UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                    FORM 10K - ANNUAL REPORT UNDER SECTION 13

                 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(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, 2000

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the transition period from                                 to

                        Commission file number (0-26663)

                            IPSWICH BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

            Massachusetts                              04-3459169
  (State or other jurisdiction of
   incorporation or organization)         (I.R.S. Employer Identification No.)

  23 Market Street Ipswich, Massachusetts                    01938
 (Address of principal executive offices)                 (Zip Code)

Registrant's  telephone number,  including area code: (978) 356-7777  Securities
registered  pursuant to Section  12(b) of the Act:  None  Securities  registered
pursuant to Section 12(g) of the Act:

         Title of each class:                  Name of each exchange on which
                                                          registered:
     Common Stock, $0.10 par value               NASDAQ National Market

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  nonaffiliates  of the
registrant,  as of  March 5,  2001,  was  $16,526,706.  Although  directors  and
executive  officers of the  registrant and its  subsidiaries  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.

The number of shares  outstanding of the Company's  common stock, as of March 5,
2001, was 2,038,902.

                       DOCUMENTS INCORPORATED BY REFERENCE

Information  called  for by Part III  (Items  10, 11, 12 and 13) of this Form is
incorporated  by reference from the Company's  definitive  proxy  statement (the
"Proxy Statement") relating to the Annual Meeting of Stockholders of the Company
to be held on April 25, 2001.
<PAGE>
FORWARD-LOOKING STATEMENTS

This Financial  Release  contains  certain  statements that are  forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
Although Ipswich Bancshares,  Inc. believes that its expectations are based upon
reasonable  assumptions  within  the  bounds of its  knowledge  of its  business
operations,  there can be no  assurance  that  actual  results  will not  differ
materially  from those  projected  in the  forward-looking  statements.  Certain
factors that might cause such  difference  include,  but are not limited to, the
factors set forth in the Corporation's  filings with the Securities and Exchange
Commission,  which  include,  among other factors,  changes in general  economic
conditions, credit risk management, changes in interest rates, regulatory issues
and changes in the assumptions used in making such forward-looking statements.

Certain factors that may cause such differences  include, but are not limited to
the following: interest rates may increase, unemployment in the Company's market
area may increase,  property values may decline, and general economic and market
conditions  in the  Company's  market  area  may  decline,  all of  which  could
adversely affect the ability of borrowers to re-pay loans;  general economic and
market  conditions in the Company's  market area may decline,  the value of real
estate securing  payment of loans may decline and the Company's  ability to make
profitable loans may be impacted; adverse legislation or regulatory requirements
may be adopted;  and  competitive  pressure among  depository  institutions  may
increase.  Any of the above may also result in lower interest income,  increased
loan  losses,  additional  charge-offs  and  write-downs  and  higher  operating
expenses.  The Company disclaims any intent or obligation to update publicly any
of  the  forward  looking  statements   herein,   whether  in  response  to  new
information, future events or otherwise.

PART I
------

ITEM 1     BUSINESS

GENERAL

Ipswich  Bancshares,  Inc. (the Company) is a  Massachusetts  corporation  whose
primary business is serving as the holding company for Ipswich Savings Bank (the
Bank).  On July 1, 1999, in connection  with the formation of the Company as the
holding company for the Bank,  each share of the Bank's common stock  previously
outstanding  was converted  automatically  into one share of common stock of the
Company,  and the Bank became a wholly  owned  subsidiary  of the  Company.  The
reorganization had no impact on the consolidated financial statements.

The  Company  operates  out of its main  office  located  at 23  Market  Street,
Ipswich, Essex County,  Massachusetts,  and its seven full-service retail branch
offices, located in Beverly, Essex,  Marblehead,  North Andover, Rowley, Reading
and Salem, Massachusetts.  The Company operates automatic teller machines at its
main  office  and each of its  full-service  retail  branch  offices.  As a bank
holding  company,  the  Company  is  subject  to  regulation,   supervision  and
examination by the Board of Governors of the Federal  Reserve (FRB) and the Bank
is subject to regulation,  supervision  and  examination by the Federal  Deposit
Insurance  Corporation  (the FDIC) and the  Massachusetts  Commissioner of Banks
(the Commissioner).

The Company's  principal business is attracting deposits from the general public
and using such deposits to fund its residential  mortgage banking and commercial
banking  functions.   The  Company  also  performs   residential  mortgage  loan
servicing. The Bank is a member of the FDIC and deposits are insured by the Bank
Insurance Fund to the fullest extent  authorized by law (generally  $100,000 per
depositor).  All deposits in excess of FDIC limits are insured by the Depositors
Insurance  Fund.  At  December  31,  2000,  the  Company  had  total  assets  of
approximately $288 million,  gross loans of $203 million, total deposits of $237
million,  stockholders'  equity of $15 million and a regulatory  Tier 1 leverage
capital ratio of 5.04%.  Net income for 2000 was $2.7 million or $1.10 per fully
diluted  share.  In 2000,  the  Company  undertook a stock  repurchase  plan and
repurchased  454,000  shares  at a  weighted  average  price  of  $8.93.  Shares
outstanding at December 31, 2000 were 2,071,552.

                                       2
<PAGE>


LENDING ACTIVITIES

General.  At December 31, 2000,  the  Company's  loan  portfolio,  including net
deferred  costs and unearned  discounts,  totaled $203.1  million,  representing
70.6% of its total  assets.  The  Company's  loan  portfolio  increased  by $9.8
million or 5.1% primarily from originations of home equity lines of credit.

The principal  categories of loans in the  Company's  portfolio are  residential
real estate loans secured by 1-4 family residences;  residential  owner-occupied
construction  loans; home equity loans;  commercial lines of credit;  commercial
real estate loans,  which are  primarily  secured by  multi-family  residential,
retail, office and industrial properties;  and consumer loans. Substantially all
of the mortgage  loans in the Company's loan portfolio are secured by properties
located in areas north and west of Boston,  Massachusetts.  See "Item 8 - Note 5
of Notes to Consolidated Financial Statements".

Residential  Mortgage Loans.  Residential  mortgage loans totaled $162.7 million
representing  80.5% of the loan  portfolio  at December  31, 2000  substantially
unchanged  from  December  31,  1999.  The  Company  originates  both  long term
fixed-rate and  adjustable-rate  residential  real estate loans,  secured by 1-4
family residences, through its mortgage lending function. The Company's mortgage
operations are designed to provide consistent and ongoing earnings.  These loans
are offered on both a fixed and adjustable-rate  basis, depending largely on the
level of interest rates and consumer  demand.  In 2000,  the Company  originated
approximately $55.2 million in residential  mortgage loans,  consisting of $21.1
million  of fixed and $34.1  million  of  adjustable-rate  mortgage  loans.  The
Company sold  approximately  $25.3 million in fixed-rate  loans in the secondary
market.  The mortgage  division  underwrites  and  originates  loans for its own
portfolio as well as for sale in the  secondary  market to the Federal  National
Mortgage  Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC)
and institutional secondary market investors.

The Company also originates "B" and "C" rated loans which may not be saleable in
the  secondary   market  due  to  the  borrower's   inability  to  meet  certain
underwriting  criteria.  The Company has  established  guidelines  on the amount
loaned to a single  borrower and the percentage of the loan portfolio that these
loans may comprise.  The maximum loan-to-value is typically 80%. At December 31,
2000, the Company held $3.3 million of B and C rated loans.

Residential   Owner-Occupied   Construction  Loans.  Residential  owner-occupied
construction  loans  totaled $1.4 million or 0.7% of total loans at December 31,
2000. The Company makes  construction  loans to prospective  owner-occupants  of
single family homes. These loans require interest-only payments until completion
of  construction  or the  disbursement of the maximum allowed under the terms of
the loan, whichever occurs first, at which time the loan automatically  converts
to a  permanent,  fully-amortizing,  adjustable-rate  loan that has a fixed-rate
conversion feature. The Company's standard  underwriting  guidelines are used to
evaluate  loans that are made for amounts not exceeding 90% of the lesser of the
projected appraised value of the property upon completion of construction or the
cost of  construction  (including  the  purchase  price  of the  land).  Private
mortgage  insurance  is  required  for all loans that exceed 80% of the lower of
cost or  appraised  value.  The Company  requires  borrowers to submit plans and
specifications  for the home,  along with an executed  contract  with a licensed
contractor.  Scheduled  progress  payments are made only after  inspections  and
periodic title updates are completed.

Home Equity Loans.  At December 31, 2000 home equity loans totaled $31.2 million
or 15.4% of total loans.  This was an increase of $7.8 million or 33.5% in 2000.
A home equity  loan may be made as a term loan or as a revolving  line of credit
and is  typically  secured by a second  mortgage  on the  borrower's  home.  The
Company will typically originate home equity loans in an amount up to 90% of the
appraised value of the home, less any loans  outstanding that are secured by the
home. The Company originated $18.1 million in home equity loans in 2000, written
at an  introductory  rate of 5.99%  for the  first  six  months,  and  repricing
thereafter at the Prime Rate for the  remaining  term of the loan if the line is
greater than $25,000 (Prime +1% for lines less than $25,000). These loans have a
maximum life of twenty (20) years.

                                       3
<PAGE>



Commercial/Commercial  Real Estate Loans.  Commercial and commercial real estate
loans  totaled $5.7  million at December  31, 2000 or 2.8% of total  loans.  The
Company offers commercial  banking services to small businesses in its immediate
market area.  The Company has targeted  small  businesses  with working  capital
needs and commercial  real estate loans under  $600,000 as potential  customers.
The Company has established  underwriting criteria to limit its exposure to risk
from one particular industry or borrower concentration. The current portfolio of
commercial and commercial  real estate loans are primarily  secured by mixed-use
commercial  properties,  multi-family  residential  properties,  commercial  and
industrial  buildings,  land  and  several  churches.  The  Company  has a small
portfolio of commercial lines of credit.  These loans traditionally carry higher
credit risk than  residential  loans. As a result,  the Company assigns a higher
allocation percentage of the allowance for loan losses to commercial real estate
and industrial loans than to other types of loans in the portfolio.

Consumer  Loans.  Consumer loans were $1.3 million or 0.6% of the loan portfolio
at December 31, 2000. The Company makes loans for personal or consumer purposes.
The Company's consumer loans consist of passbook,  credit card,  installment and
overdraft protection loans.

Loan and OREO  Concentrations.  There were no loans or OREO  concentrations that
exceeded 5% of capital, or $755,950, at December 31, 2000.

Origination and Sale of Loans.  Applications for residential  mortgage loans are
obtained  through  loan   originators   employed  by  the  Company  who  solicit
residential  mortgage  loan  applications.  There  were  five  loan  originators
employed by the Company at December 31,  2000.  These  representatives,  who are
compensated primarily by commission, provide origination services during banking
and  non-banking  hours at the  Company  or  applicant's  location.  Residential
mortgage loan  applications  come from  referrals  from real estate  brokers and
builders,  existing customers,  walk-in customers,  and advertising.  Commercial
loans are obtained through solicitation made by a commercial officer employed by
the Bank.  Consumer loan  applications are primarily  obtained from existing and
walk-in  customers  who have  been  made  aware  of the  Company's  programs  by
advertising  and other means.  All mortgage loans must be approved by an Officer
Credit  Committee and  exceptions  to policy as well as commercial  loans by the
Executive Committee of the Board of Directors.

The Company's  residential  mortgage  loans are  generally  originated on terms,
conditions and documentation  that permit their sale to the FHLMC, FNMA or other
institutional  investors in the  secondary  market.  Loan sales in the secondary
market provide additional funds for new residential lending.

The  Company's  strategy  involves  originating  both fixed and  adjustable-rate
residential mortgage loans. The decision to retain loans in portfolio or to sell
them in the  secondary  market is dependent  upon the  Company's  liquidity  and
market factors.

Loan Fee Income.  In addition to interest earned on loans,  the Company receives
income from fees in connection with late payments,  prepayments or modifications
and  miscellaneous  services related to its loans.  Income from these activities
varies from  period to period  with the volume and types of loans made,  size of
servicing portfolio, amounts of prepayments in the servicing portfolio and other
factors.  The Company recognizes on its balance sheet the estimated value of the
rights to service mortgages it originates and sells in the secondary market on a
servicing retained basis. The asset created is amortized on a level yield method
over the  estimated  life of the  underlying  loans  under  which  the asset was
created.  On a  quarterly  basis,  the Company  estimates  the fair value of the
unamortized  asset and adjusts the recorded  amount to the lower of  unamortized
cost or fair value through a valuation  allowance  charged to loan servicing fee
income. The Company can recover any allowance amount if the fair value increases
in subsequent  periods.  The servicing  rights  recognized in 2000 and 1999 were
$229,000 and $1.2 million, respectively. The Company's mortgage servicing rights
at December 31, 2000 was $225,000 for which the Company  determined no valuation
allowance was necessary.  The Company  carried no mortgage  servicing  rights at
December 31, 1999.

                                       4
<PAGE>
Loan  Servicing.  Typically,  the  Company  originates  loans  for  sale  in the
secondary  market,  for  which  it may  retain  the  servicing.  Under  its loan
servicing  agreements,  the Company  generally  continues to collect payments on
loans, to make certain insurance and tax advances on behalf of borrowers, and to
provide other services related to the loans. The principal  balance of the loans
serviced  by the  Company  for  secondary  market  investors  amounted  to $11.1
million, and $0 at December 31, 2000 and 1999, respectively.

The Company completed a sale of mortgage  servicing rights in the fourth quarter
of 1999.  The Company  sold the rights to service  approximately  $90 million in
FNMA loans in 1999 as a method of  managing  the  Company's  exposure  to future
declines in interest  rates. A gain of $63,000 was recognized as a result of the
sales in 1999.

Net  loan  servicing   (expense)  income  amounted  to  $(2,000),   $21,000  and
$(341,000),  for 2000,  1999 and 1998,  respectively.  The Company  realizes the
value of the  servicing  as a  component  of the sales of  mortgage  loans.  The
Company  experienced a decline in net loan servicing  income in 2000 as a result
of the sale in 1999 of its servicing rights.  In 1998, the Company  recognized a
total charge of $337,000 against  servicing income as a result of the decline in
the value of its  servicing  rights.  The decrease in the value of its servicing
rights in 1998 was due to the decline in interest  rates during the year,  which
precipitated higher than normal prepayments. The value of servicing decreases as
market  interest  rates decline  which  necessitates  the Company  recording the
decline in value through a charge to the income statement and the  establishment
of a reserve. The Company booked an additional reserve of $141,000 in 1998 prior
to completion of the servicing  sale.  The reserve was eliminated as a result of
the servicing sale in the fourth quarter of 1998.

Allowance  for Loan Losses.  The  allowance  for loan losses is  established  by
management  to absorb future  charge-offs  of loans deemed  uncollectible.  This
allowance  is  increased  by  provisions  charged to  operating  expense  and by
recoveries on loans previously charged off. The Company recorded  provisions for
loan losses of $60,000 in 2000, $100,000 in 1999 and $180,000 in 1998.

In evaluating  current  information and events regarding  borrowers'  ability to
repay their obligations,  management considers commercial loans over $200,000 to
be impaired  when it is probable  that the Company will be unable to collect all
amounts due  according to the  contractual  terms of the note  agreement;  other
loans are evaluated collectively for impairment. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's  effective  interest rate or
the fair value of  collateral if the loan is  collateral  dependent.  Impairment
losses are  included in the  allowance  for loan losses  through a charge to the
provision for loan losses.

The Company sets the level of its allowance for loan losses based on a number of
factors.  Management  uses  available  information  (such  as  current  economic
conditions,  levels of nonperforming  loans,  delinquency  trends and collateral
values)  to  assess  the  adequacy  of the  allowance  and to  determine  future
additions to the  allowance.  The process  involves  substantial  uncertainties;
ultimate losses may vary from current  estimates.  Management  believes that the
allowance  for  loan  losses  is  adequate.   While  management  uses  available
information to recognize losses on loans,  future additions to the allowance may
be necessary.  In addition,  various regulatory agencies, as an integral part of
their examination process,  periodically review the Company's allowance for loan
losses.  Such  agencies  may require the Company to  recognize  additions to the
allowance based on judgments  different from those of management.  See "Item 7 -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  -  Provision  for  Loan  Losses,"  and  "Item 8 - Note 6 of Notes to
Consolidated Financial Statements".

                                       5
<PAGE>


The Company sets the level of its allowance for loan losses based on a number of
factors.  An individual  analysis of all delinquent loans, as well as internally
classified  loans, is conducted and specific  allowances are allocated for those
loans  that  are  determined  to have  certain  weaknesses  that  make  ultimate
collectibility of both principal and interest questionable.  In conjunction with
its review,  management  considers external factors that may affect the adequacy
of the allowance for loan losses. Such factors may include,  but are not limited
to, present real estate trends and regional economic conditions,  past estimates
of loan losses as  compared to actual  losses,  potential  problems  with larger
loans, loan  concentrations  and historical losses on loans.  Management and the
Executive Committee of the Board of Directors assess the amount of the allowance
for loan losses monthly. The Board of Directors reviews a detailed assessment on
at least a quarterly basis.

INVESTMENT SECURITIES

The  Company  invests in debt and  equity  securities,  subject to  restrictions
imposed by federal and state law. The Company's  securities portfolio is managed
in  accordance  with  a  written  investment  policy  adopted  by the  Board  of
Directors.  The  investment  portfolio  is a source of  earnings  in the form of
interest  and  dividends;  provides  for  diversification;  and is a  source  of
liquidity.  Investments  may be  made by the  President  of the  Company  within
specified limits and types. Transactions exceeding these limits must be approved
in advance by the Executive Committee.  All securities transactions are approved
by the Board of Directors after execution of the transaction.

At December 31, 2000, the Company maintained an investment  portfolio  comprised
of adjustable-rate (ARM) and fixed-rate  mortgage-backed  securities (MBS), U.S.
Government  Agency callable  debentures,  trust preferred  securities and equity
securities  totaling  $64.5 million or 22.4% of assets.  The Company has managed
its investment  portfolio with the intent of maintaining  adequate liquidity and
maximizing  yields.  The Company has categorized  $10.7 million of MBS's,  $16.4
million of U.S. Government Agency debentures and $3.2 million of trust preferred
securities as held to maturity,  carried at amortized cost, and $31.4 million of
MBS's, $2.0 million U.S.  Government Agency callable  debentures and $822,000 of
equity securities as available for sale, carried at market value. As of December
31,  2000,  the  Company has a net  unrealized  appreciation,  net of taxes,  of
$473,000.  This amount is reported as  accumulated  other  comprehensive  income
within stockholders' equity.

The aggregate market value of the investment  portfolio at December 31, 2000 was
$64.6 million.  At December 31, 2000, the Company's portfolio of mortgage-backed
securities was comprised of one-year adjustable-rate  instruments and fixed rate
mortgage-backed  securities  scheduled to mature after 2013. Due to amortization
and prepayments of the underlying  loans,  the actual  maturities of the ARM and
fixed-rate  mortgage-backed  securities  are  typically  less than the scheduled
maturities. The rates on the ARM securities are indexed to the one year Constant
Maturity Treasury (CMT) with annual period caps of 2% and life caps ranging from
9.03% to 13.96%. The margins over the one year CMT ranged from 1.95% to 2.63%.

The  portfolio of U.S.  Government  Agency  callable  debentures in both held to
maturity and  available  for sale totaled  $18.4 million with call dates ranging
from a ten day notice to November 2002 and maturity dates  scheduled after 2003.
The portfolio of trust preferred debentures totaled $3.2 million with call dates
between 2006 and 2007 and maturity dates scheduled after 2025.

At December 31, 2000 and 1999,  investments  in the securities of any one issuer
(excluding investments in securities of the U.S. government and federal agencies
and stock in the Federal Home Loan Bank of Boston (the FHLB) did not exceed more
than 5% of the Company's  stockholders'  equity.  See "Item 8 - Notes 1 and 3 of
Notes to Consolidated Financial Statements".

                                       6
<PAGE>



SOURCES OF FUNDS

Deposits.  Deposits  obtained  through  retail  banking  offices  have  been the
principal source of the Company's funds for use in lending and for other general
business  purposes.  The Company's deposit products include passbook savings and
club accounts,  personal and commercial  demand  accounts,  NOW accounts,  money
market deposit  accounts and  certificates of deposit ranging in term from three
to 60 months.  The Company also offers  Individual  Retirement  Account deposits
among these products.  Total deposits amounted to $237.2 million at December 31,
2000.

The Company's  deposits are obtained  primarily from residents of and businesses
located in Ipswich, Rowley, North Andover,  Beverly, Salem, Marblehead,  Reading
and Essex,  Massachusetts.  The Company attracts  deposit accounts  primarily by
offering a wide variety of services and accounts,  competitive  interest  rates,
and  convenient  office  locations  and service  hours.  The Company  prices its
products  competitively  within its market  area.  The  Company  has no brokered
deposits.

In recent  years,  the Company has focused on providing  customers  with deposit
products that meet their  liquidity  preferences.  As a result,  the Company has
promoted certain deposit products, such as its checking account and money market
account,  which  resulted in an increase in total  deposits of $27.2  million or
12.9% during 2000.  Total demand  deposits,  NOW accounts,  money market deposit
accounts and savings  deposits totaled $163.3 million or 68.9% of total deposits
at December 31, 2000,  which  represented a $20.1 million or 14.0% increase from
1999 levels of $143.3 million or 68.2% of total deposits.

The ability of the Company to attract  and retain  deposits  and the cost to the
Company of these  deposits  have been,  and will  continue to be,  significantly
affected by economic and competitive conditions.  See "Item 8 - Note 11 of Notes
to Consolidated Financial Statements".

Borrowings.  The  Company is a member of the FHLB of Boston,  one of 12 regional
Federal Home Loan Banks in the Federal  Home Loan Bank System.  The Federal Home
Loan Banks provide a central credit facility primarily for member  institutions.
A member of the FHLB of Boston is required to hold shares of common stock in the
FHLB of Boston.  At December 31, 2000,  the Company held $3.0 million of FHLB of
Boston stock.

At December 31, 2000, there were $32.1 million in borrowings  outstanding at the
FHLB of Boston and $45.0  million at December 31, 1999.  The Company has a total
borrowing  capacity  with the FHLB of Boston of $104.2  million at December  31,
2000,  which would require the purchase of additional  FHLB of Boston stock,  if
fully  utilized.  See  "Item  8 - Note 12 of  Notes  to  Consolidated  Financial
Statements".

NON-DEPOSIT INVESTMENT SALES

The Company has a contract with Linsco Private Ledger  Financial  Services (LPL)
to offer non-deposit investment products. Through this arrangement,  LPL and the
Company  employ  an  investment  consultant  to  offer  investment  products  to
customers.  LPL provides marketing support and retains compliance supervision of
the program.

                                       7
<PAGE>


COMPETITION

The Company's deposit gathering activities are concentrated in Ipswich,  Rowley,
North Andover, Beverly, Salem, Marblehead, Reading and Essex, Massachusetts. The
Company's residential loan origination  activities are concentrated in Essex and
Middlesex Counties in Massachusetts and Southern New Hampshire.

The Company faces strong  competition  for deposits  from other  savings  banks,
savings and loan associations,  cooperative banks,  credit unions and commercial
banks  located in its market area.  The Company also  competes for deposits with
mutual funds and corporate and government  securities.  The Company competes for
deposits  principally by offering depositors a wide variety of deposit programs,
automated teller machines,  tax-deferred retirement programs and other services.
It does not rely upon any individual,  group or entity for a material portion of
its deposits.

Competition for residential real estate loans is strong and comes primarily from
savings banks,  mortgage banking companies,  commercial banks,  savings and loan
associations,  and other  institutional  lenders.  The Company competes for loan
originations primarily based on the interest rates and loan fees that it charges
and the  efficiency  and quality of the  services it provides.  Competition  for
loans  varies  from  time  to time  depending  on  general  and  local  economic
conditions,  interest rate levels, and conditions in the mortgage market,  among
other factors.

SUBSIDIARIES AND INVESTMENTS IN REAL ESTATE

At December 31, 2000, Ipswich Bancshares,  Inc. had one wholly-owned subsidiary,
Ipswich  Savings  Bank. At December 31, 2000,  the Bank had three  subsidiaries;
Ipswich Preferred Capital Corporation, Ipswich Securities Corporation, and North
Shore Financial Services, Inc., all of which are Massachusetts corporations.

