================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-QSB

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

(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the quarterly period ended June 30, 2004

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the transition period from              to
                                     ------------    ------------

                        Commission File Number 333-114018

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

                              First Ipswich Bancorp
        (Exact name of small business issuer as specified in its charter)

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


              Massachusetts                              04-2955061
     (State or other jurisdiction of                   (I.R.S.Employer
     incorporation or organization)                Identification Number)

                                31 Market Street,
                          Ipswich, Massachusetts 01938
                    (Address of principal executive offices)

                                 (978) 356-3700
                (Issuer's telephone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 |_|

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: At July 31, 2004, there were
2,057,630 shares of common stock outstanding, par value $1.00 per share.

      Transitional Small Business Disclosure Format (Check one): YES |_| NO |X|

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

                     FIRST IPSWICH BANCORP AND SUBSIDIARIES
                                   FORM 10-QSB

                                      Index


                                                                            Page
                                                                            ----

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets as of June 30, 2004 and
         December 31, 2003                                                     3

         Consolidated Statements of Income for the quarter and
         six months ended June 30, 2004 and 2003                               4

         Consolidated Statements of Changes in Stockholders' Equity for
         the six months ended June 30, 2004 and 2003                           5

         Consolidated Statements of Cash Flows for the six months ended
         June 30, 2004 and 2003                                                6

         Notes to Consolidated Financial Statements                            7

Item 2.  Management's Discussion and Analysis                                  8

Item 3.  Controls and Procedures                                              21

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                    22

Item 2.  Changes in Securities                                                22

Item 3.  Defaults upon Senior Securities                                      22

Item 4.  Submission of Matters to a Vote of Security Holders                  22

Item 5.  Other Information                                                    22

Item 6.  Exhibits and Reports on Form 8-K                                     23

         Signatures                                                           23


                                        2
<PAGE>

PART I--FINANCIAL INFORMATION

ITEM 1. Financial Statements

                     FIRST IPSWICH BANCORP AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                  June 30,   December 31,
                                                                    2004         2003
                                                                 ---------   ------------
<S>                                                              <C>          <C>
ASSETS
------
Cash and due from banks                                          $  12,881    $   9,620
Federal funds sold                                                     410           65
                                                                 ---------    ---------

Total cash and cash equivalents                                     13,291        9,685
                                                                 ---------    ---------

Certificate of deposit                                               2,279        2,253
Securities available for sale, at fair value                       155,984      117,046
Securities held to maturity, at amortized cost                      34,417       39,217
Federal Home Loan Bank stock, at cost                                5,590        5,590
Federal Reserve Bank stock, at cost                                    489          489
Loans, net of allowance for loan losses of $1,318 and $1,334       163,968      156,504
Banking premises and equipment, net                                  5,887        5,631
Other assets                                                         5,808        4,304
                                                                 ---------    ---------

Total assets                                                     $ 387,713    $ 340,719
                                                                 =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits                                                         $ 244,750    $ 198,058
Short-term borrowings                                               54,281       62,254
Long-term borrowings                                                42,944       54,481
Subordinated debentures                                              9,000        9,000
Due to broker                                                       17,475           --
Other liabilities                                                    1,390        1,658
                                                                 ---------    ---------

Total liabilities                                                  369,840      325,451
                                                                 ---------    ---------

Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
   none issued                                                          --           --
Common stock, $1.00 par value; 4,000,000 shares authorized,
   2,078,120 and 1,778,120 issued, respectively                      2,078        1,778
Additional paid-in capital                                           9,198        5,894
Retained earnings                                                    8,092        7,826
Accumulated other comprehensive loss                                (1,384)        (119)
Treasury stock, at cost - 20,490 shares                               (111)        (111)
                                                                 ---------    ---------

Total stockholders' equity                                          17,873       15,268
                                                                 ---------    ---------

