant on the effective date was automatically granted
on the effective date an option to purchase 11,000 shares and future grants
shall be made only upon approval of the shareholders.

In 1990, the Bank of South Windsor established a Non-Qualified Stock Option Plan
and reserved 127,600 shares of BSW common stock for issuance under this plan to
employees and directors of BSW. Under the 1990 Plan the option price was equal
to the fair value of BSW's common stock on the date the options are granted.
Once granted, options under the Plan are exercisable and expire ten years from
the grant date. In 1998, the Company adopted the BSW 1990 Plan and all
outstanding options as of the date that NECB acquired BSW were converted to an
equivalent number of stock options to purchase NECB stock at exercise prices
based on the conversion factor in the purchase of BSW.



<PAGE>



The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for the grants in 1996 and 1997: Dividend yield of 2.1 percent;
expected volatility of 25 percent; risk-free interest rates of 5.89 percent in
1997 and 5.17 percent in 1996; and expected lives of 8 years.

A summary of the status of all of the Company's stock options as of December 31,
1998, 1997 and 1996 and changes during the years ending on those dates is
presented below:

<TABLE>
<CAPTION>
                                           1998                           1997                            1996
                                 -------------------------     ---------------------------    -------------------------
                                            Weighted-Average               Weighted-Average            Weighted-Average
                                 SHARES      EXERCISE PRICE    SHARES       EXERCISE PRICE    SHARES    EXERCISE PRICE
                                 ------     ----------------   ------      ----------------   ------   ----------------
<S>                              <C>            <C>            <C>           <C>             <C>            <C>  
Outstanding, beginning of year   662,863        $12.59         366,137       $  7.80         242,767        $6.39
Granted                                                        352,810         16.73         160,770         9.16
Exercised                        (51,786)         8.41         (56,084)         6.91         (37,400)        4.55
Forfeited                        (12,100)        17.27
Settled upon acquisition         (16,476)        10.02
Settled in cash                  (26,284)         6.72                                            
                                 -------                       -------                       -------
Outstanding, end of year         556,217        $13.25         662,863        $12.59         366,137        $7.80
                                 =======                       =======                       =======

Options exercisable at year-end  222,697                       182,172                       205,896
Weighted-average fair value of
   options granted during the year N/A                           $5.66                         $2.89



</TABLE>


The following table summarizes information about fixed stock options outstanding
as of December 31, 1998:


<TABLE>
<CAPTION>

                                        OPTIONS OUTSTANDING                                   OPTIONS EXERCISABLE
                    -----------------------------------------------------------     -------------------------------------
                        Number           Weighted-Average                              Number
                      Outstanding           Remaining           Weighted-Average     Exercisable         Weighted-Average
EXERCISE PRICES     AS OF 12/31/98      CONTRACTUAL LIFE         EXERCISE PRICE     AS OF 12/31/98        EXERCISE PRICE
---------------     --------------      ----------------        ----------------    --------------       ----------------
<S>  <C>                 <C>              <C>                       <C>                  <C>                 <C>  
     $5.54               6,769            7.2 years                 $5.54                6,769               $5.54
      6.72              96,798            1.4 years                  6.72               96,798                6.72
      9.32             143,000            7.1 years                  9.32               57,200                9.32
     17.27             309,650            8.7 years                 17.27               61,930               17.27
                       -------                                                         -------
    $13.25             556,217            7.0 years                 13.25              222,697               10.29
                       =======                                                         =======


</TABLE>



The information in the above tables about options granted in 1997 is a
restatement of information previously reported. The information previously
reported did not include 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 Plan, which became effective upon approval by the shareholders in 1998.

DEFINED CONTRIBUTION PLAN

During 1997, 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 $263,000, $254,000
and $211,000 for the years ended December 31, 1998, 1997 and 1996, respectively.


