<PAGE>   1
================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-K

(MARK ONE)

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

    [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                             AND EXCHANGE COMMISSION

    FOR THE TRANSITION PERIOD FROM __________________ TO ____________________


                         COMMISSION FILE NUMBER 1-10633

                                 CFX CORPORATION

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            NEW HAMPSHIRE                               02-0402421
   (State or other jurisdiction of                   (I.R.S. Employer
   incorporation or organization)                   Identification No.)

          102 MAIN STREET
       KEENE, NEW HAMPSHIRE                                  03431
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code      (603) 352-2502

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

           Securities registered pursuant to Section 12(b) of the Act:

     COMMON STOCK, $.66 2/3 PAR VALUE, LISTED ON THE AMERICAN STOCK EXCHANGE

  Securities registered pursuant to Section 12(g) of the Act:          NONE

Indicate by check mark 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 such filing
requirements for the past 90 days.

                             YES   X        NO
                                -------       -------

Indicate by check mark 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 to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price on March 20, 1998, was $772,052,993.
Although directors and executive officers of the registrant were assumed to be
"affiliates" of the registrant for the purposes of this calculation, this
classification is not to be interpreted as an admission of such status.

As of March 20, 1998, 24,500,183 shares of the registrant's common stock were
outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders for the fiscal year ended December 31, 1997, which is to be filed
within 120 days of the end of the Company's fiscal year, are incorporated by
reference into Part III of this Form 10-K. The incorporation by reference
herein of portions of the Proxy Statement shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.


===============================================================================
<PAGE>   2
                                     PART I

ITEM 1. BUSINESS

GENERAL

            CFX Corporation ("CFX" or the "Company") is a bank holding company
incorporated under the laws of the State of New Hampshire. The Company's
wholly-owned subsidiary banks are CFX Bank, headquartered in Keene, New
Hampshire, Orange Savings Bank ("Orange"), headquartered in Orange,
Massachusetts, and Safety Fund National Bank ("Safety Fund"), headquartered in
Fitchburg, Massachusetts.

            CFX Bank is a New Hampshire state-chartered savings bank that has
been incorporated since 1897. CFX Bank had total assets of $2.5 billion as of
December 31, 1997 and operates 43 full-service branches and 184 automated and
remote service units in its service area. CFX Bank's subsidiary, CFX Financial
Services, Inc. ("CFX Financial"), owns 51% of CFX Funding L.L.C. ("CFX
Funding"), which engages in the facilitation of lease financing and
securitization. During the fourth quarter of 1997, CFX Bank dissolved its
wholly-owned subsidiary, CFX Capital, which owned CFX Mortgage, Inc. CFX
Mortgage was also dissolved and its operations were combined with the operations
of CFX Bank. The dissolutions had no significant impact on the Company's
consolidated financial statements and were undertaken to streamline the
organizational structure of the Company.

            Orange is a Massachusetts state-chartered savings bank that had
total assets of $86 million as of December 31, 1997. Orange operates two
full-service branches in Orange and Athol, Massachusetts.

            Safety Fund, a national banking association, had total assets of
$340 million as of December 31, 1997 and operates 11 full-service branches in
its service area. In addition, Safety Fund operates an Investments and Trust
Services division with $506 million in assets under administration.

            On August 29, 1997, the Company acquired Community Bankshares, Inc.
("Community"), a bank holding company with total assets of $616 million
headquartered in Concord, New Hampshire, and its subsidiary banks, Concord
Savings Bank and Centerpoint Bank. In connection with the merger, Concord, with
8 branches, and Centerpoint, with 4 branches, were merged into CFX Bank. A total
of 5,304,293 shares of the Company's common stock was issued in exchange for all
of the issued and outstanding shares of Community common stock. The transaction
was accounted for as a pooling-of-interests.

            Also on August 29, 1997, the Company acquired Portsmouth Bank
Shares, Inc. ("Portsmouth"), a bank holding company, and its subsidiary bank,
Portsmouth Savings Bank, a state-chartered savings bank. Portsmouth had total
assets of $259 million and operated 3 full-service branches in its service area.
In connection with the Portsmouth acquisition, Portsmouth Savings Bank was
merged into CFX Bank. A total of 5,502,005 shares of the Company's common stock
was issued in exchange for all of the issued and outstanding shares of
Portsmouth common stock. The transaction was accounted for as a
pooling-of-interests.

            As previously reported, on October 27, 1997, the Company entered
into a definitive agreement to be acquired by Peoples Heritage Financial Group,
Inc. ("PHFG"), a bank holding company headquartered in Portland, Maine. Pursuant
to the agreement, each of the issued and outstanding shares of the Company's
common stock (24,071,000 at December 31, 1997) will be converted into .667
shares of PHFG common stock. The PHFG transaction is expected to be a tax-free
exchange to the owners of the Company and is subject to regulatory approval. On
February 9, 1998, the shareholders of the Company and PHFG approved the
transaction. It is anticipated that the transaction will be accounted for as a
pooling-of-interests. At December 31, 1997, PHFG reported total assets of $6.8
billion, deposits of $4.8 billion and shareholders' equity of $475 million. In
connection with the acquisition, the Company's banking subsidiaries will be
merged into PHFG's banking subsidiaries. Specifically, CFX Bank will be merged
into Bank of New Hampshire, PHFG's New Hampshire subsidiary, and Safety Fund and
Orange will both be merged into The Family Bank, F.S.B., PHFG's Massachusetts
subsidiary.

            In connection with the PHFG merger agreement, the Company and PHFG
entered into Stock Option Agreements whereby the Company gave PHFG an option to
purchase up to 19.9 percent of its outstanding common stock under certain
circumstances and PHFG gave the Company an option to purchase up to 10.0 percent
of its outstanding common stock under certain circumstances.

            The Company serves as a financial intermediary, attracting deposits
from, and making loans to, consumers and small-to-mid sized businesses. Its
principal lines of business are mortgage banking, retail banking, commercial
banking, investment and trust services, and equipment lease funding. The
Company's primary retail banking markets are New

                                       2
<PAGE>   3

Hampshire and central Massachusetts. The Company uses loan production offices
and correspondent banks attracting loan applications from throughout New
Hampshire, Maine, Vermont and northern Massachusetts.

            CFX Bank, Orange, and Safety Fund (collectively referred to as the
"Banks") use customer deposits and loan payments to fund first mortgage loans on
residential real estate. In addition to originating mortgage loans, the Banks
also make commercial, consumer and other term and installment loans. Other
traditional services available at the Banks include: a wide range of deposit
programs designed to attract both short-term and long-term deposits from the
general public, businesses and local government; safe deposit boxes; travelers
checks and money orders; and many other banking services.

            To further the Banks' goals of providing a broad range of retail
services and to generate additional fee income, the Banks operate remote service
units and automated teller machines located at various business locations in
their respective service areas providing customers with a convenient vehicle for
conducting routine banking transactions. A full line of trust and investment
management services are also available to the Banks' customers. These services
to customers were enhanced by the acquisition of Safety Fund, which has provided
trust services to its customers for many years. These services have been
expanded to CFX Bank.

            CFX Bank originates and purchases residential and construction
mortgage loans and, in addition to keeping loans for their own portfolio, sells
loans to Safety Fund and Orange and in the secondary market, while retaining the
servicing for a majority of these loans. CFX Bank is an approved seller and
servicer of the Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association, Department of Housing and Urban Development, Veteran's
Administration, and New Hampshire Housing Financing Authority. CFX Bank services
loans for others in an aggregate amount of $1.4 billion as of December 31, 1997.

            The Company has operated a small-ticket lease financing and
securitization business through CFX Funding. CFX Funding's strategy was to
increase the availability of credit to a select group of lease originators
(lessors) while controlling the risk inherent in lease portfolios through credit
enhancements. Warehouse lines of credit provided by CFX Bank to these
originators are typically paid down every 90 to 180 days through securitization
or sales of the various lease portfolios. During the fourth quarter of 1997, the
Company discontinued future operations of CFX Funding with respect to its
securitization business. As part of this discontinuance, and as a result of
resolving a dispute between the Company and a credit insurer of certain
equipment leases held in four securitized lease pools, the Company recorded, as
previously reported, a $4.4 million after-tax charge.