Total liabilities and stockholders' equity                       $ 387,713    $ 340,719
                                                                 =========    =========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                     FIRST IPSWICH BANCORP AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME (unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                Six Months Ended
                                                      Quarter Ended June 30,        June 30,
                                                       --------------------   -------------------
                                                         2004        2003       2004       2003
                                                       --------    --------   --------   --------
<S>                                                    <C>         <C>        <C>        <C>
Interest and dividend income:
   Interest and fees on loans                          $  2,575    $  2,537   $  5,098   $  4,919
   Interest on debt securities:
      Taxable                                             1,203       1,030      2,498      2,319
      Tax-exempt                                            191         140        383        238
   Dividends on equity securities                            57         101        110        194
   Other interest                                            35           2         70          3
                                                       --------    --------   --------   --------
         Total interest and dividend income               4,061       3,810      8,159      7,673
                                                       --------    --------   --------   --------
Interest expense:
   Interest on deposits                                     705         660      1,223      1,325
   Interest on borrowed funds                               623         618      1,286      1,227
   Interest on subordinated debentures                      144         146        288        293
                                                       --------    --------   --------   --------
         Total interest expense                           1,472       1,424      2,797      2,845
                                                       --------    --------   --------   --------
Net interest income                                       2,589       2,386      5,362      4,828
Provision for loan losses                                    --          --         --         --
                                                       --------    --------   --------   --------
Net interest income, after provision for loan losses      2,589       2,386      5,362      4,828
Other income:
   Gain (loss) on sales and calls of securities, net        (11)        294        375        934
   Service charges on deposit accounts                      364         285        650        531
   Credit card fees                                         176         173        311        334
   Trust fees                                               112          84        203        168
   Non-deposit investment fees                               70          45        163        113
   Miscellaneous                                             77          30         99        115
                                                       --------    --------   --------   --------
         Total other income                                 788         911      1,801      2,195
                                                       --------    --------   --------   --------
Operating expenses:
   Salaries and employee benefits                         1,821       1,536      3,696      2,937
   Occupancy and equipment                                  513         450        959        877
   Professional fees                                        208         140        495        316
   Credit card interchange                                  146         132        240        233
   Advertising and marketing                                193         124        263        216
   Data processing                                          156         110        300        233
   ATM processing                                           101          77        191        145
   Other general and administrative                         381         295        684        568
                                                       --------    --------   --------   --------
         Total operating expenses                         3,519       2,864      6,828      5,525
                                                       --------    --------   --------   --------
Income (loss) before income taxes                          (142)        433        335      1,498
Provision (credit) for income taxes                        (100)        128         25        464
                                                       --------    --------   --------   --------
Net income (loss)                                      $    (42)   $    305   $    310   $  1,034
                                                       ========    ========   ========   ========
Weighted average common shares outstanding:
   Basic                                                  1,761       1,753      1,759      1,753
                                                       --------    --------   --------   --------
   Diluted                                                1,854       1,806      1,852      1,806
                                                       --------    --------   --------   --------
Earnings (loss) per share:
   Basic                                               $  (0.02)   $   0.17   $   0.18   $   0.59
                                                       ========    ========   ========   ========
   Diluted                                             $  (0.02)   $   0.17   $   0.17   $   0.57
                                                       ========    ========   ========   ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                     FIRST IPSWICH BANCORP AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
                 FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                                       Additional                    Other
                                                        Paid-in      Retained    Comprehensive
                                        Common Stock    Capital      Earnings    Income (Loss)   Treasury Stock      Total
                                        ------------    -------      --------    -------------   --------------      -----
<S>                                        <C>          <C>          <C>           <C>              <C>           <C>
Balance at December 31, 2002               $ 1,778      $ 5,881      $ 5,872       $    613         $ (136)       $ 14,008
                                                                                                                  --------
Comprehensive income:
    Net income                                                         1,034                                         1,034
    Unrealized loss on securities
      available for sale, net of
      reclassification adjustment
      and tax effect                                                                   (564)                          (564)
                                                                                                                  --------
        Total comprehensive income                                                                                     470
                                                                                                                  --------
Treasury stock issued (250 shares)                            1                                          2               3
Cash dividends declared ($.025 per
    share)                                                              (46)                                           (46)
                                           -------      -------      -------       --------         ------        --------
Balance at June 30, 2003                     1,778        5,882        6,860             49           (134)         14,435
                                           =======      =======      =======       ========         ======        ========

