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, 1999

[  ] 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                  (I.R.S. Employer
       incorporation or organization)                  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 3,  2000,  was  $17,460,925.  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 3,
2000, was 2,525,427.
<PAGE>
                       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 26, 2000.
<PAGE>
FORWARD-LOOKING STATEMENTS

Certain statements contained herein constitute "forward looking statements",  as
that term is defined under the Private Securities Litigation Reform Act of 1995.
The words "believe",  "expect",  "anticipate",  "intend",  "plan", "assume", and
other similar expressions which are predictions of or indicate future events and
trends and which do not relate to historical  matters  identify  forward looking
statements.  Reliance should not be placed on forward looking statements because
they involve known and unknown risks, uncertainties and other factors, which are
in some  cases  beyond  the  control  of the  Company  and may cause the  actual
results,  performance,  or achievements of the Company to differ materially from
anticipated future results,  performance or achievements expressed or implied by
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 and the Company's  ability to make profitable
loans;  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).
<PAGE>
The Company's  principal business is attracting deposits from the general public
and using such deposits to fund its residential  mortgage banking function.  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, 1999,  the Company had total assets of  approximately  $276  million,  gross
loans of $193 million,  total deposits of $210 million,  stockholders' equity of
$17 million and a regulatory Tier 1 leverage capital ratio of 6.33%.

LENDING ACTIVITIES

General.  At December 31, 1999,  the  Company's  loan  portfolio,  including net
deferred  costs and unearned  discounts,  totaled $193.3  million,  representing
70.0% of its total assets.  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
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.

Residential  Real Estate.  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.  Those products that the
Company  offers  through  its  mortgage  operations  are  typically  1-4  family
residential   loans,   home  equity  products  and  residential   owner-occupied
construction  loans. These loans are offered on both a fixed and adjustable-rate
basis,  which depend largely on the level of interest rates and consumer demand.
In 1999, the Company originated approximately $111.7 million in residential loan
and home equity products, consisting of $66.3 million of fixed and $45.4 million
of   adjustable-rate   mortgages  and  home  equity  loans.   The  Company  sold
approximately  $83.5 million in fixed-rate  loans in the secondary  market.  The
mortgage division  underwrites and originates loans for the ultimate sale in the
secondary  market to the  Federal  National  Mortgage  Association  (FNMA),  the
Federal  Home Loan  Mortgage  Corporation  (FHLMC) and  institutional  secondary
market investors, as well as for the Company's portfolio.

The Company  also  originates  "B" and "C" rated loans which are not 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,
1999, the Company held $5.3 million of B and C rated loans.

Residential Owner-Occupied Construction. 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
<PAGE>
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.  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. These loans have a maximum life of twenty years.

Commercial  Real Estate Loans.  The Company  offers limited  commercial  banking
services to small  businesses  in its  immediate  market  area.  The Company has
established  underwriting  criteria  to  limit  its  exposure  to risk  from one
particular  industry  or  borrower  concentration.   The  current  portfolio  of
commercial  real estate  loans are  primarily  secured by  mixed-use  commercial
properties,  multi-family  residential  properties,  commercial  and  industrial
buildings, land and several churches. Commercial real estate loans traditionally
carry  higher  credit  risk than  residential  loans.  As a result,  the Company
assigns a higher allocation percentage of the allowance for possible loan losses
to commercial  real estate and industrial  loans than to other types of loans in
the portfolio.

Consumer Loans. The Company also makes loans for personal or consumer  purposes.
The Company's consumer loans consist of passbook,  credit cards, installment and
overdraft protection loans.

Loan  Portfolio  and  Maturity.  The  following  table  sets  forth  information
concerning the Company's loan portfolio by type of loan at the dates indicated.
<PAGE>
<TABLE>
<CAPTION>
                                                                         At December 31,
                                        1999              1998               1997               1996                 1995
                                  ----------------    ---------------   --------------    ------------------   -----------------
                                  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                    $162,633    84.4%  $160,153   84.9%  $136,345    82.6%   $94,384      78.2%   $64,323     69.7%
  Residential owner-
    occupied construction             890     0.5      1,412    0.7      2,638     1.6      4,568       3.8      6,074      6.6
  Home equity                      23,385    12.1     19,772   10.5     18,035    10.9     14,545      12.0     13,507     14.6
                                 --------   -----   --------  -----   --------   -----    -------     -----    -------    -----
      Subtotal                    186,908    97.0    181,337   96.1    157,018    95.1    113,497      94.0     83,904     90.9

Commercial real estate              4,873     2.5      6,191    3.3      6,717     4.1      6,618       5.5      7,670      8.3
                                 --------   -----   --------  -----   --------   -----    -------     -----    -------    -----
    Mortgage loans, gross         191,781    99.5    187,528   99.4    163,735    99.2    120,115      99.5     91,574     99.2

Consumer loans                      1,060     0.5      1,188    0.6      1,255     0.8        630       0.5        690      0.8
                                 --------   -----   --------  -----   --------   -----    -------     -----    -------    -----

    Gross loans                   192,841   100.0%   188,716  100.0%   164,990   100.0%   120,745     100.0%    92,264    100.0%
                                            =====             =====              =====                =====               =====
Plus deferred loan origination
    costs                            586                 378               606                427                  357
Less unearned discount              (100)               (103)             (143)              (147)                (154)
                                 --------           --------          --------            -------              -------

Loans, net                       193,327             188,991           165,453            121,025               92,467

Less allowance for possible
  loan losses                     (1,798)             (1,742)           (1,673)            (1,548)              (2,154)
                                 --------           --------          --------            -------              -------
Loans, net                      $191,529            $187,249          $163,780           $119,477              $90,313
                                ========            ========          ========           ========              =======
</TABLE>

The  following  table sets forth  residential  owner-occupied  construction  and
commercial real estate loans by maturity date as of December 31, 1999:
<TABLE>
<CAPTION>

                            Residential Owner-Occupied   Commercial Real Estate
                            --------------------------   ----------------------
                               Amount      Percentage     Amount     Percentage
                               ------      ----------     ------     ----------
                                           (Dollars in Thousands)
<S>                            <C>            <C>        <C>            <C>
Within one year                $  890         100.0%     $   14           0.3%
One to five years                   -           -         1,385          28.4
Over five years                     -           -         3,474          71.3
                               ------         -----      ------         -----

Total                          $  890         100.0%     $4,873         100.0%
                               ======         =====      ======         =====
</TABLE>
<PAGE>
Commercial real estate loans with maturity dates over one year:

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

Fixed interest rate              $2,770
Adjustable interest rate          2,089
                                  -----

Total                            $4,859
                                  =====

A primary  focus of the  Company  in 1999  continued  to be an  emphasis  on its
residential lending activities. The Company experienced a decline in residential
originations  principally as a result of a substantial  rise in interest  rates.
Despite the challenging environment, the Company originated approximately $111.7
in  residential  mortgage  loans  and home  equity  loans in  1999.  Although  a
significant  portion  of  the  residential  loans  originated  are  sold  in the
secondary market, the Company's portfolio of residential loans increased by $2.5
million during 1999 to $162.6 million at December 31, 1999,  representing  84.4%
of the total loan portfolio at year end.  Residential  loans  increased by $23.8
million in 1998 to $160.2 million or 84.9% of the loan portfolio.

Home equity  loans  increased by $3.6  million to $23.4  million in  outstanding
balances at December 31, 1999. The Company originated over $15.3 million in home
equity loans in 1999, written at an introductory rate of 3.99% 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.  Home equity
loans increased by $1.7 million in 1998 versus 1997.

Residential  owner-occupied  construction  loans  decreased by $522,000 in 1999.
This was  principally  due to the ability of developers  to secure  financing to
build  housing,  thereby  decreasing  consumer  demand for this  product.  It is
anticipated  the Company will  continue to offer these loan  products when it is
profitable for the Company to do so.  Construction  loans decreased $1.2 million
in 1998 versus 1997 for the same reasons.

Commercial  real estate loans decreased by $1.3 million in 1999 primarily due to
the Company's  focus on residential  mortgage  lending,  which offers lower risk
relative to commercial real estate loans. Commercial loans decreased by $526,000
in 1998 versus 1997.

Consumer  loans  decreased  by  $128,000  in 1999 versus  1998.  Consumer  loans
remained  relatively  flat in 1998 decreasing by $67,000 to $1.2 million at year
end compared to the 1997 year-end balance of $1.3 million.

Loan and  OREO  Concentrations.  The  Company  was an  active  construction  and
commercial  real estate lender during the  mid-1980s.  Several large  individual
loans, as well as multiple loans to individual or related  borrowers,  were made
during that period.  Due principally to loan payoffs and growth in stockholders'
equity, there were no loans or OREO concentrations that exceeded 10% of capital,
or $1,697,500, at December 31, 1999.
<PAGE>
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 six loan originators employed
by the Company at December 31, 1999. 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.   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
commercial and mortgage  loans must be approved by an Officer  Credit  Committee
and exceptions to policy 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.

Residential   first  mortgages  and  home  equity  loan   originations   totaled
approximately $111.7 million in 1999, a decrease of 47.1%, compared to or $211.2
million in 1998.  Originations  decreased as a result of a  substantial  rise in
interest  rates  during  the  year  and a  resulting  lower  level  of  mortgage
refinancing activity.

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.
<PAGE>
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,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
                                                                 (Dollars in Thousands)
<S>                                                          <C>         <C>         <C>
Beginning balance                                            $187,528    $163,735    $120,115
Mortgage and commercial loan originations:
    Residential                                                94,954     192,195     101,410
    Residential owner-occupied construction                     1,394       1,673       3,306
    Commercial                                                      -           -         743
    Home equity                                                15,339      17,311      14,729
                                                             --------    --------    --------

    Total mortgage and commercial loan originations           111,687     211,179     120,188

Loans held for sale at January 1                               24,000       8,031         311

Conventional loan sales:
    Servicing retained                                         67,101      84,216      18,079
    Servicing released                                         16,444      26,700      20,165
Amortization, payoffs, charge-offs, unadvanced funds           38,831      60,501      30,604
Securitized and transferred to investment portfolio             8,996           -           -
Transfers to OREO                                                  62           -           -
Transfers to loans held for sale                                    -      24,000       8,031
                                                             --------    --------    --------
    Total loan sales, amortization, payoffs, charge-offs,
      transfers, and unadvanced funds                         131,434     195,417      76,879
                                                             --------    --------    --------

Ending balance                                               $191,781    $187,528    $163,735
                                                             ========    ========    ========
</TABLE>

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. In accordance with Statement of Financial  Accounting  Standards (SFAS)
No. 122,  Accounting for Mortgage Servicing Rights, and SFAS No. 125, Accounting
for  Transfer  and  Servicing  of  Financial   Assets  and   Extinguishment   of
Liabilities,  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 1999 and 1998 were
$1.2 and $1.5 million,  respectively.  The Company carried no mortgage servicing
rights at December 31, 1999. The unamortized  asset at December 31, 1998 totaled
$229,000, for which the Company determined no valuation allowance was necessary.
<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 $0, $18.8
million and $45.4 million at December 31, 1999, 1998 and 1997, respectively.

The Company  completed sales of mortgage  servicing rights in the fourth quarter
of 1999  and  1998,  respectively.  The  Company  sold  the  rights  to  service
approximately $90 million in FNMA loans in both 1999 and 1998, respectively,  as
a method of  managing  the  Company's  exposure  to future  declines in interest
rates.  A gain of $63,000 and a loss of $196,000 was  recognized  as a result of
the sales in 1999 and 1998, respectively.

Net  loan  servicing  income  (expense)  amounted  to  $21,000,  $(341,000)  and
$(21,000), for 1999, 1998 and 1997, respectively.  SFAS No. 122 and SFAS No. 125
require the Company to realize the value of the  servicing  through the net gain
on sale of  mortgage  loans.  The  Company  experienced  an increase in net loan
servicing  income  in 1999 as a result  of the  rise in  interest  rates,  which
eliminated  the need to  establish a  valuation  reserve  against the  Company's
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 Company realized a decrease in the value of its servicing
rights in 1998 as a result of 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 Possible  Loan Losses.  The allowance for possible 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. 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 possible 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 possible loan losses is adequate as of year end
1999. While management uses available  information to recognize losses on loans,
future  additions  to the  allowance  may be  necessary.  In  addition,  various
<PAGE>
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review the  Company's  allowance  for possible  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  Possible  Loan  Losses,"  and  "Item  8 -  Note  6 of  Notes  to
Consolidated Financial Statements".