Ipswich  Preferred  Capital   Corporation   (IPCC)  was  formed  in  1999  as  a
Massachusetts  business  corporation  which  has  elected  to be taxed as a real
estate investment trust for federal and Massachusetts tax purposes.  IPCC is 99%
owned by Ipswich  Savings Bank.  IPCC holds mortgage loans which were previously
originated by the Bank.

Ipswich Securities Corporation (ISC) was formed in 1995 to engage exclusively in
the buying,  selling and holding of securities on its own behalf as a subsidiary
of the Bank.  At December  31,  2000,  ISC held a portfolio  of  fixed-rate  and
adjustable-rate  mortgage-backed  securities,  U.S.  Government  Agency callable
debentures and equity  securities with total amortized cost of $38.2 million and
an aggregate market value of $38.4 million.

ISC also holds the title to a limited  partnership  interest  in a  mixed-income
housing complex in Dorchester,  Massachusetts. The book value of the partnership
is $1. The  investment  qualifies  for low income  housing tax credits under the
Internal Revenue Code.

North Shore  Financial  Services,  Inc.  (NSFSI)  (formerly known as North Shore
Mortgage  Company,  Inc.) was formed in 1987 for the purpose of holding title to
foreclosed  properties.  At  December  31,  2000,  NSFSI  held title to two OREO
properties with a carrying value totaling $2.

The Company formed Ipswich  Statutory Trust I in February 2001 for the exclusive
purpose of issuing and selling  Common  Securities  to the Company and Preferred
Securities  to the  public.  The  proceeds  were used to acquire  10.20%  Junior
Subordinated Deferrable Interest Debentures issued by the Company. See "Item 7 -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - Capital Resources".

The Company believes that its investments in the  subsidiaries  described above,
and the activities and investments of those subsidiaries are permitted.


                                       8
<PAGE>


EMPLOYEES

At December 31, 2000,  the Company had 60 full-time  employees  and 38 part-time
employees. The Company believes its employee relations are good.

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

General.  The  Company  and the Bank are heavily  regulated.  As a bank  holding
company, Ipswich Bancshares, Inc. is supervised by the Board of Governors of the
Federal  Reserve Board System (the Federal Reserve Board) and it is also subject
to the  jurisdiction  of the  Massachusetts  Board  of Bank  Incorporation.  The
activities of bank holding  companies,  such as the Company,  that do not become
financial  holding companies under the recently enacted  Gramm-Leach-Bliley  Act
(as  discussed  below) are limited to the  business  of banking  and  activities
closely  related or  incidental  to banking.  Provided that it does not become a
financial  holding company,  the Company may not directly or indirectly  acquire
the ownership or control of more than 5 percent of any class of voting shares or
substantially all of the assets of any company that is not engaged in activities
determined  by the Federal  Reserve Board prior to November 12, 1999 by order or
regulation to be closely  related to banking,  and also  generally  must provide
notice to or obtain the approval of the Federal Reserve Board in connection with
any such  acquisition.  As a  Massachusetts-chartered  savings bank, the Bank is
subject  to  regulation,  examination  and  supervision  by  the  FDIC  and  the
Massachusetts Commissioner of Banks (the Commissioner). The Bank is also subject
to certain requirements established by the Federal Reserve Board.

Federal  Deposit  Insurance  Corporation.  The FDIC  insures the Bank's  deposit
accounts  up to the  $100,000  maximum  per  separately  insured  account and is
subject to reporting requirements of the FDIC. The FDIC has adopted requirements
setting minimum  standards for capital  adequacy and imposing  minimum  leverage
capital  ratios.  The Bank exceeded all applicable  requirements at December 31,
2000. Furthermore,  under the capital standards established pursuant to the FDIC
Improvement Act of 1991, the Bank is currently  well-capitalized.  International
bank  supervisory  organizations,  principally  the Basel  Committee  on Banking
Supervision,  currently  are  considering  changes  to  the  risk-based  capital
adequacy  framework,   which  ultimately  could  affect  the  FDIC's  guidelines
regarding capital  adequacy.  For additional  information on regulatory  capital
ratios,  See "Note 14 to the  Consolidated  Financial  Statements" and "Item 7 -
Management's Discussion and Analysis - Financial Condition - Capital Resources".

Massachusetts   Commissioner   of  Banks  and   Board  of  Bank   Incorporation.
Massachusetts  statutes and regulations govern,  among other things,  investment
powers, lending powers,  deposit activities,  maintenance of surplus and reserve
accounts,  the distribution of earnings,  the payment of dividends,  issuance of
capital  stock,  branching,  acquisitions  and mergers and  consolidations.  Any
Massachusetts  bank that does not operate in  accordance  with the  regulations,
policies and  directives  of the  Commissioner  may be subject to sanctions  for
noncompliance.  The Commissioner  may, under certain  circumstances,  suspend or
remove  officers or directors  who have  violated the law,  conducted the Bank's
business in a manner  which is unsafe,  unsound or  contrary to the  depositors'
interest, or been negligent in their performance of their duties. In response to
Massachusetts  laws enacted in 1996, 1997 and 2000, the  Commissioner  finalized
rules that generally give  Massachusetts  banks,  and their  subsidiaries,  many
powers  equivalent to those of national banks. The Commissioner also has adopted
regulations and procedures  expediting the approval process for well-capitalized
banks to establish branches or to engage in certain activities.

                                       9
<PAGE>



Riegle-Neal  Interstate Banking and Branching  Efficiency Act of 1994. Under the
Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994  (the
Riegle-Neal),  certain  interstate  transactions  and  activities are permitted.
Interstate  transactions and activities permitted for under the law include: (i)
bank holding company acquisitions of separately held banks in a state other than
a bank holding  company's home state;  (ii) mergers between banks with different
home states,  including  consolidations of affiliated banks; (iii) establishment
of  interstate  branches  either  de novo or by  branch  acquisition;  and  (iv)
affiliate banks acting as agents for one another for certain  banking  functions
without  being  considered  a  "branch".  In  general,  subject to  limitations,
nationwide interstate acquisitions are now permissible,  irrespective of related
state law limitations other than limitations  subject to deposit  concentrations
and bank age  requirements.  Interstate  mergers are generally also permissible,
and affiliated banks may act as agents for one another. Each of the transactions
and activities must be approved by the appropriate federal bank regulator,  with
separate and specific criteria established for each category.

In 1996,  Massachusetts  enacted  interstate  banking  laws in  response  to the
Riegle-Neal  Act.  The  laws  permit,  subject  to  certain  deposit  and  other
limitations,  interstate  acquisitions,  mergers and  branching  on a reciprocal
basis. The Riegle-Neal Act has made it easier for  out-of-state  institutions to
attempt to purchase or otherwise  acquire a  Massachusetts  bank,  or to compete
with the Bank in Massachusetts, and similarly has made it easier for the Bank to
compete outside the state.

Gramm-Leach-Bliley  Act  of  1999.  The  general  effect  of the  new  law is to
establish a  comprehensive  framework to permit  affiliations  among  commercial
banks,  insurance  companies,  securities  firms,  and other  financial  service
providers by revising and  expanding  the Bank Holding  Company Act framework to
permit a holding company system, such as Ipswich Bancshares, Inc. to engage in a
full range of  financial  activities  through a new entity known as a "financial
holding company." "Financial  activities" is broadly defined to include not only
banking,  insurance,  and securities  activities,  but also merchant banking and
additional  activities that the Federal Reserve Board, in consultation  with the
Secretary of the Treasury,  determines to be financial in nature,  incidental to
such  financial  activities  or  complementary  activities  that  do not  pose a
substantial  risk to the safety and soundness of depository  institutions or the
financial  system  generally.  Generally,  the  Gramm-Leach-Bliley  Act does the
following:  (i) repeals historical  restrictions on, and eliminates many federal
and state law barriers to, affiliations among banks, securities firms, insurance
companies,  and other  financial  service  providers;  (ii)  provides  a uniform
framework  for the  functional  regulation of the  activities of banks,  savings
institutions,  and their holding  companies;  (iii) broadens the activities that
may be conducted by national  banks (and  derivatively,  state  banks),  banking
subsidiaries of bank holding companies,  and their financial subsidiaries;  (iv)
provides  an  enhanced   framework  for   protecting  the  privacy  of  consumer
information;  (v) adopts a number of provisions  related to the  capitalization,
membership,  corporate governance,  and other measures designed to modernize the
Federal  Home  Loan  Bank  system;   (vi)   modifies  the  laws   governing  the
implementation of the Community  Reinvestment Act of 1977; and (vii) addresses a
variety  of  other  legal  and  regulatory   issues  affecting  both  day-to-day
operations  and  long-term  activities  of financial  institutions.  In order to
engage in the new activities,  a bank holding company, such as the Company, must
meet  certain   tests  and  elect  to  become  a  financial   holding   company.
Specifically,  all of a bank  holding  company's  banking  subsidiaries  must be
well-capitalized and well-managed, as measured by regulatory guidelines, and all
of the bank  holding  company's  banks  must have been rated  "satisfactory"  or
better in their most recent CRA evaluation.  Furthermore, a bank holding company
that elects to be treated as a financial  holding  company may face  significant
consequences  if its banks fail to maintain the required  capital and management
ratings,  including  entering into an agreement  with the Federal  Reserve Board
that imposes  limitations on its  operations and may even require  divestitures.
Such  possible  ramifications  may limit the  ability  of a bank  subsidiary  to
significantly  expand or acquire  less than  well-capitalized  and  well-managed
institutions.  At this time,  the  Company  has not  determined  whether it will
become a financial holding company.

                                       10
<PAGE>



Further,  the  Gramm-Leach-Bliley  Act  includes a new  section  of the  Federal
Deposit  Insurance  Act  governing  subsidiaries  of state  banks that engage in
"activities as principal that would only be permissible"  for a national bank to
conduct in the financial  subsidiary.  The provision will permit state banks, to
the extent  permitted under state law, to engage in certain new activities which
are permissible for  subsidiaries of a financial  holding company.  Further,  it
expressly  preserves  the  ability  of a  state  bank  to  retain  all  existing
subsidiaries.  Massachusetts permits  Massachusetts-chartered banks to engage in
activities which are permissible for national banks and that are approved by the
Commissioner. Thus, the Bank would only be permitted to engage in the activities
authorized  by  the  Gramm-Leach-Bliley  Act  that  are  also  approved  by  the
Commissioner or otherwise  authorized by  Massachusetts  law. In order to form a
financial subsidiary, a state bank must be well-capitalized,  and the state bank
would be subject to certain  capital  deduction,  risk  management and affiliate
transaction rules which are applicable to national banks.

ITEM 2  PROPERTIES

At December 31, 2000, the Company  conducted its business from its  headquarters
and main office at 21-23 Market Street, Ipswich,  Massachusetts and seven branch
offices.  The Company owns its main office facilities on Market Street,  and its
branch office in Essex, Massachusetts, and leases branch office space in Rowley,
North Andover, Salem, Marblehead, Reading and Beverly, Massachusetts. The Rowley
lease runs through the year 2005, with two five-year renewal options thereafter.
The Salem lease runs through the year 2005, with three five-year renewal options
thereafter.  The North  Andover  lease  runs  through  the year  2004,  with two
five-year  renewal options  thereafter.  The Beverly lease runs through the year
2001, with 5 five-year  renewal options  thereafter.  The Marblehead  lease runs
through  the Year 2003 with three  five-year  renewal  options  thereafter.  The
Reading lease runs through the Year 2003 with three  five-year  renewal  options
thereafter.  The  Company's  properties  that are not  leased are owned free and
clear of any  mortgages.  The Company  also owns  property at 25 Market  Street,
Ipswich, Massachusetts, which it leases to unrelated third parties.

ITEM 3     LEGAL PROCEEDINGS

The  Company  is not  involved  in any  material  legal  proceedings  other than
ordinary routine litigation incidental to its business.

ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

PART II
-------

ITEM 5     MARKET FOR THE BANK'S COMMON EQUITY AND RELATED STOCKHOLDER  MATTERS


Ipswich Bancshares,  Inc. Common Stock is traded in the over-the-counter  market
and quoted on the NASDAQ  National  Market under the symbol "IPSW".  On March 5,
2001, there were  approximately 249 holders of record of the 2,038,902 shares of
the Ipswich Bancshares, Inc. Common Stock outstanding.

                                       11
<PAGE>


The following  table  presents the  quarterly  high and low sales prices for the
Company's  Common  Stock  during the periods in 2000,  and 1999,  as reported by
NASDAQ.  The  quotations  represent  high and low sales  prices for the stock as
reported by NASDAQ.

                                          SALES PRICE
                                        ------------------     DIVIDENDS
            Quarter-ending               HIGH        LOW        DECLARED
            --------------               ----        ---        --------

            December 31, 2000           $9.625       $8.00        $.11
            September 30, 2000           9.875        7.75         .10
            June 30, 2000               10.00         7.50         .10
            March 31, 2000              10.00         5.875        .10

            December 31, 1999           12.875        8.25         .10
            September 30, 1999          10.375        8.50         .05
            June 30, 1999               11.00         9.75         .05
            March 31, 1999              12.25         9.625        .05


Future  dividends,  if any, will be at the  discretion of the Board of Directors
based upon a variety of factors including earnings, financial condition, capital
adequacy, general economic conditions and regulatory and legal restrictions.

                                       12
<PAGE>



ITEM 6     SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                 IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                                                        At or for the Year Ended December 31,
                                            ------------------------------------------------------------
                                               2000          1999        1998         1997       1996
                                            ----------    ----------   ---------   ---------   ---------
                                                   (Dollars in thousands except for per share data)
Balance Sheet Data:
------------------
<S>                                         <C>           <C>          <C>         <C>         <C>
Total assets                                $  287,834    $  276,298   $ 271,328   $ 227,244   $ 158,942
Loans                                          203,137       193,327     188,991     165,453     121,025
Deposits                                       237,237       210,082     199,757     171,241     129,343
Stockholders' equity                            15,119        16,975      14,223      11,833       9,851

Income Statement Data:
---------------------
Net interest income                         $    8,935    $    8,698  $    7,461   $   6,435   $   5,073
Provision for loan losses                           60           100         180         120         120
                                            ----------    ----------   ---------   ---------   ---------
Net interest income after provision for
   loan losses                                   8,875         8,598       7,281       6,315       4,953
Total non-interest income                        1,736         2,925       2,437       1,700       1,520
Total non-interest expenses                      6,819         6,910       5,596       4,476       4,049
                                            ----------    ----------   ---------   ---------   ---------
Pretax income                                    3,792         4,613       4,122       3,539       2,424
Income tax expense                               1,137         1,324       1,484       1,327         632
                                            ----------    ----------   ---------   ---------   ---------

Net income                                  $    2,655    $    3,289  $    2,638   $   2,212   $   1,792
                                            ==========    ==========  ==========   =========   =========

Per Share Data:
--------------
Book value per share (1)                     $    7.30     $    6.72  $     5.95   $    4.96   $    4.15
Basic earnings per share (1)                      1.12          1.33        1.10         .93         .76
Diluted earnings per share (1)                    1.10          1.29        1.03         .88         .73
Dividends per share (1)                            .41           .25         .17         .125        .10

Selected Operating Ratios:
-------------------------
Return on average stockholders' equity           15.79%        21.04%      20.09       20.38%      20.07%
                                                                      %
Return on average assets                           .93          1.22        1.09        1.18        1.22
Gross interest margin                             3.24          3.36        3.23        3.60        3.63
Operating expense to average assets               2.38          2.56        2.32        2.39        2.75
Dividends/net income                             35.97         19.12       15.43       13.43       13.17
Shares outstanding (1)                       2,071,552     2,525,427   2,392,286   2,385,076    1,187,811

Capital Ratios:
--------------
Average equity to average assets                 5.99%         5.74%       5.37%        5.71%       6.04%
Total risk-based capital ratio                  11.53         14.38       11.70        10.81       12.01

Other Data:
----------
Non-performing assets                        $    229      $    142   $    1,186   $   2,164   $    3,213
Non-performing assets as a percent of             .08%          .05%             .44%         .95%   2.02%
    total    assets
Number of checking accounts                    16,314        13,959       12,622      10,599        8,417
Number of employees                                98            95           96          80           64
</TABLE>

(1)  Adjusted for 2 for 1 stock split effective August 27, 1997

                                       13
<PAGE>



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

GENERAL

The  following  discussion  and analysis of financial  condition  and results of
operations  should  be read  in  conjunction  with  the  Consolidated  Financial
Statements and Notes thereto included in Item 8 of this Report.  Certain Guide 3
information is included in Item 1 of this Report.

FINANCIAL CONDITION

General.  Total assets increased by $11.5 million,  or 4.2% to $287.8 million at
December 31, 2000.  The growth in total assets was  primarily due to an increase
of $9.8  million in total loans.  Total assets at December 31, 1999  amounted to
$276.3  million,  an increase of $5.0 million,  or 1.8%,  from $271.3 million at
December 31, 1998,  resulting  primarily from an increase in total loans of $4.3
million.

Cash and Cash  Equivalents.  Cash and cash equivalents  increased by $577,000 to
$8.8  million  at  December  31,  2000,  from the year end 1999  balance of $8.3
million.  This was primarily a result of a decline in Federal funds sold of $1.7
million offset by required  reserve balances kept at the Federal Reserve Bank of
Boston and cash reserves held at the branches,  which in total increased by $2.3
million in 2000.

Investment Securities.  Total investment securities decreased by $3.1 million or
4.5% during 2000,  primarily from the sale of $5 million of U.S.  Treasury bills
and amortization of  mortgage-backed  securities  offset by the purchase of $3.2
million of trust preferred securities.

At  December   31,  2000,   the  Company  had   identified   $31.4   million  in
mortgage-backed   securities  as  available  for  sale.  The  Company  has  also
identified $2.0 million of callable debentures and $822,000 of equity securities
as available for sale. The Company  included net unrealized  gains on investment
securities  available for sale, net of taxes,  of $473,000 in accumulated  other
comprehensive income within stockholders' equity at December 31, 2000.

The  Company's  portfolio  of held to  maturity  securities  consisted  of $10.7
million of  fixed-rate  mortgage-backed  securities,  $16.4  million of callable
securities and $3.2 million of trust preferred securities.  See "Item 8 - Note 3
of Notes to Consolidated Financial Statements".

The maturity  distribution  and weighted  average  coupon of investments in debt
obligations at December 31, 2000 follows:

<TABLE>
<CAPTION>
                                                             One       Five       Over
                                               Within      to Five    to Ten       Ten
                                              One Year      Years      Years      Years      Total
                                              --------     -------     -----      -----      -----
                                                               (Dollars in Thousands)
Available for Sale (at market value)
------------------------------------
<S>                                           <C>         <C>          <C>      <C>       <C>
Mortgage-backed securities:
    FNMA participation certificates           $  -        $ -          $ -      $ 27,804  $ 27,804
    FHLMC participation certificates             -          -            -         3,603     3,603
U.S. Government Agency obligations               -          -           1,999       -        1,999
                                               ------      -----        -----    -------   -------

                                              $  -        $ -          $1,999   $ 31,407  $ 33,406
                                               ======      =====        =====    =======   =======

Weighted average coupon                          -  %       -  %         7.17%      7.60%    7.57%

</TABLE>
                                       14
<PAGE>
<TABLE>
<CAPTION>


                                                             One       Five       Over
                                               Within      to Five    to Ten       Ten
                                              One Year      Years      Years      Years      Total
                                              --------     -------     -----      -----      -----
                                                               (Dollars in Thousands)
Held to Maturity (at amortized cost)
------------------------------------
<S>                                            <C>        <C>          <C>        <C>         <C>
Mortgage-backed securities:
    FNMA participation certificates            $ -        $ -          $  -       $  2,940    $  2,940
    FHLMC participation certificates             -          -             -          4,377       4,377
    GNMA participation certificates              -          -             -          3,393       3,393
U.S. Government Agency obligations               -         2,000        12,383       1,998      16,381
Trust preferred securities                       -          -             -          3,191       3,191
                                               -----      ------       -------    --------    --------

                                               $ -        $2,000       $12,383    $ 15,899    $ 30,282
                                               =====      ======       =======    ========    ========

Weighted average coupon                          - %        6.13%         7.04%       6.90%       6.93%
</TABLE>

The carrying value of investments in debt and equity obligations at December 31,
follows:

<TABLE>
<CAPTION>
                                                   2000       1999      1998
                                                   ----       ----      ----
                                                     (Dollars in Thousands)
Available for Sale (at market value)
------------------------------------
<S>                                              <C>       <C>       <C>
Mortgage-backed securities:
    FNMA participation certificates              $27,804   $ 25,631  $ 12,990
    FHLMC participation certificates               3,603      5,112    11,883
U.S. Treasury bills                                 -         4,865      -
U.S. Government Agency obligations                 1,999      3,894     4,101
Marketable equity securities                         822       -         -
                                                  ------    -------   -------

                                                 $34,228   $ 39,502  $ 28,974
                                                  ======    =======   =======

Held to Maturity (at amortized cost)
------------------------------------
Mortgage-backed securities:
    FNMA participation certificates              $ 2,940   $  3,077  $  1,980
    FHLMC participation certificates               4,377      4,868       741
    GNMA participation certificates                3,393      3,731     3,975
U.S. Government Agency obligations                16,381     16,393     3,500
Trust preferred securities                         3,191       -         -
                                                  ------    -------   -------

                                                 $30,282   $ 28,069  $ 10,196
                                                  ======    =======   =======
</TABLE>

Loans.  Total gross loans increased by $9.4 million or 4.9% to $202.2 million at
December 31, 2000.  The growth was  principally in home equity  balances.  Total
residential real estate loans, which represent the largest component of the loan
portfolio,  increased by only  $510,000 in 2000.  Origination  volume,  which is
sensitive  to  market  rates,  declined  in 2000  resulting  in  limited  growth
opportunities. The Company's focus in 2000 was on originating variable rate home
equity loans. As a result,  outstanding  home equity balances  increased by $7.8
million or 33.5% in 2000.

                                       15
<PAGE>



Loan  Portfolio  and  Maturity.  The  following  table  sets  forth  information
concerning the Company's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>

                                                                            At December 31,
                                   -------------------------------------------------------------------------------------------------
                                          2000               1999                1998                1997                  1996
                                   -----------------    ----------------   -----------------    ----------------     ---------------
                                    Amount   Percent    Amount   Percent   Amount    Percent    Amount   Percent     Amount  Percent
                                    ------   -------    ------   -------   ------    -------    ------   -------     ------  -------
                                                                    (Dollars in Thousands)
<S>                               <C>          <C>     <C>         <C>    <C>          <C>     <C>          <C>     <C>        <C>
Mortgage Loans:
  Residential                     $162,680     80.5%   $162,633    84.4%  $160,153     84.9%   $136,345     82.6%   $ 94,384   78.2%
  Residential owner-
    occupied construction            1,353      0.7         890     0.5      1,412      0.7       2,638      1.6       4,568    3.8
  Home equity                       31,212     15.4      23,385    12.1     19,772     10.5      18,035     10.9      14,545   12.0
                                  --------     ----    --------    ----   --------     ----    --------     ----    --------   ----

     Subtotal                     195,245     96.6     186,908    97.0    181,337     96.1     157,018     95.1     113,497   94.0

Commercial/commercial
  real estate                        5,698      2.8       4,873     2.5      6,191      3.3       6,717      4.1       6,618    5.5
                                  --------     ----    --------    ----   --------     ----    --------     ----    --------   ----

    Commercial/mortgage
      loans, gross                 200,943     99.4     191,781    99.5    187,528     99.4     163,735     99.2     120,115   99.5

Consumer loans                       1,302      0.6       1,060     0.5      1,188      0.6       1,255      0.8         630    0.5
                                  --------     ----    --------    ----   --------     ----    --------     ----    --------   ----

    Gross loans                    202,245    100.0%    192,841   100.0%   188,716    100.0%    164,990    100.0%    120,745  100.0%

Plus deferred loan origination
    costs                              987                 586                 378                  606                  427
Less unearned discount                 (95)               (100)               (103)                (143)                (147)
                                  --------            --------            --------             --------             --------

Loans, net of deferred cost
  and unearned discount            203,137             193,327             188,991              165,453              121,025

Less allowance for loan losses      (1,803)             (1,798)             (1,742)              (1,673)              (1,548)
                                  --------            --------            --------             --------             --------

Loans, net                        $201,334            $191,529            $187,249             $163,780             $119,477
                                  ========            ========            ========             ========             ========

</TABLE>

The  following  table sets forth  residential  owner-occupied  construction  and
commercial and commercial  real estate loans by maturity date as of December 31,
2000:
<TABLE>
<CAPTION>

                       Residential Owner-Occupied                Commercial/
                            Construction Loans         Commercial Real Estate Loans
                            ------------------         ----------------------------
                            Amount   Percentage            Amount   Percentage
                            ------   ----------            ------   ----------

                                          (Dollars in Thousands)

<S>                         <C>        <C>                  <C>           <C>
Within one year             $1,353     100.0%               $  799        14.0%
One to five years             -           -                   1,478        25.9
Over five years               -           -                   3,421        60.1
                            ------     -----                 ------       -----

Total                       $1,353     100.0%                $5,698       100.0%
                            ======     =====                 ======       =====

</TABLE>

                                       16
<PAGE>


Commercial real estate loans with maturity dates over one year:

                                 Amount
                                 ------
                         (Dollars in thousands)

Fixed interest rate              $2,191
Adjustable interest rate          2,203
                                 ------

Total                            $4,354
                                 ======

The following table sets forth  information  concerning  mortgage and commercial
loans originated,  sold, repaid,  charged-off and transferred during the periods
indicated.