<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:

(amounts in thousands; except per share data)

<TABLE>
<CAPTION>
                                                                             Income           Shares           Per-Share
                                                                           (NUMERATOR)     (DENOMINATOR)        AMOUNT
Year ended December 31, 1998
   Basic EPS
<S>                                                                          <C>               <C>               <C>  
     Net income and income available to common stockholders                  $7,554            7,042             $1.07
     Effect of dilutive stock options                                                            162
                                                                             ------            -----
   Diluted EPS
     Income available to common shareholders and assumed conversions         $7,554            7,204             $1.05
                                                                             ======            =====

Year ended December 31, 1997
   Basic EPS
     Net income and income available to common shareholders                  $6,499            6,972             $0.93
     Effect of dilutive stock options                                                             97
                                                                             ------            -----
   Diluted EPS
     Income available to common shareholders and assumed conversions         $6,499            7,069             $0.92
                                                                             ======            =====

Year ended December 31, 1996 - as restated
   Basic EPS
     Net income and income available to common shareholders                  $6,842            6,465             $1.06
     Effect of dilutive stock options                                                             20
                                                                             ------            -----
   Diluted EPS
     Income available to common shareholders and assumed conversions         $6,842            6,485             $1.06
                                                                             ======            =====


</TABLE>

NOTE 11 - INCOME TAX EXPENSE (BENEFIT)


<TABLE>
<CAPTION>

     The components of income tax expense (benefit) are as follows:

(amounts in thousands)
Years ended December 31,                                                           1998              1997            1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                <C>             <C>
Current:
   Federal                                                                       $2,835            $3,268          $1,642
   State                                                                            846             1,083             523
                                                                                -------           -------          ------
                                                                                  3,681             4,351           2,165
                                                                                -------           -------          ------
Deferred:
   Federal                                                                        1,527               285           1,056
   State                                                                            378                39             285
                                                                                -------           -------          ------
                                                                                  1,905               324           1,341
                                                                                -------           -------          ------
Change in valuation allowance                                                      (104)             (380)           (395)
Benefit of operating loss carryforward                                             (332)             (133)               
                                                                                --------          -------          ------
       Total income tax expense                                                  $5,150           $ 4,162          $3,111
                                                                                 ======           =======          ======

</TABLE>


<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,                                                          1998              1997             1996
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                               <C>              <C>               <C>  
Federal income tax at statutory rate                                              34.0%            34.0%             34.0%
Increase (decrease) resulting from:
   Tax-exempt income                                                              (1.4)             (.8)              (.5)
   Dividends received deduction                                                    (.8)             (.4)              (.9)
   Unallowable goodwill amortization and other reorganization expense, net         2.7              2.2
   Other adjustments                                                                                (.1)              6.4
   Unallowable expenses                                                             .4               .2                .4
   Change in valuation allowance                                                   (.8)            (1.4)             (8.2)
   Benefit of operating loss carryforward                                                           (.4)
State tax, net of federal tax benefit                                              6.4              5.8                  
                                                                                  ----             ----              ----
                                                                                  40.5%            39.1%             31.2%
                                                                                  ====             ====              ====

</TABLE>

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

(amounts in thousands)
<TABLE>
<CAPTION>
                                                                                               1998              1997 
                                                                                              -------           -------
<S>                                                                                          <C>                <C>
Deferred tax assets:
    Accrued interest on nonperforming loans                                                  $     84           $   135
    Accrued deferred compensation                                                                  56                60
    Allowance for loan losses                                                                   1,415             2,002
    Loan origination fees                                                                         123               187
    Depreciation                                                                                   16                91
    Other real estate owned valuation                                                             145               206
    Purchase accounting                                                                           106               108
    Transaction costs                                                                                               386
    Capital loss carryforward                                                                                        58
    Operating loss carryforward                                                                   641               918
                                                                                               ------            ------
       Gross deferred tax assets                                                                2,586             4,151
Valuation allowance                                                                                                (104)
                                                                                               ------            ------
                                                                                                2,586             4,047
                                                                                               ------            ------
Deferred tax liabilities:
    Mortgage servicing rights                                                                    (479)             (173)
    Other adjustments                                                                            (131)              (23)
    Discounts on loans                                                                             (8)              (51)
    Prepaid expenses                                                                              (11)              (42)
    Net unrealized gain on securities available-for-sale                                         (896)             (931)
                                                                                               ------            ------
       Gross deferred tax liabilities                                                          (1,525)           (1,220)
                                                                                               ------            ------
Net deferred tax assets                                                                        $1,061            $2,827
                                                                                               ======            ======

</TABLE>

Deferred tax assets at December 31, 1998 have not been reduced by a valuation
allowance because management believes that it is more likely than not that the
full amount of deferred tax assets will be realized.