            The operating results of the Company depend primarily on its net
interest and dividend income, which is the difference between (i) interest and
dividend income on earning assets, primarily loans, leases, trading and
investment securities, and (ii) interest expense on interest bearing
liabilities, which consist of deposits and borrowings. The Company's results of
operations are also affected by the provision for loan and lease losses,
resulting from the Company's assessment of the adequacy of the allowance for
loan and lease losses; the level of its other operating income, including gains
and losses on the sale of loans and securities, and loan and other fees;
operating expenses; and income tax expenses.

            The Company has made, and may continue to make, various
forward-looking statements with respect to earnings per share, the effect of the
PHFG merger, cost savings related to acquisitions, credit quality and other
financial and business matters for 1998 and, in certain instances, subsequent
periods. The Company cautions that these forward-looking statements are subject
to numerous assumptions, risks and uncertainties, and that statements for
periods subsequent to 1998 are subject to greater uncertainty because of the
increased likelihood of changes in underlying factors and assumptions. Actual
results could differ materially from forward-looking statements. In addition to
those factors previously disclosed by the Company and those factors identified
elsewhere herein, the following factors could cause actual results to differ
materially from such forward-looking statements: continued pricing pressures on
loan and deposit products, actions of competitors, changes in economic
conditions, the extent and timing of actions of the Federal Reserve, customers'
acceptance of the Company's products and services, the extent and timing of
legislative and regulatory actions and reforms, changes in the interest rate
environment that reduce interest margins, estimated cost savings from recent
acquisitions and mergers cannot be fully realized within the expected time
frame, revenues following such transactions are lower than expected, and costs
or difficulties related to the integration of acquired and existing businesses
are greater than expected. The Company's forward-looking statements speak only
as of the date on which such statements are made. By making any forward-looking
statements, the Company assumes no duty to update them to reflect new, changing
or unanticipated events or circumstances.

                                       3
<PAGE>   4

MARKET AREA

            The Banks operate primarily in New Hampshire and central
Massachusetts. Based on total deposits as of June 30, 1996, CFX Bank had the
largest market share in Cheshire County with 55% of the total deposit base. In
each of the other three New Hampshire counties CFX Bank operates in, Belknap,
Hillsborough and Merrimack, CFX Bank has less than a 4% market share.
Collectively, CFX Bank ranks 5th in New Hampshire with 4.33% of total deposits.
Furthermore, the acquisition of Safety Fund increased the Company's market share
in Worcester County, Massachusetts from 1% to 4%.

INVESTMENT PORTFOLIO

            The following table sets forth the book value of securities
available for sale and securities held to maturity at the dates indicated.
Securities available for sale are carried at estimated fair value. Securities
held to maturity are carried at amortized cost.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 (IN THOUSANDS)                                              1997                1996               1995
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>                 <C>
SECURITIES AVAILABLE FOR SALE:
U. S. Treasury and agency obligations                             $     115,473      $     226,126       $     196,875
State and municipal                                                         447              2,005                 971
Corporate bonds                                                               -             14,284              25,097
Federal agency mortgage pass-through securities                         165,337            105,524              89,658
Other collateralized mortgage obligations (CMO's)                       189,850             19,608              24,158
Other asset-backed securities                                            12,766              3,407               6,587
Other debt securities                                                         -              4,869                   -
Marketable equity securities                                             23,973             21,493              19,431
Federal Home Loan Bank of Boston and
   Federal Reserve Bank of Boston stock                                  26,704             17,580              13,609
                                                                  -------------      -------------       -------------
                                                                  $     534,550      $     414,896       $     376,386
                                                                  =============      =============       =============
SECURITIES HELD TO MATURITY:
U. S. Treasury and agency obligations                             $       7,721      $      45,883       $      98,275
State and municipal                                                      13,470             13,986              19,799
Corporate bonds                                                               -              2,013               4,546
Federal agency mortgage pass-through securities                           6,234             28,338              33,815
Other collateralized mortgage obligations (CMO's)                           359              1,184               8,098
Other                                                                       400             13,278                 200
                                                                  -------------      -------------       -------------
                                                                  $      28,184      $     104,682       $     164,733
                                                                  =============      =============       =============
</TABLE>

            In the third quarter of 1997, the acquisitions of Community and
Portsmouth necessitated a transfer of securities held to maturity with an
amortized cost of $61,170,000 and a net unrealized loss of $95,000 to securities
available for sale in order to maintain the Company's existing interest rate
risk profile. In the third quarter of 1996, the acquisitions of The Safety Fund
Corporation and Milford Co/operative Bank necessitated a transfer of securities
classified as held to maturity with an amortized cost of $76,849,000 and a net
unrealized loss of $2,522,000 to securities available for sale in order to
maintain the Company's existing interest rate risk profile. In November 1995,
the FASB issued guidance allowing a one-time reassesment of an entity's
investment classifications during the period November 15, 1995 to December 31,
1995. As a result, securities held to maturity with an amortized cost of
$111,386,000 and a net unrealized loss of $864,000 were transferred to
securities available for sale and securities held to maturity with an amortized
cost of $6,000,000 were sold at a net realized gain of $6,000.

                                       4
<PAGE>   5

         The following table sets forth an analysis of the maturity
distributions and the weighted average yields of all debt securities of the
Company at December 31, 1997:


<TABLE>
<CAPTION>
                                     -----------------------------------------------------------------------------------------------
                                                                                   MATURING
                                     -----------------------------------------------------------------------------------------------
                                                                       AFTER ONE              AFTER FIVE
                                              WITHIN                  BUT WITHIN              BUT WITHIN
                                             ONE YEAR                 FIVE YEARS               TEN YEARS           AFTER TEN YEARS
                                     -----------------------------------------------------------------------------------------------
                                         AMOUNT     YIELD        AMOUNT      YIELD        AMOUNT      YIELD        AMOUNT     YIELD
                                     -----------------------------------------------------------------------------------------------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                  <C>             <C>     <C>             <C>      <C>             <C>      <C>            <C>
U.S. Treasury securities and other   $     13,038    6.34%   $     47,285    6.27%    $     33,365    6.80%    $     29,506   7.49%
State and municipal (1)                     2,415    4.55           8,681    4.52            2,374    4.78              447   5.42
Mortgage-backed securities and
 CMO's (2)                                134,940    6.83          99,074    7.19           73,874    6.81           66,658   6.38
Other                                           -       -               -       -              400    7.34                -      -
                                     ------------    ----    ------------    ----     ------------    ----     ------------   ----
Total debt securities                $    150,393    6.75%   $    155,040    6.76%    $    110,013    6.77%    $     96,611   6.72%
                                     ============            ============             ============             ============
</TABLE>

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

(1)        Yields on tax-exempt investment securities are stated on a
           taxable-equivalent basis (using a 38.62% tax rate).

(2)        Included in table based on contractual maturities.

LOAN PORTFOLIO

         The following table shows the Company's loan distribution, net of
unearned income and deferred costs, at the dates indicated:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 (IN THOUSANDS)                              1997             1996            1995            1994            1993
---------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>            <C>              <C>            <C>
Real estate:
     Residential                                  $   1,159,147   $     873,611  $      732,725   $     693,644  $     632,469
     Construction                                        35,318          18,594          13,778          12,578         14,686
     Commercial                                         265,385         248,805         227,303         188,126        176,602
Commercial, financial, and agricultural                 209,929         170,335         136,093         130,175        119,282
Warehouse lines of credit to leasing companies            1,922          18,393          12,906          15,339          5,428
Consumer lease financing                                118,212          67,146          24,399             306              -
Consumer and other                                      244,943         197,516         179,338         142,894        124,681
                                                  -------------   -------------  --------------   -------------  -------------
         Total loans and leases                   $   2,034,856   $   1,594,399  $    1,326,541   $   1,183,062  $   1,073,149
                                                  =============   =============  ==============   =============  =============
</TABLE>

         The following table shows the maturity of loans (excluding residential
mortgages on 1 - 4 family residences and all consumer loans) outstanding at
December 31, 1997. Also provided are the amounts due after one year, classified
according to sensitivity to changes in interest rates.