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                -----------------------------------
                                                                  2000        1999          1998
                                                                --------     --------    ---------
                                                                      (Dollars in Thousands)
<S>                                                             <C>          <C>         <C>
Beginning balance                                               $191,781     $187,528    $ 163,735
Mortgage and commercial loan originations:
    Residential                                                   54,450       94,954      192,195
    Residential owner-occupied construction                          772        1,394        1,673
    Commercial                                                     1,526         -            -
    Home equity                                                   18,086       15,339       17,311
                                                                 -------      -------     --------

    Total mortgage and commercial loan originations               74,834      111,687      211,179

Loans held for sale at January 1                                    -          24,000        8,031

Conventional loan sales:
    Servicing retained                                             9,787       67,101       84,216
    Servicing released                                            15,477       16,444       26,700
Amortization, payoffs, charge-offs, unadvanced funds              34,821       38,831       60,501
Securitized and transferred to investment portfolio                  584        8,996         -
Transfers to OREO                                                   -              62         -
Transfers to loans held for sale                                   5,003         -          24,000
                                                                 -------      -------     --------
    Total loan sales, amortization, payoffs, charge-offs,
      transfers, and unadvanced funds                             65,672      131,434      195,417
                                                                 -------      -------     --------

Ending balance                                                  $200,943     $191,781    $ 187,528
                                                                 =======      =======     ========
</TABLE>

Residential  loan  originations  totaled $55.2 million in 2000, $96.3 million in
1999 and $193.9 million in 1998. It should be noted that these  originations are
not fully  reflected in loan  balances  outstanding  due to the  securitization,
regular amortization and prepayments of residential real estate loans as well as
refinancings  and the sale of a portion  of new loan  production.  As  mentioned
above,  the  originations of residential  loans are sensitive to market interest
rates and 1998 experienced extremely high levels of refinancings.

The majority of the Company's  residential loans are underwritten to be eligible
for sale in the secondary market. The Company sells most of the eligible 30-year
fixed rate loans it originates.  A loan which the Company intends to sell may be
sold  directly or converted  into  mortgage-backed  securities  and sold in that
form.  Residential  loans sold directly amounted to $15.5 million in 2000, $16.4
million  in  1999  and  $26.7  million  in  1998.  Those  sold  in the  form  of
mortgage-backed  securities  held for sale or  available  for sale  totaled $9.8
million, $67.1 million and $84.2 million,  respectively, in 2000, 1999 and 1998.
The portfolio of  residential  mortgage  loans serviced for others totaled $11.1
million at December  31,  2000,  compared  to $0 at December  31, 1999 and $18.8
million at December 31, 1998.

                                       17
<PAGE>
Allowance  for Loan  Losses.  The  following  table  summarizes  changes  in the
allowance for loan losses and certain ratios for the periods indicated.
<TABLE>
<CAPTION>
                                                                             At December 31,
                                                     -----------------------------------------------------------
                                                        2000          1999        1998        1997        1996
                                                     ---------     ---------    --------    --------    --------
                                                                          (Dollars in Thousands)
<S>                                                   <C>           <C>          <C>         <C>         <C>
Average loans (1)                                    $ 201,011     $ 200,265    $190,072    $142,512    $108,805
                                                     =========     =========    ========    ========    ========

Period-end loans (2)                                 $ 203,137     $ 193,327    $188,991    $165,453    $121,025
                                                     =========     =========    ========    ========    ========

Allowance for loan losses at
   beginning of period                               $   1,798     $   1,742    $  1,673    $  1,548    $  2,154

Loans charged-off:
   Commercial                                             -             -           -           -            736
   Residential real estate                                -                4          42           7           8
   Home equity and other consumer                           86            77          89          24           1
                                                     ---------     ---------    --------    --------    --------

                                                            86            81         131          31         745

Loan recoveries:
   Commercial                                             -             -           -           -             14
   Residential real estate                                -                3           3          33           5
   Home equity and other consumer                           31            34          17           3        -
                                                     ---------     ---------    --------    --------    --------

                                                            31            37          20          36          19
                                                     ---------     ---------    --------    --------    --------

   Net charge-offs/(recoveries)                             55            44         111          (5)        726

Provision charged to operations                             60           100         180         120         120
                                                     ---------     ---------    --------    --------    --------

Allowance for loan losses at end of period           $   1,803     $   1,798    $  1,742    $  1,673    $  1,548
                                                     =========     =========    ========    ========    ========

Selected Ratios:
---------------

Allowance for loan losses to period-end loans,            0.89%        0.93%       0.92%       1.01%       1.28%
   net

Net charge-offs/(recoveries) to average loans             0.03%        0.02%       0.06%       -   %       0.67%

Net charge-offs/(recoveries) to allowance for
   loan losses                                            3.05%        2.45%       6.37%     (0.30)%      46.90%

Allowance as a percentage of non-performing loans       787.34%     5800.00%     372.22%     176.11%      92.14%

</TABLE>

(1)  Includes loans held for sale
(2)  Represents net loans, excluding loans held for sale


                                       18
<PAGE>
The allowance for loan losses as a percentage of total loans remained  stable at
 .89% at December  31, 2000 down  marginally  from .93% at December  31, 1999 and
 .92% at December 31, 1998. Management analyzes the adequacy of the allowance for
loan  losses  on a  quarterly  basis.  See  "Item 7 - Results  of  Operations  -
Provision  for Loan Losses".  Management  measures the adequacy of its allowance
for  loan  losses  by  assigning  loans  into  risk  categories  based on a loan
classification system modeled after the bank regulatory  classification  system.
While  management  believes  that its  allowance  for loan losses is adequate to
cover  possible  losses,  there  are  uncertainties   regarding  future  events.
Deterioration  in the real estate  market or economy may result in  additions to
nonaccruing  loans,  charge-offs  or  provisions  for loan losses to maintain an
adequate allowance.  In addition,  various regulatory  agencies,  as an integral
part of their examination  process,  periodically review the Company's allowance
for loan losses.  Such agencies may require the Company to provide  additions to
the allowance based on their judgments  about  information  available to them at
the time of their  examination.  Allocation  of the allowance for loan losses to
the various  categories  of the  portfolio is also made  periodically,  based on
management's  judgment in weighing  various  factors,  including  the quality of
specified  loans,  the level of  nonaccruing  loans in the  various  categories,
current economic conditions,  trends in delinquencies and prior charge-offs, and
the collateral value of the underlying security.  Because the allowance for loan
losses is based on various  estimates,  including loan  collectibility  and real
estate values, and includes a high degree of judgment, subsequent changes in the
general  economic  prospects  of the  borrowers  may  require  changes  in those
estimates.

Allocation of the Allowance for Loan Losses. The allocation of the allowance for
loan losses at December  31, and the percent of loans in each  category to total
loans, follows:

<TABLE>
<CAPTION>
                                                                    At December 31,
                            ------------------------------------------------------------------------------------------
                                  2000                 1999              1998             1997              1996
                            ----------------     ----------------   ---------------  ---------------   ---------------
                            Amount   Percent     Amount   Percent   Amount  Percent  Amount  Percent   Amount  Percent
                            ------    -----      ------    -----    ------   -----   ------   -----    ------  ------
                                                         (Dollars in Thousands)
<S>                         <C>         <C>      <C>         <C>    <C>       <C>    <C>        <C>    <C>        <C>
Commercial/commercial
  real estate               $  158      2.8%     $  151      2.5%   $  215    3.3%   $  217     4.1%   $ 291      5.5%
Residential real estate        976     81.2       1,065     84.9     1,030    85.6    1,014    84.2      929     82.0
Home equity and other
  consumer                     669     16.0         582     12.6       497    11.1      442    11.7      328     12.5
                            ------    -----      ------    -----    ------   -----   ------   -----    ------  ------

                            $1,803    100.0%     $1,798    100.0%   $1,742   100.0%  $1,673   100.0%   $1,548  100.00%
                            ======    =====      ======    =====    ======   =====   ======   =====    ======  ======
</TABLE>

Notwithstanding the foregoing allocations,  the entire allowance for loan losses
is available to absorb charge-offs in any category of loans.

Deposits.  Deposits  ended  the year at $237.2  million,  an  increase  of $27.2
million or 12.9% over the year-end 1999 balance of $210.1 million.  The increase
was most pronounced in demand deposit  accounts and NOW accounts which increased
by $15.0 million in 2000. In addition, certificates of deposit increased by $7.1
million and money  markets by $3.2  million.  The  increase in checking  account
balances resulted from customers acquired from institutions  affected by mergers
in the Company's market area.

                                       19
<PAGE>
The following table shows the distribution of the Company's deposits at December
31,

<TABLE>
<CAPTION>
                                    2000                               1999                             1998
                       ------------------------------    -----------------------------   -------------------------------
                                             Weighted                         Weighted                          Weighted
                                    % of     Average                  % of    Average                  % of      Average
                                    ----     -------                  ----    -------                  ----      -------
                       Amounts    Deposits     Rate      Amounts    Deposits    Rate      Amounts    Deposits      Rate
                      ------- -------- ------     ------- -------- ------     ------- -------- ------
                                                                (Dollars in Thousands)
<S>                   <C>             <C>       <C>     <C>             <C>       <C>     <C>             <C>       <C>
Demand deposits       $ 22,855        9.6%      .00%    $ 15,209        7.2%      .00%    $ 18,656        9.3%      .00%
Savings:
  Savings               39,531       16.7      2.26       37,704       17.9      2.31       37,768       18.9      2.38
  NOW accounts          34,871       14.7       .83       27,481       13.1       .76       22,954       11.5       .92
  Money markets         66,083       27.9      5.04       62,859       30.0      4.49       55,418       27.8      4.63
                      --------      -----      ----     --------      -----      ----     --------      -----      ----

    Total demand
      and savings      163,340       68.9      2.76      143,253       68.2      2.75      134,796       67.5      2.73
  Certificates of
  deposit               73,897       31.1      5.93       66,829       31.8      5.09       64,961       32.5      5.34
                      --------      -----      ----     --------      -----      ----     --------      -----      ----


    Total deposits    $237,237      100.0%     3.75%    $210,082      100.0%     3.40%    $199,757      100.0%     3.58%
                      ========      =====      ====     ========      =====      ====     ========      =====      ====
</TABLE>

Deposits of $100,000 or more totaled  approximately  $77.6 and $72.6  million at
December 31, 2000 and 1999, respectively.

The  following  table  presents,  by  various  rate  categories,  the  amount of
certificate of deposit  accounts and the periods to maturity of the  certificate
accounts outstanding at the dates indicated:
<TABLE>
<CAPTION>

                                  At December 31, 2000                        At December 31,
                         ------------------------------------         -----------------------------
                           Maturing     Maturing    Maturing           2000       1999       1998
                         Within 1 Year  1-3 Years  Thereafter          Total      Total      Total
                         -------------  ---------  ----------          -----      -----      -----
                                                   (Dollars In Thousands)
<S>                        <C>          <C>         <C>               <C>       <C>        <C>
Certificate accounts:
4.00% to 4.99%             $  1,994     $   502     $-                $ 2,496   $26,993    $ 19,381
5.00% to 5.99%               32,213       2,953        23              35,189    30,677      39,891
6.00% to 6.99%               16,968       7,310       409              24,687     8,178       5,189
7.00% to 7.99%                7,441       2,576      1,508             11,525       981         500
                            -------      ------      -----             ------    ------     -------

Total                      $ 58,616     $13,341     $1,940            $73,897   $66,829    $ 64,961
                            =======      ======      =====             ======    ======     =======
</TABLE>

Certificates  at or over $100,000  totaled $16.9 million in 108  certificates at
December 31, 2000 and $11.2 million in 86 certificates at December 31, 1999.

The maturity  distribution  of certificates of deposit in amounts of $100,000 or
more at December 31, 2000 follows:

                                                                  Amount
                                                                  ------
                                                          (Dollars in Thousands)
                         Within 3 months                          $  3,264
                         3 to 6 months                               4,679
                         6 to 12 months                              5,742
                         After one year                              3,200
                                                                   -------

                                                                   $16,885
                                                                   =======

                                       20
<PAGE>
Borrowings. The Company borrows from the FHLB of Boston to support liquidity and
manage its asset/liability  position.  Borrowings  decreased to $32.1 million, a
decrease of $12.9 million in 2000 from the year-end 1999 balance of $45 million.
The Company relies on borrowed  funds as an alternative  funding source in order
to support earning assets.  The weighted average rate on borrowings was 6.60% at
December  31, 2000 versus  5.75% at December  31,  1999.  The  weighted  average
maturity of the  borrowings  at December 31, 2000 was twenty  months versus five
months at  December  31,  1999.  Short  term  market  interest  rates  increased
substantially in 2000 which significantly impacted the Company's borrowings.  In
response,  the Company  paid off a portion of its  borrowings  and  extended the
maturities  on its remaining  funding.  This resulted in an increase of 85 basis
points in the cost of its borrowed funds in 2000.

NON-PERFORMING ASSETS

General.  Non-performing  assets  stood at  $229,000  at  December  31, 2000 and
$142,000 at the end of 1999.

Non-performing Loans. When a loan is originated, interest on the loan is accrued
(i.e.,  recognized  as  income)  on a regular  periodic  basis  even if the loan
payment has not yet been received.  The recording of interest  income on problem
loan  accounts  generally  ceases when the loans become 90 days past due and the
loans are not in the process of collection.

It is also the policy of the Company to classify as non-accrual, loans less than
90 days  delinquent and loans  performing in accordance  with their terms, if in
management's  judgment  such  loans are likely to present  future  principal  or
interest   repayment   problems   and  could   ultimately   be   classified   as
non-performing.

There were no loans on non-performing  status at December 31, 2000 and 1999 that
were considered troubled debt restructurings.

The following table sets forth information  regarding delinquent loans and other
non-performing  assets held by the Company at the dates  indicated.  The Company
had  $170,000  in loans  greater  than 90 days  past due and still  accruing  at
December 31, 2000. These loans were not classified as non-performing loans.
<TABLE>
<CAPTION>

                                                                        At December 31,
                                                        --------------------------------------------
                                                         2000      1999      1998     1997    1996
                                                         ----      ----      ----     ----    ----
                                                                    (Dollars in Thousands)
<S>                                                     <C>        <C>     <C>      <C>      <C>
Delinquent loans 30-89 days past due (not included in
   non-performing loans)                                $  575     $ 250   $  194   $1,218   $  827
Delinquent loans 90+ days past due (not included in
   non-performing loans)                                   170       650      442        3      292
                                                         -----      ----    -----    -----    -----

                                                        $  745     $ 900   $  636   $1,221   $1,119
                                                         =====      ====    =====    =====    =====

Delinquent loans as a percent of gross loans               .37%      .47%      .34%     .74%     .92%
                                                         =====     =====    ======   ======   ======

</TABLE>
                                       21

<PAGE>
<TABLE>
<CAPTION>
                                                                        At December 31,
                                                        --------------------------------------------
                                                         2000      1999      1998     1997    1996
                                                         ----      ----      ----     ----    ----
                                                                    (Dollars in Thousands)
<S>                                                     <C>        <C>     <C>      <C>      <C>
Non-performing loans:
   Loans accounted for on a non-accrual basis           $  229     $  31   $  468   $  358   $  337
   Restructured loans                                     -          -       -         592    1,343
                                                         -----      ----    -----    -----    -----

      Total non-performing loans                           229        31      468      950    1,680

OREO, net of allowance for OREO losses                    -          111      718    1,214    1,533
                                                         -----      ----    -----    -----    -----

      Total non-performing assets                       $  229     $ 142   $1,186   $2,164   $3,213
                                                         =====      ====    =====    =====    =====

Non-performing assets as a percent of total assets         .08%       .05%     .44%     .95%    2.02%
                                                         =====      =====   ======   ======   ======
</TABLE>

See "Item 8 - Notes 1 and 5 of Notes to Consolidated Financial Statements".

Potential Non-performing Loans. In addition to non-performing loans, at December
31, 2000, the Company had classified an additional  $889,074 of performing loans
as "substandard"  based on an internal rating system used by the Company.  These
substandard  loans  evidence  one or more  weaknesses  or  potential  weaknesses
related to repayment history, the borrower's  financial  condition,  adequacy of
collateral, or other factors.  Depending on the local economy and other factors,
these loans,  as well as other  performing  loans not so classified,  may become
non-performing in the future.  These loans were primarily commercial real estate
loans.

OREO. The following table sets forth the types of properties which comprised the
Company's OREO portfolio at the dates shown.  The Company held two properties on
December 31, 2000 located in Essex County, Massachusetts currently carried at $1
each.

<TABLE>
<CAPTION>
                                                        At December 31,
                                               ---------------------------------
                                               2000           1999          1998
                                               -----          ----          ----
                                                    (Dollars in Thousands)
<S>                                            <C>            <C>           <C>
Land                                           $-             $  -          $669
Commercial                                         -            49            49
Residential 1-4 family                             -            62             -
                                               -----          ----          ----

OREO                                           $   -          $111          $718
                                               =====          ====          ====
</TABLE>

RESULTS OF OPERATIONS

General.  The  Company's  results  of  operations  depend  primarily  on its net
interest  income and the efficiency of the Company's  operations.  The Company's
net  income is  affected  by its  costs of  operations,  including  non-interest
expenses such as salaries and employee benefits, occupancy costs, non-performing
loans and other  classified  assets.  For the year ended  December 31, 2000, the
Company  reported net income of $2.7  million,  or $1.10 per fully diluted share
($1.12 basic),  compared to $3.3 million or $1.29 per fully diluted share ($1.33
basic) for 1999 and $2.6 million or $1.03 per fully  diluted share ($1.10 basic)
for 1998.

The Company's  return on average  stockholders'  equity decreased from 21.04% in
1999 to  15.79%  in  2000.  The  Company's  financial  performance  in 2000  was
significantly  impacted by the rise in market interest rates which substantially
impacted the Company's net interest  margin and revenues from mortgage  banking.


                                       22
<PAGE>
The Company's financial  performance in 1999 and 1998 was positively impacted by
favorable  interest  rates  and  mortgage  originations  which  translates  into
mortgage banking revenues.

Net  Interest  and Dividend  Income.  Net interest and dividend  income was $8.9
million in 2000,  $8.7  million in 1999 and $7.5  million in 1998.  Net interest
income  increased  $237,000 in 2000,  $1.2 million  during 1999 and $1.0 million
during 1998,  primarily due to higher  average  earning asset volumes in each of
the years. Market interest rates have been fairly volatile over the past several
years.  During 2000, market interest rates rose throughout the year. The Company
was  substantially  impacted by the rates paid on deposits and borrowings during
2000,  the effect of which  narrowed the  interest  rate spread to 2.77% and the
gross interest margin to 3.24% in 2000.

Average  earning  assets  increased 6.6% in 2000 to $275.7 million and increased
12.1% during 1999 to $258.7  million over the previous year,  respectively.  The
increase  in  each of the two  years  was  primarily  due to  higher  investment
portfolio growth.

The  volatility in the interest rates has also impacted the yields earned on the
investment  portfolio.  The yields earned on investment  securities increased 51
basis points in 2000 to 6.75% as compared to 6.24% in 1999 and 6.29% in 1998.

Total  average loans  increased  $746,000  during 2000  primarily due to reduced
originations and increased by $10.2 million in 1999 principally from residential
loan  originations.  The yield on real estate loans increased 26 basis points in
2000 to 7.41% while decreasing 17 basis points during 1999 to 7.15%. The largest
component of the yield on real estate loans was residential loans.

The rate paid on interest-bearing  deposits increased 42 basis points in 2000 to
4.04% and decreased 40 basis points during 1999 to 3.62%.  Core deposits,  which
include NOW, savings and money market accounts,  typically have rates lower than
those  paid on  certificates  of  deposit.  However,  to grow the  core  deposit
balances,  the Company has offered promotional rates on certain products.  While
the  Company  reduced the rates in 1998 in  connection  with a decline in market
interest rates,  the impact of the rate reduction was felt in 1999. The balances
maintained in NOW accounts have  increased in both 2000 and 1999 while the rates
on this  product  have  remained  fairly  stable  during that same time  period.
Certificate of deposit average balances increased $5.8 million and $1.3 million,
respectively, during 2000 and 1999.

The Company has  decreased  its  reliance  on borrowed  funds as an  alternative
source of funds to deposits.  During 2000, the average balance of borrowed funds
declined  $3.6 million while the rate paid  increased 95 basis points.  In 1999,
the average balance of borrowed funds increased $6.9 million while the rate paid
decreased 31 basis points.

The combination of the factors  mentioned above  contributed to a 19 basis point
decrease  to 2.77% in the  interest  rate  spread  in 2000 and a 17 basis  point
increase in the interest  rate spread to 2.96% during 1999.  The gross  interest
margin on  earnings  assets was 3.24% for the year ended  December  31, 2000 and
3.36% and 3.23%, respectively, for 1999 and 1998.

Interest Income and Interest  Expense.  The following table sets forth,  for the
periods  indicated,  information  based on average  monthly  balances during the
periods indicated  regarding (i) the total dollar amount of interest income from
interest-earning  assets and the resultant average yields; (ii) the total dollar
amount of interest  expense on  interest-bearing  liabilities  and the resultant
average costs;  (iii) net interest  income;  (iv) interest rate spread;  and (v)
gross  interest  margin.  Non-accrual  loan  balances  have been included in the
appropriate  category;  however,  only interest  actually paid on such loans has
been included in interest income.