As of December 31, 1998 the Company had Federal operating loss carryovers of
$2,396,000 with expiration dates from the years 2007 to 2011 and alternative
minimum tax credit carryovers of $40,000 with no expiration date.



<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, 1998 and 1997 and statements of income and
comprehensive income and cash flows for each of the three years in the period
ended December 31, 1998 follow:

<TABLE>
<CAPTION>

(amounts in thousands)
BALANCE SHEETS                                                                  1998              1997  
                                                                             ---------         ---------
<S>                                                                             <C>              <C>               <C>   
Assets:
   Cash                                                                        $   106           $   334
   Short-term investments                                                          735                  
                                                                               -------           -------
     Cash and cash equivalents                                                     841               334
   Investments                                                                                     1,013
   Investment in bank subsidiaries                                              72,350            67,729
   Other assets                                                                  1,028             1,274
                                                                               -------           -------
Total Assets                                                                   $74,219           $70,350
                                                                               =======           =======

Other liabilities                                                              $   869           $ 2,009
Shareholders' equity                                                            73,350            68,341
                                                                               -------          --------
Total Liabilities & Shareholders' Equity                                       $74,219           $70,350
                                                                               =======           =======

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME                                    1998              1997             1996 
                                                                               -------           -------          -------
Equity in (distributed) undistributed net income of bank subsidiaries          $ 3,789           $  (338)          $6,169
Net interest and dividend income                                                 3,570             7,641              832
Investment securities gains, net                                                   898
Other income                                                                         7
Other expense                                                                      566             1,342              336
Income tax (benefit) expense                                                       144              (538)            (177)
                                                                               -------            ------           ------
Net income                                                                       7,554             6,499            6,842
                                                                               -------            ------           ------
Other comprehensive income, net of tax
   Unrealized holding gains (losses) on available-for-sale securities,
     Parent Company only                                                          (379)              251               89
   Unrealized holding gains (losses) on available-for-sale securities,
     Subsidiaries                                                                  406             1,105             (257)
                                                                               -------            ------           ------
   Total other comprehensive income, net of tax                                     27             1,356             (168)
                                                                               -------            ------           ------
Comprehensive income                                                           $ 7,581            $7,855           $6,674
                                                                               =======            ======           ======

(amounts in thousands)
STATEMENTS OF CASH FLOWS                                                         1998              1997             1996 
                                                                               -------           -------          -------
Operating activities:
   Net income                                                                  $ 7,554            $6,499           $6,842
   Adjustments to reconcile net income to net cash provided by
     operating activities:
       Equity in distributed (undistributed) net income of bank subsidiaries    (3,789)              338           (6,169)
       Securities gains, net                                                      (898)                                (1)
       Net increase (decrease) in other liabilities                             (1,102)              955             (301)
       Net (increase) decrease in other assets                                     229              (192)              60
       Decrease in taxes payable                                                  (324)             (368)             (70)
                                                                               -------            ------           ------
         Net cash provided by operating activities                               1,670             7,232              361
                                                                               -------            ------           ------

</TABLE>


<PAGE>



<TABLE>
<CAPTION>

Investing activities:                                                            1998              1997             1996 
                                                                               -------           -------          -------
<S>                                                                             <C>                 <C>               <C> 
   Purchases of securities                                                                          (179)             (98)
   Proceeds from retirement of stock of acquired banks                              22               110
   Cost of acquisitions                                                                                              (277)
   Proceeds from sales of securities                                             1,277                              4,650
   Cash paid to shareholders of acquired banks                                                    (4,832)          (3,520)
   Investments in acquired banks                                                  (100)             (919)
   Other                                                                                                               (5)
                                                                                ------            ------           ------
         Net cash provided by (used in) investing activities                     1,199            (5,820)             750
                                                                                ------            ------           ------