Balance at December 31, 2003                 1,778        5,894        7,826           (119)          (111)         15,268
                                                                                                                  --------
Comprehensive loss:
    Net income                                                           310                                           310
    Unrealized loss on securities
      available for sale, net of
      reclassification adjustment
      and tax effect                                                                 (1,265)                        (1,265)
                                                                                                                  --------
        Total comprehensive loss                                                                                      (955)
                                                                                                                  --------
Proceeds from issuance of common
    stock (300,000 shares)                     300        3,304                                                      3,604
Cash dividends declared ($.025 per
    share)                                                               (44)                                          (44)
                                           -------      -------      -------       --------         ------        --------
Balance at June 30, 2004                   $ 2,078      $ 9,198      $ 8,092       $ (1,384)        $ (111)        $17,873
                                           =======      =======      =======       ========         ======        ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                     FIRST IPSWICH BANCORP AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                         For the Six Months Ended June 30,
                                                                                 2004          2003
                                                                              ----------    ----------
<S>                                                                           <C>           <C>
Cash flows from operating activities:
   Net income                                                                 $      310    $    1,034
   Adjustments to reconcile net income to net cash provided (used) by
     operating activities:
     Gain on sales and calls of securities, net                                     (375)         (934)
     Depreciation and amortization                                                   336           323
     Net amortization of securities, including certificate of deposit                494           753
     Equity loss in limited partnership                                               --            19
     Derivative fair value adjustment                                                 15            --
     Core deposit intangible                                                        (535)           --
     Amortization of core deposit intangible                                          18            --
     Net change in other assets and other liabilities                               (393)         (167)
                                                                              ----------    ----------
         Net cash provided (used) by operating activities                           (130)        1,028
                                                                              ----------    ----------
Cash flows from investing activities:
   Activity in available-for-sale securities:
     Purchases                                                                  (103,195)      (76,723)
     Sales                                                                        52,142        65,722
     Maturities, calls and paydowns                                               27,372        34,186
   Activity in held-to-maturity securities:
     Purchases                                                                        --       (16,195)
     Sales                                                                           669            --
     Maturities, calls and paydowns                                                4,062           853
   Purchase of Federal Home Loan Bank stock                                           --        (1,228)
   Purchase of Federal Reserve Bank stock                                             --          (168)
   Loan originations, net of repayments                                           (7,464)      (15,972)
   Additions to premises and equipment, net                                         (592)         (627)
                                                                              ----------    ----------
         Net cash used by investing activities                                   (27,006)      (10,152)
                                                                              ----------    ----------
Cash flows from financing activities:
   Net increase in deposits                                                       46,692        13,650
   Net increase (decrease) in short-term borrowings                               (7,973)      (16,670)
   Proceeds from long-term debt                                                       --        10,000
   Repayment of long-term debt                                                   (11,537)         (649)
   Proceeds from issuance of treasury stock                                           --             3
   Proceeds from issuance of common stock                                          3,604            --
   Cash dividends paid                                                               (44)          (46)
                                                                              ----------    ----------
         Net cash provided by financing activities                                30,742         6,288
                                                                              ----------    ----------
Net increase (decrease) in cash and cash equivalents                               3,606        (2,836)
Cash and cash equivalents at beginning of period                                   9,685        15,163
                                                                              ----------    ----------

Cash and cash equivalents at end of period                                    $   13,291    $   12,327
                                                                              ==========    ==========

Supplemental disclosures:
   Interest paid                                                              $    2,769    $    2,846
   Income taxes paid                                                                  48           446
   Due to broker                                                                  17,475            --
</TABLE>