The following table summarizes changes in the allowance for possible loan losses
and certain ratios for the periods indicated.
<TABLE>
<CAPTION>
                                                                        At December 31,
                                                       --------------------------------------------
                                                         1999      1998     1997     1996     1995
                                                       --------  -------   ------   ------   ------
                                                                   (Dollars in Thousands)
<S>                                                   <C>       <C>       <C>      <C>      <C>
Average loans (1)                                     $ 200,265 $190,072  $142,512 $108,805 $89,859
                                                      ========= ========  ======== ======== =======

Period-end loans (2)                                  $ 193,327 $188,991  $165,453 $121,025 $92,467
                                                       ========= ========  ======== ======== =======

Allowance for possible loan losses at
   beginning of period                                $   1,742 $  1,673  $ 1,548  $ 2,154  $ 2,609

Loans charged-off:
   Commercial                                                 -        -        -      736      469
   Residential real estate                                    4       42        7        8       74
   Home equity and other consumer                            77       89       24        1        -
                                                       --------  -------   ------   ------   ------

                                                             81      131       31      745      543

Loan recoveries:
   Commercial                                                 -        -        -       14       44
   Residential real estate                                    3        3       33        5        4
   Home equity and other consumer                            34       17        3        -        -
                                                       --------  -------   ------   ------   ------

                                                             37       20       36       19       48
                                                       --------  -------   ------   ------   ------

   Net charge-offs/(recoveries)                              44      111       (5)     726      495

Provision charged to operations                             100      180      120      120       40
                                                       --------  -------   ------   ------   ------

Allowance for possible loan losses at end of period   $   1,798  $ 1,742   $1,673   $1,548    2,154
                                                      =========  =======   ======  =======   ======
</TABLE>
<PAGE>
Selected Ratios:
---------------
<TABLE>
<CAPTION>
<S>                                                              <C>        <C>        <C>        <C>       <C>
Allowance for possible loan losses to period-end loans, net      0.93%      0.92%      1.01%      1.28%     2.33%

Net charge-offs/(recoveries) to average loans                    0.02%      0.06%         -       0.67%     0.55%

Net charge-offs/(recoveries) to allowance for possible
   loan losses                                                   2.45%      6.37%     (0.30)%    46.90%    22.98%

Allowance as a percentage of non-performing loans             5800.00%    372.22%     176.11%     92.14%    80.92%

</TABLE>

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

Allocation  of the Allowance  for Possible  Loan Losses.  The  allocation of the
allowance  for possible  loan losses at December 31, and the percent of loans in
each category to total loans, follows:
<TABLE>
<CAPTION>
                                                                  At December 31,
                            -------------------------------------------------------------------------------------------
                                  1999              1998               1997              1996               1995
                            -----------------  ----------------   ----------------  ----------------   ----------------
                            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 real estate      $  151      2.5%   $  215      3.3%   $  217     4.1%    $ 291      5.5%   $1,290     8.3%

Residential real estate      1,065     84.9     1,030     85.6     1,014    84.2       929     82.0       601    76.3
Home equity and other
  consumer                     582     12.6       497     11.1       442    11.7       328     12.5       263    15.4
                            ------    -----    ------    -----    ------   -----    ------    -----    ------   -----

                            $1,798    100.0%   $1,742    100.0%   $1,673   100.0%   $1,548    100.0%   $2,154   100.0%
                            ======    =====    ======    =====    ======   =====    ======    =====    ======   =====
</TABLE>

The Company sets the level of its  allowance for possible 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 possible loan losses.  Such factors may
include,  but are not  limited  to,  present  real  estate  trends and  regional
economic  conditions,  past  estimates  of  possible  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  possible  loan  losses
monthly.  The Board of  Directors  reviews a detailed  assessment  on at least a
quarterly basis.
<PAGE>
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.  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, 1999, the Company maintained an investment  portfolio  comprised
mainly of adjustable-rate (ARM) and fixed-rate mortgage-backed securities (MBS),
U.S. Treasury bills and U.S. Government Agency callable debentures.  The Company
has managed its investment  portfolio  with the intent of  maintaining  adequate
liquidity and maximizing  yields.  The Company has categorized  $11.7 million of
MBS's  and  $16.4  million  of  U.S.  Government  Agency  debentures  as held to
maturity, carried at amortized cost, and $30.7 million of MBS's and $8.8 million
of U.S.  Treasury  bills  and U.S.  Government  Agency  callable  debentures  as
available  for  sale,  carried  at  market  value.  These   categorizations  are
consistent  with the standards  defined in SFAS No. 115,  Accounting for Certain
Investments in Debt and Equity Securities. Accordingly, as of December 31, 1999,
the Company has a net unrealized  appreciation,  net of taxes, of $10,000.  This
amount  is  reported  as   accumulated   other   comprehensive   income   within
stockholders' equity.

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 $4.7 million of mortgage-backed  securities
and $6.0 million of U.S.  Government Agency obligations from held to maturity to
available for sale.

The aggregate market value of the investment portfolios at December 31, 1999 was
$66.6 million.  At December 31, 1999, 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 2012. 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%.
<PAGE>
The maturity  distribution  and weighted  average yield of  investments  in debt
obligations at December 31, 1999 follows:


<TABLE>
<CAPTION>
                                                                   One       Five       Over          Total
                                                    Within       to Five    to Ten       Ten         Market
                                                    One Year      Years      Years      Years         Value
                                                    --------      -----      -----      -----         -----
                                                                     (Dollars in Thousands)
<S>                                                   <C>        <C>        <C>         <C>         <C>
Available for Sale (at market value)
Mortgage-backed securities:
    FNMA participation certificates                   $     -    $     -    $     -     $25,631     $   25,631
    FHLMC participation certificates                        -          -          -       5,112          5,112
U.S. Treasury bills and U.S.
    Government Agency obligations                       4,865          -      3,894           -          8,759
                                                      -------    -------    -------     -------     ----------

                                                      $ 4,865    $     -    $ 3,894     $30,743     $   39,502
                                                      =======    =======    =======     =======     ==========

Weighted average coupon                                  5.64%         -%      7.16%       6.95%          6.81%



<CAPTION>
                                                                   One       Five       Over          Total
                                                    Within       to Five    to Ten       Ten         Market
                                                    One Year      Years      Years      Years         Value
                                                    --------      -----      -----      -----         -----
                                                                     (Dollars in Thousands)
<S>                                                   <C>        <C>        <C>         <C>         <C>
Held to Maturity (at amortized cost)
Mortgage-backed securities:
    FNMA participation certificates                  $     -     $    -     $     -     $  3,077    $  3,077
    FHLMC participation certificates                       -          -           -        4,868       4,868
    GNMA participation certificates                        -          -           -        3,731       3,731
    U.S. Government Agency obligations                     -      2,000      14,393            -      16,393
                                                     -------     ------     -------     --------     -------

                                                     $     -     $2,000     $14,393     $ 11,676     $28,069
                                                     =======     ======     =======     ========     =======

Weighted average coupon                                    -%      6.13%       7.02%       6.57%        6.77%
</TABLE>
<PAGE>
The carrying value of investments in debt obligations at December 31, follows:
<TABLE>
<CAPTION>
                                                                        1999       1998      1997
                                                                      -------   --------  --------
                                                                          (Dollars in Thousands)
<S>                                                                   <C>       <C>       <C>
Available for Sale (at market value)
------------------------------------
Mortgage-backed securities:
    FNMA participation certificates                                   $25,631   $ 12,990  $  3,471
    FHLMC participation certificates                                    5,112     11,883     9,839
U.S. Treasury bills                                                     4,865       -         -
U.S. Government Agency obligations                                      3,894      4,101      -
                                                                      -------   --------  --------

                                                                      $39,502   $ 28,974  $ 13,310
                                                                      =======   ========  ========
<CAPTION>
                                                                        1999       1998      1997
                                                                      -------   --------  --------
                                                                          (Dollars in Thousands)
<S>                                                                   <C>       <C>       <C>
Held to Maturity (at amortized cost)
------------------------------------
Mortgage-backed securities:
       FNMA participation certificates                                $ 3,077   $  1,980  $  8,761
       FHLMC participation certificates                                 4,868        741     2,092
       GNMA participation certificates                                  3,731      3,975      -
U.S. Government Agency obligations                                     16,393      3,500    16,498
                                                                       ------    -------   -------

                                                                      $28,069   $ 10,196  $ 27,351
                                                                       ======    =======   =======
</TABLE>

At December 31, 1999 and 1998,  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 10% of the Company's  stockholders' equity. See Item 8 - Notes 1 and 3
of Notes to Consolidated Financial Statements.

SOURCES OF FUNDS

Deposits.  Deposits  obtained through retail banking offices of the Company 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.

The Company markets a deposit program  designed to attract  transaction  account
deposits to the Company (e.g.,  demand and NOW  accounts).  The program has been
well received, and the Company fully expects to continue this program.
<PAGE>
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 program and
Ipswich  Advantage money market account,  which resulted in an increase in total
deposits of $10.3  million or 5.2%  during  1999.  Total  demand  deposits,  NOW
accounts,  money market  deposit  accounts and savings  deposits  totaled $143.3
million or 68.2% of total  deposits at December 31, 1999,  which  represented  a
$8.5  million or 6.3%  increase  from 1998 levels of $134.8  million or 67.5% of
total deposits.
<PAGE>
The following table shows the distribution of the Company's deposits at December
31,
<TABLE>
<CAPTION>
                                     1999                               1998                               1997
                       ------------------------------     -------------------------------     ------------------------------
                                             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       $ 15,209        7.2%      .00%     $ 18,656        9.3%      .00%      $ 16,044        9.4%      .00%
                      --------      -----                --------      -----                 --------      -----
Savings:
  Savings               37,704       17.9      2.31        37,768       18.9      2.38         37,069       21.6      2.67
  NOW accounts          27,481       13.1       .76        22,954       11.5       .92         18,204       10.6      1.21
  Money markets         62,859       30.0      4.49        55,418       27.8      4.63         34,828       20.3      4.47
                       --------      -----                --------      -----                 --------      -----
    Total demand
      and savings      143,253       68.2      2.75       134,796       67.5      2.73        106,145       61.9      2.61
  Certificates of
  deposit               66,829       31.8      5.09        64,961       32.5      5.34         65,096       38.1      5.73
                      --------      -----                --------      -----                 --------      -----

    Total deposits    $210,082      100.0%     3.40%     $199,757      100.0%     3.58%      $171,241      100.0%     3.79%
                      ========      =====                ========      =====                 ========      =====
</TABLE>

Deposits of $100,000 or more totaled  approximately  $72.6 and $66.0  million at
December 31, 1999 and 1998, 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, 1999                          At December 31,
                      ------------------------------------------        ---------------------------
                        Maturing        Maturing       Maturing         1999       1998       1997
                      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%           $25,391         $ 1,602        $     -        $26,993    $19,381    $     -
5.00% to 5.99%            21,185           9,299            193         30,677     39,891     43,553
6.00% to 6.99%             4,366           3,812              -          8,178      5,189     18,427
7.00% to 7.99%               981               -              -            981        500      3,116
                         -------         -------        -------        -------    -------    -------

Total                    $51,923         $14,713        $   193        $66,829    $64,961    $65,096
                         =======         =======        =======        =======    =======    =======
</TABLE>
<PAGE>
Certificates  at or over $100,000  totaled $11.2 million in 86  certificates  at
December 31, 1999 and $11.3 million in 92 certificates at December 31, 1998.

The maturity  distribution  of certificates of deposit in amounts of $100,000 or
more at December 31, 1999 follows:

                                                                  Amount
                                                                  ------
                                                          (Dollars in Thousands)
                         Within 3 months                          $  3,702
                         3 to 6 months                               3,463
                         6 to 12 months                              1,877
                         After one year                              2,169
                                                                   -------

                                                                  $ 11,211
                                                                  ========

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, 1999,  the Company held  $3,977,000  of FHLB of
Boston stock.

At December 31, 1999, there were $45.0 million in borrowings  outstanding at the
FHLB of Boston,  there were $53.0 million at December 31, 1998 and $40.4 million
at December 31, 1997. The Company has a total  borrowing  capacity with the FHLB
of Boston of $99.1  million at  December  31,  1999,  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  entered  into a contract  with  Linsco  Private  Ledger  Financial
Services (LPL) to offer non-deposit  investment  products in late 1996.  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.

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.
<PAGE>
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, 1999, Ipswich Bancshares,  Inc. had one wholly-owned subsidiary,
Ipswich  Savings  Bank.  At December 31, 1999,  the Bank had five  subsidiaries;
Ipswich Preferred Capital Corporation,  Ipswich Securities  Corporation,  Rowley
Investment  Corporation,  Historic  Ipswich,  Inc.  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 Company.

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,  1999,  ISC held a portfolio  of  fixed-rate  and
adjustable-rate  mortgage-backed  securities and U.S. Government Agency callable
debentures,  with total amortized cost of $36.9 million and an aggregate  market
value of $35.8 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.

Rowley Investment  Corporation (RIC) is a limited dividend corporation.  RIC was
formed  in 1992 to hold an  option  to  purchase  89 acres out of a parcel of 98
acres of land in Rowley,  Massachusetts.  In  December  1999,  the land was sold
generating a pre-tax gain of $320,000.

Historic  Ipswich,  Inc.  (HII) was  formed in 1981 for the  purpose  of holding
direct investments in real estate. The company assets were comprised of $226,000
in cash at December 31, 1999.

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,  1999,  NSFSI held title to three OREO
properties with a carrying value totaling $49,000.

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

EMPLOYEES

At December 31, 1999,  the Company had 63 full-time  employees  and 32 part-time
employees. The Company believes its employee relations are good.
<PAGE>
YEAR 2000 ISSUES

The Year 2000 Issue (commonly  referred to as "Y2K"),  is the result of computer
programs being written using two digits,  rather than four digits, to define the
applicable year. The Y2K issue, which is common to most corporations,  including
banks,  concerns  the  inability  of  information  systems,  primarily  (but not
exclusively)  computer  software  programs,  to properly  recognize  and process
date-sensitive information as the Year 2000 approached.

As of year-end 1999, the Company had completed all phases of its Y2K assessment,
renovation and validation processes.  The Company has experienced no problems or
issues relating to Y2K as of the date of this report nor is the Company aware of
any material problems or issues among its customers or vendors. The Company does
not anticipate any significant  issues manifesting itself as a result of Y2K. It
will continue to monitor its systems for any potential problems.