                                       23
<PAGE>
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                             -----------------------------------------------------------------------------------------
                                           2000                           1999                         1998
                             ------------------------------   ---------------------------   --------------------------
                                         Interest                       Interest                     Interest
                             Average      Earned/   Average   Average    Earned/  Average   Average   Earned/  Average
                             Balance       Paid      Yield    Balance     Paid     Yield    Balance    Paid     Yield
                             -------       ----      -----    -------     ----     -----    -------    ----     -----
                                                       (Dollars in Thousands)
<S>                            <C>         <C>         <C>     <C>       <C>         <C>     <C>       <C>        <C>
Interest-earning assets:
Loans:
  Residential (1)              $168,804    $12,036     7.13%  $172,407   $12,170     7.06%  $163,660   $11,784    7.20%
  Commercial                      5,106        444     8.70      5,490       477     8.69      6,487       557    8.59
  Home equity                    26,098      2,299     8.81     21,251     1,561     7.35     18,807     1,464    7.78
  Consumer                        1,003        109    10.87      1,117       105     9.40      1,118       102    9.12
                               --------    -------            --------   -------            --------   -------

    Total loans                 201,011     14,888     7.41    200,265    14,313     7.15    190,072    13,907    7.32
Investments (2)                  74,710      5,041     6.75     58,397     3,642     6.24     40,577     2,551    6.29
                               --------    -------            --------   -------            --------   -------

    Total interest-
      Earning assets            275,721     19,929     7.23    258,662    17,955     6.94    230,649    16,458    7.14

Cash and due from
  banks                           6,483                          6,247                         6,447
Other assets                      2,963                          4,248                         4,303
                               --------                       --------                      --------

    Total assets               $285,167                       $269,157                      $241,399
                               ========                       ========                      ========
Interest-bearing liabilities:
  Savings deposits
  NOW accounts                  $37,936        879     2.32%   $35,987       868     2.41%   $37,005       937    2.53%
  Money market                   28,399        233      .82     23,787       176      .74     19,343       203    1.05
    deposit accounts             63,477      3,055     4.81     58,115     2,441     4.20     44,165     2,030    4.60
  Certificates of deposit        69,436      3,885     5.60     63,608     3,091     4.86     62,346     3,372    5.41
                               --------    -------            --------   -------            --------   -------

    Total interest-
      bearing deposits           99,248      8,052     4.04    181,497     6,576     3.62    162,859     6,542    4.02
  Borrowed funds                 47,413      2,942     6.21     50,995     2,681     5.26     44,100     2,455    5.57
                                -------    -------             -------    ------              -------   -------
    Total interest-
      bearing  liabilities      246,661     10,994     4.46    232,492     9,257     3.98    206,959     8,997    4.35

Demand deposits                  18,624                         18,048                        18,207
Other liabilities                 2,808                          3,154                         3,263
                                -------                        -------                       -------

    Total liabilities           268,093                        253,694                       228,429

Stockholders'  equity            17,074                         15,463                        12,970
                                 ------                         ------                        ------

    Total liabilities and
      Stockholders'
      equity                   $285,167                       $269,157                      $241,399
                               ========                       ========                      ========


Net interest income                        $ 8,935                       $ 8,698                       $ 7,461
                                           =======                       =======                       =======
Interest rate spread                                   2.77%                         2.96%                        2.79%
Gross interest margin                                  3.24%                         3.36%                        3.23%

</TABLE>

(1) Residential loans include portfolio loans and loans held for sale.
(2) Includes Federal funds sold.

                                       24

<PAGE>


The following table presents the changes in interest and dividend income and the
changes in interest expense attributable to changes in interest rates or changes
in the volume of interest-earning  assets and  interest-bearing  liabilities for
the periods  indicated.  Changes which are  attributable to both rate and volume
have been allocated to changes due to volume.
<TABLE>
<CAPTION>
                                             2000 vs. 1999                1999 vs. 1998
                                            Changes Due to                Changes Due to
                                         Increased (Decreased)         Increased (Decreased)
                                        ------------------------      -------------------------
                                        Rate    Volume     Total      Rate    Volume     Total
                                        ----    ------     -----      ----    ------     -----
                                                        (Dollars in Thousands)
<S>                                    <C>       <C>       <C>         <C>      <C>      <C>
Interest income:
   Loans                               $  520    $   55    $  575      $(322)   $  728   $   406
   Mortgage-backed securities             263       463       726         46       803       849
   Short-term investments                   8       134       142        (22)       73        51
   Investment securities                   27       504       531        (31)      222       191
                                        -----     -----     -----       ----     -----    ------

      Total                               818     1,156     1,974       (329)    1,826     1,497

Interest expense:
   Deposits                               759       717     1,476       (641)      675        34
   Borrowed funds                         483      (222)      261       (136)      362       226
                                        -----     -----     -----       ----     -----    ------

      Total                             1,242       495     1,737       (777)    1,037       260
                                        -----     -----     -----       ----     -----    ------

Net interest and dividend income       $ (424)   $  661    $  237      $ 448    $  789   $ 1,237
                                        =====     =====     =====       ====     =====    ======
</TABLE>

Provision for Loan Losses.  The provision for loan losses in 2000 was $60,000, a
decrease  of $40,000 or 40.0% from 1999 as growth of the loan  portfolio  slowed
and asset quality  improved in 2000.  The ratio of the allowance for loan losses
to  non-performing  loans was 787.3% at  December  31,  2000,  and  5,800.0%  at
December 31, 1999. For 2000, net loan charge-offs against the allowance for loan
losses  amounted to $55,000.  See "Item 7 - Financial  Condition - Allowance for
Loan Losses".

The  provision  for loan losses in 1999 was  $100,000,  a decrease of $80,000 or
44.4% from 1998  principally  as a result of a moderation  of growth in the loan
portfolio.  The ratio of the allowance for loan losses to  non-performing  loans
was 5,800.0% at December 31,  1999,  and 372.2% at December 31, 1998.  For 1999,
net loan charge-offs  against the allowance for loan losses amounted to $44,000.
See "Item 7 - Financial Condition - Allowance for Loan Losses".

The amount of provision  for loan losses that the Company  records is predicated
on several  factors  including  asset quality,  growth in the loan portfolio and
market and economic conditions. The level of provisions recorded in 1999 through
2000  reflect  the fact  that the  composition  of the  portfolio  is  primarily
residential  mortgages  which carry a lower risk than  commercial and commercial
real estate. Levels of non-performing loans have also decreased. The decrease in
the provision in 2000 is  reflective of slower growth in the loan  portfolio and
continued  strong  asset  quality.  Future  provisions  will be  dictated by the
ongoing  quality of the  portfolio and economic  conditions  that may impact the
loan  portfolio.   Loan  loss  provisions  may  be  substantially  increased  if
conditions dictate.

Increases in the allowance for loan losses or reductions in the carrying  values
of non-performing assets could be required by regulatory agencies as a result of
their  examinations.  The Bank was most recently  examined by the  Massachusetts
Commissioner  of Banks  in the  first  quarter  of 2000.  The  Company  was most
recently examined by the Federal Reserve Bank in the third quarter of 2000.

                                       25
<PAGE>
Non-interest  Income.  The company recorded income from non-interest  sources of
$1.7  million  in 2000,  $2.9  million  in 1999 and $2.4  million  in 1998.  The
decrease  of $1.2  million in 2000  resulted  from a decline of $1.2  million in
mortgage  banking  gains.  The increase in 1999 was primarily due to $308,000 in
added deposit account fees.

Deposit  account  fees totaled  $1.7  million,  $1.5 million and $1.2 million in
2000,  1999 and 1998,  respectively,  and was derived  primarily  from  customer
service charges and fees. Loan late charges and other fees decreased during 2000
by $90,000 to $127,000,  while  increasing  by $13,000 in 1999 to $217,000.  The
majority  of the  increase in deposit fee income in each of the two years is due
to increased debit card income and overdraft income.  As customers  increasingly
use debit cards or non-customers use the Company's  multiple ATM's,  overall fee
income has increased.

Non-interest  Expense.  Non-interest  expenses decreased $91,000 or 1.3% to $6.8
million in 2000 while  increasing $1.3 million or 23.5% to $6.9 million in 1999.
The decrease in 2000 was primarily due to the decline in professional  fees. The
increase in 1999  reflects the opening of two branches in mid-1998,  which fully
impacted expenses in 1999.

Salaries and employee benefits,  the largest component of non-interest  expense,
decreased $20,000 to $3.2 million in 2000 and increased $673,000 in 1999 to $3.2
million.  The increase in 1999 was  primarily  due to  increased  costs from the
branch openings.

Office  occupancy  and  equipment  decreased  $2,000  to  $914,000  in 2000  and
increased  $219,000 in 1999 to $916,000.  The increase in 1999 was primarily due
to increased costs to operate branch locations.

Data processing expenses totaled $924,000 in 2000, $798,000 in 1999 and $691,000
in 1998. Data  processing  expenses  increased  $126,000 in 2000 and $107,000 in
1999 due to a higher loan and deposit  base, as well as the addition of internet
banking.

Professional  fees,  including  corporate  legal  and  accounting  and  auditing
expenses,  totaled  $337,000  in 2000,  $778,000  in 1999 and  $248,000 in 1998.
Professional fees decreased $441,000 in 2000 due to the one time expense in 1999
to form the holding company and REIT.

Marketing  expenses totaled  $524,000 in 2000,  $537,000 in 1999 and $632,000 in
1998.  The Company  expends  considerable  expense to generate  loan and deposit
customers.

Other operating expenses totaled $859,000 in 2000, $921,000 in 1999 and $890,000
in 1998.  Some of the cost  savings in 2000 result from the  continued  focus on
cost  containment.  The  Company  has  experienced  some  savings in the area of
corporate insurance.

Federal and State Income Tax Expense.  The Company recorded tax expenses of $1.1
million, $1.3 million and $1.5 million in 2000, 1999 and 1998, respectively, and
realized effective tax rates of 30.0%, 28.7% and 36.0%, respectively. The income
tax  expense  decrease  of $187,000  in 2000  resulted  from a reduction  in the
valuation allowance of $190,000 in 2000.

Recognition  of deferred  tax assets and  liabilities  is based on the  expected
future tax consequences of temporary differences between the financial reporting
and tax basis of the Company's assets and  liabilities.  Measurement of deferred
tax assets and  liabilities  is based upon the provision of enacted tax laws and
the effects of future changes in tax laws or rates.

                                       26
<PAGE>


ASSET AND LIABILITY MANAGEMENT

The Company does not use static GAP  analysis to manage its interest  rate risk.
It believes that simulation  modeling more accurately  encompasses the impact of
changes in interest rates on the earnings of the Company over time. However, the
Company prepares a GAP schedule to measure its static position.

Our  assumption  is that NOW and DDA  accounts,  which  generally are subject to
immediate withdrawal, have effective maturities over five years. Premium savings
accounts are assumed to have maturities of six to twelve months, while base rate
savings  accounts  are  assumed  to have  maturities  over five  years.  Savings
accounts are generally  subject to immediate  withdrawal.  Money market accounts
have an effective maturity up to five years. At December 31, 2000, the Company's
cumulative  gap with  respect to assets and  liabilities  maturing or  repricing
within one year was a negative $9.5 million or 3.3% of total assets.

During a period of rising interest rates, a negative gap would tend to adversely
affect  income  while a  positive  gap would  tend to result in an  increase  in
income.  During a period of falling interest rates, a negative gap would tend to
result in an increase in net income while a positive gap would tend to adversely
affect  income.  A principal  focus has been the  origination  of prime interest
rate-based  home  equity  loans  and the  sale in the  secondary  market  of the
majority of fixed-rate loans originated. The home equity loans reprice to market
rates as the prime rate,  as published by the Wall Street  Journal,  fluctuates.
These loans  mature or reprice more quickly and are,  therefore,  more  interest
rate sensitive than long-term,  fixed-rate, single family residential loans. The
Company   also   maintains   a   significant    portfolio   of   adjustable-rate
mortgage-backed securities in its investment portfolio.

                                       27
<PAGE>


The following table summarizes the contractual  maturities or assumed  repricing
of the Company's assets, liabilities and equity at December 31, 2000:
<TABLE>
<CAPTION>
                                                            Assets/Liabilities Maturing or Repricing at December 31, 2000 in:
                                                  ---------------------------------------------------------------------------------
                                                     0-6          6-12           1-2           3-5          Over 5
                                                   Months        Months         Years         Years         Years          Total
                                                 ---------     ---------      ---------     ---------       ------       ---------
                                                           (Dollars in Thousands)
<S>                                              <C>           <C>            <C>           <C>             <C>          <C>
Assets:
   Residential ARM loans                         $  16,841     $  18,273      $  21,364     $  45,740       $     -      $ 102,218
   Residential fixed rate mortgage loans             4,335         4,208          7,583        17,845        28,736         62,707
   Loans held for sale                               5,003             -              -             -             -          5,003
   Home equity loans                                30,968             8             11            57           168         31,212
   Commercial loans                                  1,572           518            828         1,539         1,241          5,698
   Consumer loans                                      382           121             21            35           743          1,302
   Fixed MBS held-to-maturity                          720           732          1,370         3,186         4,702         10,710
   Callable debentures held-to-maturity              2,010         2,253          6,120         2,000         3,998         16,381
   Corporate debt securities held-to-maturity            -             -              -             -         3,191          3,191

   Fixed MBS available-for-sale                        125           117            211           480           599          1,532
   ARM MBS available-for-sale                       17,975        11,116              -             -           784         29,875
   Callables debentures available-for-sale               -             -          1,999             -             -          1,999

   Equity securities                                 3,000             -              -             -         1,075          4,075
   Cash and due from banks                               -             -              -             -         8,836          8,836
   Non-earnings assets                                   -             -              -             -         3,095          3,095
                                                 ---------     ---------      ---------     ---------     ---------      ---------

   Total                                            82,931        37,346         39,507        70,882        57,168        287,834

Liabilities and equity capital:
   Interest bearing NOW accounts                         -             -              -             -        34,871         34,871
   Demand deposits                                       -             -              -             -        22,855         22,855
   Savings                                               -         8,559              -             -        30,972         39,531
   Money market deposits                            35,413         9,087         10,790        10,793             -         66,083
   Certificates of deposit                          38,907        19,709         12,003         3,278             -         73,897
   Borrowings                                          108        18,000          7,000         7,000             -         32,108
   Other liabilities                                     -             -              -             -         3,370          3,370
   Equity capital                                        -             -              -             -        15,119         15,119
                                                 ---------     ---------      ---------     ---------     ---------      ---------

   Total                                            74,428        55,355         29,793        21,071       107,187        287,834
                                                 ---------     ---------      ---------     ---------     ---------      ---------

Excess (deficiency) of assets over
   liabilities and equity capital                $   8,503     $ (18,009)     $   9,714     $  49,811     $ (50,019)     $       -
                                                 =========     =========      =========     =========     =========      =========

Cumulative Gap                                   $   8,503     $  (9,506)     $     208     $  50,019     $       -      $       -

Cumulative assets as a % of cumulative
   liabilities and equity capital                   111.42%         92.68%       100.13%       127.69%        100.00%

Cumulative excess (deficiency) of assets
   over liabilities and equity capital as a
   % of total assets                                  2.95%         (3.30)%        0.07%        17.38%          0.00%
</TABLE>

                                       28
<PAGE>
LIQUIDITY

The primary  sources of funds for the Company are deposits,  borrowings from the
FHLB  of  Boston,  the  sale  of  loans,  loan  amortization,   prepayments  and
maturities, and the sale of investments and mortgage-backed securities available
for sale.  Total deposits and FHLB  borrowings  increased by $14.3  million,  or
5.6%, during 2000, and increased by $2.3 million, or 0.9%, during 1999.

During 2000 and 1999,  the Company  used its sources of funds  primarily to meet
commitments to pay maturing certificates of deposit and savings withdrawals,  to
fund loan  commitments and to purchase  investment  securities.  At December 31,
2000 and 1999,  approved loan commitments  outstanding  amounted to $3.4 million
and $6.8 million, respectively. At the same dates, commitments of the Company to
borrowers  under unused lines of credit and home equity credit lines amounted to
$36.9 million and $31.9 million,  respectively,  and the unadvanced  portions of
residential owner-occupied construction loans amounted to $484,000 and $573,000,
respectively.

The Company monitors its liquidity in accordance with guidelines  established by
its  Asset/Liability  and  Investment  Policies.  Management  believes  that the
Company currently has adequate  liquidity  available to meet operating needs. To
meet unexpected demands, the Company has borrowing capabilities with the FHLB of
Boston.  At December 31, 2000, the total borrowing  capacity was $104.2 million.
See "Item 1 - Business - Source of Funds - Borrowings".

CAPITAL RESOURCES

The following  table  summarizes  the  Company's and Bank's  required and actual
regulatory  capital ratios and amounts at December 31, 2000. The required ratios
included  in the table are the  capital  minimums  for  December  31,  2000,  as
required by FRB and FDIC regulations:

<TABLE>
<CAPTION>
                                     Required                Actual                      Excess
                               -------------------     -------------------        --------------------
                                Amount     Percent      Amount      Percent        Amount       Percent
                                ------     -------      ------      -------        ------       -------
                                                       (Dollars in Thousands)
<S>                           <C>           <C>        <C>           <C>    <C>    <C>            <C>
Regulatory Tier 1
  leverage capital ratio
    Company                   $11,614       4.0%       $ 14,623      5.04%  (1)    $  3,009       1.04%
    Bank                       11,560       4.0          14,863      5.14   (1)       3,303       1.14

Risk-based:
  Tier 1
    Company                   $ 5,688       4.0%       $ 14,623    10.28%(2)       $  8,935       6.28%
    Bank                        5,679       4.0          14,863     10.47   (2)       9,184       6.47
  Total risk-based

    Company                   $11,377       8.0%       $ 16,398    11.53%   (2)    $  5,021       3.53%
    Bank                       11,358       8.0          16,638     11.72   (2)       5,280       3.72
</TABLE>

(1) Regulatory Tier 1 leverage  capital differs from the ratio of  stockholders'
equity  to  total  assets  calculated  in  accordance  with  generally  accepted
accounting  principles.  Additionally,  the Regulatory  Tier 1 leverage  capital
calculation  utilizes  average assets for the fourth quarter of 2000, which were
$290,356 and $289,011 for the Company and Bank, respectively.

(2) Based upon total risk-based  assets of $142,211 and $141,970 for the Company
and Bank, respectively.

In the first quarter of 2000, the Company  announced a 10% stock repurchase plan
and,  subsequently,  upon  completion of the plan  announced a second one in the
third quarter of 2000. In total, the Company  repurchased 454,000 shares in 2000
at a weighted  average price of $8.93 per share.  The stock  repurchase plan was
implemented in order to enhance shareholder value.


                                       29
<PAGE>
Ipswich  Statutory  Trust I (the Trust),  a  Connecticut  statutory  trust,  was
created in February  2001.  The Trust  exists for the  exclusive  purpose of (i)
issuing and selling Common Securities to the Company and Preferred Securities to
the public  (together  the "Trust  Securities"),  (ii) using the proceeds of the
sale of Trust  Securities  to  acquire  10.20%  Junior  Subordinated  Deferrable
Interest  Debentures ("Junior  Subordinated  Debentures") issued by the Company,
and (iii)  engaging  only in those other  activities  necessary,  convenient  or
incidental  thereto (such as registering the transfer of the Trust  Securities).
Accordingly,  the Junior Subordinated  Debentures will be the sole assets of the
Trust. The preferred securities accrue and pay distributions semi-annually at an
annual rate of 10.20% of the stated  liquidation  amount of $1,000 per preferred
security.  The  Company  has fully  and  unconditionally  guaranteed  all of the
obligations of the Trust. The guaranty covers the semi-annual  distributions and
payments on liquidation  or redemption of the trust  preferred  securities,  but
only to the extent of funds held by the  Trust.  In the first  quarter of fiscal
2001,  the Trust sold $3.5  million  of its trust  preferred  securities  to the
public and $109,000 of its common securities to the Company. The trust preferred
securities are mandatory redeemable upon the maturity of the Junior Subordinated
Debentures  on February 22, 2031 or upon earlier  redemption  as provided in the
Indenture.  The  Company  has  the  right  to  redeem  the  Junior  Subordinated
Debentures,  in whole or in part on or after  February  22, 2011 at a redemption
price  specified in the  Indenture  plus any accrued but unpaid  interest to the
redemption  date. The costs will be amortized  into  operating  expense over the
life of the  securities.  The Company owns all of the common  securities  of the
Trust, the only voting security,  and as a result,  the Trust is a subsidiary of
the Company.

For further information regarding the Company's capital resources, see "Item 1 -
Business - Stockholders' Equity and Regulatory Matters".

DIVIDENDS

During 1995,  the Company  established  a policy  whereby the Board of Directors
declares quarterly cash dividends, after a review of earnings, capital and asset
quality  trends.  Dividends  were  initiated in the third quarter of 1995 by the
declaration  of a post-split  $.005  dividend per common  share.  In total,  the
Company declared dividends of $955,000,  $629,000 and $407,000 or $.41, $.25 and
$.17 per share in 2000, 1999 and 1998,  respectively.  The declaration of future
cash  dividends  will be subject to  operating  results,  financial  conditions,
regulatory, tax considerations and other factors.

In the third quarter of 1997,  the common stock was split  2-for-1,  effected by
means of a stock  dividend.  This dividend was paid as a result of the Company's
desire to  increase  the number of shares  outstanding,  in order to improve the
trading  liquidity of its shares.  The number of shares  outstanding at December
31, 2000 and 1999 was approximately 2.1 million and 2.5 million, respectively.

IMPACT OF INFLATION AND CHANGING PRICES

The  Consolidated  Financial  Statements and related notes thereto  presented in
Item 8 of this Report have been prepared in accordance  with generally  accepted
accounting  principles  which require the measurement of financial  position and
operating results in terms of historical dollars without  considering changes in
the relative  purchasing power of money over time due to inflation.  Unlike many
industrial companies, most of the assets and virtually all of the liabilities of
the Company  are  monetary in nature.  As a result,  interest  rates have a more
significant  impact  on the  Company's  performance  than the  general  level of
inflation.  Over short periods of time,  interest rates may not necessarily move
in the  same  direction  or in the same  magnitude  as the  price  of goods  and
services.

                                       30
<PAGE>
RECENT ACCOUNTING DEVELOPMENTS

In September  2000,  the FASB issued SFAS No. 140,  Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,  a replacement
of  FASB   Statement   125.  It  revises  the  standards  for   accounting   for
securitizations  and other  transfers of  financial  assets and  collateral  and
requires  certain  disclosures,  but it  carries  over  most of SFAS  No.  125's
provisions  without  reconsideration.  This  Statement  provides  accounting and
reporting  standards  for  transfers  and  servicing  of  financial  assets  and
extinguishments  of  liabilities.  This Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. This Statement is effective for recognition and reclassification
of collateral  and for  disclosures  relating to  securitization  and collateral
accepted need not be reported for periods ending on or before December 15, 2000.
Disclosures about  securitization  and collateral  accepted need not be reported
for  periods  ending  on or  before  December  15,  2000,  for  which  financial
statements  are  presented for  comparative  purposes.  This  Statement is to be
applied  prospectively  with certain  exceptions.  Other than those  exceptions,
earlier  or  retroactive   application  of  its  accounting  provisions  is  not
permitted.  The adoption of this statement did not have a significant  effect on
the Company's financial condition, liquidity or results of operation.

ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  Company's  success is dependent  upon its ability to manage  interest  rate
risk.  Interest  rate risk can be defined as the exposure of the  Company's  net
interest  income to adverse  movements in interest  rates.  Although the Company
manages other risks,  such as credit and liquidity risk, in the normal course of
its business, management considers interest rate risk to be its most significant
market  risk and  could  potentially  have the  largest  material  effect on the
Company's  financial  condition and results of  operations.  Because the Company
does not maintain a trading  portfolio it is not exposed to  significant  market
risk from trading activities.

The  Company's  interest  rate  risk  management  is the  responsibility  of the
Asset/Liability  Management  Committee  (ALCO).  ALCO establishes  policies that
monitor and coordinate  the Company's  sources,  uses and pricing of funds.  The
committee  is also  involved in  formulating  the economic  projections  for the
Company's budget and strategic plan.

The Company  continues to reduce the  volatility  of its net interest  income by
managing the  relationship of  interest-rate  sensitive  assets to interest-rate
sensitive  liabilities.  In  recent  years,  the  focus  has  been to  originate
adjustable-rate  residential  loans for portfolio,  which reprice or mature more
quickly than fixed-rate  residential loans. The Company's  adjustable-rate loans
are primarily tied to published indices, such as the one- year Constant Maturity
Treasury (CMT).

The  Company  utilizes  a  simulation  model  to  analyze  net  interest  income
sensitivity to movements in interest  rates.  The simulation  model projects net
interest income based on both a rise or fall in interest rates (rate shock) over
a twelve and twenty-four month period. The model is based on the actual maturity
and repricing characteristics of interest-rate sensitive assets and liabilities.
The model  incorporates  assumptions  regarding the impact of changing  interest
rates on the prepayment rate of certain assets and liabilities.  The assumptions
are based on nationally  published  prepayment  speeds on assets and liabilities
when  interest  rates  increase or decrease by 200 basis points or greater.  The
model factors in projections  for  anticipated  activity levels by product lines
offered by the  Company.  The  simulation  model also  takes  into  account  the
Company's  increased  ability to control the rates on deposit  products  more so
than adjustable-rate loans tied to published indices.

Interest rate risk  represents the  sensitivity of earnings to changes in market
interest rates. As interest rates change the interest income and expense streams
associated  with  the  Company's  financial  instruments  also  change,  thereby
impacting  net interest  income  (NII),  the primary  component of the Company's
earnings.  ALCO  utilizes  the  results of the  simulation  model and static GAP
reports to quantify the  estimated  exposure of NII to sustained  interest  rate
changes.