<TABLE>
<CAPTION>
                                                      ---------------------------------------------------------------
                                                                                   MATURING
                                                      ---------------------------------------------------------------
                                                                        AFTER ONE BUT
                                                                         WITHIN FIVE
                                                      WITHIN ONE YEAR       YEARS      AFTER FIVE YEARS     TOTAL
                                                      ---------------------------------------------------------------
                                                                               (IN THOUSANDS)
<S>                                                   <C>               <C>             <C>            <C>
Real estate--construction                             $      35,318     $         -     $         -    $       35,318
Real estate--commercial                                     166,591          80,048           18,746          265,385
Commercial, financial, and agricultural                     141,211          47,681           21,037          209,929
Warehouse lines of credit to leasing companies                1,922               -                -            1,922
                                                      -------------     -----------     ------------   --------------
         Total                                        $     345,042     $   127,729     $     39,783   $      512,554
                                                      =============     ===========     ============   ==============
Loans maturing after one year with:
     Fixed interest rates                                               $    42,789     $     24,454
     Variable interest rates                                                 84,940           15,329
                                                                        -----------     ------------
         Total                                                          $   127,729     $     39,783
                                                                        ===========     ============
</TABLE>

                                       5
<PAGE>   6


         The following table summarizes the Company's nonaccrual, past due, and
restructured loans and leases:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS)                         1997             1996            1995            1994            1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>             <C>            <C>              <C>
Nonaccrual loans and leases: (1)
     Real estate (2)                                   $    11,894      $    8,848      $     9,647    $    10,118      $   14,473
     Commercial, financial, and agricultural                 1,587           1,634            2,131          2,211           5,293
     Consumer and other                                        506             301              454            128             466
                                                       -----------      ----------      -----------    -----------      ----------
         Total                                              13,987          10,783           12,232         12,457          20,232
                                                       -----------      ----------      -----------    -----------      ----------
Accruing loans and leases past due 90 days or more:
     Real estate (2)                                             -               -                -              -           3,060
     Commercial, financial, and agricultural                     -               -                -              -             246
     Consumer and other                                          -               -                -              -              26
                                                       -----------      ----------      -----------    -----------      ----------
         Total                                                   -               -                -              -           3,332
                                                       -----------      ----------      -----------    -----------      ----------

Total nonperforming loans and leases                   $    13,987      $   10,783      $    12,232    $    12,457      $   23,564
                                                       ===========      ==========      ===========    ===========      ==========
Percentage of total loans and leases                         0.69%            .67%             .92%          1.05%           2.19%
Percentage of total assets                                   0.49%            .46%             .58%           .64%           1.26%

Total restructured loans and leases                    $     1,231      $    1,895      $     1,360    $     3,032      $    4,217
                                                       ===========      ==========      ===========    ===========      ==========
</TABLE>
--------------------------------

(1)        All loans past due 90 days or more as to principal or interest are
           generally placed on nonaccrual status. In addition, a loan (including
           an impaired loan) is generally classified as nonaccrual when
           management determines that significant doubt exists as to the
           collectibility of principal or interest. An impaired loan may remain
           on accrual status if it is less than 90 days past due and guaranteed
           or well secured. Interest accrued but not received on loans placed on
           nonaccrual status is reversed and charged against current income.
           Interest on nonaccrual loans is recognized when received. Cash
           received on impaired loans is generally allocated to principal and
           interest based on the contractual terms of the note, unless
           management believes such receipt should be applied directly to
           principal based on collection concerns. Loans are restored to accrual
           status when the borrower has demonstrated the ability to make future
           payments of principal and interest, as scheduled.

(2)        Includes residential, construction and commercial real estate loans.

            Interest income that would have been recorded under the original
terms of nonaccrual and restructured loans and the interest income actually
recognized for the year ended December 31, 1997 amounted to $647,000 and
$113,000, respectively.

SUMMARY OF LOAN AND LEASE LOSS EXPERIENCE

         This table summarizes the Company's loan and lease loss experience for
the years indicated:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS)                    1997            1996            1995          1994          1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>             <C>            <C>            <C>
Allowance for loan and lease losses, beginning of year      $    20,332    $     19,843    $     18,940   $    21,080    $   17,587
Loans charged-off:
 Real estate (1)                                                    842           2,090           2,440         4,227         7,134
 Commercial, financial and agricultural                           1,992           1,359           1,000         2,157         3,219
 Consumer and other                                               1,524           1,308           1,042         1,053         1,132
                                                            -----------    ------------    ------------   -----------    ----------
      Total loans charged-off                                     4,358           4,757           4,482         7,437        11,485
                                                            -----------    ------------    ------------   -----------    ----------
Recoveries of amounts previously charged-off:
 Real estate (1)                                                    295             382             592           952           539
 Commercial, financial and agricultural                             800             320             492           485           217
 Consumer and other                                                 281             259             344           238           179
                                                            -----------    ------------    ------------   -----------    ----------
   Total recoveries                                               1,376             961           1,428         1,675           935
                                                            -----------    ------------    ------------   -----------    ----------
Net loans charged-off                                             2,982           3,796           2,384         5,762        10,550
Provision for loan and lease losses (2)                           4,548           4,285           3,814         3,622        14,030
Change in fiscal year - Community                                     -               -             143             -             -
                                                            -----------    ------------    ------------   -----------    ----------
Allowance for loan and lease losses, end of year            $    21,898    $     20,332    $     19,843   $    18,940    $   21,080
                                                            ===========    ============    ============   ===========    ==========
Net loans charged-off to average loans outstanding                 0.15%           0.26%           0.19%          .51%         1.00%
                                                            ===========    ============    ============  ============   ===========
</TABLE>

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

(1)        Includes residential, construction and commercial real estate loans.

                                       6
<PAGE>   7

(2)        The amount charged to operations and the related balance in the
           allowance for loan and lease losses is based upon periodic
           evaluations of the loan portfolio by management. These evaluations
           consider several factors including, but not limited to, general
           economic conditions, loan portfolio composition, prior loan and lease
           loss experience, and management's estimation of future potential
           losses. The large provision in 1993 resulted in part from losses
           incurred as a result of the earlier real estate decline as well as
           for the losses incurred in conjunction with a bulk sale of
           nonperforming assets totaling $6,600,000 to a private investor. The
           amount of loss recognized on this 1993 sale was $2,473,000. The
           combination of this bulk sale and a general economic strengthening
           evidenced during 1994 allowed the Company to provide substantially
           less to the allowance for loan and lease losses in 1994. From 1994
           through 1996 the provision for loan and lease losses has remained
           fairly consistent. These provisions have increased the allowance for
           loan and lease losses, partially reduced by net charge-offs, each
           year since 1994. The increase in the allowance was necessary, despite
           a lower level of nonperforming loans and leases, due to the growth in
           the loan and lease portfolio which has increased 50% since 1993.

ALLOWANCE FOR LOAN AND LEASE LOSS ALLOCATION

         The following table shows an allocation of the allowance for loan and
lease losses as of the dates indicated:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31                         1997                 1996                1995                   1994                    1993
------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)             PERCENT              PERCENT             PERCENT                PERCENT                 PERCENT
                                  OF LOANS             OF LOANS            OF LOANS               OF LOANS                OF LOANS
                                   IN EACH              IN EACH            IN EACH                IN EACH                  IN EACH
                                  CATEGORY             CATEGORY            CATEGORY               CATEGORY                CATEGORY
                                  TO TOTAL             TO TOTAL            TO TOTAL               TO TOTAL                TO TOTAL
                         AMOUNT     LOANS      AMOUNT    LOANS    AMOUNT     LOANS      AMOUNT      LOANS       AMOUNT     LOANS
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>         <C>      <C>         <C>     <C>         <C>       <C>          <C>        <C>          <C>
Real estate            $    9,142   71.74%  $    7,249   70.99% $   7,625    73,42%    $   6,471    75.60%    $    6,777    76.77%
Commercial, financial,
 and agricultural           3,592   10.41        4,855   12.54      3,141    11.23         1,788    12.29          4,785    11.61
Consumer and other          1,922   17.85        1,971   16.46      2,102    15.35         1,834    12.10          1,562    11.61
Unallocated                 7,242       -        6,257       -      6,975        -         8,847        -          7,956        -
                       ----------  ------   ----------  ------  ---------   ------     ---------   ------     ----------   ------
                       $   21,898  100.00%  $   20,332  100.00% $  19,843   100.00%    $  18,940   100.00%    $   21,080   100.00%
                       ==========           ==========          =========              =========              ==========
</TABLE>