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

The Company is subject to  regulation  by the Board of  Governors of the Federal
Reserve.  The Bank is subject to extensive  regulation  and  examination  by the
Commissioner and the FDIC. Federal and state laws and regulations  applicable to
banks regulate,  among other things,  the scope of their business,  investments,
the timing of the  availability  of deposited funds and the nature and amount of
collateral  for  certain  loans.  The laws and  regulations  governing  the Bank
generally have been  promulgated to protect  depositors and the insurance funds,
not  stockholders.  See  "Item 8 - Note 14 of  Notes to  Consolidated  Financial
Statements".

The following  table  summarizes  the  Company's and Bank's  required and actual
regulatory  capital ratios and amounts at December 31, 1999. The required ratios
included  in the table are the  capital  minimums  for  December  31,  1999,  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                 $ 10,713      4.0%         $ 16,964         6.33%(1)        $  6,251         2.33%
    Bank                      10,717      4.0            16,852         6.29 (1)           6,135         2.29

Risk-based:
  Tier 1
    Company                 $  5,169      4.0%(2)      $ 16,964        13.13%(2)        $ 11,795         9.13%
    Bank                       5,169      4.0 (2)        16,852         13.04(2)          11,683         9.04
  Total risk-based

    Company                 $ 10,338      8.0%(2)      $ 18,582        14.38%(2)        $  8,244         6.38%
    Bank                      10,337      8.0 (2)        18,469        14.29 (2)           8,132         6.29
</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 1999, which
     were $267,837 and $267,919 for the Company and Bank, respectively.
(2)  Based upon total risk-based assets of $129,228 and $129,214 for the Company
     and Bank, respectively.
<PAGE>
The Federal Deposit Insurance  Corporation  Improvement Act (FDICIA) was enacted
on December 19, 1991;  regulations  implementing  the prompt  corrective  action
provisions of FDICIA became  effective one year later. In addition to the prompt
corrective action requirements, FDICIA made significant changes to the legal and
regulatory environment for insured depository institutions, including reductions
in insurance  coverage for certain kinds of deposits,  increased  supervision by
the federal regulatory  agencies,  increased reporting  requirements for insured
institutions,  and new regulations concerning internal controls, accounting, and
operations.

The prompt  corrective  action  regulations  define specific capital  categories
based on an institution's  capital ratios. The capital categories,  in declining
order, are "well  capitalized",  "adequately  capitalized",  "undercapitalized",
"significantly    undercapitalized",    and    "critically    undercapitalized".
Institutions  categorized as  "undercapitalized" or worse are subject to certain
restrictions,  including  the  requirements  to file a capital  plan with  their
primary  federal  regulator,  prohibitions  on  the  payment  of  dividends  and
management  fees,   restrictions  on  executive   compensation,   and  increased
supervisory monitoring, among other things. Other restrictions may be imposed on
the institution by the FDIC, including requirements to raise additional capital,
sell  assets,  or sell  the  entire  institution.  Once an  institution  becomes
"critically  undercapitalized"  it must generally be placed in  receivership  or
conservatorship  within ninety (90) days. The Bank has been categorized as "well
capitalized" during 1999.

ITEM 2  PROPERTIES

At December 31, 1999, 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  2000,  with  three  five-year  renewal  options
thereafter.  The Salem  lease runs  through the year 2000,  with four  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 leases the facilities at 25 Market Street 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.
<PAGE>
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 February
18, 2000, there were approximately 253 holders of record of the 2,525,427 shares
of the Ipswich Bancshares, Inc. Common Stock outstanding.

The following  table  presents the  quarterly  high and low sales prices for the
Company's  Common  Stock  during the periods in 1999,  and 1998,  as reported by
NASDAQ.  The  quotations  represent  high and low sales  prices for the stock as
reported by NASDAQ.
<TABLE>
<CAPTION>
                                                         SALES PRICE          DIVIDENDS
                                                         -----------          ---------
            Quarter-ending                            HIGH          LOW       DECLARED
            --------------                            ----          ---       --------
<S>                                                   <C>           <C>          <C>
            December 31, 1999                         $11.75        $8.375       $.10
            September 30, 1999                         10.375        8.875        .05
            June 30, 1999                              10.938        9.75         .05
            March 31, 1999                             12.00         9.688        .05

            December 31, 1998                          13.75        10.00         .05
            September 30, 1998                         18.835       11.50         .04
            June 30, 1998                              20.75        15.50         .04
            March 31, 1998                             16.5         13.50         .04

</TABLE>

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.
<PAGE>
ITEM 6     SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                IPSWICH BANCSHARES, INC. AND SUBSIDIARY
                                        SELECTED FINANCIAL DATA

                                                         At or for the Year Ended December 31,
                                               -----------------------------------------------
                                                1999        1998        1997        1996        1995
                                                ----        ----        ----        ----        ----
                                               (In thousands of dollars except for per share datat
<S>                                         <C>           <C>         <C>         <C>         <C>
Balance Sheet Data:
------------------
Total assets                                $  276,298    $ 271,328   $ 227,244   $ 158,942   $130,586
Loans                                          193,327      188,991     165,453     121,025     92,467
Deposits                                       210,082      199,757     171,241     129,343    110,842
Stockholders' equity                            16,975       14,223      11,833       9,851      8,092

Income Statement Data:
---------------------
Net interest income                         $    8,698   $    7,461   $   6,435   $   5,073   $  4,031
Provision for possible loan losses                 100          180         120         120         40
                                            ----------      -------     -------     -------     ------
Net interest income after provision for
    possible loan losses                         8,598        7,281       6,315       4,953      3,991
Total non-interest income                        2,925        2,437       1,700       1,520      1,166
Total non-interest expenses                      6,910        5,596       4,476       4,049      3,542
                                            ----------      -------     -------     -------     ------
Pretax income                                    4,613        4,122       3,539       2,424      1,615
Income tax expense                               1,324        1,484       1,327         632        148
                                            ----------      -------     -------     -------     ------

Net income                                  $    3,289   $    2,638   $   2,212   $   1,792   $  1,467
                                             =========     ========     =======     =======     ======

Per Share Data:
--------------
Book value per share (1)                     $    6.72   $     5.95   $    4.96   $    4.15   $    3.45
Basic earnings per share (1)                      1.33         1.10         .93         .76         .63
Diluted earnings per share (1)                    1.29         1.03         .88         .73         .61
Dividends per share (1)                            .25          .17         .125        .10         .01

Selected Operating Ratios:
-------------------------
Return on average stockholders' equity           21.04%       20.09%      20.38%      20.07%      20.67%
Return on average assets                          1.22         1.09        1.18        1.22        1.27
Gross interest margin                             3.36         3.23        3.60        3.63        3.64
Operating expense to average assets               2.42         2.32        2.39        2.75        3.06
Dividends/net income                             19.12        15.43       13.43       13.17        1.57

Capital Ratios:
--------------
Average equity to average assets                 5.74%        5.37%        5.71%       6.04%       6.09%
Total risk-based capital ratio                  14.38        11.70        10.81       12.01       12.42
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                         <C>           <C>         <C>         <C>         <C>
Other Data:
----------
Residential and home equity loan             $ 111,687   $  211,179   $ 119,445   $  101,336  $  68,263
originations

Non-performing assets                        $     142   $    1,186   $   2,164   $    3,213  $   3,772
Non-performing assets as a percent of              .05%         .44%        .95%        2.02%      2.89%
    total    assets
Number of checking accounts                     13,959       12,622      10,599        8,417      5,120
Number of employees                                 95           96          80           64         55

</TABLE>

(1)  Adjusted for 5 for 1 stock split effective  December 11, 1995, and adjusted
     for 2 for 1 stock split effective August 27, 1997

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.  The  Company's  financial  condition  continued  to improve in 1999 as
evidenced by increased  earnings,  the  maintenance of adequate  capital and the
growth in both earning  assets and  deposits.  The focus in 1999 was on building
the residential  mortgage  business as evidenced by the Company's  expanding its
market coverage throughout Essex County. The Company's focus in the deposit area
was on generating  transaction  accounts,  as evidenced by the ongoing  checking
account  acquisition  program  the  Company  implemented  in 1995.  The  Company
introduced its internet banking site in 1999 offering its full array of products
and access to its bill pay  option.  The  Company  has  experienced  higher than
expected results to date.

Cash and Cash Equivalents.  Cash and cash equivalents  decreased by $3.8 million
at December 31, 1999, from the year end 1998 balance of $12.1 million.  This was
primarily a result of a reallocation of liquid assets into higher yielding loans
and investments.

Investment Securities. Total investment securities increased by $28.3 million or
72.0% during 1999,  primarily due to the  investment of funds from loans sold in
the secondary  market into 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
$4.7 million of mortgage-backed  securities and $6.0 million of U.S.  Government
Agency  obligations from held to maturity to available for sale. At December 31,
1999,   the   Company   had   identified   $29.0   million  in   adjustable-rate
mortgage-backed   securities  as  available  for  sale.  The  Company  has  also
identified  $8.8  million of  callable  debentures  and U.S.  Treasury  bills as
available  for  sale,  and  held  $1.7  million  in  fixed-rate  mortgage-backed
securities in its available for sale portfolio.  The Company's portfolio of held
<PAGE>
to maturity securities consisted of $11.7 million of fixed-rate  mortgage-backed
securities and $16.4 million of callable  securities.  The Company  included net
unrealized gains on investment  securities  available for sale, net of taxes, of
$10,000 in accumulated other comprehensive income within stockholders' equity at
December 31, 1999, as a result of the  application  of SFAS No. 115,  Accounting
for Certain  Investments in Debt and Equity Securities.  See "Item 8 - Note 3 of
Notes to Consolidated Financial Statements".

Loans.  Gross loans increased by $4.3 million or 2.3% during 1999, and increased
by  $23.5  million  or  14.2%  during  1998.   Residential  and   owner-occupied
construction  loans increased by $2.0 million and home equity loans increased by
$3.6 million. Primarily from these lending efforts, the residential component of
the loan portfolio  increased to 97.0% of total loans from 96.1% at December 31,
1998.  Commercial  real estate loans  continued  to decrease as a percentage  of
gross loans, declining from 3.3% in 1998 to 2.5% in 1999.

Deposits.  Deposits  ended  the year at $210.1  million,  an  increase  of $10.3
million or 5.2% over the year-end 1998 balance of $199.8 million. Deposit growth
is  attributed  to a combined  strategy of providing  superior  convenience  and
service while offering competitive rates.

Borrowings. The Company borrows from the FHLB of Boston to support liquidity and
manage its asset/liability  position.  Borrowings  decreased to $45.0 million, a
decrease  of $8.0  million  in 1999  from the  year-end  1998  balance  of $53.0
million.

NON-PERFORMING ASSETS

General.  Non-performing  assets,  consisting of non-performing  loans and OREO,
peaked at December 31, 1990 at $15.3 million. This level, to a great extent, was
the result of  deterioration  in the regional  economy in the late 1980's and in
particular,  significant  decreases  in the  market  values  of real  estate  in
northeast  Massachusetts.  Since  that  time,  the  Company  has taken  steps to
decrease its exposure to non-performing  assets through  aggressive  workout and
sales management of these assets.  As a result,  non-performing  assets stood at
$142,000 at December 31, 1999 versus $1.2 million at the end of 1998.

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, 1999 and 1998 that
were  considered  troubled  debt  restructurings.  At December 31,  1997,  loans
totaling  $592,000  had been  renegotiated  and were  carried in  non-performing
status as restructured  loans.  This balance  represents 62.3% of non-performing
loans at December 31, 1997. The Company generally carries  restructured loans as
non-performing for 6 to 18 months before considering their  reclassification  to
performing status.
<PAGE>
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  $650,000  in loans  greater  than 90 days  past due and still  accruing  at
December 31, 1999. These loans were not classified non-performing loans.
<TABLE>
<CAPTION>
                                                                        At December 31,
                                                         -----------------------------------------
                                                         1999      1998      1997     1996    1995
                                                         ----      ----      ----     ----    ----
                                                                    (Dollars in Thousands)
<S>                                                     <C>       <C>      <C>      <C>      <C>
Delinquent loans 30-89 days past due (not included in
   non-performing loans)                                $  250    $  194   $1,218   $  827   $  468
Delinquent loans 90+ days past due (not included in
   non-performing loans)                                   650       442        3      292       99
                                                         -----     -----    -----    -----    -----

                                                        $  900    $  636   $1,221   $1,119   $  567
                                                         =====     =====    =====    =====    =====

Delinquent loans as a percent of gross loans               .47%      .34%     .74%     .92%     .61%
                                                        ======     ======   ======   ======   ======

Non-performing loans:
   Loans accounted for on a non-accrual basis           $   31    $  468   $  358   $  337   $  719
   Restructured loans                                      -        -         592    1,343    1,943
                                                         -----     -----    -----    -----    -----

      Total non-performing loans                            31       468      950    1,680    2,662

OREO, net of allowance for possible OREO losses            111       718    1,214    1,533    1,110
                                                         -----     -----    -----    -----    -----

      Total non-performing assets                       $  142    $1,186   $2,164   $3,213   $3,772
                                                         =====     =====    =====    =====    =====

Non-performing assets as a percent of total assets         .05%       .44%     .95%    2.02%    2.89%
                                                        ======     ======   ======   ======   ======
</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, 1999, the Company had classified an additional  $673,658 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.
<PAGE>
OREO. The following table sets forth the types of properties which comprised the
Company's  OREO  portfolio at the dates  shown.  All of the  properties  held on
December 31, 1999 are located in Essex County, Massachusetts.
<TABLE>
<CAPTION>
                                                 At December 31,
                                 --------------------------------------------
                                  1999               1998               1997
                                 ------             ------             ------
                                            (Dollars in Thousands)
<S>                              <C>                <C>                <C>
Land                             $    -             $  669             $  693
Commercial                           49                 49                521
Residential 1-4 family               62                  -                  -
                                 ------             ------             ------

OREO                             $  111             $  718             $1,214
                                 ======             ======             ======
</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 and expenses
associated with the administration and disposition of OREO, non-performing loans
and other classified  assets.  For the year ended December 31, 1999, the Company
reported net income of $3.3  million,  or $1.29 per fully  diluted  share ($1.33
basic),  compared to $2.6 million or $1.03 per fully diluted share ($1.10 basic)
for 1998 and $2.2 million or $.88 per fully diluted share ($.93 basic) for 1997.