           See accompanying notes to consolidated financial statements


                                       6
<PAGE>

                     FIRST IPSWICH BANCORP AND SUBSIDIARIES
             Notes to Consolidated Financial Statements (unaudited)

(1)   Basis of Presentation and Consolidation

      The accompanying unaudited consolidated financial statements include the
accounts of First Ipswich Bancorp (the "Company"), The First National Bank of
Ipswich (the "Bank"), the Company's subsidiaries, and the Bank's subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

      These unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP") for interim financial information and the instructions for Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation have been included. Interim results
are not necessarily indicative of the results that may be expected for the
entire year. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with GAAP have been omitted. A
summary of significant accounting policies followed by the Company is set forth
in the Notes to Consolidated Financial Statements of the Company's Annual Report
on Form SB-2 for the year ended December 31, 2003.

(2)   Stockholder's Equity and Earnings per Share

      On June 30, 2004, the Company completed a public offering of its
securities. Pursuant to the offering, the Company sold 300,000 shares of common
stock, $1.00 par value, at an offering price of $13.00 per share. Proceeds
received, net of offering costs of approximately $300,000, amounted to $3.6
million. Proceeds are intended to be used to fund continued bank growth, as well
as the possible acquisition of an investment advisory firm.

      Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects additional common shares
(common stock equivalents) that would have been outstanding if dilutive
potential shares had been issued, as well as any adjustment to income that would
result from the assumed issuance. As of June 30, 2004, potential common shares
that may be issued by the Company related solely to warrants issued in
connection with the Company's subordinated debentures and were determined using
the treasury stock method. Assumed conversion of the outstanding warrants would
increase the number of shares outstanding, but would not require an adjustment
to income as a result of the conversion. For the three months ending June 30,
2004, no common stock equivalents are included in the calculation of earnings
per share as the Company is reporting a net loss, the effect of which would be
anti-dilutive. For the three months ending June 30, 2003 and six months ending
June 30, 2004 and 2003, the Company has no potential common shares outstanding
that are considered anti-dilutive.

(3)   Commitments

      At June 30, 2004, the Company had outstanding commitments to originate
loans of $10.7 million. Unused lines of credit and open commitments available to
customers at June 30, 2004 amounted to $34.3 million, of which $18.1 million
related to construction loans, $7.6 million related to home equity lines of
credit, $4.3 million related to credit card loans and $4.3 million in other open
commitments.


                                       7
<PAGE>

(4)   Subsequent Events

      On March 19, 2004, the Bank executed a lease agreement for a new branch
office in Portsmouth, New Hampshire with an opening anticipated for late in the
third quarter of 2004. The lease has a term of five years with three five-year
options to renew. Rent under the lease is approximately $72,000 per year with
increases tied to the Consumer Price Index. The Bank received regulatory
approval for the opening of this branch on June 24, 2004.

ITEM 2. Management's Discussion and Analysis

General

      This quarterly report on Form 10-QSB contains and incorporates by
reference "forward-looking statements". Words such as "believes", "expects,"
"may," "will," "should," "contemplates," or "anticipates" may indicate
forward-looking statements. There are a number of important factors that could
cause the Company's actual results to differ materially from those contemplated
by such forward-looking statements. These important factors include, without
limitation, competitive conditions in the Bank's marketplace generally, the
Bank's continued ability to originate quality loans, fluctuation in interest
rates including fluctuations which may affect the Bank's interest rate spread,
real estate conditions in the Bank's lending areas, changes in the securities or
financial markets, changes in loan defaults and charge-off rates, general and
local economic conditions, the Bank's continued ability to attract and retain
deposits, the Company's ability to control costs, new accounting pronouncements,
and changing regulatory requirements. The Company undertakes no obligation to
publicly release the results of any revisions to those forward-looking
statements, which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