DEPOSITS

         The average daily balances of deposits and of rates paid on such
deposits is summarized for the periods indicated in the following table:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 (DOLLARS IN THOUSANDS)              1997                      1996                        1995
-------------------------------------------------------------------------------------------------------------------------------
                                                    AMOUNT      RATE          AMOUNT       RATE          AMOUNT         RATE
-------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>       <C>              <C>        <C>               <C>
Noninterest bearing demand deposits             $    214,661       -%     $    176,423        -%      $    147,984         -%
Regular savings deposits                             308,808    2.63           308,626     2.71            321,100      2.83
NOW and money market deposits                        359,410    2.12           376,175     2.11            394,408      2.35
Time deposits                                        984,071    5.61           849,926     5.57            741,772      5.30
                                                ------------              ------------                ------------
         Total                                  $  1,866,950    3.80%     $  1,711,150     3.72%      $  1,605,264      3.59%
                                                ============              ============                ============
</TABLE>

         Maturities of time certificates of deposit and other time deposits of
$100,000 or more outstanding at December 31, 1997, are summarized as follows:

<TABLE>
<CAPTION>
                                         TIME                OTHER
                                     CERTIFICATES            TIME
                                    OF DEPOSITS(1)          DEPOSITS            TOTAL
                                    --------------          --------            ------
                                                         (IN THOUSANDS)
<S>                                  <C>                  <C>              <C>
3 months or less                     $     13,980         $    62,532      $     76,512
Over 3 through 6 months                     5,035              30,389            55,424
Over 6 through 12 months                    4,148             135,136           139,284
Over 12 months                              4,461              78,622            83,083
                                     ------------         -----------      ------------
  Total                              $     27,624         $   326,679      $    354,303
                                     ============         ===========      ============
</TABLE>

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

(1)        Time deposits with a minimum required balance of $100,000.

                                       7
<PAGE>   8

RETURN ON EQUITY AND ASSETS

         The following table shows consolidated operating and capital ratios of
the Company for the periods indicated:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31                             1997                   1996               1995
------------------------------------------------------------------------------------------------------
<S>                                              <C>                     <C>                <C>
Return on:
   Average total assets                            0.71%                  1.04%              1.06%
   Average total shareholders' equity              7.63                  10.03               9.77
   Average common shareholders' equity             7.63                  10.03               9.77
   Average total shareholders' equity to
      average total assets ratio                   9.25                  10.36              10.88
   Common dividend payout ratio                  102.53                  57.43              56.99
</TABLE>

SHORT-TERM BORROWINGS

         Short-term borrowings are borrowed funds with an original maturity of
one year or less. Securities sold under repurchase agreements generally mature
within 9 months. The details of these borrowings for the years 1997 and 1996 are
presented below:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
DECEMBER 31 (Dollars in thousands)                                1997                1996
-------------------------------------------------------------------------------------------------
<S>                                                      <C>                  <C>
Securities sold under repurchase agreements:
      Balance at year end                                $       188,558      $      104,427
      Average amount outstanding                                 180,214              93,226
      Maximum amount outstanding at any month end                208,981             133,726
      Average interest rate for the year                            4.54%               4.85%
      Average interest rate on year-end balance                     5.26%               4.75%

Advances from Federal Home Loan Bank of Boston:
      Balance at year end                                $       221,000      $      219,734
      Average amount outstanding                                 194,333             197,312
      Maximum amount outstanding at any month end                257,026             228,970
      Average interest rate for the year                            4.85%               5.67%
      Average interest rate on year-end balance                     5.51%               5.80%
</TABLE>

EMPLOYEES

         As of December 31, 1997, the Company and its subsidiaries had 838
full-time and 270 part-time employees. The employees of the Company and its
subsidiaries are not represented by any collective bargaining unit. Relations
between management and employees are considered good.

RISK MANAGEMENT

         In the normal course of business, the Company is subject to various
risks, the most significant of which are credit, liquidity and interest rate.
Although it cannot eliminate these risks, the Company has risk management
processes designed to provide for risk identification, measurement, monitoring
and control.

         Credit Risk. Credit risk represents the possibility that a customer or
counterparty may not perform in accordance with contractual terms. Credit risk
results from extending credit to customers, purchasing securities and entering
into certain off-balance-sheet financial derivative transactions. Risk
associated with the extension of credit includes general risk, which is inherent
in the lending business, and risk specific to individual borrowers. The Company
seeks to manage credit risk through portfolio diversification, underwriting
policies and procedures, and loan monitoring practices.

         Liquidity Risk. Liquidity represents an institution's ability to
generate cash or otherwise obtain funds at reasonable rates to satisfy
commitments to borrowers and demands of depositors and debtholders, and invest
in strategic initiatives. Liquidity risk represents the likelihood the Company
would be unable to generate cash or otherwise obtain funds at reasonable rates
for such purposes. Liquidity is managed through the coordination of the relative
maturities of assets, liabilities and off-balance-sheet positions and is
enhanced by the ability to raise funds in capital markets through direct
borrowing or securitization of assets, such as mortgage loans and lease
receivables.

                                       8
<PAGE>   9

         Interest Rate Risk. Interest rate risk arises primarily through the
Company's normal business activities of extending loans and taking deposits.
Interest rate risk is the sensitivity of net interest income and the market
value of financial instruments to the timing, magnitude and frequency of changes
in interest rates. Interest rate risk results from various repricing frequencies
and the maturity structure of assets, liabilities, and off-balance-sheet
positions. Interest rate risk also results from, among other factors, changes in
the relationship or spread between interest rates. Many factors, including
economic and financial conditions, general movements in market interest rates
and consumer preferences, affect the spread between interest earned on assets
and interest paid on liabilities. Financial derivatives, primarily interest rate
swaps, caps and floors, are used to alter the interest rate characteristics of
assets and liabilities. The Company uses a number of measures to monitor and
manage interest rate risk, including income simulation and interest sensitivity
("gap") analyses.

         For additional information relating to the Company's risk management
processes, see Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Exhibit 1 of this document.

REGULATION AND SUPERVISION

General

            Bank holding companies and banks are extensively regulated under
both federal and state law. The following information describes certain aspects
of that regulation applicable to the Company and the Banks, and does not purport
to be complete. To the extent that the following information describes statutory
and regulatory provisions, it is qualified in its entirety by reference to the
particular provisions. In addition to existing government regulation, federal
and state statutes and regulations are subject to changes that may have
significant impact on the way in which banks and bank holding companies may
conduct business. The likelihood and potential effects of such changes cannot be
predicted. Legislation enacted in recent years has substantially increased the
level of competition among commercial banks, savings banks, thrift institutions
and nonbanking companies, including insurance companies, securities brokerage
firms, mutual funds, investment banks and major retailers. Recent legislation
also has broadened the regulatory powers of the federal banking agencies in a
number of areas and has restricted the powers of state-chartered banks.

The Company

            Bank Holding Company Regulation. As a bank holding company, the
Company is subject to the Bank Holding Company Act of 1956, as amended (the "BHC
Act"), and related federal statutes, and is subject to supervision, regulation
and inspection by the Board of Governors of the Federal Reserve System and the
Federal Reserve Bank of Boston (collectively, the "Federal Reserve"). The
Company is required to file with the Federal Reserve an annual report and any
additional information as the Federal Reserve may require pursuant to the BHC
Act. The Federal Reserve possesses cease and desist powers over bank holding
companies and their non-bank subsidiaries if their actions represent unsafe or
unsound practices.

            Bank Acquisitions. The BHC Act requires, among other things, the
prior approval of the Federal Reserve in any case where the Company proposes to
(i) acquire all or substantially all the assets of any bank, (ii) acquire direct
or indirect ownership or control of more than 5 percent of the voting shares of
any bank, or (iii) merge or consolidate with any other bank holding company. The
BHC Act currently permits bank holding companies from any state to acquire banks
and bank holding companies located in any other state, subject to certain
conditions, including certain nationwide and state-imposed concentration limits.
The Company has the ability, subject to certain restrictions, including state
opt-out provisions, to acquire by acquisition or merger branches outside its
home state. The establishment of new interstate branches also is possible in
those states with laws that expressly permit it. Interstate branches will be
subject to certain laws of the states in which they are located. Competition may
increase further as banks branch across state lines and enter new markets.

            Non-Bank Acquisitions. The BHC Act also prohibits a bank holding
company, with certain exceptions, from acquiring or retaining direct or indirect
ownership or control or more than 5 percent of the voting shares of any company
that is not a bank or bank holding company, and from engaging in any activities
other than those of banking, managing or controlling banks, or activities which
the Federal Reserve has determined to be so closely related to the business of
banking or managing or controlling banks as to be a proper incident thereto.