                                       31
<PAGE>
The following reflects the Company's NII sensitivity analysis as of December 31:

                                                   Estimated
             Rate Change                       NII Sensitivity
             -----------                       ---------------
                                               2000        1999
                                               ----        ----

                +200bp                        (3.10)%    (5.29)%
                -200bp                        (0.24)%     6.04%

The preceding sensitivity analysis does not represent the Company's forecast and
should not be relied upon as being  indicative  of expected  operating  results.
These hypothetical estimates are based upon numerous assumptions including:  the
nature  and  timing  of  interest  rate  levels  including  yield  curve  shape,
prepayments on loans and securities,  deposit decay rates,  pricing decisions on
loans and deposits,  reinvestment/replacement of asset and liability cash flows,
and others.  While  assumptions  are developed  based upon current  economic and
local  market  conditions,  the  Company  cannot make any  assurances  as to the
predictive  nature of these  assumptions  including how customer  preferences or
competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity  analysis,
actual  results will also differ due to:  prepayment/refinancing  levels  likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable-rate  assets, the potential effect of changing debt service
levels on customers with adjustable-rate  loans, depositor early withdrawals and
product preference changes, and other internal/external variables.  Furthermore,
the  sensitivity  analysis  does not  reflect  actions  that ALCO  might take in
responding to or anticipating changes in interest rates.

                                       32
<PAGE>


ITEM 8     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                          Page

Independent Auditors' Report                                               34


Consolidated Balance Sheets                                                35


Consolidated Statements of Income                                          37


Consolidated Statements of Changes in Stockholders' Equity                 39


Consolidated Statements of Cash Flows                                      41


Notes to Consolidated Financial Statements                                 44




                                       33


<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Ipswich Bancshares, Inc.


We  have  audited  the  accompanying  consolidated  balance  sheets  of  Ipswich
Bancshares,  Inc. and Subsidiary (the Company) as of December 31, 2000 and 1999,
and the related  consolidated  statements  of income,  changes in  stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 2000.  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  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.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial  position  of  Ipswich
Bancshares,  Inc.  and  Subsidiary  at  December  31,  2000  and  1999,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  December 31, 2000 in conformity  with generally
accepted accounting principles.

Portland, Maine                                        Limited Liability Company
January 19, 2001

                                       34
<PAGE>
<TABLE>
<CAPTION>
                             IPSWICH BANCSHARES, INC. AND SUBSIDIARY
                                   CONSOLIDATED BALANCE SHEETS
                                   December 31, 2000 and 1999
                          (Dollars in Thousands Except Per Share Data)


                                     ASSETS

                                                                            2000         1999
                                                                        ---------     ---------
<S>                                                                     <C>           <C>
Cash and due from banks (note 2)                                        $   8,836     $   6,552
Interest-bearing deposits                                                       -             2
Federal funds sold (note 2)                                                     -         1,705
                                                                        ---------     ---------

      Total cash and cash equivalents                                       8,836         8,259

Investment securities available for sale, at market value; amortized
   cost of $33,452 and $39,485 (notes 3 and 12)                            34,228        39,502

Investment securities held to maturity, at cost; market value
   of $30,374 and $27,061 (notes 3 and 12)                                 30,282        28,069

Loans held for sale (note 4)                                                5,003             -

Loans (notes 5 and 12)                                                    203,137       193,327
Allowance for loan losses (note 6)                                         (1,803)       (1,798)
                                                                        ---------     ---------

      Net loans                                                           201,334       191,529

Stock in Savings Bank Life Insurance Company                                  253           253

Stock in FHLB of Boston (notes 9 and 12)                                    3,000         3,977

Banking premises and equipment, net (note 7)                                2,983         3,168

Other real estate owned (note 8)                                                -           111

Accrued interest receivable                                                 1,435         1,248

Mortgage servicing rights (note 10)                                           225             -

Other assets                                                                  255           182
                                                                        ---------     ---------

      Total assets                                                      $ 287,834     $ 276,298
                                                                        =========     =========

</TABLE>
                                       35
<PAGE>
<TABLE>
<CAPTION>
                                LIABILITIES AND STOCKHOLDERS' EQUITY
                                ------------------------------------

                                                                                2000         1999
                                                                             ---------     ---------
<S>                                                                          <C>           <C>
Liabilities:
   Deposits (note 11)                                                        $ 237,237     $ 210,082
   Borrowed funds (note 12)                                                     32,108        45,000
   Mortgagors' escrow accounts                                                     972           993
   Accrued expenses and other liabilities                                        1,726         2,731
   Deferred income tax liability (note 13)                                         672           517
                                                                             ---------     ---------

      Total liabilities                                                        272,715       259,323

Commitments and contingencies (notes 4, 7, 13 and 17)

Stockholders' equity (notes 14 and 15):

   Serial preferred stock, $.10 par value per share; 1,000,000 shares
      authorized, none issued                                                        -             -
   Common stock, $0.10 par value per share; 12,000,000 shares authorized,
      2,525,552 and 2,525,427 shares issued                                        253           253
   Additional paid-in capital                                                    2,297         2,262
   Retained earnings                                                            16,150        14,450
   Treasury stock at cost (454,000 shares)                                      (4,054)            -
   Accumulated other comprehensive income (note 3)                                 473            10
                                                                             ---------     ---------

      Total stockholders' equity                                                15,119        16,975

      Total liabilities and stockholders' equity                             $ 287,834     $ 276,298
                                                                             =========     =========

</TABLE>
See accompanying notes.

                                       36
<PAGE>
<TABLE>
<CAPTION>
                               IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                                  CONSOLIDATED STATEMENTS OF INCOME

                            Years Ended December 31, 2000, 1999 and 1998
                            (Dollars in Thousands, Except Per Share Data)


                                                                       2000         1999        1998
                                                                     --------     --------    --------

Interest and dividend income:
<S>                                                                  <C>          <C>         <C>
   Loans                                                             $ 14,888     $ 14,313    $ 13,907
   Federal funds sold and interest bearing deposits                       328          187         136
   Investment securities available for sale                             2,822        2,233       1,108
   Investment securities held to maturity                               1,891        1,222       1,307
                                                                     --------     --------    --------

      Total interest and dividend income                               19,929       17,955      16,458

Interest expense:
   Deposits (note 11)                                                   8,052        6,576       6,542
   Borrowed funds                                                       2,942        2,681       2,455
                                                                     --------     --------    --------

      Total interest expense                                           10,994        9,257       8,997
                                                                     --------     --------    --------

      Net interest and dividend income                                  8,935        8,698       7,461

Provision for loan losses (note 6)                                         60          100         180
                                                                     --------     --------    --------

      Net interest and dividend income after provision
         for loan losses                                                8,875        8,598       7,281

Non-interest income:
   Net mortgage banking gains (losses) (note 4)                          (147)       1,030       1,466
   Net gain (loss) on sale of mortgage servicing rights (note 10)          15           63        (196)

   Loan servicing (expenses) income, net (note 10)                         (2)          21        (341)
   Deposit account fees                                                 1,701        1,504       1,196
   Other loan fees                                                        127          217         204
   Gains on sales of securities available for sale, net (note 3)           33           78          93

   Other                                                                    9           12          15
                                                                     --------     --------    --------

      Total non-interest income                                         1,736        2,925       2,437
                                                                     --------     --------    --------

      Net interest, dividend and non-interest income                   10,611       11,523       9,718

</TABLE>
                                       37

<PAGE>
<TABLE>
<CAPTION>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (CONTINUED)

                  Years Ended December 31, 2000, 1999 and 1998
                  (Dollars in Thousands, Except Per Share Data)


                                                  2000        1999         1998
                                                -------     -------     -------
<S>                                             <C>         <C>         <C>
Non-interest expenses:
   Salaries and employee benefits (note 15)     $ 3,212     $ 3,232     $ 2,559
   Occupancy and equipment expenses (note 7)        914         916         697
   Data processing expenses                         924         798         691
   Professional fees                                337         778         248
   Advertising and marketing expenses               524         537         632
   FDIC and DIF deposit insurance                    52          36          27
   OREO income, net (note 8)                         (3)       (308)       (148)
   Other                                            859         921         890
                                                -------     -------     -------

      Total non-interest expenses                 6,819       6,910       5,596
                                                -------     -------     -------

      Income before income taxes                  3,792       4,613       4,122

Income tax expense (note 13)                      1,137       1,324       1,484
                                                -------     -------     -------

      Net income                                $ 2,655     $ 3,289     $ 2,638
                                                =======     =======     =======

Basic earnings per share (notes 1 and 16)       $  1.12     $  1.33     $  1.10
Diluted earnings per share (notes 1 and 16)        1.10        1.29        1.03

Dividends per share                                 .41         .25         .17


</TABLE>
See accompanying notes.


                                       38
<PAGE>
<TABLE>
<CAPTION>
                                           IPSWICH BANCSHARES, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                        Years Ended December 31, 2000, 1999 and 1998
                                        (Dollars in Thousands Except Per Share Data)

                                                                                                    Accumulated
                                                                                                       Other       Total
                                                                 Additional                           Compre-      Stock-
                                          Shares       Common      Paid-in    Retained   Treasury     hensive     holders'
                                          Issued        Stock      Capital    Earnings     Stock       Income      Equity
                                         ---------         ---       -----      ------      ---      ---------    ---------
<S>                                      <C>         <C>         <C>         <C>            <C>      <C>          <C>
Balance at December 31, 1997             2,385,076   $     239   $   1,969   $   9,559      $-       $      66    $  11,833

Stock options exercised                      7,210           -          18           -       -               -           18
Issuance of stock rights                         -           -          22           -       -               -           22
Cash dividends                                   -           -           -        (407)      -               -         (407)
Comprehensive income:
  Net income                                     -           -           -       2,638       -               -        2,638
  Other comprehensive income:
    Unrealized holding gains on
      securities, net of taxes of $63            -           -           -           -       -               -           93

    Reclassification adjustment
      for amounts included in net
      income, net of taxes of $17                -           -           -           -       -               -           26
                                                                                                                  ---------

  Other comprehensive income                     -           -           -           -       -             119          119


Total comprehensive income                       -           -           -           -       -               -        2,757
                                         ---------         ---       -----      ------      ---      ---------    ---------

Balance at December 31, 1998             2,392,286         239       2,009      11,790       -             185       14,223

Stock options exercised                    133,141          14         226           -       -               -          240
Issuance of stock rights                         -           -          27           -       -               -           27
Cash dividends                                   -           -           -        (629)      -               -         (629)

Comprehensive income:
  Net income                                     -           -           -       3,289       -               -        3,289
  Other comprehensive income:
    Unrealized holding losses on
      securities, net of taxes of $150           -           -           -           -       -               -         (223)

    Reclassification adjustment
      for amounts included in net
      income, net of taxes of $33                -           -           -           -       -               -           48

                                                                                                                   --------
  Other comprehensive income (loss)              -           -           -           -       -            (175)        (175)


Total comprehensive income                       -           -           -           -       -               -        3,114
                                         ---------         ---       -----      ------      ---      ---------    ---------

Balance at December 31, 1999             2,525,427         253       2,262      14,450       -              10       16,975

</TABLE>
                                       39

<PAGE>
<TABLE>
<CAPTION>
                                         IPSWICH BANCSHARES, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                       (CONTINUED)

                                       Years Ended December 31, 2000, 1999 and 1998
                                       (Dollars in Thousands Except Per Share Data)


                                                                                                   Accumulated
                                                                                                     Other       Total
                                                             Additional                             Compre-      Stock-
                                         Shares     Common     Paid-in     Retained     Treasury     hensive     holders'
                                         Issued      Stock      Capital     Earnings      Stock      Income       Equity
                                         ------      -----      -------     --------      -----      ------       ------
<S>                                     <C>         <C>         <C>          <C>        <C>            <C>        <C>
Balance at December 31, 1999            2,525,427   $ 253       $ 2,262      $14,450    $      -       $  10      $16,975

Stock options exercised                       125       -             1            -           -           -            1
Issuance of stock rights                        -       -            34            -           -           -           34
Cash dividends                                  -       -             -         (955)          -           -         (955)
Treasury stock purchased
  (454,000 shares at an average
  price of $8.93)                               -       -             -            -      (4,054)          -       (4,054)

Comprehensive income:
  Net income                                    -       -             -        2,655           -           -        2,655
  Other comprehensive income:
    Unrealized holding gains on
      securities, net of taxes of $286          -       -             -            -           -           -          446

    Reclassification adjustment
      for amounts included in net
      income, net of taxes of $10               -       -             -            -           -           -           17
                                                                                                                  -------
  Other comprehensive income                    -        -            -            -           -         463          463
                                                                                       -------

Total comprehensive income                      -        -            -            -           -           -        3,118
                                         ---------   -----      -------      -------     -------       -----      -------

Balance at December 31, 2000             2,525,552   $ 253      $ 2,297      $16,150     $(4,054)      $ 473      $15,119
                                         =========   =====      =======      =======     =======       =====      =======

</TABLE>


See accompanying notes.

                                                           40
<PAGE>
<TABLE>
<CAPTION>
                                IPSWICH BANCSHARES, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                              Years Ended December 31, 2000, 1999 and 1998
                                         (Dollars in Thousands)

                                                                         2000       1999        1998
                                                                      --------  ----------    --------
<S>                                                                   <C>       <C>           <C>
Net cash flows from operating activities:
   Net income                                                         $  2,655  $    3,289    $  2,638
   Adjustments to reconcile net income to net cash provided (used)
     by operating activities:
       Provision for loan losses                                            60         100         180
       Deferred income tax (benefit) expense                              (141)         88          61
       Depreciation expense                                                347         337         244
       Amortization of premiums on investment securities, net               62         148          59
       Losses (gains) on sale of loans                                     147      (1,030)     (1,466)
       Gains on sales of investment securities available for sale          (33)        (78)        (93)
       Loss (gains) on sale of other real estate owned                       1        (340)       (224)
       Origination of loans held for sale                              (30,299)    (59,545)   (134,915)
       Proceeds from sale of loans                                      15,410      16,620      28,872
       Proceeds from sale of securitized loans                           9,739      67,955      91,540
       (Increase) decrease in net loan origination costs                  (401)       (208)        228
       Increase (decrease) on loan discounts                                 5          (3)        (40)
       (Increase) decrease in mortgage servicing rights                   (225)        229         257
       (Increase) decrease in accrued interest receivable                 (187)       (195)         83
       (Increase) decrease in other assets, net                            (73)         65         (85)
       (Decrease) increase in accrued expenses and other liabilities    (1,005)        (28)         52
                                                                      --------  ----------    --------

   Net cash provided (used) by operating activities                     (3,938)     27,404     (12,609)

Net cash flows from investing activities:
   Purchase of investment securities available for sale                (13,543)    (19,490)    (16,722)
   Principal paydowns on investment securities available for sale       10,148      12,722       8,390
   Proceeds from the sale of investment securities available for sale    9,976       4,963       3,475
   Purchase of investment securities held to maturity                   (3,191)    (20,826)     (4,008)
   Principal paydowns on investment securities held to maturity            976       2,964      10,498
   Redemption (purchases) of stock in FHLB of Boston                       977      (1,072)       (861)
   Net increase in loans                                               (10,044)    (13,216)    (23,837)
   Proceeds from sales of other real estate owned                          110       1,009         720
   Purchases of equipment, net                                            (162)       (207)       (883)
                                                                      --------  ----------    --------

   Net cash used in investing activities                                (4,753)    (33,153)    (23,228)

</TABLE>
                                       41


<PAGE>
<TABLE>
<CAPTION>
                                      IPSWICH BANCSHARES, INC. AND SUBSIDIARY
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    (CONTINUED)

                                   Years Ended December 31, 2000, 1999 and 1998
                                              (Dollars in Thousands)

                                                                            2000           1999            1998
                                                                          ---------      ---------      ---------
<S>                                                                       <C>            <C>            <C>
Cash flows from financing activities:
   Net increase in deposits                                               $  27,155      $  10,325      $  28,516
   Proceeds from Federal Home Loan Bank advances                             66,008        120,000         96,012
   Repayment of Federal Home Loan Bank advances                             (78,900)      (128,000)       (83,372)
   (Decrease) increase in mortgagors' escrow accounts                           (21)           (50)           345
   Proceeds from the issuance of common stock and stock rights                   35            267             40
   Cash dividends                                                              (955)          (629)          (407)
   Purchase of treasury stock                                                (4,054)             -              -
                                                                          ---------      ---------      ---------

   Net cash provided by financing activities                                  9,268          1,913         41,134
                                                                          ---------      ---------      ---------

Net increase (decrease) in cash and cash equivalents                            577         (3,836)         5,297

Cash and cash equivalents at beginning of year                                8,259         12,095          6,798
                                                                          ---------      ---------      ---------

Cash and cash equivalents at end of year                                  $   8,836      $   8,259      $  12,095
                                                                          =========      =========      =========

Supplemental disclosure of cash flow information:
   Cash paid for:
     Interest on deposit accounts                                         $   8,052      $   6,576      $   6,542
     Interest on borrowed funds                                               2,904          2,711          2,412
     Income tax                                                               2,534            601          1,191

Supplemental schedule of non-cash investing and financing activities:
   Conversion of residential real estate loans to mortgage-
     backed securities                                                    $     584      $   8,996          $   -
   Transfer of investment securities held to maturity to
     investment securities available for sale (note 2)                            -              -         10,698
   Transfer of loans to other real estate owned                                   -             62              -
   Net (decrease) increase required by Statement of Financial
       Accounting Standards No. 115:
       Investment securities                                                    759           (292)           199
       Deferred income tax liability                                            296           (117)            80
       Net unrealized gain on investment securities
         available for sale                                                     463           (175)           119

</TABLE>
See accompanying notes.

                                       42
<PAGE>

                      (This page intentionally left blank)












                                       43
<PAGE>


                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


1.   Summary of Significant Accounting Policies

     (a)  Business

          Ipswich Bancshares,  Inc. (the Company) is a Massachusetts corporation
          whose primary  business is serving as the holding  company for Ipswich
          Savings  Bank - d/b/a  IpswichBank  - (the  Bank),  a state  chartered
          savings bank located in Ipswich,  Massachusetts.  On July 1, 1999,  in
          connection  with the  formation of the Company as the holding  company
          for the  Bank,  each  share  of the  Bank's  common  stock  previously
          outstanding was converted automatically into one share of common stock
          of the Company,  and the Bank became a wholly owned  subsidiary of the
          Company.   The  reorganization  had  no  impact  on  the  consolidated
          financial  statements.  The  Company is subject to  regulation  by the
          Federal Reserve Board (the FRB).

          The Bank  provides  a  variety  of loan and  deposit  services  to its
          customers  through  eight  branch  locations.  The Bank is  subject to
          competition from other financial institutions.  The Bank is subject to
          the regulations  of, and periodic  examination by, the Federal Deposit
          Insurance  Corporation  (FDIC) and the  Massachusetts  Commissioner of
          Banks (the  Commissioner) and to certain  requirements  established by
          the FRB. The Bank's deposits are insured by the Bank Insurance Fund of
          the FDIC to the fullest extent  authorized by law (generally  $100 per
          depositor).  All  deposits in excess of FDIC limits are insured by the
          Depositors Insurance Fund.

     (b)  Basis of Presentation

          The consolidated  financial statements include the accounts of Ipswich
          Bancshares, Inc. and its wholly-owned subsidiary, IpswichBank, and the
          Bank's subsidiaries;  Ipswich Preferred Capital  Corporation,  Ipswich
          Securities Corporation,  Historic Ipswich, Inc., North Shore Financial
          Services,   Inc.  and  Rowley  Investment  Corporation   (collectively
          hereinafter referred to as the Company). All significant  intercompany
          accounts and transactions have been eliminated in consolidation.

          Ipswich  Preferred  Capital  Corporation,  99%-owned by the Bank,  was
          formed as a mortgage real estate  investment trust to hold residential
          mortgages  as  a  subsidiary  of   IpswichBank.   Ipswich   Securities
          Corporation  was formed to  exclusively  transact in securities on its
          own behalf as a subsidiary of IpswichBank.  Historic Ipswich, Inc. and
          North Shore Financial Services, Inc. were incorporated for the purpose
          of holding  direct  investments  in real  estate and  foreclosed  real
          estate,  respectively.  Rowley Investment Corporation was incorporated
          to facilitate  the holding and permitting of certain  bank-owned  real
          estate.

          During 2000, the Company dissolved  Historic Ipswich,  Inc. and Rowley
          Investment Corporation.

          The consolidated financial statements have been prepared in conformity
          with  generally  accepted  accounting  principles.  In  preparing  the
          financial  statements,  management  is required to make  estimates and
          assumptions that affect the reported amounts of assets and liabilities
          as of the date of the balance  sheet and revenues and expenses for the
          period.   Actual  results  could  differ   significantly   from  those
          estimates.

                                       44
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

1.   Summary of Significant Accounting Policies (Continued)
     -----------------------------------------------------

          Material  estimates that are  particularly  susceptible to significant
          change in the near-term  relate to the  determination of the allowance
          for loan losses,  the valuation of real estate acquired by foreclosure
          and the valuation of mortgage servicing rights.

          A  substantial  portion  of the  Company's  loans are  secured by real
          estate in Essex  County in  Massachusetts.  Accordingly,  the ultimate
          collectibility  of  a  substantial   portion  of  the  Company's  loan
          portfolio  is  susceptible  to  changes  in market  conditions  in its
          geographic area.

     (c)  Investments

          Debt  securities  that the Company has the positive intent and ability
          to hold to maturity are classified as held to maturity and reported at
          amortized cost; and debt and equity  securities not classified as held
          to maturity are  classified as available for sale and reported at fair
          value,  with  unrealized  gains and losses  excluded from earnings and
          reported, net of tax, as accumulated other comprehensive income within
          stockholders' equity.

          Premiums and discounts are taken into income by a method the result of
          which  approximates that of the level yield method.  Realized gains or
          losses are computed using the specific identification method. When, in
          management's judgment, an other than temporary decline in the value of
          a security occurs, the carrying value of such security is written down
          to its fair  value and the  amount of the  impairment  is  charged  to
          earnings.

     (d)  Loans

          Loan origination  fees and certain direct loan  origination  costs are
          capitalized and recognized over the life of the related loan by use of
          the level yield method or  recognized  as an adjustment to the gain or
          loss when loans are sold.

     (e)  Loans Held for Sale

          Mortgage  loans held for sale are  carried  at the lower of  aggregate
          cost or fair value,  based upon commitments from investors to purchase
          such  loans and upon  prevailing  market  values.  Net  deferred  loan
          origination fees are included in the fair value  determination and are
          included in the  determination of gains or losses on sales of mortgage
          loans.  Interest  income  on  loans  held  for  sale  is  accrued  and
          classified as interest income on loans. When loans are sold, a gain or
          loss is recognized to the extent that the sale proceeds  exceed or are
          less  than  the  carrying  value  of the  loans,  net of the  value of
          servicing rights retained, using the specific identification method.

                                       45
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

1.   Summary of Significant Accounting Policies (Continued)
     -----------------------------------------------------

          The Company  periodically  enters into  commitments  to sell  mortgage
          loans to  investors  at a fixed price.  The Company  recognizes  these
          commitments as derivatives. In June 1998, the FASB issued Statement of
          Financial   Accounting   Standards  (SFAS)  No.  133,  Accounting  for
          Derivative Instruments and Hedging Activities.  The Statement requires
          the Company to recognize all  derivatives on the balance sheet at fair
          value.  Derivatives that are not hedges must be adjusted to fair value
          through income. If the derivative is a hedge,  depending on the nature
          of the  hedge,  changes in the fair  value of  derivatives  are either
          offset  against  the change in fair value of assets,  liabilities,  or
          firm commitments through earnings or recognized in other comprehensive
          income  until  the  hedged  item  is  recognized   in  earnings.   The
          ineffective  portion  of a  derivative's  change in fair value will be
          immediately  recognized  in earnings.  The adoption of SFAS No. 133 on
          October  1,  1998,  did not have a  material  effect on the  Company's
          operations.