Financing activities:
   Net proceeds from issuance of common stock                                      613               232              170
   Settlement of stock options                                                    (652)
   Dividends paid                                                               (2,323)           (1,594)          (1,055)
                                                                                ------            ------           ------
         Net cash used in financing activities                                  (2,362)           (1,362)            (885)
                                                                                ------            ------           ------

Increase in cash and cash equivalents                                              507                50              226
Cash and cash equivalents, beginning of year                                       334               284               58
                                                                                ------            ------          -------
Cash and cash eqivalents, end of year                                           $ 841             $  334          $   284
                                                                                ======            ======          =======

</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, 1998,
$575,000 are secured by deposit accounts held with the Company's subsidiaries.

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.



<PAGE>



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, short-term investments and federal
                              funds sold approximate fair value.

Interest bearing time deposits The carrying amounts for interest bearing time
deposits 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.

Loans held-for-sale           The carrying amounts for loans held-for-sale
fair value.                   approximate

Accrued interest receivable   The carrying amount of accrued interest receivable
                              approximates its fair value.

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.



<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>

                                                                      1998                               1997          
                                                          --------------------------        ---------------------------
<S>                                                      <C>                 <C>            <C>               <C>
(amounts in thousands)                                    Carrying            Fair           Carrying           Fair
                                                           Amount            Value            Amount            Value  
                                                         ---------          --------        ---------         ----------
Financial assets:
   Cash and cash equivalents                             $  52,844           $52,844        $  61,030         $  61,030
   Interest bearing time deposits                              694               694              879               879
   Securities available-for-sale                           191,867           191,867          162,201           162,201
   Securities held-to-maturity                               5,675             5,831           14,315            14,433
   Federal Home Loan Bank stock                              4,881             4,881            4,881             4,881
   Loans                                                   505,888           514,700          526,101           529,402
   Loans held-for-sale                                       7,721             7,721            2,966             2,966
   Accrued interest receivable                              13,932            13,932           13,301            13,301

Financial liabilities:
   Deposits                                                664,078           665,420          694,946           695,914
   Short-term borrowings                                    34,848            34,848           16,272            16,272
   Long-term debt                                           27,279            27,620           22,309            22,298


</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)
<TABLE>
<CAPTION>
                                                                                           1998                    1997  
                                                                                        ---------               ---------
<S>                                                                                      <C>                     <C>
                                                                                         Notional                Notional
                                                                                           Amount                  Amount
                                                                                           ------                  ------ 
Commitments to extend credit                                                             $111,398                 $74,595
Standby letters of credit and financial guarantees                                          4,491                   4,623

</TABLE>

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".



<PAGE>



NOTE 14 - DISCLOSURE FOR CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(amounts in thousands)
Supplemental disclosure of cash paid during the period for:                            1998           1997         1996  
                                                                                     --------      ---------    ---------
<S>                                                                                  <C>            <C>          <C>     
   Income tax paid                                                                   $  4,119       $  3,300     $  2,222
   Interest paid                                                                       22,568         19,386       17,849

Supplemental disclosure of noncash investing and financing activities:
   Loans charged off, net of recoveries                                                 3,292          1,018        4,541
   Real estate acquired through foreclosure                                             1,682          2,524        3,738
   Loans originated to facilitate sales of other real estate owned                        404          1,154        1,071
   Investments transferred from held-to-maturity to available-for-sale securities       2,493

Assets acquired and liabilities assumed in purchase business combinations were
as follows:
   Fair value of assets acquired, excluding cash and cash equivalents                                 62,422       77,063
   Cash and cash equivalents acquired                                                                  7,888       14,236
                                                                                                    --------     --------
                                                                                                      70,310       91,299
   Liabilities assumed                                                                                64,309       84,989
                                                                                                    --------     --------
     Value of acquired entities                                                                     $  6,001     $  6,310
                                                                                                    ========     ========


</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,
1998, that the Company and the Banks meet all capital adequacy requirements to
which they are subject.