            Restrictions on the Acquisition of the Company. The acquisition of
10 percent or more of the Company's outstanding shares by any person or group of
persons may, in certain circumstances, be subject to the provisions of the
Change in Bank Control Act of 1978, as amended, and the acquisition of control
of the Company by another company would be subject to regulatory approval under
the BHC Act.

                                       9
<PAGE>   10

            Source of Strength Policy. Under Federal Reserve policy, a bank
holding company is expected to act as a source of financial strength to each of
its subsidiary banks and to commit resources to support each such bank.
Consistent with its "source of strength" policy for subsidiary banks, the
Federal Reserve has stated that, as a matter of prudent banking, a bank holding
company generally should not maintain a rate of cash dividends unless its net
income available to common shareholders has been sufficient to fund fully the
dividends, and the prospective rate of earnings retention appears to be
consistent with the corporation's capital needs, asset quality and overall
financial condition.

            Cross-Guarantee. As a result of the enactment of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, any or all of the
Company's subsidiary banks can be held liable under so-called "cross-guarantee"
provisions for any loss incurred by, or reasonably expected to be incurred by,
the FDIC in connection with (i) the default of any other of the Company's
subsidiary banks, or (ii) any assistance provided by the FDIC to any other of
CFX's subsidiary banks in danger of default. "Default" is defined generally as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur without regulatory assistance.

            Securities Regulation. The Company has registered its common stock
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). As a result of such registration,
the proxy and tender offer rules, periodic reporting requirements and insider
trading restrictions and reporting requirements, as well as certain other
requirements of the Exchange Act, are applicable to the Company. Because the
Company's stock is listed on the American Stock Exchange (the "AMEX"), the
Company is also subject to the rules and regulations of the AMEX. The Company
also may, from time to time, be subject to regulation by various state
securities commissions with respect to the offer and sale of its securities.

            New Hampshire Corporation Law. As a New Hampshire corporation, the
Company also must comply with the general corporation laws of the state of New
Hampshire.

The Banks

            Bank Regulation. As a New Hampshire state-chartered savings bank the
deposits of which are insured by the Bank Insurance Fund (the "BIF") and the
Savings Association Insurance Fund (the "SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC"), CFX Bank is subject to supervision, regulation and
examination by the New Hampshire State Banking Department and the FDIC. As a
Massachusetts state-chartered savings bank the deposits of which are insured by
the BIF, Orange is subject to supervision, regulation and examination by the
Massachusetts Commissioner of Banks and the FDIC. As a national banking
association, Safety Fund is subject to supervision, regulation and examination
primarily by the Office of the Comptroller of the Currency (the "OCC"). Each of
the Banks is subject to various requirements and restrictions under federal and,
in the case of CFX Bank and Orange, state law, including (i) requirements to
maintain reserves against deposits, (ii) restrictions on the types, amount and
terms and conditions of loans that may be granted, (iii) limitations on the
types of investments that may be made, the activities that may be engaged in,
and the types of services that may be offered, and (iv) standards relating to
asset quality, earnings, and employee compensation. The approval of a Bank's
primary regulator is required prior to any merger or consolidation or the
establishment or relocation of any office. Various consumer laws and regulations
also affect the operations of the Banks.

            Affiliate Transactions. The Banks are subject to federal laws that
limit the transactions by subsidiary banks to or on behalf of their parent
company and to or on behalf of any nonbank subsidiaries. Such transactions by a
subsidiary bank to its parent company or to any nonbank subsidiary are limited
to 10 percent of a bank subsidiary's capital and surplus and, with respect to
such parent company and all such nonbank subsidiaries, to an aggregate of 20
percent of such bank subsidiary's capital and surplus. Further, loans and
extensions of credit generally are required to be secured by eligible collateral
in specified amounts. Federal law also prohibits banks from purchasing
"low-quality" assets from affiliates.

            FDIC Assessment. The deposits of the Banks are insured by the FDIC
up to the limits set forth under applicable law. A majority of the deposits of
the Banks are subject to deposit insurance assessments of the BIF. However,
approximately 11% of the Company's deposits (attributable to the deposits of
Milford Cooperative Bank acquired by CFX Bank as of July 1, 1996) are subject to
deposit insurance assessments of the SAIF. Effective January 1, 1996, the FDIC
reduced the assessment rates on bank deposits insured by the BIF, and effective
January 1, 1997, the FDIC lowered the assessment rates for SAIF-insured deposits
to the same levels applicable to BIF-insured deposits. Thus, for the semi-annual
period beginning January 1, 1997, the effective rate of assessments imposed on
all FDIC deposits for deposit insurance ranges from 0 - 27 basis points per $100
of insured deposits, depending on the institution's capital position and other
supervisory factors. Legislation enacted in 1996 requires all FDIC-insured
institutions to bear the cost of bonds sold by the Financing Corporation from
1987 to 1989 in support of the former


                                       10
<PAGE>   11

Federal Savings and Loan Insurance Corporation. To cover such obligations, the
FDIC assesses BIF-insured deposits an additional 1.26 basis points per $100 of
deposits and assesses SAIF-insured deposits an additional 6.3 basis points per
$100 of deposits, in each case on an annualized basis.

            Prompt Corrective Action. Federal banking agencies possess broad
powers to take corrective action as deemed appropriate for an insured depository
institution and its holding company. The extent of these powers depends on
whether the institution in question is considered "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
or "critically undercapitalized". At December 31, 1997, each of the Banks
exceeded the required ratios for classification as "well capitalized." The
classification of depository institutions is primarily for the purpose of
applying the federal banking agencies' prompt corrective action powers and is
not intended to be, and should not be interpreted as, a representation of the
overall financial condition or prospects of any financial institution. The
agencies' prompt corrective action powers can include, among other things,
requiring an insured depository institution to adopt a capital restoration plan
which cannot be approved unless guaranteed by the institution's parent company;
placing limits on asset growth and restrictions on activities, including
restrictions on transactions with affiliates; restricting the interest rate the
institution may pay on deposits; prohibiting the payment of principal or
interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval and, ultimately,
appointing a receiver for the institution. Among other things, only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and only an "adequately capitalized" depository institution
may accept brokered deposits with prior regulatory approval.

            Federal Home Loan Bank. Each of the Banks is a member of the Federal
Home Loan Bank of Boston (the "FHLB"), which is one of twelve regional Federal
Home Loan Banks. The FHLB serves as a reserve or central bank for its members
and makes advances to its members in accordance with the FHLB's policies and
procedures. As members of the FHLB, the Banks are required to purchase and hold
stock in the FHLB. As of December 31, 1997, CFX Bank, Orange and Safety Fund
held stock in the FHLB in the amount of $24,796,000, $993,000 and $634,000
respectively.

Risk-Based Capital Requirements

            Under the risk-based capital guidelines applicable to the Company
and the Banks, the minimum guideline for the ratio of total capital to
risk-weighted assets (including certain off-balance-sheet activities) is 8
percent. At least half of the total capital must be "Tier 1" capital, which
primarily includes common shareholders' equity and qualifying preferred stock,
less goodwill and other disallowed tangibles. "Tier 2" capital includes, among
other items, certain cumulative and limited-life preferred stock, qualifying
subordinated debt and the allowance for credit losses, subject to certain
limitations, less required deductions as prescribed by regulation.

            In addition, the federal bank regulators established leverage ratio
(Tier 1 capital to total adjusted average assets) guidelines providing for a
minimum leverage ratio of 3 percent for bank holding companies and banks meeting
certain specified criteria, including that such institutions have the highest
regulatory examination rating and are not contemplating significant growth or
expansion. Institutions not meeting these criteria are expected to maintain a
ratio which exceeds the 3 percent minimum by at least 100 to 200 basis points.
The federal bank regulatory agencies may, however, set higher capital
requirements when particular circumstances warrant. Under the federal banking
laws, failure to meet the minimum regulatory capital requirements could subject
a bank to a variety of enforcement remedies available to federal bank regulatory
agencies, including the termination of deposit insurance by the FDIC and seizure
of the institution.