Executive Summary

      As anticipated by the financial markets, the Federal Open Market Committee
raised the Federal Funds target rate 25 basis points on both June 30th and
August 10th. Three straight months of stronger than expected employment data,
although followed by weaker than expected reports in July and August, combined
with rising inflation indicators, were the primary basis for the tightening.
Although strength in key economic data is evident, several national concerns
persist; for example, reduced consumer spending as the 2003 tax and refinancing
incentives wane, increasing consumer debt levels, and higher industrial and
office vacancy rates. In our local markets, credit quality remains solid, though
the volume of new loan originations in 2004 has retreated from the frenzied pace
in 2003 with the recent climb in market interest rates and a resultant slowdown
in mortgage refinancing activity. New customers and purchase originations
continue to be targeted.

      In the second quarter, several community banks were acquired in
Massachusetts by large multi-state bank holding companies, continuing the
consolidation trend in the industry. Although the increasing presence of these
large banking institutions in several of the Bank's markets continues,
increasing competitive pricing challenges, the Company has continued to pursue
expansion of its banking footprint in several new markets. The Company views the
continued absorption of certain community banks as an opportunity to grow the
franchise as we continue to cater to the personal banking needs of consumers and
businesses.

      Primarily as a result of continued investment in new retail branches, and
the consequent increase in legal, marketing, and other expenses, as well as due
to staffing infrastructure costs, the Company recorded a net loss for the
quarter ended June 30, 2004. A return to positive earnings is anticipated in the
third quarter as revenues increase as a result of increased capital capacity,
while amounts associated with certain one-time expenses incurred in the first
six months of 2004 are not anticipated in the last six months. The Company is
optimistic, though can offer no assurance, about its prospects for core deposit
and lending growth at both of the new retail branches in Beverly and Cambridge,
and eagerly anticipates the successful launch of the Portsmouth, New Hampshire
branch late in the third quarter or early in the fourth quarter of this year.


                                       8
<PAGE>

Comparison of Financial Condition at June 30, 2004 versus December 31, 2003

      Total assets were $387.7 million at June 30, 2004, an increase of $47.0
million, or 13.8%, from $340.7 million as of December 31, 2003. All major loan
categories increased, as did total investment securities balances.

Loans

      Total net loan balances were $164.0 million as of June 30, 2004, an
increase of $7.5 million, or 4.8%, from $156.5 million as of December 31, 2003.
The Company's lending activities are focused in northeastern Massachusetts and
southern New Hampshire and are diversified by loan types and industries. If and
where possible, emphasis has continued to be placed on originating commercial
hybrid loans that carry shorter initial fixed-rate periods and shorter principal
amortization periods. While loan growth slowed somewhat in the quarter, the
Company continues to focus on originating high quality loans and not
compromising credit quality to increase the quantity of loan balances. With
geographic expansion and the hiring of new commercial lenders, continued growth
in high quality loan balances is anticipated in 2004, though not assured.

      Total loans increased primarily due to an increase in construction loans
to $22.4 million, an increase of $4.8 million, or 27.3%, from $17.6 million as
of December 31, 2003. Construction loan activity remained positive in the second
quarter of 2004, due to continued favorable residential construction trends and
housing activity, despite competitive lending conditions. The primary focus of
construction lending relates predominantly to the financing of single-family
houses to experienced builders, with concentration guidelines on extension of
credit on unsold homes.

      Commercial real estate loans increased to $56.1 million at June 30, 2004,
an increase of $2.7 million, or 5.1%, from $53.4 million as of December 31,
2003. Commercial loans were $20.4 million at June 30, 2004, an increase of
$934,000, or 4.8%, from $19.5 million as of December 31, 2003. Despite increased
office vacancy rates and steady commercial development, favorable origination
activity and credit quality continued during the second quarter in the
commercial real estate lending area, as well as small business lending.