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.
<PAGE>
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                  ---------------------------------------------------------------------------------------
                                             1999                           1998                          1997
                                  ---------------------------   ----------------------------  ---------------------------
                                            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)                 $172,407  $12,170     7.06%  $163,660   $11,784     7.20%  $119,167   $ 8,996    7.55%
  Commercial                         5,490      477     8.69      6,487       557     8.59      6,575       572    8.70
  Home equity                       21,251    1,561     7.35     18,807     1,464     7.78     15,692     1,364    8.69
  Consumer                           1,117      105     9.40      1,118       102     9.12      1,078        87    8.07
                                  --------  -------            --------   -------            --------   -------
    Total loans                    200,265   14,313     7.15    190,072    13,907     7.32    142,512    11,019    7.73
Investments (2)                     58,397    3,642     6.24     40,577     2,551     6.29     36,167     2,423    6.70
                                  --------  -------            --------   -------            --------   -------
    Total interest-
      earning assets               258,662   17,955     6.94    230,649    16,458     7.14    178,679    13,442    7.52

Cash and due from
  Banks                              6,247                        6,447                         4,640
Other assets                         4,248                        4,303                         4,107
                                  --------                     --------                      --------
    Total assets                  $269,157                     $241,399                      $187,426
                                  ========                     ========                      ========
Interest-bearing liabilities:
  Savings deposits                $35,987       868     2.41%   $37,005       937     2.53%   $36,755     1,056    2.87%
  NOW accounts                     23,787       176      .74     19,343       203     1.05     15,070       178    1.18
  Money market
    deposit accounts               58,115     2,441     4.20     44,165     2,030     4.60     27,337     1,128    4.13
  Certificates of deposit          63,608     3,091     4.86     62,346     3,372     5.41     58,580     3,306    5.64
                                  --------  -------            --------   -------            --------   -------
    Total interest-
      bearing deposits            181,497     6,576     3.62    162,859     6,542     4.02    137,742     5,668    4.11
  Borrowed funds                   50,995     2,681     5.26     44,100     2,455     5.57     23,828     1,339    5.62
                                  --------  -------            --------   -------            --------   -------
    Total interest-
      bearing liabilities         232,492     9,257     3.98    206,959     8,997     4.35    161,570     7,007    4.34

Demand deposits                    18,048                        18,207                        12,709
Other liabilities                   3,154                         3,263                         2,452
                                  -------                       -------                       -------
    Total liabilities             253,694                       228,429                       176,731

Stockholders' equity               15,463                        12,970                        10,695
                                  -------                      --------                       -------
    Total liabilities and
      Stockholders'
      Equity                     $269,157                      $241,399                      $187,426
                                  =======                      ========                      ========
Net interest income                         $ 8,698                       $ 7,461                       $ 6,435
                                            =======                       =======                        ======
Interest rate spread                                    2.96%                         2.79%                        3.18%
Gross interest margin                                   3.36%                         3.23%                        3.60%
</TABLE>
(1) Residential loans include portfolio loans and loans held for sale.
(2) Includes Federal funds sold.
<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>
                                                1999 vs. 1998                1998 vs. 1997
                                               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                                $(322)   $  728    $  406      $(580)   $3,468   $ 2,888
   Mortgage-backed securities              46       803       849       (154)      261       107
   Short-term investments                 (22)       73        51         19        47        66
   Investment securities                  (31)      222       191          3       (48)      (45)
                                         ----     -----     -----       ----     -----    ------

      Total                              (329)    1,826     1,497       (712)    3,728     3,016

Interest expense:
   Deposits                              (641)      675        34       (135)    1,009       874
   Borrowed funds                        (136)      362       226        (20)    1,136     1,116
                                         ----     -----     -----       ----     -----    ------

      Total                              (777)    1,037       260       (155)    2,145     1,990
                                         ----     -----     -----       ----     -----    ------

Net interest and dividend income        $ 448    $  789    $1,237      $(557)   $1,583   $ 1,026
                                         ====     =====     =====       ====     =====    ======
</TABLE>

Total  interest  income  amounted to $18.0 million for 1999, an increase of $1.5
million,  or 9.1% from $16.5 million in 1998.  The increase was primarily due to
the volume of loans in 1999 which,  on average,  increased  $10.2 million during
the year,  partially  offset by decreases in interest rates. As a result of this
increase, total interest income on the loan portfolio increased by $406,000. The
yield on the investment portfolio decreased by five basis points,  primarily due
to the redemption of callable debentures.  Callable debentures typically offer a
higher yield than other  investment  securities  due to the call  feature  which
gives the issuer the right to redeem an  investment  at certain times during the
life  of  the  security.   The  portfolio  of  adjustable-rate   mortgage-backed
securities  typically reprice up to market rates in the second and third year of
the life of these  securities which tends to increase the yield in a rising rate
environment  and  decrease  in a falling  rate  environment  on a delayed  basis
depending  upon the scheduled roll date of the  underlying  loans.  In addition,
average investments increased by $17.8 million. As a result,  interest income on
the  investment  portfolio  increased  by $1.1 million in 1999 over the previous
year.

Total interest income in 1998 was $16.5 million, an increase of $3.1 million, or
22.4% from 1997.  The increase was due primarily to growth in earning assets of,
on average,  $52.0 million. The growth was primarily in fixed-rate mortgages and
in the investment portfolio.
<PAGE>
Interest  on  loans  was also  impacted  by the  amount  of  non-performing  and
restructured  loans.  For 1999,  1998 and 1997,  the amount of  interest  due on
non-performing  and restructured  loans,  which was not recognized,  totaled $0,
$32,000 and $3,000, respectively.

Total  interest  expense in 1999 was $9.3  million  versus $9.0 million in 1998.
Interest expense increased primarily as a result of increased borrowings as well
as the growth in money market  accounts from, on average,  $44.2 million in 1998
to $58.1 million in 1999. This growth was primarily from the Company's continued
promotion  efforts in the Marblehead and Reading de novo branch locations opened
in June and August 1998, respectively.  Interest expense on borrowings increased
by $226,000  primarily as a result of  borrowings  increasing on average by $6.9
million,  partially  offset by a decline in the rate on borrowings from 5.57% in
1998 to 5.26% in 1999.

Total interest  expense in 1998 increased by $2.0 million  compared to 1997. The
increase was due to the growth in average interest-bearing  liabilities of $45.4
million.

Net Interest Income.  Net interest income was $8.7 million for 1999, an increase
of $1.2  million,  or 16.6%,  from 1998.  This  increase is primarily due to the
growth in earning  assets of the  Company,  specifically,  residential  mortgage
loans and adjustable-rate  mortgage-backed  securities.  Net interest income was
$7.5 million for 1998, an increase of $1.0 million or 15.9% from 1997.

Provision  for Possible  Loan Losses.  The provision for possible loan losses in
1999 was  $100,000,  a  decrease  of $80,000 or 44.4% from 1998 as growth of the
loan portfolio  slowed and quality  improved in 1999. The ratio of the allowance
for possible  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  possible  loan losses  amounted  to $44,000.  See "Item 1 -
Business Lending Activities - Loan Portfolio and Maturity.

The  provision  for possible  loan losses in 1998 was  $180,000,  an increase of
$60,000  or 50%  from  1997  principally  as a  result  of  growth  in the  loan
portfolio. The ratio of the allowance for possible loan losses to non-performing
loans was 372.2% at December  31, 1998,  and 176.1% at December  31,  1997.  For
1998,  net loan  charge-offs  against the  allowance  for  possible  loan losses
amounted to $111,000. See "Item 1 - Business - Lending Activities--Allowance for
Possible 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 Company recorded significant  provisions in
1993 and 1994 to reserve for several specific  commercial real estate loans that
had been originated in the mid to late "80's". Subsequently,  these credits were
resolved through payoffs, amortizations and charge-offs. The level of provisions
recorded  in 1995  through  1999  reflect the fact that the  composition  of the
portfolio  is  primarily  residential  mortgages  which  carry a lower risk than
commercial real estate. Levels of non-performing loans have also decreased.  The
decrease in the  provision in 1999 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.
<PAGE>
Increases  in the  allowance  for  possible  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  Company  was most  recently
examined by the Federal  Deposit  Insurance  Corporation in the first quarter of
1999.

Non-interest Income. Non-interest income for 1999 and 1998 increased $488,000 or
20.0% and $737,000 or 43.4%, over the previous year, respectively,  most notably
in net loan servicing  income  (expenses) and deposit  account fees. The Company
realized  significant  gains from the sale of loans in the  secondary  market in
1999 due to substantial originations in the first quarter of 1999 and the fourth
quarter of 1998.  Gains on the sale of  mortgages  totaled  $1.0 million in 1999
versus $1.5 million in 1998.  The Company  recognized  increases of $308,000 and
$254,000 in 1999 and 1998,  respectively,  over the  previous  year,  in deposit
account  fees,  primarily  as  a  result  of  the  ongoing  transaction  account
acquisition program.

In accordance  with SFAS No. 122 and SFAS No. 125, the Company  recognized  $1.2
million of  mortgage  servicing  rights in 1999 and $1.5  million  in 1998.  The
Company  recognizes on its balance  sheet the  estimated  value of the rights to
service  mortgages it originated and sold 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 unamortized asset totaled $0 and $229,000, at December 31, 1999 and
1998, respectively.  The Company determined no valuation allowance was necessary
at December 31, 1998.

Non-interest  Expenses.  Total  non-interest  expenses increased in 1999 by $1.3
million, or 23.5% over the 1998 total of $5.6 million. The increase is primarily
due to expenses of $380,000 to establish  the Holding  Company and REIT and full
year expenses for the two de novo branches  opened in mid-1998 in Marblehead and
Reading.

Total non-interest expenses increased in 1998 by $1.1 million, or 25.0% over the
1997 total of $4.5 million. Salaries and employee benefits, as well as occupancy
and equipment  expenses  increased by a total of $608,000,  primarily due to the
opening of the Marblehead and Reading  branches in the second and third quarters
of 1998,  respectively,  the addition of sales  people and support  staff in the
mortgage  banking  division and overall growth in the Company.  Data  processing
expenses  increased  by  $161,000  or 62.4%  primarily  as a result of the added
transaction  deposit accounts  generated from the Company's  deposit program and
the implementation of a new teller system.

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.
<PAGE>
Our  assumption  is that  NOW and  DDA  accounts  and  savings  accounts,  which
generally are subject to immediate  withdrawal,  have effective  maturities over
five years.  Money market accounts have an effective  maturity up to six months.
At December 31, 1999,  the Company's  cumulative  gap with respect to assets and
liabilities  maturing or repricing  within one year was a negative $49.2 million
or 17.8% 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.
<PAGE>
The following table summarizes the contractual  maturities or assumed  repricing
of the Company's assets, and liabilities and equity at December 31, 1999:
<TABLE>
<CAPTION>
                                                         Assets/Liabilities Maturing or Repricing at December 31, 1999 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                       $  14,206      $  17,373      $  18,674      $  35,780       $     -      $  86,033
   Residential fixed rate mortgage loans           5,456          5,020          9,218         22,587        35,209         77,490
   Home equity loans                              23,137              3              7             20           218         23,385
   Commercial loans                                  760            545            968          1,564         1,036          4,873
   Consumer loans                                    363            150             28             20           499          1,060
   Federal funds and interest bearing deposits     1,707              -              -              -             -          1,707
   Fixed MBS held-to-maturity                        471            488          1,028          2,870         6,819         11,676
   U.S. Treasury bills and callable
      debentures held-to-maturity                     11             10             10          2,082        14,280         16,393
   Fixed and MBS available-for-sale                  118            112            209            519           779          1,737
   ARM MBS available-for-sale                     18,560          8,235          2,211              -             -         29,006
   Callables debentures available-for-sale         4,865              -              -          1,977         1,917          8,759
   Equity securities                               3,977              -              -              -           253          4,230
   Cash and due from banks                             -              -              -              -         6,552          6,552
   Non-earnings assets                                 -              -              -              -         3,397          3,397
                                               ---------      ---------      ---------      ---------     ---------      ---------

   Total                                          73,631         31,936         32,353         67,419        70,959        276,298

Liabilities and equity capital:
   Interest bearing NOW accounts                       -              -              -              -        27,481         27,481
   Demand deposits                                     -              -              -              -        15,209         15,209
   Savings                                             -              -              -              -        37,704         37,704
   Money market deposits                          62,859              -              -              -             -         62,859
   Certificates of deposit                        38,503         13,420         12,374          2,532             -         66,829
   Borrowings                                     37,000          3,000          5,000              -             -         45,000
   Other liabilities                                   -              -              -              -         4,241          4,241
   Equity capital                                      -              -              -              -        16,975         16,975
                                               ---------      ---------      ---------      ---------     ---------      ---------

   Total                                         138,362         16,420         17,374          2,532       101,610        276,298
                                               ---------      ---------      ---------      ---------     ---------      ---------
Excess (deficiency) of assets over
   liabilities and equity capital              $ (64,731)     $  15,516      $  14,979      $  64,887     $ (30,651)     $       -
                                               =========      =========      =========      =========     =========      =========

Cumulative Gap                                 $ (64,731)     $ (49,215)     $(34,236)      $  30,651     $       -      $       -

Cumulative assets as a % of cumulative
   liabilities and equity capital                  53.22%         68.20%         80.11%       117.55%        100.00%

Cumulative excess (deficiency) of assets
   over liabilities and equity capital as a
   % of total assets                             (23.43)%       (17.81)%       (12.39)%       11.09%          0.00%
</TABLE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

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 $2.3 million, or 0.9%,
during 1999, and increased by $41.2 million, or 19.4%, during 1998.