            At December 31, 1997, the total and Tier 1 risk-based capital ratios
and leverage ratios of the Company and each of the Banks exceeded the minimum
regulatory capital requirements. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Community Reinvestment

            Bank holding companies and their subsidiary banks are also subject
to the provisions of the Community Reinvestment Act of 1977, as amended ("CRA").
Under the terms of the CRA, a bank's record in meeting the credit needs of the
community served by the bank, including low- and moderate-income neighborhoods,
is generally annually assessed by the bank's primary federal regulator. When a
bank holding company applies for approval to acquire a bank or other bank
holding company, the Federal Reserve will review the assessment of each
subsidiary bank of the applicant bank holding company, and such records may be
the basis for denying the application. At December 31, 1997, the Company and
each of the Banks was rated "Satisfactory" or "Outstanding" with respect to CRA.

                                       11
<PAGE>   12

Dividend Restrictions

            Under the New Hampshire Business Corporation Act, a distribution,
including dividends and the purchase or redemption of a corporation's own
shares, must be authorized by the Board of Directors and may not be paid if the
corporation, after the payment is made, would not be able to pay its debts as
they become due in the usual course of business, or the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.

            The principal source of the Company's revenue and cash flow is
dividends from the Banks. The Banks are subject to various statutory and
regulatory restrictions on their ability to pay dividends or otherwise make
distributions or supply funds to the Company. In addition, bank regulators may
have authority to prohibit a bank subsidiary from paying dividends, depending on
the subsidiary's financial condition, if such payment is deemed to constitute an
unsafe or unsound practice.

            The Company is a legal entity separate and distinct from the Banks.
Accordingly, the right of the Company, and consequently the right of creditors
and shareholders of the Company, to participate in any distribution of the
assets or earnings of the Banks and its other subsidiaries is necessarily
subject to the prior claims of creditors of the Banks and its other
subsidiaries, except to the extent that claims of the Company in its capacity as
creditor may be recognized.

            Earnings appropriated to bad debt reserves for losses and deducted
for federal income tax purposes are not available for dividends without the
payment of taxes at the current income tax rates on the amount used.

Other Regulations

         The policies of regulatory authorities, including the Federal Reserve
and the FDIC, have had a significant effect on the operating results of
financial institutions in the past and are expected to do so in the future. An
important function of the Federal Reserve is to regulate aggregate national
credit and money supply through such means as open market dealings in
securities, establishment of the discount rate on bank borrowings and changes in
reserve requirements against bank deposits. Policies of these agencies may be
influenced by many factors, including inflation, unemployment, short-term and
long-term changes in the international trade balance and fiscal policies of the
United States government. Supervision, regulation or examination of the Company
by these regulatory agencies is not intended for the protection of the Company's
shareholders.

         The United States Congress has periodically considered and adopted
legislation which has resulted in and could result in further deregulation of
both banks and other financial institutions. Such legislation could place the
Company in more direct competition with other financial institutions, including
mutual funds, credit unions, insurance companies and securities brokerage firms.
No assurance can be given as to whether any additional legislation will be
enacted or as to the effect of such legislation on the business of the Company.

COMPETITION

            Bank holding companies and their subsidiaries are subject to
vigorous and intense competition from various financial institutions and other
"nonbank" or non-regulated companies or firms that engage in similar activities.
The Bank competes for deposits with other commercial banks, savings banks,
savings and loan associations, insurance companies and credit unions, as well as
issuers of commercial paper and other securities, including shares in mutual
funds. In making loans, the Bank competes with other commercial banks, savings
banks, savings and loan associations, consumer finance companies, credit unions,
insurance companies, leasing companies and other nonbank lenders.

            The Company and the Bank compete not only with financial
institutions based in New Hampshire and Massachusetts, but also with a number of
large out-of-state and foreign banks, bank holding companies and other financial
and nonbank institutions. Some of the financial and other institutions operating
in the same markets are engaged in national and international operations and
have more assets and personnel than the Company. Some of the Company's
competitors are not subject to the extensive bank regulatory structure and
restrictive policies which apply to the Company and the Banks.

         The principal factors in successfully competing for deposits are
convenient office locations and remote service units, flexible hours,
competitive interest rates and services, while those relating to loans are
competitive interest rates, the range of lending services offered and lending
fees. The Company believes that the local character of the Banks' businesses and
their community bank management philosophy enabled them to compete successfully
in their respective market areas. However, it is anticipated that competition
will continue to increase in the years ahead.


                                       12
<PAGE>   13

ITEM 2. PROPERTIES

         The Company neither owns nor leases any real property but utilizes the
premises and equipment of CFX Bank. CFX Bank owns its main office and two branch
offices in Keene, New Hampshire. CFX Bank also owns branches in Allenstown,
Amherst, Bedford, Concord, Exeter, Greenland, Greenville, Henniker,
Hillsborough, Hooksett, Jaffrey, Manchester, Milford, New Boston, Nashua, New
Ipswich, North Hampton, Peterborough, Portsmouth, Tilton, Troy, Weare and
Wilton/Lyndeborough, New Hampshire while leasing other branches in Brookline,
Gilford, Hinsdale, Laconia, Loudon, Manchester, Marlborough, Mont Vernon, North
Swanzey, Rindge, Walpole, West Chesterfield and Winchester, New Hampshire.
Included above are five "mini-branches" that are located at various retail
establishments in its market area. In addition, CFX Bank and subsidiaries also
own or lease several other properties used for administrative purposes. Orange
Savings Bank owns its main office, located in Orange Massachusetts, and leases a
branch facility in Athol, Massachusetts. Safety Fund owns its main office and
leases a branch office in Fitchburg, Massachusetts. Additionally, Safety Fund
owns branches in Gardner, Leominster and Worcester, while leasing other branches
in Gardner, Leominster, Westborough and Worcester, Massachusetts. In addition,
Prichard Plaza owns a real estate investment property in Fitchburg,
Massachusetts.

         The Banks also owns 102 automated teller and remote service units
located in New Hampshire and central Massachusetts.

         At December 31, 1997, the total net book value of the Company's
premises and equipment was $38,761,000.

ITEM 3. LEGAL PROCEEDINGS

         As previously reported, the Company entered into a settlement agreement
with American Credit Indemnity Company ("ACI") in connection with the resolution
of a dispute between the Company and ACI regarding the origination and servicing
by CFX Funding of certain leases held in four lease pools insured by ACI. The
settlement agreement provides mutual releases by ACI of the Company and CFX
Funding, and by the Company and CFX Funding of ACI, of all claims and
liabilities, other than those contained in the settlement agreement, relating to
the four lease pool transactions.

         There are no pending legal proceedings to which the Company is a party
or any of its property is the subject. There are no material pending legal
proceedings, other than ordinary routine litigation incidental to the business
of banking, to which the Banks are a party or of which the Banks' property is
subject. There are no material pending legal proceedings to which any director,
officer or affiliate of the Company, any owner of record or beneficially of more
than five percent (5%) of the common stock of the Company, or any associate of
any such director, officer, affiliate of the Company or any security holder is a
party adverse to the Company or has a material interest adverse to the Company
or the Banks.

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

         At a special meeting held on February 9, 1998, the Company's
shareholders approved the previously reported proposed merger of the company
with and into PHFG.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Information relating to the market for the Company's common equity and
related stockholder matters is found on page 65 of Exhibit 99.1 to this report.

ITEM 6. SELECTED FINANCIAL DATA

         Information relating to selected financial data is found on page 1 of
Exhibit 99.1 to this report.

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

         Management's Discussion and Analysis of Financial Condition and Results
of Operations is found on pages 2 - 23 of Exhibit 99.1 to this report.

                                       13
<PAGE>   14

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)      Financial Statements Required by Regulation S-X

         Information relating to financial statements is found on pages 24 - 64
         in Exhibit 99.1 of this report.

         The opinion of KPMG Peat Marwick, LLP pertaining to The Safety Fund
         Corporation:

         Independent Auditors' Report

         To the Board of Directors and Stockholders of
         The Safety Fund Corporation:

         We have audited the accompanying consolidated Statement of Operation
         of The Safety Fund Corporation and subsidiaries for the year ended
         December 31, 1995. These financial statements are the responsibility
         of the Company's management. Our responsibility is to express an
         opinion on these financial statements based on our audits.

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

         In our opinion, the financial statements referred to above present
         fairly, in all material respects, the results of operation of The
         Safety Fund Corporation and subsidiaries for the year ended December
         31, 1995, in conformity with generally accepted accounting principles.