     (f)  Allowance for Loan Losses

          The allowance for loan losses is  established  by management to absorb
          future  charge-offs of loans deemed  uncollectible.  This allowance is
          increased by provisions charged to operating expense and by recoveries
          on loans previously  charged off.  Management,  in evaluating  current
          information and events regarding the borrowers' ability to repay their
          obligations,  considers commercial loans over $200 to be impaired when
          it is probable  that the Company will be unable to collect all amounts
          due according to the contractual  terms of the note  agreement;  other
          loans  are  evaluated  collectively  for  valuation.  When a  loan  is
          considered  to be impaired,  the amount of the  impairment is measured
          based on the present value of expected future cash flows discounted at
          the loan's effective  interest rate or the fair value of collateral if
          the loan is collateral  dependent.  Impairment  losses are included in
          the  allowance  for loan losses  through a charge to the provision for
          loan losses.

          The Company sets the level of its allowance for loan losses based on a
          number of factors.  Management  uses  available  information  (such as
          current   economic   conditions,   levels  of   nonperforming   loans,
          delinquency  trends and  collateral  values) to assess the adequacy of
          the allowance and to determine future additions to the allowance.  The
          process involves substantial  uncertainties;  ultimate losses may vary
          from current  estimates.  Management  believes  that the allowance for
          loan losses is adequate.  While management uses available  information
          to recognize losses on loans, future additions to the allowance may be
          necessary.  In addition,  various regulatory agencies,  as an integral
          part of their examination  process,  periodically review the Company's
          allowance  for loan losses.  Such  agencies may require the Company to
          recognize additions to the allowance based on judgments different from
          those  of  management.  See  "Item  7 -  Management's  Discussion  and
          Analysis of Financial  Condition and Results of Operations - Provision
          for  Loan  Losses,"  and  "Item 8 - Note 6 of  Notes  to  Consolidated
          Financial Statements".

                                       46
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


1.   Summary of Significant Accounting Policies (Continued)
     -----------------------------------------------------

     (g)  Mortgage Loan Servicing

          Mortgage servicing rights are amortized in proportion to, and over the
          period  of,  estimated  net  servicing   revenues.   Industry  average
          prepayment  rates  are  considered  when  estimating  the lives of the
          mortgage servicing rights.  Impairment of mortgage servicing rights is
          assessed  based on the fair  value of those  rights.  Fair  values are
          periodically   obtained  from  an  independent   servicing   portfolio
          valuation.  For  purposes  of  measuring  impairment,  the  rights are
          stratified based on the following  predominant risk characteristics of
          the underlying  loans:  maturity term,  interest rate and product type
          (fixed-rate,   adjustable-rate,   etc.).   The  amount  of  impairment
          recognized is the amount by which the capitalized  mortgage  servicing
          rights for a stratum exceed their fair value.

     (h)  Banking Premises and Equipment

          Banking  premises and  equipment  are stated at cost less  accumulated
          depreciation.  Depreciation  is computed on the  straight-line  method
          over  the  estimated  useful  lives of the  assets  or the term of the
          lease,  if  shorter.  Maintenance  and  repairs are charged to current
          expense as incurred and the cost of major renewals and betterments are
          capitalized.

     (i)  Other Real Estate Owned

          Other real estate owned includes  those  properties  acquired  through
          foreclosure or  deed-in-lieu  of foreclosure  which are carried at the
          lower of fair  value  minus  estimated  costs  to sell or cost.  Costs
          relating  to  the   development   and   improvement  of  property  are
          capitalized,  whereas  those  relating  to holding  the  property  are
          charged to  expense.  Gains on sales  subsequent  to  foreclosure  are
          recognized in operations when realized.

     (j)  Investment in Real Estate Limited Partnerships

          Investments in real estate limited  partnerships  are accounted for on
          the equity method. They are included in other assets.

     (k)  Accrual of Interest Income and Expense

          Interest on loans and investment securities is taken into income using
          methods  which  relate the income  earned to the balances of loans and
          investment securities outstanding. The recording of interest income on
          problem loan accounts  generally  ceases when the loans become 90 days
          past due and are not in the process of  collection.  Cash  receipts on
          impaired  loans are  applied  to reduce the  principal  amount of such
          loans  until  the  principal  has been  reduced  to an  amount  deemed
          collectable.  Restructured  loans are returned to accrual  status when
          the borrower has complied with the  repayment  terms of the loan for a
          period of six to eighteen  months.  Interest expense on liabilities is
          derived by applying  applicable  interest  rates to principal  amounts
          outstanding.

                                       47
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 1.  Summary of Significant Accounting Policies (Continued)
     -----------------------------------------------------

     (l)  Advertising Costs

          Advertising costs are expensed as they are incurred.

     (m)  Incentive Compensation

          The Company has a Management Incentive Compensation Plan as a means of
          recognizing  achievement  on the  part of its  Senior  Management  and
          certain other officers of the Company. Incentive awards are determined
          according  to a formula  based  upon the  Company's  return on average
          stockholders' equity in the calendar year, as compared with a group of
          peer  banks,  as well  as the  individual  participant's  performance.
          Awards are paid as a bonus calculated as a percentage of an individual
          officer's salary within the limitations of the plan.

          SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but
          does not  require,  companies to  recognize  compensation  expense for
          grants of common stock,  stock options and other equity instruments to
          employees  based upon the fair value of the  instruments  when issued.
          Companies electing not to recognize  compensation expense are required
          to disclose  what net income and earnings per share would have been if
          the  expense  were  recognized.  The  Company  elected  to  adopt  the
          disclosure   option  of  SFAS  No.  123  rather  than  recognition  of
          compensation expense.

     (n)  Pension Plan

          Pension costs are funded as accrued.

     (o)  Income Taxes

          The Company  recognizes  income  taxes  under the asset and  liability
          method.  Under this method,  deferred tax assets and  liabilities  are
          established for the temporary differences between the accounting basis
          and the tax basis of the Company's  assets and  liabilities at enacted
          tax rates  expected to be in effect  when the amounts  related to such
          temporary  differences are realized or settled. The Company's deferred
          tax asset is reviewed and  adjustments to such asset are recognized as
          deferred  income  tax  expense  or  benefit  based  upon  management's
          judgment relating to the realizability of such asset.

     (p)  Other Comprehensive Income

          Accumulated other  comprehensive  income consists solely of unrealized
          appreciation  on  investment  securities  available  for sale,  net of
          taxes.

                                       48
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 1.  Summary of Significant Accounting Policies (Continued)
     -----------------------------------------------------

     (q)  Earnings per Share

          The  computation  of basic earnings per share is based on the weighted
          average  number  of shares of common  stock  outstanding  during  each
          period.  The computation of diluted earnings per share is based on the
          weighted  average  number of shares of common  stock  outstanding  and
          dilutive  potential common stock equivalents  outstanding  during each
          period.  Stock  option  grants are  included  only in periods when the
          results are dilutive.

     (r)  Statement of Cash Flows

          For purposes of the statement of cash flows, cash and cash equivalents
          include cash,  due from banks,  interest-bearing  deposits and federal
          funds sold.

     (s)  Reclassification

          Certain  amounts in the 1999 and 1998 financial  statements  have been
          reclassified  to  conform  to  2000  presentation  without  effect  on
          stockholders' equity or net income.

 2.  Federal  Funds  Sold,   Reserve   Requirements  and  Compensating   Balance
     Agreements

     Federal  funds  sold at  December  31,  2000 and 1999  were $0 and  $1,705,
     respectively,  stated at cost, which approximates market, and mature within
     one month.

     The  Federal  Reserve  Board  requires  the  Company to  maintain a reserve
     balance;  the amount of this  reserve  balance  at  December  31,  2000 was
     $1,999.

     The Company has arrangements with a third party for processing money orders
     and  treasurers  checks.  The  arrangement  requires the  maintenance  of a
     compensating  balance.  At December 31,  2000,  the Company was required to
     maintain a compensating balance of $263.

 3.  Investment Securities

     The Company adopted SFAS No. 133, Accounting for Derivative Instruments and
     Hedging  Activities,  as of October 1, 1998. In  conjunction  with adopting
     this  statement,   the  Company   transferred   $4,700  of  mortgage-backed
     securities and $6,000 of U.S.  Government  Agency  obligations from held to
     maturity to available for sale.

                                       49
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 3.  Investment Securities (Continued)

     Available for Sale

     The amortized cost and approximate  market values of investment  securities
     available for sale at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                       2000
                                                 -------------------------------------------------
                                                 Amortized    Unrealized    Unrealized     Market
                                                   Cost          Gains        Losses        Value
                                                ---------      ---------    ---------     --------
<S>                                              <C>            <C>           <C>         <C>
     U.S. Government Agency obligations          $ 2,000        $-            $  (1)      $  1,999
     Mortgage-backed securities                   30,705          702          -            31,407
     Marketable equity securities                    747           75          -               822
                                                 -------        -----         -----       --------

                                                 $33,452        $ 777         $  (1)      $ 34,228
                                                 =======        =====         =====       ========
<CAPTION>
                                                                       1999
                                                 -------------------------------------------------
                                                 Amortized    Unrealized    Unrealized     Market
                                                   Cost          Gains        Losses        Value
                                                ---------      ---------    ---------     --------
<S>                                              <C>            <C>           <C>         <C>
     U.S. Treasury bills and U.S. Government
        Agency obligations                       $ 8,865        $  -          $(106)      $  8,759
     Mortgage-backed securities                   30,620          217           (94)        30,743
                                                 -------        -----         -----       --------

                                                 $39,485        $ 217         $(200)      $ 39,502
                                                 =======        =====         =====       ========
</TABLE>

     The  following  table sets forth the maturity  distribution  of  investment
     securities available for sale at December 31. Actual maturities will differ
     from contractual maturities because borrowers may have the right to call or
     prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>

                                                            2000                      1999
                                                  ----------------------     ----------------------
                                                  Amortized      Market      Amortized       Market
                                                    Cost          Value        Cost           Value
                                                   -------      --------      -------      --------

<S>                                                <C>          <C>           <C>          <C>
     Within one year                               $  -         $   -         $ 4,865      $  4,865
     Due after five years through ten years          2,000         1,999        4,000         3,894
     Maturing after ten years:
        Mortgage-backed securities

          FNMA participation certificates           27,168        27,804       25,531        25,631
          FHLMC participation certificates           3,537         3,603        5,089         5,112
                                                   -------      --------      -------      --------

                                                   $32,705      $ 33,406      $39,485      $ 39,502
                                                   =======      ========      =======      ========
</TABLE>

                                       50
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 3.  Investment Securities (Continued)

     Proceeds  from sales of  investment  securities  available  for sale during
     2000,  1999 and 1998 amounted to $9,976,  $4,963 and $3,475,  respectively.
     The realized gains and losses on investment  securities available for sale,
     for each of the three years ended December 31, is as follows:

<TABLE>
<CAPTION>
                                           2000                  1999                 1998
                                  -------------------    -------------------   --------------------
                                  Realized   Realized    Realized   Realized   Realized    Realized
                                    Gains     Losses       Gains     Losses      Gains       Losses
                                    -----     ------       -----     ------      -----       ------
<S>                                 <C>        <C>         <C>       <C>          <C>       <C>
     U.S. Treasury notes            $   -      $  (3)      $  -      $   -        $   -     $   -
     U.S. Government Agency
        obligations                     -          -          -          -           63         -
     Mortgage-backed securities         5         (2)        49          -           16         (1)
     Marketable equity securities      37         (4)        29          -           15         -
                                    -----      -----       ----      -----        -----      -----

                                    $  42      $  (9)      $ 78      $   -        $  94      $  (1)
                                    =====      =====       ====      =====        =====      =====
</TABLE>

     The Company had $217 of investment securities pledged for Treasury, Tax and
     Loan purposes to the FRB as of December 31, 2000.

     The following table  summarizes the amounts of unrealized  gains and losses
     on investment  securities at December 31 which are included in  accumulated
     other comprehensive income within stockholders' equity:

                                                              2000     1999
                                                             ------   -----
     Net unrealized gain on available for sale securities    $  776   $  17
     Related income tax benefit                                (303)     (7)
                                                             ------   -----

                                                             $  473   $  10
                                                             ======   =====

     Held to Maturity

     The amortized cost and approximate  market values of investment  securities
     held to maturity at December 31 are summarized as follows:
<TABLE>
<CAPTION>

                                                                       2000
                                               ---------------------------------------------------
                                               Amortized     Unrealized    Unrealized      Market
                                                  Cost          Gains        Losses         Value
                                                 -------        -----         -----       --------
<S>                                              <C>            <C>           <C>         <C>
     U.S. Government Agency obligations          $16,381        $ 120         $ (94)      $ 16,407
     Mortgage-backed securities                   10,710           67           (58)        10,719
     Trust preferred debt securities               3,191           59            (2)         3,248
                                                 -------        -----         -----       --------

                                                 $30,282        $ 246         $(154)      $ 30,374
                                                 =======        =====         =====       ========
</TABLE>
                                       51
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 3.  Investment Securities (Continued)

<TABLE>
<CAPTION>
                                                                       1999
                                               ---------------------------------------------------
                                               Amortized    Unrealized     Unrealized      Market
                                                  Cost         Gains         Losses         Value
                                                 -------        ---          -------      --------
<S>                                              <C>            <C>          <C>          <C>
     U.S. Government Agency obligations          $16,393        $  -         $  (617)     $ 15,776
     Mortgage-backed securities                   11,676           -            (391)       11,285
                                                 -------        ---          -------      --------

                                                 $28,069        $  -         $(1,008)     $ 27,061
                                                 =======        ===          =======      ========
</TABLE>

     The  following  table sets forth the maturity  distribution  of  investment
     securities  held to maturity at December 31. Actual  maturities will differ
     from contractual maturities because borrowers may have the right to call or
     prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                                2000                    1999
                                                        --------------------     -------------------
                                                         Amortized   Market      Amortized    Market
                                                           Cost      Value        Cost        Value
                                                         -------     -------    --------    -------
<S>                                                      <C>         <C>        <C>         <C>
     After one to five years                             $ 2,000     $ 1,993    $  2,000    $ 1,935
     After five to ten years                              12,383      12,466      14,393     13,841
     Maturing after ten years:
        Mortgage-backed securities:
          FNMA participation certificates                  2,940       2,954       3,077      3,004
          FHLMC participation certificates                 4,377       4,429       4,868      4,796
          GNMA participation certificates                  3,393       3,336       3,731      3,485
        FHLMC debt obligations                             1,998       1,948        -          -
        Trust preferred debt obligations                   3,191       3,248        -          -
                                                         -------     -------    --------    -------

                                                         $30,282     $30,374    $ 28,069    $27,061
                                                         =======     =======    ========    =======
</TABLE>


 4.  Loans Held for Sale and Gains on Sales of Loans

     The following  table  summarizes  the amortized  cost and estimated  market
     value of loans held for sale at December 31:
<TABLE>
<CAPTION>

                                               2000                           1999
                                    -------------------------       -------------------------
                                                    Estimated                        Estimated
                                    Amortized        Market         Amortized         Market
                                      Cost            Value           Cost             Value
                                    ---------       ---------       ---------       ---------
<S>                                 <C>              <C>              <C>             <C>
     Loans held for sale            $  5,003         $ 5,003          $-              $-

</TABLE>
                                       52

<PAGE>
                    IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 4.  Loans Held for Sale and Gains on Sales of Loans (Continued)
     ----------------------------------------------------------

     The realized  gains and losses on mortgage loans sold for each of the three
     years ended December 31, is as follows:

                                                                        Net
                               Realized            Realized            Gains
                                 Gains              Losses           (Losses)
                                -------            --------          --------

                  2000          $  163             $ (310)           $  (147)
                  1999           1,036                 (6)             1,030
                  1998           1,474                 (8)             1,466

     Certain loans sold by the Company are subject to  repurchase.  In the event
     one of these  loans  becomes  60 days or more  delinquent  in the first six
     months,  beginning  with the first payment due the  purchaser,  the Company
     would be  required to  repurchase  the loan.  Total  loans sold  subject to
     repurchase  were  approximately  $918,  $5,096 and $0 at December 31, 2000,
     1999 and 1998, respectively.

 5.  Loans

     The Company's  lending  activities  are conducted  principally in Essex and
     Middlesex Counties in Massachusetts and Southern New Hampshire. The Company
     grants   residential  and  consumer  loans,   commercial  real  estate  and
     industrial   loans,   and  loans  for  the   construction   of  residential
     owner-occupied  homes.  Substantially  all loans granted by the Company are
     secured  by  real  estate  collateral.   The  ability  and  willingness  of
     residential  mortgage and consumer loan borrowers to honor their  repayment
     commitments  is  generally  dependent  on the  level  of  overall  economic
     activity within the borrower's geographic areas and real estate values. The
     ability and  willingness of commercial  real estate and  construction  loan
     borrowers to honor their  repayment  commitments is generally  dependent on
     the health of the real estate economic sector in the borrower's  geographic
     areas and the general economy.

     The Bank is generally  prohibited by  Massachusetts  banking  statutes from
     lending  to any one  borrower  amounts  in excess  of 20% of  stockholders'
     equity.

                                       53
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 5.  Loans (Continued)

     Loans at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                  2000           1999
                                                               ---------      ---------
<S>                                                            <C>            <C>
Loans:
   Residential                                                 $ 162,680      $ 162,633
   Residential owner-occupied construction                         1,837          1,463
   Land                                                               28             28
   Commercial real estate                                          5,670          4,845
   Home equity                                                    64,974         52,706
                                                               ---------      ---------

                                                                 235,189        221,675
   Less:
     Unadvanced funds on home equity loans                       (33,762)       (29,321)
     Unadvanced funds on owner-occupied construction loans          (484)          (573)
     Deferred loan origination costs, net                            987            586
     Unearned discount                                               (95)          (100)
                                                               ---------      ---------

        Loans, net                                               201,835        192,267

Other loans, net                                                   1,302          1,060
                                                               ---------      ---------

        Total loans                                            $ 203,137      $ 193,327
                                                               =========      =========
</TABLE>

     In the  ordinary  course of  business,  the Company  has  granted  loans to
     officers,  directors  and  employees  on  substantially  the same terms and
     conditions, including interest rates and collateral, as those prevailing at
     the same time for comparable  transactions with unrelated borrowers.  These
     loans do not, in the opinion of management, involve more than normal credit
     risk or present other unfavorable features.

     The following schedule summarizes the loan activity to such related parties
     for the years ended December 31, 2000, 1999 and 1998.

                                                    2000    1999    1998
                                                    ----    ----    ----

           Balance at beginning of year            $ 432   $ 468   $ 655
           Loan originations                         584     413     317
           Amortization and payoffs                 (104)   (239)   (353)
           Loans sold                               (170)   (112)     -
           Directors/employees left company          (33)    (98)   (151)
                                                   -----   -----   -----

           Balance at end of year                  $ 709   $ 432   $ 468
                                                   =====   =====   =====

                                       54
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 5.  Loans (Continued)

     The  recorded  investment  in  loans  for  which  an  impairment  has  been
     recognized  at December  31, 2000 and 1999 was $229 and $31,  respectively.
     The related allowance for loan losses at December 31, 2000 and 1999 was $11
     and $16,  respectively.  The average recorded  investment in impaired loans
     during  2000 and  1999  was $45 and  $333,  respectively.  Interest  income
     recognized  on impaired  loans during 2000 and 1999 and 1998 was $2, $71and
     $37, respectively, all of which was recorded on a cash basis.

     The Company  has no material  outstanding  commitments  to lend  additional
     funds to customers  whose loans have been placed on  non-accrual  status or
     the terms of which have been modified.

 6.  Allowance for Loan Losses

     An analysis of the allowance  for loan losses for the years ended  December
     31, is as follows:

<TABLE>
<CAPTION>
                                                2000         1999          1998
                                               -------      -------      -------
<S>                                            <C>          <C>          <C>
Balance at beginning of year                   $ 1,798      $ 1,742      $ 1,673
Provision charged to operations                     60          100          180

Less loans charged-off                             (86)         (81)        (131)
Recoveries on loans previously charged-off          31           37           20
                                               -------      -------      -------

Net charge-offs                                    (55)         (44)        (111)
                                               -------      -------      -------

Balance at end of year                         $ 1,803      $ 1,798      $ 1,742
                                               =======      =======      =======
</TABLE>

     The allowance for loan losses is allocated as follows:

                                                        2000     1999
                                                      -------  -------
     Commercial real estate                           $   158  $   151
     Residential real estate                              962    1,056
     Home equity and other consumer                       669      582
     Residential owner-occupied construction               14        9
                                                      -------  -------

     Total allowance                                  $ 1,803  $ 1,798
                                                      =======  =======


                                       56

<PAGE>
                    IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 7.  Banking Premises and Equipment

     A summary of banking premises and equipment at December 31 is as follows:

                                                             2000      1999
                                                          --------  --------
             Land                                         $    207  $    207
             Building                                        2,179     2,179
             Equipment                                       2,804     2,646
             Leasehold improvements                            793       788
                                                          --------  --------

                                                             5,983     5,820
             Less accumulated depreciation                  (3,000)   (2,652)
                                                          --------  --------

                                                          $  2,983  $  3,168
                                                          ========  ========

     As of December 31, 2000, the Company was obligated under six non-cancelable
     operating leases for banking premises. Minimum future rentals over the next
     five years under the non-cancelable operating leases are as follows:

                Year ending
               December 31,                                           Amount
               -----------                                            ------

                  2001                                                $ 231
                  2002                                                  230
                  2003                                                  176
                  2004                                                   89
                  2005                                                   38

     Rent expense  amounted to $248,  $235 and $199 for the years ended December
     31, 2000, 1999 and 1998, respectively.

     The Company  leased out part of its facility,  located in Ipswich,  under a
     non-cancelable lease agreement. Rental income under this lease totaled $69,
     $50 and $56 at December 31, 2000, 1999 and 1998, respectively.


                                       56
<PAGE>


                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 8.  Other Real Estate Owned

     Other  real  estate  owned at  December  31,  for  which  the  Company  has
     determined no allowance for losses is necessary, is as follows:

                                                       2000   1999
                                                      -----  ------
             Commercial                               $  -   $   49
             Residential                                 -       62
                                                      -----  ------

                                                      $  -   $  111
                                                      =====  ======

     An analysis  of  activity in other real estate  owned for each of the years
     ended December 31, is as follows:

<TABLE>
<CAPTION>
                                            2000          1999           1998
                                          -------        -------        -------
<S>                                       <C>            <C>            <C>
Balance at beginning of year              $   111        $   718        $ 1,214

Foreclosures                                    -             62              -
Net sales proceeds                           (110)        (1,009)          (720)
Gains (losses) on sales, net                   (1)           340            224
                                          -------        -------        -------

Balance at end of year                    $     -        $   111        $   718
                                          =======        =======        =======
</TABLE>

     An  analysis  of income for other real  estate  owned for each of the years
     ended December 31, is as follows:
<TABLE>
<CAPTION>

                                                2000        1999        1998
                                                ----        ----        ----
<S>                                             <C>          <C>          <C>
Rental income                                   $   4        $   8        $  26
Gains (losses) on sales                            (1)         340          224
Permitting costs                                    -          (29)        (112)
Foreclosure (expense reimbursement)                 -          (11)          10
                                                -----        -----        -----

                                                $   3        $ 308        $ 148
                                                =====        =====        =====
</TABLE>


                                       57
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


 9.   Stock in Federal Home Loan Bank of Boston

      As a member of the Federal Home Loan Bank of Boston (FHLB of Boston),  the
      Company is required  to invest in $100 par value (per share)  stock of the
      FHLB of Boston in the  amount of 1% of its  outstanding  loans  secured by
      residential  housing,  or  1% of  30%  of  total  assets,  or  5%  of  its
      outstanding advances from the FHLB of Boston,  whichever is higher. As and
      when such stock is redeemed,  the Company  would  receive from the FHLB of
      Boston an amount  equal to the par value of the stock.  As of December 31,
      2000 and 1999,  the Company  held the  required  investment  of $3,000 and
      $3,977, respectively.

10.   Mortgage Servicing Rights

      Loans  serviced  for others  amounted  to  approximately  $11,092,  $0 and
      $18,848 at December 31, 2000, 1999 and 1998,  respectively.  Net servicing
      (expense)  income amounted to  approximately  $(2), $21 and $(341) for the
      years ended December 31, 2000, 1999 and 1998, respectively.