During 1999 and 1998,  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,
1999 and 1998,  approved loan commitments  outstanding  amounted to $6.8 million
and $10.3 million,  respectively.  At the same dates, commitments of the Company
to borrowers  under unused lines of credit and home equity credit lines amounted
to $31.9 million and $26.3 million, respectively, and the unadvanced portions of
residential owner-occupied construction loans amounted to $573,000 and $355,000,
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, 1999, the total  borrowing  capacity was $99.1 million.
See "Item 1 - Business - Source of Funds - Borrowings".

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

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.

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 $629,000,  $407,000 and $297,000 or $.25, $.17 and
$.125 per share in 1999, 1998 and 1997, 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. As a result,  the number of shares  outstanding
at December  31, 1999 and 1998 was  approximately  2.5 million and 2.4  million,
respectively.
<PAGE>
RECENT ACCOUNTING DEVELOPMENTS

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes  standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial  statements.  This
statement  requires  that all items that are  required  to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  in equal  prominence  with  the  other
financial  statements.   It  requires  that  an  enterprise  display  an  amount
representing total comprehensive income for each period. It does not require per
share amounts of comprehensive income to be disclosed. SFAS No. 130 is effective
for both interim and annual  periods  beginning  after  December  15, 1997.  The
Company adopted this statement effective for the 1998 financial statements;  all
prior  periods  have  been  reclassified  to  reflect  the  provisions  of  this
statement.

In June of 1997, the FASB issued SFAS No. 131,  Disclosures about Segments of an
Enterprise and Related Information.  SFAS No. 131 establishes  standards for the
way  public  business  enterprises  are to report  information  about  operating
segments in annual financial statements and requires those enterprises to report
selected  information  about  operating  segments in interim  financial  reports
issued to shareholders.  It also establishes  standards for related  disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial  statements for periods  beginning after December 15,
1997. The Company manages its operations as one segment.

In  June  1998,  the  FASB  issued  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;  however,  in conjunction  with adopting
this  statement,   the  Company  transferred  $4.7  million  of  mortgage-backed
securities and $6.0 million of U.S.  Government Agency  obligations from held to
maturity to available for sale.

In 1998, the FASB issued SFAS No. 134, Accounting for Mortgage-Backed Securities
Retained  after the  Securitization  of Mortgage Loans Held for Sale by Mortgage
Banking  Enterprises.  SFAS No. 134 amends SFAS No. 65 to require that after the
securitization  of mortgage  loans held for sale, an entity  engaged in mortgage
banking activities  classify the resulting  mortgage-backed  securities or other
retained  interests  based  on its  ability  and  intent  to sell or hold  those
investments.  SFAS No. 134 was effective for the first fiscal quarter  beginning
after December 31, 1998. Early application was encouraged.  The adoption of this
statement  did  not  have  a  significant  effect  on  the  Company's  financial
condition, liquidity or results of operations.
<PAGE>
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,  as in 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.

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

                                                         Estimated
             Rate Change                              NII Sensitivity
             -----------                              ---------------

                                                      1999      1998
                                                      ----      ----
                +200bp                               (5.29)%   (13.3%)
                -200bp                                6.04%      8.5%

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.
<PAGE>
ITEM 8     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                     Page
                                                                     ----

Independent Auditors' Report                                          30


Consolidated Balance Sheets                                           31


Consolidated Statements of Income                                     33


Consolidated Statements of Changes in Stockholders' Equity            35


Consolidated Statements of Cash Flows                                 37


Notes to Consolidated Financial Statements                            40



<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, 1999 and 1998,
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, 1999.  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,  1999  and  1998,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  December 31, 1999 in conformity  with generally
accepted accounting principles.

Portland, Maine                                        Limited Liability Company
January 10, 2000
<PAGE>
<TABLE>
<CAPTION>
                             IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                                   CONSOLIDATED BALANCE SHEETS

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

                                     ASSETS
                                     ------

                                                                           1999         1998
<S>                                                                     <C>           <C>
Cash and due from banks (note 2)                                        $   6,552     $   7,079
Interest-bearing deposits                                                       2             5
Federal funds sold (note 2)                                                 1,705         5,011
                                                                        ---------     ---------

      Total cash and cash equivalents                                       8,259        12,095

Investment securities available for sale, at market value; amortized
   cost of $39,485 and $28,776 (notes 3 and 12)                            39,502        29,085

Investment securities held to maturity, at cost; market value
   of $27,061 and $10,271 (notes 3 and 12)                                 28,069        10,196

Loans held for sale (note 4)                                                    -        24,000

Loans (notes 5 and 12)                                                    193,327       188,991
Allowance for possible loan losses (note 6)                                (1,798)       (1,742)
                                                                        ---------     ---------

      Net loans                                                           191,529       187,249

Stock in Savings Bank Life Insurance Company                                  253           253

Stock in FHLB of Boston (notes 9 and 12)                                    3,977         2,905

Banking premises and equipment, net (note 7)                                3,168         3,298

Other real estate owned (note 8)                                              111           718

Accrued interest receivable                                                 1,248         1,053

Mortgage servicing rights (note 10)                                             -           229

Other assets                                                                  182           247
                                                                        ---------     ---------

      Total assets                                                      $ 276,298     $ 271,328
                                                                        =========     =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

                                                                               1999        1998
                                                                             --------    --------
<S>                                                                          <C>         <C>
Liabilities:
   Deposits (note 11)                                                        $210,082    $199,757
   Borrowed funds (note 12)                                                    45,000      53,000
   Mortgagors' escrow accounts                                                    993       1,043
   Accrued expenses and other liabilities                                       2,731       2,759
   Deferred income tax liability (note 13)                                        517         546
                                                                             --------    --------

      Total liabilities                                                       259,323     257,105

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,
      2,525,427 and 2,392,286 shares issued and outstanding                       253         239
   Additional paid-in capital                                                   2,262       2,009
   Retained earnings                                                           14,450      11,790
   Accumulated other comprehensive income (note 3)                                 10         185
                                                                             --------    --------

      Total stockholders' equity                                               16,975      14,223


      Total liabilities and stockholders' equity                             $276,298    $271,328
                                                                             ========    ========

</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
                               IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                                  CONSOLIDATED STATEMENTS OF INCOME

                            Years Ended December 31, 1999, 1998 and 1997
                            (Dollars in Thousands, Except Per Share Data)

                                                                        1999       1998         1997
                                                                     --------    --------     --------
<S>                                                                  <C>         <C>          <C>
Interest and dividend income:
   Loans                                                             $ 14,313    $ 13,907     $ 11,019
   Federal funds sold and interest bearing deposits                       187         136           70
   Investment securities available for sale                             2,233       1,108          953
   Investment securities held to maturity                               1,222       1,307        1,400
                                                                     --------    --------     --------

      Total interest and dividend income                               17,955      16,458       13,442

Interest expense:
   Deposits (note 11)                                                   6,576       6,542        5,668
   Borrowed funds                                                       2,681       2,455        1,339
                                                                     --------    --------     --------

      Total interest expense                                            9,257       8,997        7,007
                                                                     --------    --------     --------

      Net interest and dividend income                                  8,698       7,461        6,435

Provision for possible loan losses (note 6)                               100         180          120
                                                                     --------    --------     --------

      Net interest and dividend income after provision
         for possible loan losses                                       8,598       7,281        6,315

Non-interest income:
   Net mortgage banking gains (note 4)                                  1,030       1,466          619
   Net gain (loss) on sale of mortgage servicing rights (note 10)          63        (196)          --
   Loan servicing income (expenses), net (note 10)                         21        (341)         (21)
   Deposit account fees                                                 1,504       1,196          942
   Other loan fees                                                        217         204          135
   Gains (losses) on sales of securities available for sale,
      net (note 3)                                                         78          93           (5)
   Other                                                                   12          15           30
                                                                     --------    --------     --------

      Total non-interest income                                         2,925       2,437        1,700
                                                                     --------    --------     --------

      Net interest, dividend and non-interest income                   11,523       9,718        8,015


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

                                  CONSOLIDATED STATEMENTS OF INCOME

                                             (CONTINUED)

                            Years Ended December 31, 1999, 1998 and 1997
                            (Dollars in Thousands, Except Per Share Data)


                                                                1999           1998           1997
                                                              -------        -------        -------
<S>                                                           <C>            <C>            <C>
Non-interest expenses:
   Salaries and employee benefits (note 15)                   $ 3,196        $ 2,559        $ 2,110
   Occupancy and equipment expenses (note 7)                      886            661            502
   Data processing expenses                                       465            419            258
   Professional fees                                              778            248            218
   Advertising and marketing expenses                             537            632            430
   FDIC deposit insurance                                          36             27             19
   OREO income, net (note 8)                                     (308)          (148)           (49)
   Other                                                        1,320          1,198            988
                                                              -------        -------        -------

      Total non-interest expenses                               6,910          5,596          4,476
                                                              -------        -------        -------

      Income before income taxes                                4,613          4,122          3,539

Income tax expense (note 13)                                    1,324          1,484          1,327
                                                              -------        -------        -------

      Net income                                              $ 3,289        $ 2,638        $ 2,212
                                                              =======        =======        =======

Basic earnings per share (notes 1 and 16)                     $  1.33        $  1.10        $   .93
Diluted earnings per share (notes 1 and 16)                      1.29           1.03            .88

Dividends per share                                               .25            .17           .125


</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
                                        IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                     Years Ended December 31, 1999, 1998 and 1997
                                     (Dollars in Thousands Except Per Share Data)

                                                                                             Accumulated
                                                                                                Other      Total
                                                                   Additional                  Compre-     Stock-
                                         Shares         Common       Paid-in     Retained      hensive     holders'
                                       Outstanding      Stock        Capital     Earnings       Income      Equity
                                       -----------      -----        -------     --------       ------      ------
<S>                                      <C>          <C>          <C>          <C>           <C>          <C>
Balance at December 31, 1996             1,187,811    $     119    $   1,936    $   7,763     $      33    $   9,851

Stock options exercised                      9,454            1           27            -             -           28
Issuance of stock rights                         -            -            6            -             -            6
Cash dividends                                   -            -            -         (297)            -         (297)
Transfer resulting from
  2-for-1 stock split                    1,187,811          119            -         (119)            -            -

Comprehensive income:
  Net income                                     -            -            -        2,212             -        2,212
  Other comprehensive income:
    Unrealized holding gains on
      securities, net of taxes of $40            -            -            -            -             -           64
    Reclassification adjustment
      for amounts included in net
      income, net of taxes of $20                -            -            -            -             -          (31)

  Other comprehensive income                     -            -            -            -            33           33
                                                                                                           ---------

Total comprehensive income                       -            -            -            -             -        2,245
                                         ---------    ---------    ---------    ---------     ---------    ---------

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

                              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                      (CONTINUED)

                                     Years Ended December 31, 1999, 1998 and 1997
                                     (Dollars in Thousands Except Per Share Data)

                                                                                             Accumulated
                                                                                                Other         Total
                                                                    Additional                 Compre-        Stock-
                                           Shares        Common       Paid-in     Retained     hensive        holders'
                                        Outstanding       Stock       Capital     Earnings      Income         Equity
                                        -----------       -----       -------     --------      ------         ------
<S>                                       <C>          <C>          <C>          <C>           <C>           <C>
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>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
                                       IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                                    Years Ended December 31, 1999, 1998 and 1997
                                               (Dollars in Thousands)

                                                                                1999         1998           1997
                                                                              --------     --------       ---------
<S>                                                                           <C>          <C>            <C>
Net cash flows from operating activities:
   Net income                                                                 $  3,289     $  2,638       $   2,212
   Adjustments to reconcile net income to net cash provided (used)
     by operating activities:
       Provision for possible loan losses                                          100          180             120
       Reduction of allowance for possible losses on other
         real estate owned                                                           -            -            (150)
       Deferred income tax expense                                                  88           61             143
       Depreciation expense                                                        337          244             169
       Amortization of premiums on investment securities, net                      148           59              86
       Gains on sale of loans                                                   (1,030)      (1,466)           (619)
       (Gains) losses on sales of investment securities available for sale         (78)         (93)              5