As of December 31, 1998, 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.


<PAGE>



The actual capital amounts and ratios are also presented in the following table:

<TABLE>
<CAPTION>

                                                                                                           To Be Well
                                                                                                        Capitalized Under
                                                                                For Capital             Prompt Corrective
(dollar amounts in thousands)                            Actual              Adequacy Purposes         Action Provisions:
                                                         ------              -----------------         ------------------
                                                    Amount      Ratio         Amount      Ratio         Amount      Ratio
                                                    ------      -----         ------      -----         ------      -----
As of December 31, 1998
   Total Capital (to Risk Weighted Assets):
<S>                                                <C>          <C>          <C>            <C>                          
     Consolidated                                  $73,980      13.3%        $44,418      > 8.0%           N/A        N/A
                                                                                          -
     NEBT                                           48,838      12.7          30,829        8.0        $38,536      >10.0%
                                                                                                                    -
     EQBK                                           12,781      13.3           7,682        8.0          9,602       10.0
     CMBK                                            5,720      16.2           2,823        8.0          3,530       10.0
     OPBT                                            5,656      14.2           3,178        8.0          3,973       10.0
   Tier 1 Capital (to Risk Weighted Assets):
     Consolidated                                   67,001      12.1          22,209        4.0            N/A        N/A
     NEBT                                           44,000      11.4          15,415        4.0         23,122        6.0
     EQBK                                           11,573      12.1           3,841        4.0          5,761        6.0
     CMBK                                            5,271      14.9           1,412        4.0          2,117        6.0
     OPBT                                            5,157      13.0           1,589        4.0          2,384        6.0
   Tier 1 Capital (to Average Assets):
     Consolidated                                   67,001       8.3          32,303        4.0            N/A        N/A
     NEBT                                           44,000       7.5          23,361        4.0         29,202        5.0
     EQBK                                           11,573      10.1           4,592        4.0          5,740        5.0
     CMBK                                            5,271       8.0           2,650        4.0          3,313        5.0
     OPBT                                            5,157       9.4           2,185        4.0          2,731        5.0

As of December 31, 1997
   Total Capital (to Risk Weighted Assets):
     Consolidated                                  $68,573      12.5%        $43,862      > 8.0%           N/A        N/A
                                                                                          --
     NEBT                                           35,664      12.6          22,727        8.0        $28,409      >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
     BSW                                            11,898      11.9           7,987        8.0          9,983       10.0
     OPBT                                            5,094      15.3           2,669        8.0          3,336       10.0
   Tier 1 Capital (to Risk Weighted Assets):
     Consolidated                                   61,746      11.3          21,931        4.0            N/A        N/A
     NEBT                                           32,091      11.3          11,364        4.0         17,046        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
     BSW                                            10,639      10.7           3,993        4.0          5,990        6.0
     OPBT                                            4,674      14.0           1,335        4.0          2,002        6.0
   Tier 1 Capital (to Average Assets):
     Consolidated                                   61,746       8.6          28,567        4.0            N/A        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
     BSW                                            10,639       6.9           6,175        4.0          7,719        5.0
     OPBT                                            4,674      10.0           1,869        4.0          2,336        5.0

</TABLE>


<PAGE>



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
outstanding to the Company by any subsidiary at December 31, 1998 or 1997.

NOTE 16 - LITIGATION

CMBK is the defendant in a breach of employment contract suit. The Plaintiff is
seeking monetary damages. The case is in discovery and is scheduled for trial in
March 1999. 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.

<PAGE>

EXHIBIT INDEX

Exhibit #     Description                                                   Page
---------     -----------                                                   ----

  21          List of Subsidiaries
  27.1        Financial Data Schedule--Fiscal Year End 1998
  27.2        Restated Financial Data Schedule--Fiscal Year Ends 1997
                 
  



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