      The following table summarizes the changes in mortgage servicing rights at
      December 31:

<TABLE>
<CAPTION>
                                                2000        1999       1998
                                              -------      -------      -------
<S>                                           <C>          <C>          <C>
Balance at beginning of year                     $  -      $   229      $   543
Additions                                         229        1,171        1,452
Normal amortization                                (4)         (86)        (174)
Sale of mortgage servicing rights                   -       (1,314)      (1,417)
Additional amortization for prepayments             -            -         (175)
                                              -------      -------      -------

Balance at end of year                        $   225        $   -      $   229
                                              =======      =======      =======

Fair value at end of year                     $   225        $   -      $   229
                                              =======      =======      =======
</TABLE>

      During 1999 the Company sold the rights to service  approximately  $90,000
      in loans and  recognized a gain of $15 in 2000 and $63 in 1999 as a result
      of  the  sale.  During  1998  the  Company  sold  the  rights  to  service
      approximately  $90,000 in loans and  recognized a loss of $196 as a result
      of the sale.

      An analysis of the mortgage servicing rights valuation account at December
      31 is as follows:

<TABLE>
<CAPTION>
                                                                         2000       1999      1998
                                                                         ----       ----      ----
<S>                                                                     <C>        <C>       <C>
      Balance at beginning of year                                      $  -       $  -      $ (57)
      Write up (down) of servicing rights through charge
         to servicing income                                               -          -       (141)
      Sale of mortgage servicing rights                                    -          -        198
                                                                        -----      -----     -----

      Balance at end of year                                            $  -       $  -      $  -
                                                                        =====      =====     =====

</TABLE>
                                       58
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


11.   Deposits

      Deposits at December 31 are summarized as follows:

                                                           2000       1999
                                                         --------  ---------
      Demand deposits (non-interest bearing)             $ 22,855  $  15,209
      NOW accounts                                         34,871     27,481
      Savings accounts                                     39,531     37,704
      Money market deposit accounts                        66,083     62,859
      Certificates of deposit                              73,897     66,829
                                                         --------  ---------

                                                         $237,237  $ 210,082
                                                         ========  =========

      Deposits  of $100 or more  totaled  approximately  $77,554  and $72,592 at
      December 31, 2000 and 1999, respectively, of which $16,885 and $11,211 are
      certificates of deposit in 2000 and 1999, respectively.

      The  following  table  shows the  scheduled  maturity of  certificates  of
      deposit accounts at December 31:
<TABLE>
<CAPTION>

                                                    2000                         1999
                                          -----------------------       -----------------------
                                          Amount          Percent       Amount           Percent
                                          ------          -------       ------         -------
<S>                                       <C>               <C>        <C>               <C>
         Within one year                  $58,616           79.3%      $ 51,923          77.7%
         1-2 years                         11,846           16.0         12,374          18.5
         2-3 years                          1,495            2.0          2,339           3.5
         3-4 years                          1,233            1.7            193            .3
         4-5 years                            707            1.0           -               -
                                           -------           ----       --------          ----

                                          $73,897          100.0%      $ 66,829         100.0%
                                          =======          =====       ========         =====
</TABLE>

      Interest on deposits classified by type for the years ended December 31 is
as follows:
<TABLE>
<CAPTION>
                                                    2000     1999     1998
                                                   ------   ------   ------
<S>                                                <C>      <C>      <C>
         NOW accounts                              $  233   $  176   $  203
         Saving accounts                              879      868      937
         Money market deposit accounts              3,055    2,441    2,030
         Certificates of deposits                   3,885    3,091    3,372
                                                   ------   ------   ------

                                                   $8,052   $6,576   $6,542
                                                   ======   ======   ======
</TABLE>

                                       59
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


12.   Borrowed Funds

      A summary of Federal  Home Loan Bank of Boston  advances at  December  31,
follows:
<TABLE>
<CAPTION>
                                                   2000                           1999
                                         -----------------------        -------------------------
                                                        Weighted                         Weighted
                                                         Average                          Average
                                         Amount           Rate           Amount            Rate
                                         -------          ----          --------           ----
<S>                                      <C>               <C>          <C>                <C>
        Maturity in:
           2000                          $  -               - %         $ 40,000           5.82%
           2001                           18,108            6.29           5,000           5.18
           2002                            7,000            6.70            -              -
           2003                            2,000            6.91            -              -
           2005                            5,000            7.45            -              -
                                         -------            ----        --------           ----

                                         $32,108            6.60%       $ 45,000           5.75%
                                         =======            ====        ========           ====
</TABLE>

      The Company has a total  borrowing  capacity of $104,152  with the Federal
      Home Loan Bank of Boston at December 31, 2000.  Advances  from the Federal
      Home Loan Bank of Boston are  secured by FHLB of Boston  stock,  a blanket
      lien on the  residential  first mortgage  loans and investment  securities
      owned by Ipswich Savings Bank.

13.   Income Taxes

      The  components of income tax expense for each of the years ended December
      31, are as follows:
<TABLE>
<CAPTION>

                                            2000           1999           1998
                                          -------        -------        -------
<S>                                       <C>            <C>            <C>
Federal income tax expense:
   Current                                $ 1,229        $ 1,204        $ 1,219
   Deferred                                    36             91            149

State income tax expense:
   Current                                     50             32            204
   Deferred                                    12            118            (66)

Change in valuation reserve                  (190)          (121)           (22)
                                          -------        -------        -------

                                          $ 1,137        $ 1,324        $ 1,484
                                          =======        =======        =======
</TABLE>
                                       60

<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


13.   Income Taxes (Continued)

     The  effective  income tax rate for each of the years  ended  December  31,
     2000,  1999  and  1998  was  30.0%,  28.7%  and  36.0%,   respectively.   A
     reconciliation  of expected tax expense at the statutory federal income tax
     rate to income before income taxes, is as follows:

<TABLE>
<CAPTION>
                                                2000                     1999                    1998
                                        ---------------------   ---------------------    ---------------------
                                                        % of                     % of                   % of
                                                       Pretax                  Pretax                   Pretax
                                         Amount        Income     Amount       Income     Amount        Income
                                         ------        ------     ------       ------     ------        ------
<S>                                     <C>             <C>      <C>             <C>      <C>             <C>
Computed expected tax expense at
   statutory rate                       $ 1,289         34.0%    $ 1,568         34.0%    $ 1,401         34.0%
Items affecting the federal income
   tax rate:
     State income taxes, net of
        federal tax benefit                  41          1.1          99          2.1          91          2.2
     Other                                   (3)        (0.1)       (222)        (4.8)         14          0.3
     Reduction in valuation reserve        (190)        (5.0)       (121)        (2.6)        (22)        (0.5)
                                        -------       ----       -------       ----       -------       ----


                                        $ 1,137         30.0%    $ 1,324         28.7%    $ 1,484         36.0%
                                        =======       ====       =======       ====       =======       ====
</TABLE>

      The tax  effect of  temporary  differences  that give rise to  significant
      portions  of the  deferred  tax assets and  deferred  tax  liabilities  at
      December 31 are presented below:

<TABLE>
<CAPTION>
                                                         2000            1999
                                                       -------          -------
<S>                                                    <C>              <C>
Deferred tax asset:
   Loan loss reserves                                  $   720          $   708
   Other real estate owned                                  17               15
   Net operating loss carryforward                         138              184
   Alternative minimum tax credit                           40               40
   Business credits carryforward                           425              425
   All other                                                80              100
                                                       -------          -------

     Total gross deferred tax asset                      1,420            1,472

   Less valuation reserve                                 (235)            (425)
                                                       -------          -------

        Net deferred tax asset                           1,185            1,047

</TABLE>
                                       61

<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


13.   Income Taxes (Continued)
<TABLE>
<CAPTION>
                                                            2000       1999
                                                           ------     ------
<S>                                                        <C>        <C>
Deferred tax liabilities:
   Difference between book and tax carrying value of
     investment securities                                 $  303     $    7
   Banking premises and equipment, due to depreciation
     differences                                              324        351
   Servicing asset and deferred costs                         613        603
   Carrying basis of limited partnerships                     617        603
                                                           ------     ------

     Total gross deferred tax liability                     1,857      1,564
                                                           ------     ------

     Net deferred tax liability                            $(672)     $ (517)
                                                           ======     ======
</TABLE>

      Management believes the existing net deductible temporary differences that
      give rise to the net deferred income tax asset will reverse in periods the
      Company  generates  net taxable  income.  In  addition,  gross  deductible
      temporary  differences  are  expected to reverse in periods  during  which
      off-setting gross taxable  temporary  differences are expected to reverse.
      Management  believes that it is more likely than not that the net deferred
      income  tax asset,  including  the net  operating  loss  carryforward,  at
      December  31,  2000  will be  realized  through  the  use of the  on-going
      earnings capabilities of the Company.

      It should be noted,  however,  that factors beyond  management's  control,
      such as the  general  state of the economy  and real  estate  values,  can
      affect future levels of taxable  income and that no assurance can be given
      that  sufficient  taxable  income will be  generated to fully absorb gross
      deductible temporary differences.

      As  of  December  31,  2000,   the  Company  had  a  net  operating   loss
      carry-forward  for federal  tax  purposes  of $406  expiring in 2007.  Tax
      credit  carry-forwards of approximately  $425 expire in years 2003 through
      2007.

      The 1993 Common Stock Offering  resulted in a change in control for income
      tax  purposes.  As a  result,  the  net  operating  loss  and  tax  credit
      carry-forwards  are  limited so that only $136 per year can be utilized to
      offset  taxable  income  generated  during the years in the  carry-forward
      period which expires in 2007.

      Tax effect of pre-1988 bad debt reserves  subject to recapture in the case
      of certain excess  distributions is approximately  $670, none of which has
      been  recognized in the financial  statements.  The use of this amount for
      purposes  other  than to absorb  losses on loans  would  result in taxable
      income and financial statement tax expense at the then current tax rate.

                                       62
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


14.   Stockholders' Equity

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

      Quantitative measures established by regulation to ensure capital adequacy
      require the Company and Bank to maintain  minimum  amounts and ratios (set
      forth in the table  below) of total and Tier 1 capital  (as defined in the
      regulations)  to  risk-weighted  assets (as defined) and of Tier 1 capital
      (as defined) to average assets (as defined).  Management  believes,  as of
      December  31,  2000,  that the Company and Bank meet all capital  adequacy
      requirements to which they are subject.

      The most recent  notification  from the FDIC  categorized the Bank as well
      capitalized under the regulatory framework for prompt corrective action as
      of December 31, 2000 and 1999. To be categorized as well  capitalized  the
      Bank must maintain  minimum total  risk-based,  Tier 1 risk-based,  Tier 1
      leverage  ratios as set forth in the  table.  There are no  conditions  or
      events since that notification  that management  believes have changed the
      institution's category.

      The Company is also subject to similar capital  adequacy  requirements and
      the regulatory requirements of federal banking agencies.

      The actual  capital  amounts and ratios and minimum  required  amounts and
      ratios for the Company and the Bank as of December  31, 2000 and  December
      31, 1999 are presented in the following tables:

<TABLE>
<CAPTION>
                                                                                         To be
                                                                                      Well Capital-
                                                                                       ized Under
                                                                    For Capital        Prompt Cor-
                                                                     Adequacy        rective Action
                                                   Actual            Purposes          Provisions
                                               ---------------    ---------------    --------------
                                                Amount   Ratio     Amount   Ratio     Amount   Ratio
                                                ------   -----     ------   -----     ------   -----
<S>                                           <C>        <C>     <C>         <C>     <C>       <C>
      As of December 31, 2000
      -----------------------
      Total capital (to risk-weighted assets)
         Company                              $ 16,398   11.53%  $11,377     8.00%   $14,221   10.00%
         Bank                                   16,638   11.72    11,358     8.00     14,197   10.00
      Tier I capital (to risk-weighted assets)
         Company                              $ 14,623   10.28%  $ 5,688     4.00%   $ 8,533    6.00%
         Bank                                   14,863   10.47     5,679     4.00      8,518    6.00
      Tier I capital (to average assets)
         Company                              $ 14,623    5.04%  $11,614     4.00%   $14,518    5.00%
         Bank                                   14,863    5.14    11,560     4.00     14,451    5.00
</TABLE>
                                       63

<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


14.   Stockholders' Equity (Continued)

<TABLE>
<CAPTION>
                                                                                         To be
                                                                                      Well Capital-
                                                                                       ized Under
                                                                    For Capital        Prompt Cor-
                                                                     Adequacy        rective Action
                                                   Actual            Purposes          Provisions
                                               ---------------    ---------------    --------------
                                                Amount   Ratio     Amount   Ratio     Amount   Ratio
                                                ------   -----     ------   -----     ------   -----
<S>                                           <C>        <C>     <C>         <C>     <C>       <C>
      As of December 31, 1999
      -----------------------
      Total capital (to risk-weighted assets)
         Company                              $ 18,582   14.38%  $10,338     8.00%   $12,923   10.00%
         Bank                                   18,469   14.29    10,337     8.00     12,921   10.00
      Tier I capital (to risk-weighted assets)
         Company                              $ 16,964   13.13%  $ 5,169     4.00%   $ 7,754    6.00%
         Bank                                   16,852   13.04     5,169     4.00      7,753    6.00
      Tier I capital (to average assets)
         Company                              $ 16,964    6.33%  $10,713     4.00%   $13,392    5.00%
         Bank                                   16,852    6.29    10,717     4.00     13,391    5.00
</TABLE>

      In accordance with Massachusetts banking regulations, the Bank established
      a Liquidation  Account,  in the amount equal to the consolidated net worth
      of the Bank at December  31,  1991,  for the  benefit of eligible  account
      holders  who  continue to  maintain  their  accounts in the Bank after the
      Bank's  conversion  from mutual to stock  form.  The  Liquidation  Account
      amounted to  approximately  $1,000  (unaudited)  at December 31, 1992. The
      balance will be reduced in  proportion  to  reductions  in the balances of
      eligible account holders as determined on each subsequent fiscal year end.
      Subsequent  increases  will  not  restore  an  eligible  account  holder's
      interest  in  his  liquidation  sub-account.  In  the  event  of  complete
      liquidation  or  dissolution  of the Bank,  eligible  account  holders are
      entitled  to  their  interest  in the  Liquidation  Account  in  the  same
      proportion  of the  balance of their  qualifying  deposit  account at that
      date.  The  existence  of the  Liquidation  Account  restricts  the use or
      application of net worth.

15.   Benefit Plans

      Management Compensation Plan

      The Company has a  Management  Incentive  Compensation  Plan as a means of
      recognizing  achievement on the part of its Senior  Management and certain
      other officers of the Company.

      Incentive  awards are  determined  according  to a formula  based upon the
      Company's return on average  stockholders'  equity in the calendar year as
      compared  with  a  group  of  peer  banks,   as  well  as  the  individual
      participant's  performance.  Awards are paid as a bonus,  calculated  as a
      percentage of an individual officer's salary within the limitations of the
      plan.  Bonus  expense  totaled  $110,  $150 and $157  during  years  ended
      December 31, 2000, 1999 and 1998, respectively.

                                       64
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


15.   Benefit Plans (Continued)

      401(k) Plan

      The Company has a 401(k) savings plan covering all salaried  employees who
      become eligible to participate upon attaining the age of 21 and completing
      ninety days of continuous service.  Participants may contribute from 1% to
      15% of  their  pretax  compensation.  The  Company  matches  participants'
      contributions  at  the  rate  of  50%  of  the  first  6% of  compensation
      contributed  by the employee  after one year of continuous  service.  Such
      matching contributions, which are fully vested when made, amounted to $52,
      $49 and $41 during  the years  ended  December  31,  2000,  1999 and 1998,
      respectively.

      Split Dollar Agreement and Irrevocable Insurance Trust

      The Company has a split dollar  agreement and irrevocable  insurance trust
      agreement  for the  President  of the  Company  whereby  the  Company  may
      contribute to the trust an amount necessary to permit the trust to pay the
      premiums  due under the policy.  The  retirement  expense  related to this
      contribution  totaled $60 for each of the years ended  December  31, 2000,
      1999 and 1998.

      Stock Option Plans

      At December 31, 2000 the Company had three stock option  plans.  Under the
      1992 Stock Option Plan,  the Company may grant options to its officers and
      other  employees for up to 230,000 shares of common stock.  Under the 1996
      Stock  Incentive  Plan,  the  Company may grant  options to its  officers,
      directors  and other  employees for up to 118,000  shares.  Under the 1998
      Stock  Incentive  Plan,  the  Company may grant  options to its  officers,
      directors and other  employees for up to 100,000  shares.  Both  incentive
      stock  options and  non-qualified  stock  options may be granted under all
      three plans.  The exercise price of each option equals the market price of
      the Company's  stock on the date of grant and an option's  maximum term is
      10 years  under  all  plans.  The  vesting  of  option  grants  are at the
      discretion of the Compensation Committee of the Board of Directors.

      The  Company  applies  APB  Opinion  25,  Accounting  for Stock  Issued to
      Employees  and  Related  Interpretations,  in  accounting  for its  plans.
      Accordingly, no compensation cost has been recognized for its stock option
      plans. Had compensation  cost for the Company's  stock-based  compensation
      plans  been  determined  based on the fair  value at the  grant  dates for
      awards  under  those  plans  consistent  with the method of SFAS No.  123,
      Accounting  for  Stock-Based  Compensation,  the  Company's net income and
      earnings  per share  would  have  been  reduced  to the pro forma  amounts
      indicated below:

<TABLE>
<CAPTION>
                                                                           2000     1999     1998
                                                                         -------  -------  -------
<S>                                          <C>                         <C>      <C>      <C>
      Net income                             As reported                 $ 2,655  $ 3,289  $ 2,638
                                             Pro forma                     2,627    3,141    2,608

      Basic earnings per share               As reported                  $ 1.12    $1.33    $1.10
                                             Pro forma                      1.10     1.29     1.09

      Diluted earnings per share             As reported                  $ 1.10    $1.29    $1.03
                                             Pro forma                      1.09     1.24     1.02
</TABLE>
                                       65

<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


15.   Benefit Plans (Continued)

      The pro forma amounts  reflect only stock  options  granted after June 30,
      1995. Therefore, the full impact of calculating the cost for stock options
      under  Statement  No.  123  is not  reflected  in the  pro  forma  amounts
      presented above because the cost for options granted prior to July 1, 1995
      is not considered under the requirements of Statement No. 123.

      The fair  value of each  option  grant is  estimated  on the date of grant
      using  the   Black-Scholes   option-pricing   model  with  the   following
      weighted-average assumptions:

                                                    2000     1999      1998
                                                    ----     ----      ----

           Dividend yield                           1.5%      2.5%      1.5%
           Expected volatility                     30.5%     23.0%     50.0%
           Risk-free interest rates                 4.7%      6.7%      4.4%
           Expected lives                         10 years  10 years  10 years


      The weighted  average fair values of options granted during 2000, 1999 and
      1998 were $3.40, $2.83 and $7.38, respectively.

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

                                             2000                    1999                    1998
                                     ----------------------    --------------------    ----------------------
                                                  Weighted-               Weighted-                 Weighted-
                                      Shares       Average     Shares      Average     Shares        Average
                                       Under      Exercise     Under      Exercise      Under       Exercise
                                      Option         Price     Option        Price     Option          Price
                                     -------      ---------   -------      ---------   -------      ---------
<S>                                  <C>          <C>         <C>          <C>         <C>          <C>
Outstanding at
   beginning of year                 219,051      $    9.82   251,442      $    5.43   261,527      $    5.16
   Granted                             6,400           8.34   105,750          10.25     3,675          15.46
   Exercised                            (125)          6.20  (133,141)          1.80    (7,210)          2.63
   Cancelled                         (61,550)         12.67         -           -            -           -
   Forfeited                          (5,125)          8.94    (5,000)         11.33    (6,550)          3.68
                                     -------      ---------   -------      ---------   -------      ---------

Outstanding at end of year           158,651      $    8.69   219,051      $    9.82   251,442      $    5.43
                                     -------      ---------   -------      ---------   -------      ---------

Options exercisable at year end      140,698      $    8.55   192,210      $    9.71   240,234      $    5.17
</TABLE>

                                       66

<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


15.   Benefit Plans (Continued)

      The following table summarizes information about stock options outstanding
      at December 31, 2000:

<TABLE>
<CAPTION>
                                         Options Outstanding                  Options Exercisable
                               ----------------------------------------    ------------------------
                                                Weighted
                                                 Average      Weighted-                   Weighted-
                                                Remaining      Average                     Average
        Range of                 Number        Contractual    Exercise       Number       Exercise
     Exercise Prices           Outstanding    Life (Years)      Price      Exercisable      Price
     ---------------           -----------    ------------    ---------    -----------    ---------
<S>                             <C>               <C>        <C>           <C>           <C>
      $1.00                        1,500           2.9        $ 1.00          1,500       $  1.00
      $2.50                        1,126           4.6          2.50          1,126          2.50
      $4.9375 to 5.75             46,200           5.3          5.74         46,200          5.74
      $7.4375 to 8.00              6,400           8.3          7.82          3,079          7.63
      $9.3125 to 10.25           103,425           8.9         10.23         88,793         10.25
                                 -------                                    -------

                                 158,651                                    140,698
                                 =======                                    =======
</TABLE>

      Employment and Severance Agreements

      The  Company's  President,  the clerk of the  corporation  and three other
      senior  officers  have  entered  into  agreements  with the Company  which
      provide  for  severance  and  other  benefits  in the event of a change in
      control of the Company under specific situations.

      Directors' Deferred Compensation Plan

      The  Company  has a  directors'  deferred  compensation  plan  whereby the
      directors accrue deferred  compensation in the form of common stock units.
      The  accumulated  deferred  compensation,   which  has  been  recorded  as
      additional  paid-in  capital,  was $89,  $55 and $28 at December 31, 2000,
      1999  and  1998   representing   8,545,   4,573  and  1,942  stock  units,
      respectively.  The stock units have been  treated as common  stock for the
      purposes of calculating earnings per share.

                                       67
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


16.   Earnings Per Share (EPS)

      The following  tables  represent a  reconciliation  of the  numerators and
      denominators for the basic and diluted per share  computation for earnings
      for the years ended December 31, 2000, 1999 and 1998, respectively:

<TABLE>
<CAPTION>
                                                        Income        Shares       Per-Share
                                                      (Numerator)  (Denominator)    Amount
                                                      ----------    -----------    --------
<S>                                                    <C>             <C>           <C>
      2000
      ----
      Basic EPS                                        $ 2,655         2,379         $1.12
      Effect of stock options                             -               25            -
                                                        ------         -----          ----
      Diluted EPS                                      $ 2,655         2,404         $1.10
                                                        ======         =====          ====

      1999
      ----
      Basic EPS                                        $ 3,289         2,480         $1.33
      Effect of stock options                             -               63            -
                                                        ------         -----          ----
      Diluted EPS                                      $ 3,289         2,543         $1.29
                                                        ======         =====          ====

      1998
      ----
      Basic EPS                                        $ 2,638         2,392         $1.10
      Effect of stock options                             -              164            -
                                                        ------         -----          ----
      Diluted EPS                                      $ 2,638         2,556         $1.03
                                                        ======         =====          ====

</TABLE>

17.   Financial Instruments with Credit Risk and Off-Balance Sheet Risk,
      Commitments and Contingencies

      Off-Balance Sheet Risk

      The Company is party to financial  instruments with off-balance sheet risk
      in the  normal  course  of  business  to meet the  financing  needs of its
      customers.  These  financial  instruments  include unused lines of credit,
      unadvanced portions of construction loans,  commitments to originate loans
      and  commitments  to sell  loans.  The  instruments  involve,  to  varying
      degrees, elements of credit and interest rate risk in excess of the amount
      recognized in the balance sheet. The amounts of those instruments  reflect
      the  extent of  involvement  the  Company  has in  particular  classes  of
      financial instruments.

      The Company's  exposure to credit loss in the event of  non-performance by
      the other party to its financial  instruments  (for unused lines of credit
      and loan  commitments) is represented by the  contractual  amount of those
      instruments.   The  Company  uses  the  same  credit  policies  in  making
      commitments  and conditional  obligations as it does for on-balance  sheet
      instruments.  The Company evaluates each customer's credit worthiness on a
      case-by-case basis. The amount of collateral obtained, if deemed necessary
      by the Company upon extension of credit,  is based on management's  credit
      evaluation of the borrower.