       Gains on sale of other real estate owned                                   (340)        (224)            (61)
       Loss on disposal of fixed assets                                              -            -               4
       Origination of loans held for sale                                      (59,545)    (134,915)        (45,964)
       Proceeds from sale of loans                                              16,620       28,872          20,491
       Proceeds from sale of securitized loans                                  67,955       91,540          16,855
       (Increase) decrease in net loan origination costs                          (208)         228            (179)
       Decrease on loan discounts                                                   (3)         (40)             (4)
       (Increase) decrease in mortgage servicing rights                            229          257            (100)
       (Increase) decrease in accrued interest receivable                         (195)          83            (279)
       (Increase) decrease in other assets, net                                     65          (85)            263
       (Decrease) increase in accrued expenses and other liabilities               (28)          52             695
                                                                              --------     --------       ---------
   Net cash provided (used) by operating activities                             27,404      (12,609)         (6,313)

Net cash flows from investing activities:

   Purchase of investment securities available for sale                        (19,490)     (16,722)         (7,064)
   Principal paydowns on investment securities available for sale               12,722        8,390           4,568

   Proceeds from the sale of investment securities available for sale            4,963        3,475           7,001

   Purchase of investment securities held to maturity                          (20,826)      (4,008)        (25,547)
   Principal paydowns on investment securities held to maturity                  2,964       10,498           8,972

   Purchases of stock in FHLB of Boston                                         (1,072)        (861)           (969)
   Net increase in loans                                                       (13,216)     (23,837)        (43,913)
   Proceeds from sales of other real estate owned                                1,009          720             203
   Purchases of equipment, net                                                    (207)        (883)           (373)
                                                                              --------     --------       ---------

   Net cash used in investing activities                                       (33,153)     (23,228)        (57,122)

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

                                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     (CONTINUED)

                                    Years Ended December 31, 1999, 1998 and 1997
                                               (Dollars in Thousands)

                                                                                1999          1998           1997
                                                                              ---------     ---------     ---------
<S>                                                                           <C>           <C>           <C>
Cash flows from financing activities:
   Proceeds from the issuance of common stock and stock rights                $     267     $      40     $      34
   Cash dividends                                                                  (629)         (407)         (297)
   Net increase in deposits                                                      10,325        28,516        41,898
   Proceeds from Federal Home Loan Bank advances                                120,000        96,012        49,360
   Repayment of Federal Home Loan Bank advances                                (128,000)      (83,372)      (26,000)
   (Decrease) increase in mortgagors' escrow accounts                               (50)          345           204
                                                                              ---------     ---------     ---------

   Net cash provided by financing activities                                      1,913        41,134        65,199
                                                                              ---------     ---------     ---------

Net increase (decrease) in cash and cash equivalents                             (3,836)        5,297         1,764

Cash and cash equivalents at beginning of year                                   12,095         6,798         5,034
                                                                              ---------     ---------     ---------

Cash and cash equivalents at end of year                                      $   8,259     $  12,095     $   6,798
                                                                              =========     =========     =========

Supplemental disclosure of cash flow information:
  Cash paid for:
     Interest on deposit accounts                                             $   6,576     $   6,542     $   5,668
     Interest on borrowed funds                                                   2,711         2,412         1,268
     Income tax expense, net                                                        601         1,191           992

Supplemental schedule of non-cash investing and financing activities:
   Conversion of residential real estate loans to mortgage-
     backed securities                                                        $  76,097     $  90,451     $  18,079
   Transfer of investment securities held to maturity to
     investment securities available for sale (note 2)                                -        10,698             -
   Transfer of other real estate owned to loans                                       -             -           327
   Transfer of loans to other real estate owned                                      62             -             -
   Transfer from retained earnings to common stock resulting
     from 2-for-1 in 1997                                                             -             -           119
   Net (decrease) increase required by Statement of Financial
       Accounting Standards No. 115:
       Investment securities                                                       (292)          199            53
       Deferred income tax liability                                               (117)           80            20
       Net unrealized gain on investment securities
         available for sale                                                        (175)          119            33
</TABLE>

See accompanying notes.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


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

          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.

          Material  estimates that are  particularly  susceptible to significant
          change in the near-term  relate to the  determination of the allowance
          for possible  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.  In  addition,  other  real
          estate  owned is located in that  market.  Accordingly,  the  ultimate
          collectibility  of  a  substantial   portion  of  the  Company's  loan
          portfolio and the recovery of the carrying amount of other real estate
          owned  are  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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


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

     (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.

          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 Possible Loan Losses
          ----------------------------------

          The allowance for possible 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
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


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

          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 possible 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
          possible loan losses is adequate as of year end 1999. 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 possible 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 Possible Loan Losses," and
          "Item 8 - Note 6 of Notes to Consolidated Financial Statements".

     (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
          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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


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

     (i)  Other Real Estate Owned
          -----------------------

          Other real estate owned includes  those  properties  acquired  through
          foreclosure  or  deed-in-lieu  of  foreclosure.  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.

          After foreclosure,  foreclosed assets are presumed to be held for sale
          and are  carried at the lower of fair value minus  estimated  costs to
          sell or cost. When fair value minus selling costs declines below cost,
          a valuation  allowance is established.  If the fair value of the asset
          minus the  estimated  costs to sell  subsequently  increases  and this
          amount  is  more  than  the  asset's  carrying  value,  the  valuation
          allowance  is  reversed.  Increases  or  decreases  in  the  valuation
          allowance  are charged or credited to income.  The  carrying  value of
          other real estate owned is  determined by  management's  evaluation of
          the risk of loss based upon an  assessment  of the types of other real
          estate owned,  review and  assessment of  independent  appraisals  and
          other  factors.   While  management  uses  information   available  in
          determining the carrying value,  future  adjustments to carrying value
          may be necessary if economic conditions differ  substantially from the
          assumptions  used in  making  the  evaluation.  In  addition,  various
          regulatory agencies, as an integral part of their examination process,
          periodically  review the Company's carrying value of other real estate
          owned.  Such agencies may require the Company to recognize  additional
          write-downs based upon judgments different from those of management.

     (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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


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

     (p)  Other Comprehensive Income
          --------------------------

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

     (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.  During 1997, the Company declared a two-for-one
          stock split which has been reflected in all per share computations.

     (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.

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

     Federal  funds sold at  December  31, 1999 and 1998 were $1,705 and $5,011,
     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,  1999 was
     $1,105.

     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,  1999,  the Company was required to
     maintain a compensating balance of $255.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 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.

     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>
                                                                       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
                                                  ======         ====          ====        =======


<CAPTION>
                                                                       1998
                                                 -------------------------------------------------
                                                 Amortized    Unrealized    Unrealized     Market
                                                   Cost          Gains        Losses        Value
                                                  ------         ----          ----        -------
<S>                                              <C>            <C>           <C>         <C>
     U.S. Government Agency obligations          $ 3,999        $ 102         $ -         $  4,101
     Mortgage-backed securities                   24,685          194           (6)         24,873
     Marketable equity securities                     92           19           -              111
                                                  ------         ----          ---         -------

                                                 $28,776        $ 315         $ (6)       $ 29,085
                                                  ======         ====          ===         =======
</TABLE>


<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 3.  Investment Securities (Continued)
     ---------------------------------

     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>
                                                            1999                      1998
                                                  ----------------------     ----------------------
                                                  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          4,000         3,894        3,999         4,101
     Mortgage-backed securities maturing
        after ten years:
          FNMA participation certificates           25,531        25,631       12,886        12,990
          FHLMC participation certificates           5,089         5,112       11,799        11,883
                                                    ------       -------       ------       -------

                                                   $39,485      $ 39,502      $28,684      $ 28,974
                                                   =======      ========      =======      ========
</TABLE>
     Proceeds  from sales of  investment  securities  available  for sale during
     1999,  1998 and 1997 amounted to $4,963,  $3,475 and $7,001,  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>
                                         1999                  1998                 1997
                                  ------------------    ------------------   -------------------
                                  Realized  Realized    Realized  Realized   Realized   Realized
                                    Gains    Losses       Gains     Losses     Gains      Losses
                                    -----    ------       -----     ------     -----      ------
<S>                                 <C>        <C>         <C>       <C>        <C>       <C>
     U.S. Treasury notes            $  -       $  -        $ -       $ -        $  6      $  (1)
     U.S. Government Agency
        obligations                    -          -          63        -          -         (24)
     Mortgage-backed securities        49         -          16        (1)        14         -
     Marketable equity securities      29         -          15        -          -          -
                                    -----      ----        ----      ----       ----      -----

                                    $  78      $  -        $ 94      $ (1)      $ 20      $ (25)
                                    =====      ====        ====      ====       ====      =====
</TABLE>
     The Company had $324 of investment securities pledged for Treasury, Tax and
     Loan purposes to the FRB as of December 31, 1999.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 3.  Investment Securities (Continued)
     ---------------------------------

     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:
<TABLE>
<CAPTION>
                                                                1999     1998
                                                                ----     ----
<S>                                                             <C>     <C>
     Net unrealized gain on available for sale securities       $ 17    $ 309
     Related income tax benefit                                   (7)    (124)
                                                                 ---     ----

                                                                $ 10    $ 185
                                                                 ===     ====
</TABLE>
     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>
                                                                       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
                                                  ======         ====         ======       =======

<CAPTION>

                                                                       1998
                                               --------------------------------------------------
                                               Amortized    Unrealized     Unrealized      Market
                                                  Cost         Gains          Losses        Value
                                                  ----         -----          ------        -----
<S>                                              <C>            <C>          <C>          <C>
     U.S. Government Agency obligations          $ 3,500        $  27        $  -         $  3,527
     Mortgage-backed securities                    6,696           48           -            6,744
                                                  ------         ----         ----         -------

                                                 $10,196        $  75        $  -         $ 10,271
                                                  ======         ====         ====         =======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 3.  Investment Securities (Continued)
     ---------------------------------

     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>
                                                                1999                    1998
                                                        --------------------     -----------------
                                                         Amortized    Market     Amortized  Market
                                                           Cost        Value       Cost      Value
                                                          ------      ------     -------    ------
<S>                                                      <C>         <C>        <C>         <C>
     After one to five years                             $ 2,000     $ 1,935    $   -       $  -
     After five to ten years                              14,393      13,841       3,500      3,527
     Mortgage-backed securities maturing after ten years:
        FNMA participation certificates                    3,077       3,004       1,980      2,013
        FHLMC participation certificates                   4,868       4,796         741        750
        GNMA participation certificates                    3,731       3,485       3,975      3,981
                                                          ------      ------     -------     ------

                                                         $28,069     $27,061    $ 10,196    $10,271
                                                          ======      ======     =======     ======
</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>
                                               1999                           1998
                                    -------------------------       --------------------------
                                                    Estimated                        Estimated
                                    Amortized        Market         Amortized         Market
                                      Cost            Value           Cost             Value
                                      ----            -----           ----             -----
<S>                                 <C>              <C>              <C>             <C>
     Loans held for sale            $   -            $  -             $24,000         $24,000
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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:

<TABLE>
<CAPTION>
                                Realized            Realized
                                  Gains              Losses           Net Gains
                                  -----              ------           ---------
<S>                              <C>                <C>               <C>
          1999                   $1,036             $   (6)           $ 1,030
          1998                    1,474                 (8)             1,466
          1997                      622                 (3)               619
</TABLE>

     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  $5,096, $0 and $13,700 at December 31, 1999,
     1998 and 1997, 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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 5.  Loans (Continued)
     -----------------

     Loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
                                                                                 1999       1998
                                                                                -------   --------
<S>                                                                            <C>       <C>
     Loans:
        Residential                                                            $162,633  $ 160,153
        Residential owner-occupied construction                                   1,463      1,767
        Land                                                                         28         32
        Commercial real estate                                                    4,845      6,159
        Home equity                                                              52,706     43,426
                                                                                -------   --------
                                                                                221,675    211,537
        Less:
          Unadvanced funds on home equity loans                                 (29,321)   (23,654)
          Unadvanced funds on owner-occupied construction loans                    (573)      (355)
          Deferred loan origination costs, net                                      586        378
          Unearned discount                                                        (100)      (103)
                                                                                -------   --------
             Loans, net                                                         192,267    187,803

     Other loans, net                                                             1,060      1,188
                                                                                -------   --------
             Total loans                                                       $193,327  $ 188,991
                                                                                =======   ========
</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, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
                                                                        1999    1998    1997
                                                                        ----    ----    ----
<S>                                                                    <C>     <C>     <C>
           Balance at beginning of year                                $ 468   $ 655   $ 496
           Loan originations                                             413     317     393
           Amortization and payoffs                                     (239)   (353)    (15)
           Loans sold                                                   (112)     -       -
           Directors/employees left company                              (98)   (151)   (219)
                                                                        ----    ----    ----

           Balance at end of year                                      $ 432   $ 468   $ 655
                                                                        ====    ====    ====
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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, 1999 and 1998 was $31 and $468,  respectively.
     The related allowance for loan losses at December 31, 1999 and 1998 was $16
     and $56,  respectively.  The average recorded  investment in impaired loans
     during  1999 and 1998 was $333  and  $884,  respectively.  Interest  income
     recognized  on impaired  loans during 1999,  1998 and 1997 was $71, $37 and
     $105, 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 Possible Loan Losses

     An analysis of the  allowance  for possible loan losses for the years ended
     December 31, is as follows:
<TABLE>
<CAPTION>
                                                                           1999     1998     1997
                                                                           ----     ----     ----
<S>                                                                      <C>      <C>      <C>
     Balance at beginning of year                                        $ 1,742  $ 1,673  $ 1,548
     Provision charged to operations                                         100      180      120

     Less loans charged-off                                                  (81)    (131)     (31)
     Recoveries on loans previously charged-off                               37       20       36
                                                                          ------   ------   ------

     Net (charge-offs) recoveries                                            (44)    (111)       5
                                                                          ------   ------   ------

     Balance at end of year                                              $ 1,798  $ 1,742  $ 1,673
                                                                          ======   ======   ======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 6.  Allowance for Possible Loan Losses (Continued)
     ----------------------------------------------

     The allowance for possible loan losses is allocated as follows:
<TABLE>
<CAPTION>

                                                            1999     1998
                                                          -------  -------
<S>                                                       <C>      <C>
     Commercial real estate                               $   151  $   215
     Residential real estate                                1,056    1,016
     Home equity and other consumer                           582      497
     Residential owner-occupied construction                    9       14
                                                          -------  -------

     Total allowance                                      $ 1,798  $ 1,742
                                                          =======  =======
</TABLE>

 7.  Banking Premises and Equipment
     ------------------------------

     A summary of banking premises and equipment at December 31 is as follows:
<TABLE>
<CAPTION>

                                                       1999     1998
                                                     -------   -------
<S>                                                 <C>       <C>
             Land                                   $    207  $    207
             Building                                  2,179     2,147
             Equipment                                 2,646     2,473
             Leasehold improvements                      788       786
                                                     -------   -------

                                                       5,820     5,613
             Less accumulated depreciation            (2,652)   (2,315)
                                                     -------   -------

                                                    $  3,168  $  3,298
                                                     =======   =======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 7.  Banking Premises and Equipment (Continued)
     ------------------------------------------

     As of December 31, 1999, 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
               -----------                                    ------

                  2000                                        $ 213
                  2001                                          171
                  2002                                          169
                  2003                                          116
                  2004                                           29

     Rent  expense  amounted to $235,  $199 and $144 for each of the years ended
     December 31, 1999, 1998 and 1997, respectively.