      Residential real estate loan balances of $56.7 million as of June 30, 2004
reflected a decrease of only $17 thousand, or .03%, from December 31, 2003. With
loan rates gradually increasing throughout the second quarter, after returning
in March 2004 to the recent lows of June 2003, residential real estate loan
originations and inquiries have slowed. Although new and existing home sales, as
well as home prices, have stabilized, particularly in the high-end market,
consumers continue to capitalize on desirable financing alternatives as compared
to historical standards. New residential mortgage loan originations have,
therefore, kept pace with increased prepayment activity and monthly principal
amortization. A climb in long-term fixed rate mortgage loan rates in excess of
100 basis points in the second quarter has re-kindled some interest in
adjustable rate products.


                                       9
<PAGE>

      The following table presents the composition of the Company's loan
portfolio by type of loan at the dates indicated.

                                                     June 30,     December 31,
                                                       2004           2003
                                                    ---------     ------------

Real estate mortgage loans:
    Residential                                     $ 56,666       $ 56,683
    Commercial                                        56,072         53,365
    Construction                                      22,412         17,620
    Equity lines of credit                             7,921          8,429
Commercial loans                                      20,402         19,468
Consumer loans                                         1,871          2,279
                                                    --------       --------
        Total loans                                  165,344        157,844
Net deferred origination costs (fees)                    (58)            (6)
Allowance for loan losses                             (1,318)        (1,334)
                                                    --------       --------
        Loans, net                                  $163,968       $156,504
                                                    ========       ========

Investment Securities

      Total investment securities, which includes certificates of deposit,
available-for-sale securities, held-to-maturity securities and Federal Home Loan
Bank and Federal Reserve Bank stock were $198.8 million as of June 30, 2004, an
increase of $34.2 million, or 20.8%, from $164.6 million as of December 31,
2003. The increase in investment securities in 2004 was due primarily to an
increase in retail deposit balances, as well as forward settling securities. The
objectives of the investment portfolio are to assist with the achievement of
liquidity needs, complement or supplement the interest rate sensitivity of loan
and deposit balances, utilize excess capital and/or liquidity, and generate
interest income.

      Investment securities purchases of $103.2 million in the first six months
of 2004 were partially offset by investment securities sales of $52.1 million
and calls and principal pay-downs on investment securities of $27.4 million.
Investment securities balances increased $46.7 million in the second quarter due
primarily to the investment of $31 million acquired in the branch-wide term
deposit promotion and the investment of $10.2 million in acquired deposits from
the new Cambridge location. Approximately $18 million of investment securities
balances as of June 30, 2004 consist of trades on or before June 30, 2004 that
settle in the third quarter. These bonds were acquired as delayed re-investment
of investment securities sold in the first quarter and pre-investment of
expected monthly investment securities cash flow, which were traded during
periods of perceived value in the market. Additional growth in investment
securities balances in excess of that supported by the Cambridge deposits and
the term deposit promotion was a result of maintaining a lower leverage ratio in
anticipation of additional capital at June 30, 2004, lower than anticipated loan
balances, and the availability of additional liquidity as a result of the retail
deposit growth.

      Whereas investment securities purchases in the first quarter consisted
primarily of adjustable-rate bonds indexed to LIBOR and the Prime Rate,
investment purchases in the second quarter were generally longer-term in nature.
While immediate earnings have been generated on the term deposit funds, adding
longer term assets funded by short-term liabilities increases the liability
sensitivity on the balance sheet, during a period of consensus expectations for
rising interest rates, while also adding more relative price risk to the
investment portfolio. Although price risk has been added to the portfolio, the
yield on these assets produces a favorable spread currently and an expected
continued positive spread through the remainder of 2004 with a rise in
short-term funding costs that accompanies a bear flattening interest rate
scenario in a recovering economy. At June 30, 2004, the unrealized loss on
available for sale securities was $2.4 million as compared to $200,000 as of
December 31, 2003. The decline in market value was due to higher interest rates
as of June 30, 2004, the recognition of gains on the sale of several investment
securities in the first quarter of 2004, and the aforementioned price
sensitivity of longer duration assets. Unrealized losses that are considered
other than temporary, if any, are charged to earnings. There was no such
impairment identified during the six months ended June 30, 2004.