         /S/ KPMG Peat Marwick LLP

         Boston, Massachusetts
         January 22, 1996

         The opinion of KPMG Peat Marwick, LLP pertaining to Community
         Bankshares, Inc. follows:

         Independent Auditors' Report

         The Stockholders and Board of Directors
         Community Bankshares, Inc.:

         We have audited the accompanying consolidated balance sheets of
         Community Bankshares, Inc. and subsidiaries as of December 31, 1996
         and the related consolidated statements of income, changes in
         stockholders' equity and cash flows for the year ended December 31,
         1996, the six months ended December 31, 1995 and the year ended
         June 30, 1995. These consolidated financial statements are the
         responsibility of Community's management. Our responsibility is to
         express an opinion on these consolidated financial statements based on
         our audits.

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

                                       14
<PAGE>   15

         In our opinion, the consolidated financial statements referred to
         above present fairly, in all material respects, the financial position
         of Community Bankshares, Inc. and subsidiaries at December 31, 1996
         and the results of their operations and their cash flows for the year
         ended December 31, 1996, the six months ended December 31, 1995 and
         the year ended June 30, 1995 in conformity with generally accepted
         accounting principles.

         /S/ KPMG Peat Marwick LLP

         Boston, Massachusetts
         January 22, 1997

         The opinion of Shatswell, MacLeod & Company, P.C. pertaining to
         Portsmouth Bankshares, Inc. follows:

         Independent Auditors' Report

         The Board of Directors
         Portsmouth Bank Shares, Inc.
         Portsmouth, New Hampshire

         We have audited the accompanying consolidated balance sheets of
         Portsmouth Bank Shares, Inc. and Subsidiary as of December 31, 1996 and
         1995 and the related consolidated statements of income, changes in
         stockholders' equity and cash flows for each of the years in the
         three-year period ended December 31, 1996. These consolidated financial
         statements are the responsibility of the Company's management. Our
         responsibility is to express an opinion on these consolidated financial
         statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
         present fairly, in all material respects, the consolidated financial
         position of Portsmouth Bank Shares, Inc. and Subsidiary as of December
         31, 1996 and 1995, and the consolidated results of their operations and
         their cash flows for each of the years in the three-year period ended
         December 31, 1996, in conformity with generally accepted accounting
         principles.

         As discussed in Note 2 to the consolidated financial statements, the
         Company adopted the provision of the Financial Accounting Standards No.
         115 "Accounting for Certain Investments in Debt and Equity Securities"
         as of January 1, 1994.

                                           /S/Shatswell, MacLeod & Company, P.C.

         West Peabody, Massachusetts
         January 13 1997, except for Note 20 as to
          which the date is February 13, 1997

(b)      Supplementary Financial Information

         (1) Selected Quarterly Financial Data

         Information relating to selected quarterly financial data is found on
         page 63 of the Exhibit 99.1 of this report.

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

         Not applicable.

                                       15
<PAGE>   16

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Pursuant to Instruction G, the information required by this item is
         incorporated herein by reference to the registrant's proxy statement
         for its 1998 annual meeting of shareholders to be filed within 120 days
         of the registrant's fiscal year ended December 31, 1997, or, if such
         proxy statement is not filed within such period, by reference to an
         amendment to this Form 10-K to be filed within 120 days of the
         registrant's fiscal year ended December 31, 1997.

ITEM 11. EXECUTIVE COMPENSATION

         Pursuant to Instruction G, the information required by this item is
         incorporated herein by reference to the registrant's proxy statement
         for its 1998 annual meeting of shareholders to be filed within 120 days
         of the registrant's fiscal year ended December 31, 1997, or, if such
         proxy statement is not filed within such period, by reference to an
         amendment to this Form 10-K to be filed within 120 days of the
         registrant's fiscal year ended December 31, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Pursuant to Instruction G, the information required by this item is
         incorporated herein by reference to the registrant's proxy statement
         for its 1998 annual meeting of shareholders to be filed within 120 days
         of the registrant's fiscal year ended December 31, 1997, or, if such
         proxy statement is not filed within such period, by reference to an
         amendment to this Form 10-K to be filed within 120 days of the
         registrant's fiscal year ended December 31, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Pursuant to Instruction G, the information required by this item is
         incorporated herein by reference to the registrant's proxy statement
         for its 1998 annual meeting of shareholders to be filed within 120 days
         of the registrant's fiscal year ended December 31, 1997, or, if such
         proxy statement is not filed within such period, by reference to an
         amendment to this Form 10-K to be filed within 120 days of the
         registrant's fiscal year ended December 31, 1997.

                                     PART IV

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

(a)      List of Documents Filed as Part of This Report:

         (1)   Financial Statements

         The financial statements listed below are included in exhibit 99.1 of
         this document.

<TABLE>
<CAPTION>
                              FINANCIAL STATEMENTS                      PAGE REFERENCES
                              --------------------                      ---------------
<S>                                                                           <C>
               Consolidated Balance Sheets......................................24
               Consolidated Statements of Income................................25
               Consolidated Statements of Shareholders' Equity..................27
               Consolidated Statements of Cash Flows............................28
               Notes to Consolidated Financial Statements......................30-63
               Report of Independent Auditors...................................64
</TABLE>

         (2)   Financial Statement Schedules

               See Item 14 (d)

         (3)   Exhibits Required by Item 601

               See Item 14 (c)
                                       16
<PAGE>   17

(b)      Reports on Form 8-K

                  On February 2, 1998, a Form 8-K was filed providing disclosure
                  of material expense incurred as a result of settling potential
                  litigation involving American Credit Indemnity Corporation and
                  CFX Funding, L.L.C.

                  On December 13, 1997, the Company filed in a Current Report on
                  Form 8-K restated audited consolidated financial statements of
                  the Company and its subsidiaries as of December 31, 1996 and
                  1995, and the related consolidated statements of income,
                  shareholders' equity and cash flows for each of the years in
                  the three-year period ended December 31, 1996, giving effect
                  to the Company's acquisitions of Community and Portsmouth.

                  On November 4, 1997, the Company filed a Current Report on
                  Form 8-K to report the proposed merger of CFX with and into
                  PHFG and disclose the underlying transaction documents.

(c)      Exhibits

         The exhibits listed below are filed herewith or are incorporated herein
         by reference to other filings.

    EXHIBIT NUMBER                         DESCRIPTION

         2.1      Agreement and Plan of Merger by and between CFX and PHFG dated
                  as of October 27, 1997, incorporated by reference from the
                  exhibits to the Current Report on Form 8-K filed by PHFG
                  (Commission File No. 0-16947) on November 3, 1997.

         3.1      Articles of Incorporation of CFX, as amended, incorporated
                  herein by reference to from the Exhibits to the Current Report
                  on Form 8-K by CFX filed on September 15, 1997.

         10.1     1992 CFX Corporation Profit Sharing/Bonus Plan, incorporated
                  herein by reference to the Exhibits to the Annual Report on
                  Form 10-K of CFX for the year ended December 31, 1992.

         10.2     1986 CFX Corporation Stock Option Plan, incorporated herein by
                  reference to the Exhibits to the Registration Statement on
                  Form S-8 of CFX No. 33-17071 effective in 1987.

         10.3     1995 CFX Corporation Stock Option Plan, incorporated herein by
                  reference to the Exhibits 1.c to the Registration Statement on
                  Form S-8 of CFX No. 33-61787 effective in 1995.

         10.4     CFX Corporation 1997 Long-Term Incentive Plan, incorporated
                  herein by reference to the Exhibits to the Current Form 8-K by
                  CFX Corporation filed on November 14, 1997.

         10.5     CFX Corporation 1992 Employee Stock Purchase Plan,
                  incorporated herein by reference to the Exhibits to the
                  Registration Statement on Form S-8 of CFX No. 33-52598
                  effective in 1992.

         10.6     Employment Agreement dated as of August 29,1997 by and between
                  CFX and Douglas Crichfield, incorporated herein by reference
                  to the Exhibits to the Current Report on Form 8-K by CFX filed
                  on September 15, 1997.

         10.7     Employment Agreement dated as of August 12,1997 by and between
                  CFX and Peter J. Baxter, incorporated herein by reference to
                  the Exhibits to the Current Report on Form 8-K by CFX filed on
                  September 15, 1997.