     The Company  leased out part of its facility,  located in Ipswich,  under a
     non-cancelable lease agreement. Rental income under this lease totaled $50,
     $56 and $62 at December 31, 1999, 1998 and 1997, respectively.

 8.  Other Real Estate Owned
     -----------------------

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

<TABLE>
<CAPTION>
                                                             1999   1998
                                                             ----   ----
<S>                                                          <C>     <C>
        Land                                                 $  -    $669
        Commercial                                             49      49
        Residential                                            62       -
                                                             ----    ----

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

     An analysis  of  activity in other real estate  owned for each of the years
     ended December 31, is as follows:
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 8.  Other Real Estate Owned
     -----------------------

<TABLE>
<CAPTION>
                                                                      1999       1998        1997
                                                                   -------      ------     -------
<S>                                                                <C>          <C>        <C>
     Balance at beginning of year                                  $   718      $1,214     $ 1,683

     Foreclosures                                                       62           -           -
     Net sales proceeds, including loans made to facilitate sales   (1,009)       (720)       (530)

     Gains on sales, net                                               340         224          61
                                                                    ------       -----      ------

     Balance at end of year                                        $   111      $  718     $ 1,214
                                                                    ======       =====      ======
</TABLE>

     The Company had no allowance for possible losses on other real estate owned
     or any related  activity  during each of the years ended December 31, 1999,
     1998 and 1997 other than a reduction of the allowance to $0 during the year
     ended December 31, 1997 through a credit of $150 to operating expenses.

     An analysis of (income) expense for other real estate owned for each of the
     years ended December 31, is as follows:

<TABLE>
<CAPTION>
                                                                      1999        1998        1997
                                                                      ----        ----        ----
<S>                                                                  <C>        <C>         <C>
     Rental income                                                   $  (8)     $  (26)     $  (65)
     Gains on sales                                                   (340)       (224)        (61)
     Reduction in allowance                                            -            -         (150)
     Permitting costs                                                   29         112          67
     Foreclosure expense (reimbursement)                                11         (10)        160
                                                                     -----      ------      ------

                                                                     $(308)     $ (148)     $  (49)
                                                                     =====      ======      ======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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,
      1999 and 1998,  the Company  held the  required  investment  of $3,977 and
      $2,905, respectively.

10.   Mortgage Servicing Rights
      -------------------------

      Loans  serviced  for others  amounted  to  approximately  $0,  $18,848 and
      $45,358 at December 31, 1999, 1998 and 1997,  respectively.  Net servicing
      income (expense)  amounted to approximately  $21, $(341) and $(21) for the
      years ended December 31, 1999, 1998 and 1997, respectively.

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

<TABLE>
<CAPTION>
                                                                         1999      1998      1997
                                                                       -------   --------   ------
<S>                                                                    <C>       <C>        <C>
      Balance at beginning of year                                     $   229   $    543   $  421
      Additions                                                          1,171      1,452      264
      Normal amortization                                                  (86)      (174)    (116)
      Sale of mortgage servicing rights                                 (1,314)    (1,417)     -
      Additional amortization for prepayments                             -          (175)     (26)
                                                                       -------   --------   ------

      Balance at end of year                                           $  -      $    229   $  543
                                                                       =======   ========   ======

      Fair value at end of year                                        $  -      $    229   $  486
                                                                       =======   ========   ======
</TABLE>

      During 1999 the Company sold the rights to service  approximately  $90,000
      in loans and recognized a gain of $63 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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

 10.   Mortgage Servicing Rights (Continued)
       -------------------------------------

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

<TABLE>
<CAPTION>
                                                                         1999       1998      1997
                                                                         ----       ----      ----
<S>                                                                     <C>        <C>       <C>
      Balance at beginning of year                                      $  -       $ (57)    $ (35)
      Write up (down) of servicing rights through charge
         to servicing income                                               -        (141)      (22)
      Sale of mortgage servicing rights                                    -         198         -
                                                                         ----       ----      ----

      Balance at end of year                                            $  -       $  -      $ (57)
                                                                         ====       ====      ====
</TABLE>

11.   Deposits
      --------

      Deposits at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                 1999       1998
                                                                               --------  ---------
<S>                                                                            <C>       <C>
      Demand deposits (non-interest bearing)                                   $ 15,209  $  18,656
      NOW accounts                                                               27,481     22,954
      Savings accounts                                                           37,704     37,768
      Money market deposit accounts                                              62,859     55,418
      Certificates of deposit                                                    66,829     64,961
                                                                               --------  ---------

                                                                               $210,082  $ 199,757
                                                                               ========  =========
</TABLE>

      Deposits  of $100 or more  totaled  approximately  $72,592  and $65,959 at
      December 31, 1999 and 1998, respectively, of which $11,211 and $11,325 are
      certificates of deposit in 1999 and 1998, respectively.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

11.   Deposits (Continued)
      --------------------

      The  following  table  shows the  scheduled  maturity of  certificates  of
      deposit accounts at December 31:


<TABLE>
<CAPTION>
                                                    1999                         1998
                                           ----------------------       ----------------------
                                           Amount         Percent       Amount         Percent
                                           ------         -------       ------         -------
<S>                                       <C>              <C>         <C>              <C>
         Within one year                  $51,923           77.7%      $ 58,350          89.8%
         1-2 years                         12,374           18.5          5,035           7.8
         2-3 years                          2,339            3.5          1,232           1.9
         Thereafter                           193             .3            344            .5
                                          -------          -----       --------         -----

                                          $66,829          100.0%      $ 64,961         100.0%
                                          =======          =====       ========         =====
</TABLE>



      Interest on deposits classified by type for the years ended December 31 is
      as follows:


<TABLE>
<CAPTION>

                                                                      1999     1998     1997
                                                                     ------   ------   ------
<S>                                                                  <C>      <C>      <C>
         NOW accounts                                                $  176   $  203   $  178
         Saving accounts                                                868      937    1,056
         Money market deposit accounts                                2,441    2,030    1,128
         Certificates of deposits                                     3,091    3,372    3,306
                                                                      -----    -----    -----

                                                                     $6,576   $6,542   $5,668
                                                                     ======   ======   ======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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>
                                                   1999                           1998
                                         --------------------------     -------------------------
                                                          Weighted                       Weighted
                                                           Average                        Average
                                          Amount            Rate          Amount           Rate
                                         -------            ----        --------           ----
<S>                                      <C>               <C>           <C>               <C>
         Maturity in:
           1999                          $     -               -%        $24,000           5.25%
           2000                           40,000            5.82           3,000           5.98
           2001                            5,000            5.18           5,000           5.18
           2002                                -               -           3,000           6.08
           2003                                -               -          10,000           5.32
           2008                                -               -           8,000           4.99
                                          ------           ----          -------           ----

                                         $45,000            5.75%       $ 53,000           5.31%
                                         =======            ====        ========           ====
 </TABLE>
      The Company  has a total  borrowing  capacity of $99,100  with the Federal
      Home Loan Bank of Boston at December 31, 1999.  Advances  from the Federal
      Home Loan Bank of Boston are  secured by FHLB of Boston  stock,  a blanket
      lien on residential first mortgage loans and investment securities.

13.   Income Taxes
      ------------

      The  components of income tax expense for each of the years ended December
      31, are as follows:
<TABLE>
<CAPTION>
                                                                    1999       1998         1997
                                                                    ----       ----         ----
<S>                                                               <C>          <C>        <C>
      Federal income tax expense:
         Current                                                  $1,204       $1,219     $   981
         Deferred                                                     91          149          84

      State income tax expense:
         Current                                                      32          204         203
         Deferred                                                    118          (66)        169

      Change in valuation reserve                                   (121)         (22)       (110)
                                                                  =-----       =-----     =------

                                                                  $1,324       $1,484     $ 1,327
                                                                  ======       ======     =======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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,
     1999,  1998  and  1997  was  28.7%,  36.0%  and  37.5%,   respectively.   A
     reconciliation  of expected tax expense at the statutory federal income tax
     rate to income before income taxes, is as follows:
<TABLE>
<CAPTION>
                                              1999                    1998                  1997
                                       --------------------  --------------------    -------------------
                                                     % 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                      $ 1,568        34.0%   $ 1,401        34.0%   $ 1,203        34.0%
Items affecting the federal income
   tax rate:
     State income taxes, net of
        federal tax benefit                 99         2.1         91         2.2        246         6.9
     Other                                (222)       (4.8)        14         0.3        (12)       (0.3)
     Reduction in valuation reserve       (121)       (2.6)       (22)       (0.5)      (110)       (3.1)
                                       -------        ----    -------        ----    -------        ----

                                       $ 1,324        28.7%   $ 1,484        36.0%   $ 1,327        37.5%
                                       =======        ====    =======        ====    =======        ====
</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>
                                                            1999      1998
                                                          -------   -------
<S>                                                      <C>       <C>
      Deferred tax asset:
         Loan loss reserves                              $    708  $    679
         Other real estate owned                               15       307
         Net operating loss carryforward                      184       320
         Alternative minimum tax credit                        40        40
         Business credits carryforward                        425       425
         All other                                            100         7
                                                          -------   -------

           Total gross deferred tax asset                   1,472     1,778

         Less valuation reserve                              (425)     (546)
                                                          -------   -------

              Net deferred tax asset                        1,047     1,232
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

13.   Income Taxes (Continued)
      ------------------------
<TABLE>
<CAPTION>
                                                                                   1999      1998
                                                                                --------  --------
<S>                                                                             <C>       <C>
      Deferred tax liabilities:
         Difference between book and tax carrying value of
           investment securities                                                $      7  $    124
         Banking premises and equipment, due to depreciation
           differences                                                               351       301
         Servicing asset and deferred costs                                          603       756
         Carrying basis of limited partnerships                                      603       597
                                                                                 -------   -------

           Total gross deferred tax liability                                      1,564     1,778
                                                                                 -------   -------

           Net deferred tax liability                                           $   (517) $   (546)
                                                                                ========  ========
</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,  1999  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,  1999,   the  Company  had  a  net  operating   loss
      carry-forward  for federal  tax  purposes  of $542  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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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,  1999,  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, 1999 and 1998. 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, 1999 and for the
      Bank as of December 31, 1998 are presented in the following tables:
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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     13,396    5.00
</TABLE>


<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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, 1998
      -----------------------
      Total capital (to risk-weighted assets)    $15,693     11.70%    $  10,734       8.00%    $  13,417     10.00%

      Tier I capital (to risk-weighted assets)    14,015     10.45         5,367       4.00         8,050      6.00

      Tier I capital (to average assets)          14,015      5.55        10,105       4.00        12,632      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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


15.   Benefit Plans (Continued)
      -------------------------

      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  $150,  $157 and $119  during  years  ended
      December 31, 1999, 1998 and 1997, respectively.

      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
      a year of 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. Such matching  contributions,  which are fully vested when made,
      amounted to $49,  $41 and $36 during the years ended  December  31,  1999,
      1998 and 1997, 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, 1999,
      1998 and 1997.