                                       10
<PAGE>

      The following table presents the composition of the Company's
available-for-sale and held-to-maturity securities portfolios at the dates
indicated

<TABLE>
<CAPTION>
                                               June 30, 2004         December 31, 2003
                                           ---------------------  ----------------------
                                           Amortized     Fair      Amortized     Fair
                                              Cost       Value        Cost       Value
                                            --------    --------    --------    --------
                                                       (Dollars in thousands)
<S>                                         <C>         <C>         <C>         <C>
Securities available for sale
U.S. Government agency obligations          $ 57,707    $ 57,287    $ 22,545    $ 22,773
Trust preferred securities                       971         975      14,171      14,094
Mortgage-backed securities                    91,408      89,906      78,038      77,857
Corporate bonds                                5,750       5,554          --          --
Municipal bonds                                  637         617         639         626
                                            --------    --------    --------    --------
     Total debt securities                   156,473     154,339     115,393     115,350
Marketable equity securities                      84         101          84          98
U.S. Government agency preferred stock         1,770       1,544       1,770       1,598
                                            --------    --------    --------    --------
     Total securities available for sale    $158,327    $155,984    $117,247    $117,046
                                            ========    ========    ========    ========

Securities held to maturity
U.S. Government agency obligations          $  3,000    $  2,838    $  3,000    $  2,918
Municipal bonds                               16,183      15,549      16,325      16,071
Mortgage-backed securities                    15,234      14,728      19,892      19,673
                                            --------    --------    --------    --------
     Total securities held to maturity      $ 34,417    $ 33,115    $ 39,217    $ 38,662
                                            ========    ========    ========    ========
</TABLE>

Deposits

      Total deposit balances were $244.8 million as of June 30, 2004, an
increase of $46.7 million, or 23.6%, from $198.1 million as of December 31,
2003. Total deposit balances increased primarily due to the aforementioned term
deposit special promotion and the acquisition of the Cambridge deposits, both of
which produced several new customers at each branch and significantly added to
our liquidity position to support 2004 growth plans. The Company anticipates,
although cannot assure, that a significant portion of these new customers will
remain customers for the indefinite future and avail themselves of additional
bank products and services. Though largely consisting of premium-rate term
deposit funds, deposit balances have increased to $5.2 million as of June 30,
2004 in the Beverly branch in less than two months since its opening, while
deposit balances have increased, primarily in premium-rate term deposit
accounts, to $16.7 million as of June 30, 2004 in the Cambridge branch, an
increase of $6.5 million, or 63.7% since its opening on April 2, 2004.

      Regular savings and money market deposit balances increased to $83.7
million as of June 30, 2004, an increase of $10.2 million, or 13.9% from $73.5
million as of December 31, 2003. Personal and business checking balances
increased to $81.4 million as of June 30, 2004, an increase of $9 million, or
12.4%, from $72.4 million as of December 31, 2003. Although a significant
portion of the growth in these categories was a result of the acquisition of the
Cambridge branch, additional branches have also produced some growth in these
critical deposit categories. While management strategies include raising
premium-rate term deposit funds to gain initial market share, growth in savings,
money market, and checking balances, as well as the establishment of new lending
relationships, continues to be targeted. The Company anticipates solid growth,
and in fact requires it to achieve its growth targets, in all deposit categories
and new markets. Growth cannot be assured, however, particularly during a period
whereby consumers may perceive more value in other investment options in an
improving economy.


                                       11
<PAGE>

      To following table shows the composition of the Company's deposit balances
at the dates indicated.