         10.8     Employment Agreement dated as of August 11,1997 by and between
                  CFX and Mark A. Gavin, incorporated herein by reference to the
                  Exhibits to the Current Report on Form 8-K by CFX filed on
                  September 15, 1997.

         10.9     Employment Agreement dated as of August 14,1997 by and between
                  CFX and Christopher W. Bramley, incorporated herein by
                  reference to the Exhibits to the Current Report on Form 8-K by
                  CFX filed on September 15, 1997.

                                       17
<PAGE>   18

         10.10    Change of Control Agreement by and between CFX Corporation and
                  Gregg R. Tewksbury, incorporated herein by reference to the
                  Exhibits to the Form 10-Q by CFX Corporation filed on November
                  14, 1997.

         10.11    Change of Control Agreement by and between CFX Corporation and
                  Edwin L. Herbert, incorporated herein by reference to the
                  Exhibits to the Form 10-Q by CFX Corporation filed on
                  November 14, 1997.

         10.12    Change of Control Agreement by and between CFX Corporation and
                  David N. Rasmussen, incorporated herein by reference to the
                  Exhibits to the Form 10-Q by CFX Corporation filed on November
                  14, 1997.

         10.13    Stock Option Agreement, dated as of October 27,1997, between
                  CFX (as the issuer) and PHFG (as the grantee) incorporated by
                  reference from the Exhibits to the Current Report on Form 8-K
                  filed by PHFG (Commission file No. 0-16947) on November 3,
                  1997.

         10.14    Stock Option Agreement, dated as of October 27,1997, between
                  PHFG (as the issuer) and CFX (as the grantee) incorporated by
                  reference from the Exhibits to the Current Report on Form 8-K
                  filed by PHFG (Commission file No. 0-16947) on November 3,
                  1997.

         10.15    The Safety Fund Corporation 1994 Incentive and Nonqualified
                  Stock Option Plan, incorporated herein by reference to the
                  Exhibits to the Annual Report on Form 10-KSB for the year
                  ended December 31, 1994 of The Safety Fund Corporation.

         10.16    The Safety Fund Corporation 1984 Incentive Stock Option Plan,
                  incorporated herein by reference to the Exhibits to the
                  Registration Statement on Form S-8 of The Safety Fund
                  Corporation No. 33-19325 effective in 1984.

         10.17    Community Bankshares, Inc. 1992 Stock Option Plan,
                  incorporated herein by reference to the Exhibits to
                  Post-Effective Amendment No. 1 on Form S-8 to Registration
                  Statement on Form S-4 of CFX No. 333-29243 effective in 1997.

         10.18    Centerpoint Bank 1989 Stock Option Plan, incorporated herein
                  by reference to the Exhibits to Post-Effective Amendment No. 1
                  on Form S-8 to Registration Statement on Form S-4 of CFX No.
                  333-29243 effective in 1997.

         10.19    Concord Savings Bank 1988 Stock Option Plan, incorporated by
                  reference to the Exhibits to Post-Effective Amendment No. 1 on
                  Form S-8 to Registration Statement on Form S-4 of CFX No.
                  333-29243 effective in 1997.

         10.20    Concord Savings Bank 1985 Employee Stock Option Plan,
                  incorporated herein by reference to the Exhibits to
                  Post-Effective Amendment No. 1 on Form S-8 to Registration
                  Statement on Form S-4 of CFX No. 333-29243 effective in 1997.

         10.21    Portsmouth Bank Shares, Inc. Revised 1987 Stock Option and
                  Stock Appreciation Rights Plan, incorporated herein by
                  reference to the Exhibits to Post-Effective Amendment No. 1 on
                  Form S-8 to Registration Statement on Form S-4 of CFX No.
                  333-29229.

         10.22    Employment and Change of Control Agreement between The Safety
                  Fund Corporation and Stephen R. Shirley, dated June 1, 1994,
                  assumed by the Company as of July 1, 1996 incorporated herein
                  by reference to The Safety Fund Corporation's Annual Report on
                  Form 10-KSB for the year ended December 31, 1994.

         21       Subsidiaries of the Company, filed herewith.

         23.1     Consent of Wolf & Company, P.C.

         23.2     Consent of KPMG Peat Marwick LLP (with respect to The Safety
                  Fund Corporation and Community Bankshares, Inc.)

         23.3     Consent of Shatswell, MacLeod & Company, P.C. (with respect to
                  Portsmouth Bank Shares, Inc.)

                                       18
<PAGE>   19

         27       Financial Data Schedule

         27.1     Financial Data Schedule - Fiscal Year End 1997.

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

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

         99.1     Audited consolidated balance sheets of CFX Corporation and
                  subsidiaries as of December 31, 1997 and 1996, and the
                  consolidated statements of income, shareholders' equity and
                  cash flows for each of the years in the three-year period
                  ended December 31, 1997, and the independent auditor's report
                  thereon.

(d)      Financial Statement Schedules.

         Schedules to the Consolidated Financial Statements required by Article
         9 of Regulation S-X are not required under the related instructions or
         are inapplicable, and therefore have been omitted.


                                       19
<PAGE>   20

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 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.

                                                 CFX CORPORATION

Date: March 27, 1998                             By:  /s/ PETER J. BAXTER
                                                      --------------------------
                                                      Peter J. Baxter, President

         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.

<TABLE>
<CAPTION>
            Name                                        Title                                 Date
            ----                                        -----                                 ----
<S>                                                   <C>                                     <C>
/s/ RICHARD F. ASTRELLA                               Director                                March 27, 1998
-----------------------------------
Richard F. Astrella

/s/ WILLIAM E. AUBUCHON, III                          Director                                March 27, 1998
-----------------------------------
William E. Aubuchon, III

/s/RICHARD B. BAYBUTT                                 Director                                March 27, 1998
-----------------------------------
Richard B. Baybutt

/s/ PETER J. BAXTER                                   President and Director                  March 27, 1998
-----------------------------------                   (Principal Executive Officer)
Peter J. Baxter

/s/ CHRISTOPHER V. BEAN                               Director                                March 27, 1998
-----------------------------------
Christopher V. Bean

/s/ CHRISTOPHER W. BRAMLEY                            Director                                March 27, 1998
-----------------------------------
Christopher W. Bramley

/s/ JOHN N. BUXTON                                    Director                                March 27, 1998
-----------------------------------
John N. Buxton

/s/ P. KEVIN CONDRON                                  Director                                March 27, 1998
-----------------------------------
P. Kevin Condron

/s/ TIMOTHY J. CONNORS                                Director                                March 27, 1998
-----------------------------------
Timothy J. Connors

/s/ DOUGLAS CRICHFIELD                                Director                                March 27, 1998
-----------------------------------
Douglas Crichfield

/s/ CALVIN L. FRINK                                   Director                                March 27, 1998
-----------------------------------
Calvin L. Frink

/s/ EUGENE E. GAFFEY                                  Director                                March 27, 1998
-----------------------------------
Eugene E. Gaffey

/s/ DAVID R. GRENON                                   Director                                March 27, 1998
-----------------------------------
David R. Grenon

/s/ ELIZABETH SEARS HAGER                             Director                                March 27, 1998
-----------------------------------
Elizabeth Sears Hager

/s/ DOUGLAS S. HATFIELD, JR.                          Director                                March 27, 1998
-----------------------------------
Douglas S. Hatfield, Jr.
</TABLE>

                                       20
<PAGE>   21

<TABLE>
<S>                                                   <C>                                     <C>
/s/ PHILIP A. MASON                                   Director                                March 27, 1998
-----------------------------------
Philip A. Mason

/s/ WALTER R. PETERSON                                Director                                March 27, 1998
-----------------------------------
Walter R. Peterson

/s/ SETH A. RESNICOFF, MD                             Director                                March 27, 1998
-----------------------------------
Seth A. Resnicoff, MD

/s/ MARK E. SIMPSON                                   Director                                March 27, 1998
-----------------------------------
Mark A Simpson

/s/ ROBERT W. SIMPSON                                 Director                                March 27, 1998
-----------------------------------
Robert A. Simpson

/s/ L. WILLIAM SLANETZ                                Director                                March 27, 1998
-----------------------------------
L. William Slanetz

/s/ GREGG R. TEWKSBURY                                Chief Financial Officer                 March 27, 1998
-----------------------------------                   (Principal Financial and
Gregg R. Tewksbury                                    Accounting Officer)
</TABLE>

                                       21