      Stock Option Plans
      ------------------

      At December 31, 1999 the Company has 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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


15.   Benefit Plans (Continued)
      -------------------------

      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>
                                                                           1999     1998     1997
                                                                           ----     ----     ----
<S>                                          <C>                         <C>      <C>      <C>
      Net income                             As reported                 $ 3,289  $ 2,638  $ 2,212
                                             Pro forma                     3,141    2,608    2,030

      Basic earnings per share               As reported                  $ 1.33  $  1.10     $.93
                                             Pro forma                      1.29     1.09      .85

      Diluted earnings per share             As reported                  $ 1.29  $  1.03     $.88
                                             Pro forma                      1.24     1.02      .80
</TABLE>
      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:
<TABLE>
<CAPTION>

                                                                            1999     1998      1997
                                                                            ----     ----      ----
<S>                                                                     <C>          <C>          <C>
           Dividend yield                                                   2.5%         1.5%           0.7%
           Expected volatility                                             23.0%        50.0%          49.0%
           Risk-free interest rates                                         6.7%         4.4%           5.8%
           Expected lives                                               10 years     10 years      8.3 years
</TABLE>
      The weighted  average fair values of options granted during 1999, 1998 and
      1997 were $2.83, $7.38 and $7.30, respectively.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


15.   Benefit Plans (Continued)
      -------------------------

      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>
                                             1999                        1998                          1997
                                     --------------------        -----------------------       ----------------------
                                                 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                 251,442     $    5.43        261,527     $    5.16        222,078     $    3.00
   Granted                           105,750         10.25          3,675         15.46         66,000         11.64
   Exercised                        (133,141)         1.80         (7,210)         2.63         (9,454)         3.30
   Forfeited                          (5,000)        11.33         (6,550)         3.68        (17,097)         5.37
                                   ---------                    ---------                      -------
Outstanding at end of year           219,051     $    9.82        251,442     $    5.43        261,527     $    5.16
                                   =========                    =========                      =======
Options exercisable at year end      192,210     $    9.71      $ 240,234     $    5.17        237,747     $    4.86

</TABLE>
      The following table summarizes information about stock options outstanding
      at December 31, 1999:
<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           4.0        $ 1.00          1,500       $  1.00
      $2.50                        1,751           5.6          2.50          1,751          2.50
      $4.9375 to 7.8125           48,500           7.0          5.81         48,500          5.81
      $9.9375 to 10.25           105,750           9.6         10.25         82,686         10.25
      $12.50 to 13.625            59,550           7.9         12.53         55,773         12.52
      $17.00                       2,000           8.5         17.00          2,000         17.00
                                 -------                                    -------
                                 219,051                                    192,210
                                 =======                                    =======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

15.   Benefit Plans (Continued)
      -------------------------

      Employment and Severance Agreements
      -----------------------------------

      The  Company's  President,  the clerk of the  corporation  and four  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 $55, $28 and $6 at December 31, 1999, 1998
      and 1997 representing 4,573, 1,942 and 469 stock units, respectively.  The
      stock  units  have been  treated  as  common  stock  for the  purposes  of
      calculating earnings per share.

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, 1999, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
                                                        Income        Shares       Per-Share
                                                      (Numerator)  (Denominator)    Amount
                                                      ----------    -----------    --------
<S>                                                    <C>             <C>           <C>
      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>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

16.   Earnings Per Share (EPS) (Continued)
      ------------------------------------


<TABLE>
<CAPTION>
      1997
      ----
<S>                                                    <C>             <C>           <C>
      Basic EPS                                        $ 2,212         2,378         $.93
      Effect of stock options                               -            147           -
                                                        ------         -----          ---
      Diluted EPS                                      $ 2,212         2,525         $.88
                                                        ======         =====          ===

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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>
                                                                                   1999       1998
                                                                                   ----       ----
<S>                                                                             <C>        <C>
      Commitments to originate residential loans                                $   6,816  $ 10,333
      Unused lines of credit on home equity loans                                  29,321    23,654
      Unadvanced portions of residential owner-occupied construction loans            573       355
      Unused lines of credit on overdraft protection, personal lines of credit
         and credit cards                                                           2,545     2,719
      Commitments to sell loans                                                      -       34,000
      Commitments to purchase available for sale investments                         -       13,998
</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,  1999 and 1998,  the  Company  had  identified  $0 and
      $24,000,  respectively, of loans to fulfill the outstanding commitments at
      weighted average rates which will satisfy the commitments  without loss to
      the Company.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


18.   Condensed Parent Information
      ----------------------------

      Condensed financial  statements for Ipswich  Bancshares,  Inc. at December
      31,  1999 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 years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
      Balance Sheet
      -------------
<S>                                                                             <C>
      Assets
      ------
      Cash (deposited with subsidiary)                                          $    290
      Investment in subsidiary                                                    16,862
                                                                                 -------
         Total assets                                                           $ 17,152
                                                                                 =======
      Liabilities and Stockholders' Equity
      ------------------------------------
      Accrued expenses and other liabilities                                    $    177
      Stockholders' equity                                                        16,975
                                                                                 -------
         Total liabilities and stockholders' equity                             $ 17,152
                                                                                 =======
      Statement of Income
      -------------------
      Income:
         Dividends from banking subsidiary                                      $    681
                                                                                 -------
          Total income                                                               681

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

         Income before income tax benefit and equity in
          undistributed net income of subsidiary                                     489
         Income tax benefit                                                          125
                                                                                 -------
         Income before equity in undistributed net income
          of subsidiary                                                              614
         Equity in undistributed net income of subsidiary                          2,675
                                                                                 -------
            Net income                                                          $  3,289
                                                                                 =======
</TABLE>
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)


18.   Condensed Parent Information (Continued)
      ----------------------------------------
<TABLE>
<CAPTION>
      Statement of Cash Flows
      -----------------------
<S>                                                                             <C>
      Cash flows from operating activities:

         Net income                                                             $  3,289
         Adjustments to reconcile net income to net cash
          used by operations:
         Undistributed earnings of subsidiary                                     (2,675)
         Increase in accrued expenses and other liabilities                          177
                                                                                 -------
          Net cash provided by operating activities                                  791

      Cash flows from financing activities:
         Proceeds from issuance of common stock                                       11
         Dividends paid to stockholders                                             (512)
                                                                                 -------
          Net cash used by financing activities                                     (501)
                                                                                 -------
          Net increase in cash                                                       290

      Cash, beginning of year                                                       -
                                                                                 -------
      Cash, end of year                                                         $    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, 1999 and 1998, as
      these financial instruments have short maturities.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

19.   Fair Value of Financial Instruments (Continued)
      -----------------------------------------------

      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, 1999
      and 1998.

      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,  1998.  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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

19.   Fair Value of Financial Instruments (Continued)
      -----------------------------------------------

      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,  1999 and 1998.  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.

      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,  bank  premises  and
      equipment and other real estate owned. 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.
<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (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>
                                                             1999                   1998
                                                    ----------------------   --------------------
                                                    Carrying     Estimated   Carrying   Estimated
                                                      Value     Fair Value     Value   Fair Value
                                                      -----     ----------     -----   ----------
<S>                                                 <C>         <C>         <C>         <C>
      Financial assets:
         Cash and cash equivalents                  $  8,259    $  8,259    $ 12,095    $ 12,095
         Available for sale securities                39,502      39,502      29,085      29,085
         Held to maturity securities                  28,069      27,061      10,196      10,271
         Stock in other financial institutions         4,230       4,230       3,158       3,158
         Loans held for sale                            -           -         24,000      24,000
         Loans, net                                  191,529     191,256     187,249     187,766
         Accrued interest receivable                   1,248       1,248       1,053       1,053

      Financial liabilities:
         Deposits (with no stated maturity)          143,253     143,253     134,796     134,796
         Time deposits                                66,829      66,878      64,961      65,431
         Mortgagors' escrow accounts                     993         993       1,043       1,043
         Borrowed funds                               45,000      44,900      53,000      53,195

</TABLE>






<PAGE>
                     IPSWICH BANCSHARES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997
       (All Dollar Amounts Expressed in Thousands, Except Per Share Data)

20.   Quarterly Results of Operations (Unaudited)
      -------------------------------------------
<TABLE>
<CAPTION>
                                                      1999 Quarters                     1998 Quarters
                                             -------------------------------    -----------------------------
                                             Fourth   Third  Second    First    Fourth  Third  Second   First
                                             ------   -----  ------    -----    ------  -----  ------   -----
<S>                                          <C>     <C>     <C>     <C>        <C>      <C>     <C>      <C>
      Interest and dividend income           $4,588  $4,536  $ 4,289 $ 4,542    $  4,215 $ 4,053 $ 4,106  $4,085
      Interest expense                        2,332   2,257    2,242   2,426       2,322   2,252   2,225   2,198
                                             ------  ------  ------- -------    -------- ------- -------  ------

      Net interest and dividend income        2,256   2,279    2,047   2,116       1,893   1,801   1,881   1,887
      Provision for possible loan losses          -     (10)     (45)    (45)        (45)    (45)    (45)    (45)

      Non-interest income                       548     819      666     892         569     622     615     630
      Non-interest expense                   (1,592) (1,618)  (1,678) (2,022)     (1,447) (1,439) (1,494) (1,216)
                                             ------  ------  ------- -------    -------- ------- -------  ------

      Income before income taxes              1,212   1,470      990     941         970     939     957   1,256
      Income tax expense                       (303)   (441)    (297)   (283)       (349)   (338)   (345)   (452)
                                             ------  ------  ------- -------    -------- ------- -------  ------

      Net income                             $  909  $1,029  $   693 $   658    $    621 $   601 $   612  $  804
                                             ======  ======  ======= =======    ======== ======= =======  ======

      Basic earnings per share               $  .36  $  .41  $   .28 $   .28    $   .26  $   .25 $   .26  $  .34
                                             ======  ======  ======= =======    ======== ======= =======  ======

      Diluted earnings per share             $  .36  $  .40  $   .27 $   .26    $   .24  $   .24 $   .24  $  .31
                                             ======  ======  ======= =======    ======== ======= =======  ======

      Cash dividends declared per share      $  .10  $  .05  $  .05   $  .05    $   .05  $   .04 $   .04  $  .04
                                             ======  ======  ======= =======    ======== ======= =======  ======
</TABLE>

      Quarterly  per share  figures may not total to the full year amount due to
      rounding.
<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 1999,  1998 and  1997.  See Item 8 of this
           Report.

      (2)  Financial Statement Schedules.  The following  consolidated financial
           schedules  of the Company are included in response to Part II, Item 8
           of  this  Report:  Schedule  I -  Securities  -  See  Note  3 to  the
           Consolidated Financial Statements.

           Schedule  II -  Loans  to  Officers,  Directors,  Principal  Security
           Holders.  The  following  schedule  of the  Company  is  included  in
           response  to  Part  II,  Item 8 of  this  report:  See  Note 5 to the
           Consolidated Financial Statements.

           Schedule III - Loans and Lease Financing  Receivables - The following
           schedule of the Company is included in response to Part II, Item 8 of
           this report. See Note 5 to the Consolidated Financial Statements.

           Schedule  IV -  Bank  Premises  and  Equipment  - See  Note  7 to the
           Consolidated Financial Statements.
<PAGE>
           Schedule V -  Investments  in, Income from  Dividends,  and Equity in
           Earnings or Losses of  Subsidiaries  and  Associated  Companies - Not
           Applicable.

           Schedule VI - Allowance  for Possible Loan Losses - See Note 6 to the
           Consolidated Financial Statements.

(b)   Reports on Form 8-K
      -------------------

      (1) No Reports on Form 8-K were filed during the last quarter of 1999.

(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.

        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 August 10, 1992 for premises located at Route 133 and
               Route 1,  Rowley,  Massachusetts  is  incorporated  by  reference
               herein from the Company's June 30, 1999 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.
<PAGE>
      *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   Employment  Agreement dated June 18, 1998 between Ipswich Savings
               Bank and Richard P. Duffett is incorporated  by reference  herein
               from the Company's June 30, 1999 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.

      *10.20   Severance Agreement dated August 18, 1999 between Ipswich Savings
               Bank and Keirsten  Scanlon is  incorporated  by reference  herein
               from the Company's September 30, 1999 Form 10-Q.
<PAGE>
        (11)   A statement  regarding the  computation  of earnings per share is
               included in the notes to consolidated financial statements.

        (12)   Not applicable.

        (27)   Financial data schedule.

     * Denotes management contract or compensation plan.
<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 15, 2000               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 15, 2000
--------------------               Director (Principal Executive Officer)
David L. Grey

By: /s/Francis Kenney              Senior Vice President, Treasurer, and Chief   March 15, 2000
---------------------              Financial Officer (Principal Financial
Francis Kenney                     Officer, Principal Accounting Officer)


By: /s/William M. Craft            Director                                      March 15, 2000
-----------------------
William M. Craft

By: /s/Thomas A. Ellsworth         Director                                      March 15, 2000
--------------------------
Thomas A. Ellsworth

By:                                Director                                      March 15, 2000
William E. George

By. /s/Mark L. Klaman              Director                                      March 15, 2000
---------------------
Mark L. Klaman

By: /s/John H. Morrow              Director                                      March 15, 2000
John H. Morrow

By: /s/Lawrence J. Pszenny         Director                                      March 15, 2000
--------------------------
Lawrence J. Pszenny

By: /s/William J. Tinti            Director                                      March 15, 2000
-----------------------
William J. Tinti
</TABLE>
<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 August 10, 1992 for premises located at Route 133 and
               Route 1,  Rowley,  Massachusetts  is  incorporated  by  reference
               herein from the Company's June 30, 1999 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.                                                                     *
</TABLE>
<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   Employment  Agreement dated June 18, 1998 between Ipswich Savings
               Bank and Richard P. Duffett is incorporated  by reference  herein
               from the Company's June 30, 1999 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.                   *

      *10.20   Severance Agreement dated August 18, 1999 between Ipswich Savings
               Bank and Keirsten  Scanlon is  incorporated  by reference  herein
               from the Company's September 30, 1999 Form 10-Q.                              *

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

       (12)    Not applicable.                                                               *

       (27)    Financial data schedule.                                                      *
 </TABLE>
     * Denotes management contract or compensation plan.