                                       68
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


17.   Financial Instruments with Credit Risk and Off-Balance Sheet Risk,
      Commitments and Contingencies (Continued)


      Financial  instruments with off-balance  sheet risk at December 31, are as
      follows:

<TABLE>
<CAPTION>
                                                                                   2000       1999
                                                                                ---------  --------
<S>                                                                             <C>        <C>
      Commitments to originate residential loans                                $   3,354  $  6,816
      Unused lines of credit on home equity loans                                  33,762    29,321
      Unadvanced portions of residential owner-occupied construction loans            484       573
      Unused lines of credit on overdraft protection, personal lines of credit
         and credit cards                                                           3,151     2,545
      Commitments to sell loans                                                     4,156      -

</TABLE>

      Commitments  to originate  loans,  unused  lines of credit and  unadvanced
      portions of residential  owner-occupied  construction loans are agreements
      to lend to a customer  provided  there is no  violation  of any  condition
      established in the contract.  Commitments  generally have fixed expiration
      dates or other termination clauses and may require payment of a fee. Since
      many of the  commitments  may expire  without being drawn upon,  the total
      commitment amounts do not necessarily represent future cash requirements.

      Legal Proceedings

      The Company is involved in various  legal  proceedings  incidental  to its
      business.  After review with legal  counsel,  management  does not believe
      resolution of any present  litigation will have a material  adverse effect
      on the financial condition of the Company.

      Commitments to Sell Loans

      Forward  commitments to sell loans are contracts  which the Company enters
      into for the  purpose  of  reducing  interest  rate  risk  and to  improve
      liquidity. In order to fulfill a forward commitment, the Company typically
      receives  cash in  exchange  for loans at a future  date agreed to by both
      parties.  Risk may arise from the  possible  inability  of the  Company to
      deliver the loans specified.

      As of December 31, 2000 and 1999,  the Company had  identified  $5,003 and
      $0,  respectively,  of loans to fulfill  the  outstanding  commitments  at
      weighted average rates which will satisfy the commitments  without loss to
      the Company.

                                       69
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


18.   Condensed Parent Information

      Condensed financial  statements for Ipswich  Bancshares,  Inc. at December
      31,  2000 and 1999 and for the year ended  December  31,  2000 and for the
      period from inception to December 31, 1999 are presented below. As Ipswich
      Bancshares, Inc. was formed in 1999, parent information does not exist for
      the year ended December 31, 1998.
<TABLE>
<CAPTION>

                                                                  2000           1999
                                                                --------      --------
<S>                                                             <C>           <C>
Balance Sheet

Assets

Cash (deposited with subsidiary)                                $     11      $    290
Investment in subsidiary                                          15,359        16,862
                                                                --------      --------

   Total assets                                                 $ 15,370      $ 17,152
                                                                ========      ========

Liabilities and Stockholders' Equity

Accrued expenses and other liabilities                          $    251      $    177

Stockholders' equity                                              15,119        16,975
                                                                --------      --------

   Total liabilities and stockholders' equity                   $ 15,370      $ 17,152
                                                                ========      ========

Statement of Income

Income:
   Dividends from banking subsidiary                            $  4,659      $    681
   Other                                                               1             -
                                                                --------      --------
    Total income                                                   4,660           681

Expenses:
   Professional fees                                                   -           133
   Other expenses                                                     27            59
                                                                --------      --------
    Total expenses                                                    27           192
                                                                --------      --------

   Income before income tax (expense) benefit and equity in
    undistributed net income of subsidiary                         4,633           489
   Income tax (expense) benefit                                      (15)          125
                                                                --------      --------

   Income before equity in undistributed net income
    of subsidiary                                                  4,618           614
   Equity in undistributed net (loss) income of subsidiary        (1,963)        2,675
                                                                --------      --------


      Net income                                                $  2,655      $  3,289
                                                                ========      ========
</TABLE>
                                       70

<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


18.   Condensed Parent Information (Continued)

<TABLE>
<CAPTION>
                                                             2000         1999
                                                           -------      -------
<S>                                                        <C>          <C>
Statement of Cash Flows

Cash flows from operating activities:

   Net income                                              $ 2,655      $ 3,289
   Adjustments to reconcile net income to net cash
    provided by operations:
   Undistributed earnings of subsidiary                      1,963       (2,675)
   Increase in accrued expenses and other liabilities           74          177
                                                           -------      -------

    Net cash provided by operating activities                4,692          791

Cash flows from financing activities:

   Proceeds from issuance of common stock                       35           11
   Purchase of treasury stock                               (4,054)           -
   Dividends paid to stockholders                             (952)        (512)
                                                           -------      -------

    Net cash used by financing activities                   (4,971)        (501)
                                                           -------      -------

    Net (decrease) increase in cash                           (279)         290

Cash, beginning of year                                        290            -
                                                           -------      -------

Cash, end of year                                          $    11      $   290
                                                           =======      =======

</TABLE>

19.   Fair Value of Financial Instruments

      SFAS No.  107,  Disclosures  about  Fair Value of  Financial  Instruments,
      requires that the Company disclose estimated fair values for its financial
      instruments.  Fair value estimates,  methods and assumptions are set forth
      below for the Company's financial instruments.

      Cash and Cash Equivalents

      The  fair  value  of  cash,   due  from  banks  and  Federal  funds  sold,
      approximates  their relative book values at December 31, 2000 and 1999, as
      these financial instruments have short maturities.

      Available for Sale and Held to Maturity Securities

      The fair value of available  for sale and held to maturity  securities  is
      estimated  based on bid prices  published in financial  newspapers  or bid
      quotations  received from securities  dealers at or near December 31, 2000
      and 1999.

                                       71
<PAGE>
                    IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


19.   Fair Value of Financial Instruments (Continued)

      Stock in Other Financial Institutions

      This  financial  instrument  does not have a market nor is it practical to
      estimate the fair value without incurring excessive costs.

      Loans Held for Sale and Forward Commitments

      The fair value of loans held for sale approximates its relative book value
      at December  31,  2000.  There were no loans held for sale at December 31,
      1999.

      Loans

      Fair values are estimated for  portfolios of loans with similar  financial
      characteristics.  The fair values of  performing  loans are  calculated by
      discounting  scheduled  cash flows  through the estimated  maturity  using
      estimated  market discount rates that reflect the credit and interest rate
      risk  inherent in the loan.  The  estimates  of maturity  are based on the
      Company's   historical   experience   with   repayments   for  each   loan
      classification,  modified,  as  required,  by an estimate of the effect of
      current  economic,   lending  conditions  and  the  effects  of  estimated
      prepayments.

      Fair values for  significant  non-performing  loans are based on estimated
      cash flows discounted using a rate  commensurate  with the risk associated
      with the estimated cash flows.  Assumptions  regarding  credit risk,  cash
      flows and  discount  rates are  judgmentally  determined  using  available
      market information and historical information.

      Accrued Interest Receivable

      The fair market value of this financial  instrument  approximates the book
      value  as  this  financial  instrument  has a  short  maturity.  It is the
      Company's policy to stop accruing  interest on loans past due by more than
      ninety days.  Therefore  this  financial  instrument has been adjusted for
      estimated credit loss.

      Deposits and Mortgagors' Escrows

      The  fair  value  of   deposits,   with  no  stated   maturity,   such  as
      non-interest-bearing  demand deposits, savings, NOW accounts, money market
      and checking  accounts,  and mortgagors'  escrows,  is equal to the amount
      payable on demand as of  December  31,  2000 and 1999.  The fair values of
      certificates  of deposit are based on the discounted  value of contractual
      cash flows.  The  discount  rate is  estimated  using the rates  currently
      offered for deposits of similar remaining maturities.


                                       72
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


19.   Fair Value of Financial Instruments (Continued)

      Borrowed Funds

      The fair value of the Company's  borrowings  with the FHLB is estimated by
      discounting  the cash flows through  maturity or the next  repricing  date
      based on current  rates  available  to the  Company  for  borrowings  with
      similar maturities.

      Commitments to Originate Loans

      The fair  value of  commitments  to extend  credit  cannot  be  reasonably
      estimated without incurring excessive costs as the Company does not charge
      fees for such  commitments and there is no ready market for this financial
      instrument.

      Limitations

      Fair  value  estimates  are made at a  specific  point  in time,  based on
      relevant  market   information   and   information   about  the  financial
      instrument. These values do not reflect any premium or discount that could
      result from offering for sale at one time the Company's entire holdings of
      a  particular  financial  instrument.  Because  no  market  exists  for  a
      significant  portion of the Company's  financial  instruments,  fair value
      estimates  are  based  on  judgments   regarding   future   expected  loss
      experience,  current economic conditions,  risk characteristics of various
      financial instruments and other factors. These estimates are subjective in
      nature and involve  uncertainties and matters of significant  judgment and
      therefore  cannot be determined  with  precision.  Changes in  assumptions
      could significantly affect the estimates.

      Fair  value  estimates  are based on  existing  on and  off-balance  sheet
      financial   instruments  without  attempting  to  estimate  the  value  of
      anticipated  future business and the value of assets and liabilities  that
      are not considered  financial  instruments.  Other significant  assets and
      liabilities  that are not  considered  financial  instruments  include the
      deferred tax assets,  mortgage  servicing  rights,  and bank  premises and
      equipment.  In addition,  the tax ramifications related to the realization
      of the unrealized  gains and losses can have a significant  effect on fair
      value estimates and have not been considered in any of the estimates.

                                       73
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2000, 1999 and 1998
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


19.   Fair Value of Financial Instruments (Continued)

      The following  table  presents the  estimated  fair value of the Company's
      significant financial instruments at December 31:

<TABLE>
<CAPTION>
                                                             2000                   1999
                                                    ---------------------   ---------------------
                                                    Carrying     Estimated   Carrying   Estimated
                                                      Value     Fair Value     Value   Fair Value
<S>                                                 <C>         <C>         <C>         <C>
      Financial assets:
         Cash and cash equivalents                  $  8,836    $  8,836    $  8,259    $  8,259
         Available for sale securities                34,228      34,228      39,502      39,502
         Held to maturity securities                  30,282      30,374      28,069      27,061
         Stock in other financial institutions         3,253       3,253       4,230       4,230
         Loans held for sale                           5,003       5,003        -           -
         Loans, net                                  201,334     202,278     191,529     191,256
         Accrued interest receivable                   1,435       1,435       1,248       1,248

      Financial liabilities:
         Deposits (with no stated maturity)          163,340     163,340     143,253     143,253
         Time deposits                                73,897      74,192      66,829      66,878
         Mortgagors' escrow accounts                     972         972         993         993
         Borrowed funds                               32,108      32,360      45,000      44,900

</TABLE>

20.   Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
                                                          2000 Quarters                             1999 Quarters
                                              -------------------------------------   ----------------------------------------
                                              Fourth    Third     Second      First     Fourth    Third       Second     First
                                              ------    -----     ------      -----     ------    -----       ------     -----
<S>                                          <C>       <C>       <C>        <C>       <C>        <C>        <C>         <C>
      Interest and dividend income           $5,171    $5,114    $ 4,969    $ 4,675   $  4,588   $ 4,536    $ 4,289     $4,542
      Interest expense                        2,888     2,866      2,763      2,477      2,332     2,257      2,242      2,426
                                             ------    ------    -------    -------   --------   -------    -------     ------

      Net interest and dividend income        2,283     2,248      2,206      2,198      2,256     2,279      2,047      2,116

      Provision for loan losses                 (15)     (15)        (15)       (15)         -       (10)       (45)       (45)
      Non-interest income                       460      370         478        428        548       819        666        892
      Non-interest expense                   (1,733)  (1,654)     (1,674)    (1,758)    (1,592)   (1,618)    (1,678)    (2,022)
                                             ------    ------    -------    -------   --------   -------    -------     ------

      Income before income taxes                995      949         995        853      1,212     1,470        990        941
      Income tax expense                       (348)    (332)       (351)      (106)      (303)     (441)      (297)      (283)
                                             ------    ------    -------    -------   --------   -------    -------     ------

      Net income                             $  647   $  617     $   644    $   747   $    909   $ 1,029    $   693     $  658
                                             ======   ======     =======    =======   ========   =======    =======     ======

      Basic earnings per share               $  .30   $   .26    $   .26    $   .30   $    .36   $   .41    $   .28     $  .28

      Diluted earnings per share             $  .30   $   .26    $   .26    $   .29   $    .36   $   .40    $   .27     $  .26

      Cash dividends declared per share      $  .11   $   .10    $   .10    $   .10   $    .10   $   .05    $   .05     $  .05
</TABLE>

      Quarterly  per share  figures may not total to the full year amount due to
      rounding.

                                       74
<PAGE>
ITEM 9     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

           None.

                                    PART III

ITEM 10    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

           Information  called for by Item 10 of this report is  incorporated by
           reference herein from the Company's Proxy Statement.

ITEM 11    EXECUTIVE COMPENSATION

           Information  called for by Item 11 of this report is  incorporated by
           reference herein from the Company's Proxy Statement.

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           Information  called for by Item 12 of this report is  incorporated by
           reference herein from the Company's Proxy Statement.

ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           Information  called for by Item 13 of this report is  incorporated by
           reference herein from the Company's Proxy Statement.

                                     PART IV

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

(a)   Financial Statements and Schedules

      (1)  Financial  Statements  for 2000,  1999 and  1998.  See Item 8 of this
      Report.

(b)   Reports on Form 8-K

      (1) No Reports on Form 8-K were filed during the last quarter of 2000.

(c)   Exhibits

        2.1    Plan of  Reorganization  and Acquisition dated as of February 17,
               1999 between the Company and Ipswich Savings Bank incorporated by
               reference to the Company's Form 8-K filed on July 9, 1999.

        3.1    Articles  of  Organization  of the Company  are  incorporated  by
               reference herein from the Company's June 30, 1999 Form 10-Q.

        3.2    By-laws of the Company is incorporated  by reference  herein from
               the Company's June 30, 1999 Form 10-Q.

                                       75
<PAGE>
        4.1    Specimen  stock  certificate  for the  Company's  Common Stock is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.

       10.1    Lease dated September 15, 2000 for premises  located at Route 133
               and Route 1, Rowley,  Massachusetts  is incorporated by reference
               herein from the Company's September 30, 2000 Form 10-Q.

       10.2    Lease dated April 25,  1994 for  premises  located at 451 Andover
               Street, North Andover, Massachusetts is incorporated by reference
               herein from the Company's June 30, 1999 Form 10-Q.

       10.3    Lease  dated  March 4,  1996 for  premises  located  at 588 Cabot
               Street,  Beverly,  Massachusetts  is  incorporated  by  reference
               herein from the Company's June 30, 1999 Form 10-Q.

       10.4    Lease  dated  July 27,  1997 for  premises  located at 600 Loring
               Avenue, Salem,  Massachusetts is incorporated by reference herein
               from the Company's June 30, 1999 Form 10-Q.

       10.5    Lease dated February 27, 1998 for premises located at 89 Pleasant
               Street,  Marblehead,  Massachusetts  is incorporated by reference
               herein from the Company's June 30, 1999 Form 10-Q.

       10.6    Lease  dated  June 12,  1998  for  premises  located  at 470 Main
               Street,  Reading,  Massachusetts  is  incorporated  by  reference
               herein from the Company's June 30, 1999 Form 10-Q.

      *10.7    Incentive  Compensation  Plan for Senior  Management  and certain
               other  officers  dated  September  15,  1995 is  incorporated  by
               reference herein from the Company's June 30, 1999 Form 10-Q.

      *10.8    Director  Recognition  and Retirement  Plan adopted as of May 18,
               1999 is incorporated by reference  herein from the Company's June
               30, 1999 Form 10-Q.

      *10.9    Merger and Severance  Benefits Program dated February 18, 1998 is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.

      *10.10   Amended and Restated Employment and Severance Agreement dated May
               18,  1999  between  Ipswich  Savings  Bank and  David L.  Grey is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.

      *10.11   Amended and Restated Employment and Severance Agreement dated May
               18, 1999  between  Ipswich  Savings  Bank and  Francis  Kenney is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.

      *10.12   Amended  and  Restated  Severance  Agreement  dated May 18,  1999
               between Ipswich Savings Bank and Thomas R. Girard is incorporated
               by reference herein from the Company's June 30, 1999 Form 10-Q.

      *10.13   Severance  Agreement dated August 8, 2000 between Ipswich Savings
               Bank and Mark E. Foley is incorporated  by reference  herein from
               the Company's September 30, 2000 Form 10-Q.

      *10.14(a)Amended and Restated  Split Dollar  Agreement  dated May 18, 1999
               among  Ipswich  Savings  Bank,  Eastern Bank and David L. Grey is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.

                                       76
<PAGE>



      *10.14(b)Amended and Restated Ipswich Irrevocable Insurance Trust dated as
               of May 18, 1999 by and between  Ipswich  Savings Bank and Eastern
               Bank is incorporated by reference  herein from the Company's June
               30, 1999 form 10-Q.

       10.15   Contract with Bank's data  processor  dated  February 14, 1997 is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.

      *10.16   1992 Incentive and  Non-Qualified  Stock Option Plan incorporated
               by reference to the Company's  Registration Statement on Form S-8
               filed on July 22, 1999.

      *10.17   1996  Stock  Incentive  Plan  incorporated  by  reference  to the
               Company's  Registration  Statement  on Form S-8 filed on July 22,
               1999.

      *10.18   1998  Stock  Incentive  Plan  incorporated  by  reference  to the
               Company's  Registration  Statement  on Form S-8 filed on July 22,
               1999.

      *10.19   Deferred   Compensation   Plan  for  Directors   incorporated  by
               reference to the Company's Form S-8 filed on July 22, 1999.

       (11)    A statement  regarding the  computation  of earnings per share is
               included in the notes to consolidated financial statements.

       (12)    Not applicable.

       (21)    Subsidiary - Ipswich Savings Bank.

       (23)    Consent of Baker Newman & Noyes, LLC.


     * Denotes management contract or compensation plan.

                                       77
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities  Exchange Act
of 1934,  the  Company has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                            IPSWICH BANCSHARES, INC.

DATE: March 28, 2001        By:       /s/David L. Grey
                                      ----------------
                                      David L. Grey,
                                      President and Chief Executive Officer

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 Company and in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>

        SIGNATURE                                  TITLE                           DATE
        ---------                                  -----                           ----
<S>                                <C>                                           <C>
By:/s/David L. Grey                President, Chief Executive Officer, and       March 28, 2001
-------------------                Director (Principal Executive Officer)
David L. Grey

By:/s/Francis Kenney               Senior Vice President, Treasurer, and Chief   March 28, 2001
--------------------               Financial Officer (Principal Financial
Francis Kenney                     Officer, Principal Accounting Officer)


By:/s/William M. Craft             Director                                      March 28, 2001
----------------------
William M. Craft

By:/s/Thomas A. Ellsworth          Director                                      March 28, 2001
-------------------------
Thomas A. Ellsworth

By:                                Director
William E. George

By:/s/John H. Morrow               Director                                      March 28, 2001
--------------------
John H. Morrow

By:/s/Lawrence J. Pszenny          Director                                      March 28, 2001
-------------------------
Lawrence J. Pszenny

By:/s/William J. Tinti             Director                                      March 28, 2001
----------------------
William J. Tinti


</TABLE>
                                       78


<PAGE>
<TABLE>
<CAPTION>

INDEX TO EXHIBITS

       ITEM                                                                            PAGE
       ----                                                                            ----
<S>            <C>                                                                      <C>
       2.1     Plan of  Reorganization  and Acquisition dated as of February 17,
               1999 between the Company and Ipswich Savings Bank incorporated by
               reference to the Company's Form 8-K filed on July 9, 1999.                *

       3.1     Articles of  Organization  of the Company dated February 12, 1999
               is incorporated  by reference  herein from the Company's June 30,
               1999 Form 10-Q.                                                           *

       3.2     By-laws of the Company is incorporated  by reference  herein from
               the Company's June 30, 1999 Form 10-Q.                                    *

        4.1    Specimen  stock  certificate  for the  Company's  Common Stock is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.                                                                *

       10.1    Lease dated September 15, 2000 for premises  located at Route 133
               and Route 1, Rowley,  Massachusetts  is incorporated by reference
               herein from the Company's September 30, 2000 Form 10-Q.                   *

       10.2    Lease dated April 25,  1994 for  premises  located at 451 Andover
               Street, North Andover, Massachusetts is incorporated by reference
               herein from the Company's June 30, 1999 Form 10-Q.                        *

       10.3    Lease  dated  March 4,  1996 for  premises  located  at 588 Cabot
               Street,  Beverly,  Massachusetts  is  incorporated  by  reference
               herein from the Company's June 30, 1999 Form 10-Q.                        *

       10.4    Lease  dated  July 27,  1997 for  premises  located at 600 Loring
               Avenue, Salem,  Massachusetts is incorporated by reference herein
               from the Company's June 30, 1999 Form 10-Q.                               *

       10.5    Lease dated February 27, 1998 for premises located at 89 Pleasant
               Street,  Marblehead,  Massachusetts  is incorporated by reference
               herein from the Company's June 30, 1999 Form 10-Q.                        *

       10.6    Lease  dated  June 12,  1998  for  premises  located  at 470 Main
               Street,  Reading,  Massachusetts  is  incorporated  by  reference
               herein from the Company's June 30, 1999 Form 10-Q.                        *

      *10.7    Incentive  Compensation  Plan for Senior  Management  and certain
               other  officers  dated  September  15,  1995 is  incorporated  by
               reference herein from the Company's June 30, 1999 Form 10-Q.              *

      *10.8    Director  Recognition  and Retirement  Plan adopted as of May 18,
               1999 is incorporated by reference  herein from the Company's June
               30, 1999 Form 10-Q.                                                       *

      *10.9    Merger and Severance  Benefits Program dated February 18, 1998 is
               incorporated by reference herein from the Company's June 30, 1999
 </TABLE>

                                       79
<PAGE>
<TABLE>
<CAPTION>
<S>            <C>                                                                      <C>
      *10.10   Amended and Restated Employment and Severance Agreement dated May
               18,  1999  between  Ipswich  Savings  Bank and  David L.  Grey is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.                                                                *

      *10.11   Amended and Restated Employment and Severance Agreement dated May
               18, 1999  between  Ipswich  Savings  Bank and  Francis  Kenney is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.                                                                *

      *10.12   Amended  and  Restated  Severance  Agreement  dated May 18,  1999
               between Ipswich Savings Bank and Thomas R. Girard is incorporated
               by reference herein from the Company's June 30, 1999 Form 10-Q.           *

      *10.13   Severance  Agreement dated August 8, 2000 between Ipswich Savings
               Bank and Mark E. Foley is incorporated  by reference  herein from
               the Company's September 30, 2000 Form 10-Q.                               *

      *10.14(a)Amended and Restated  Split Dollar  Agreement  dated May 18, 1999
               among  Ipswich  Savings  Bank,  Eastern Bank and David L. Grey is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.                                                                *

      *10.14(b)Amended and Restated  Ipswich  Irrevocable  Insurance Trust dated
               as of May 18,  1999  by and  between  Ipswich  Savings  Bank  and
               Eastern  Bank  is  incorporated  by  reference  herein  from  the
               Company's June 30, 1999 form 10-Q.                                        *

       10.15   Contract with Bank's data  processor  dated  February 14, 1997 is
               incorporated by reference herein from the Company's June 30, 1999
               Form 10-Q.                                                                *

      *10.16   1992 Incentive and  Non-Qualified  Stock Option Plan incorporated
               by reference to the Company's  Registration Statement on Form S-8
               filed on July 22, 1999.                                                   *

      *10.17   1996  Stock  Incentive  Plan  incorporated  by  reference  to the
               Company's  Registration  Statement  on Form S-8 filed on July 22,
               1999.                                                                     *

      *10.18   1998  Stock  Incentive  Plan  incorporated  by  reference  to the
               Company's  Registration  Statement  on Form S-8 filed on July 22,
               1999.                                                                     *

      *10.19   Deferred   Compensation   Plan  for  Directors   incorporated  by
               reference to the Company's Form S-8 filed on July 22, 1999.               *

       (11)    A statement  regarding the  computation  of earnings per share is
               included in the notes to consolidated financial statements.               *

       (12)                                                                    Not applicable.
               *

       (21)    Subsidiary - Ipswich Savings Bank.

       (23)    Consent of Baker Newman & Noyes, LLC.
</TABLE>


     * Denotes management contract or compensation plan.

                                       80