                                          June 30,        December 31,
                                            2004              2003
                                          --------        ------------

Demand                                    $ 45,017         $ 38,426
NOW                                         36,387           33,936
Regular savings                             33,416           31,120
Money market deposits                       50,288           42,402
Term certificates                           79,642           52,174
                                          --------         --------
                                          $244,750         $198,058
                                          ========         ========

Borrowings

      Total borrowings were $106.2 million as of June 30, 2004, a decrease of
$19.5 million, or 15.5%, from $125.7 million as of December 31, 2003. Borrowings
consist primarily of short and long-term advances from the Federal Home Loan
Bank that are collateralized by certain mortgage loans and government securities
and are utilized as either an interest rate risk management tool or as a
complement to the volume or mix of retail funding products. Short-term
borrowings decreased since December 31, 2003 due primarily to the planned
replacement of these funds with acquired and promotional deposit balances.
Long-term borrowings decreased since December 31, 2003 due to the maturity of a
$6 million advance and scheduled monthly paydowns on amortizing advances.

Due to Broker

      The balance in the due to broker account represents investment securities
purchased in the normal course of business that were traded on or before June
30, 2004 and will settle in the third quarter.

Stockholder's Equity

      Total stockholder's equity increased from $15.3 million at December 31,
2003 to $17.9 million as of June 30, 2004 due primarily to the sale of 300,000
shares of common stock at a price of $13.00 per share, raising net proceeds of
$3.6 million after offering costs of approximately $300,000. This increase was
partially offset by the decrease in accumulated other comprehensive income of
$1.3 million associated with the unrealized loss, net of tax, on
available-for-sale securities.

 Asset Quality and Allowance for Loan Losses

      The table below summarizes certain key ratios regarding the quality of the
Company's loan portfolio:

                                               June 30, 2004   December 31, 2003
                                               -------------   -----------------
                                                     (Dollars in thousands)
Non-accrual loans                                  $   --            $   --
Troubled debt restructurings                           --                --
Loans past due 90 days or more and still
    accruing                                           19                19
Non-accrual loans to total loans                       --                --
Non-performing assets to total assets                  --                --
Allowance for loan losses as a percentage of
    total loans                                      0.80%             0.85%


                                       12
<PAGE>

      For the six months ended June 30, 2004, the Company recorded no provision
for loan losses. The Company recorded charge-offs of $19,000 and recoveries of
$3,000 for the six months ended June 30, 2004. The allowance for loan losses was
$1.3 million at June 30, 2004 and December 31, 2003. Management considers the
loan loss allowance to be adequate to provide for potential loan losses, though
a charge to earnings via a loan loss provision is anticipated at or before the
end of 2004, principally as a result of expected growth in the portfolio.

      Management evaluates the allowance for loan losses on a quarterly basis.
While the growth in the loan portfolio was in the higher-risk segments of
commercial and construction loans, the Bank has continued to enjoy a very low
level of loan charge-offs and non-accrual loans. Management expects to continue
to enjoy the current low level of charge-offs and non-accrual loans. Economic or
other external factors, deterioration in credit quality, or appropriate changes
in the reserve estimation process as a result of changes in assumptions, as well
as other possible factors, may cause the loan loss allowance balance to be
increased through charges to current earnings by increasing the loan loss
provision.

Comparison of Operating Results for the Quarter and Six Months Ended
June 30, 2004 and 2003

General

      Operating results are largely determined by the net interest spread on the
Company's primary assets (loans and investment securities) and its primary
liabilities (consumer deposit balances and Federal Home Loan Bank borrowings).
Operating results are also impacted by revenue from non-interest related sources
(such as service charges on deposit accounts), the provision for loan losses,
and operating expenses. Operating results are significantly impacted by general
economic conditions; in particular the general level of interest rates and the
resultant impact on asset yields and the cost of funds, as well the ability and
willingness of borrowers to fulfill their debt obligations during various
economic cycles.

      Net income for the six months ended June 30, 2004 was $310,000 compared
with $1,034,000 for the six months ended June 30, 2003, a decrease of $724,000,
or 70%. For the six months ended June 30, 2004, net interest income increased
$534,000, or 11.1%, non-interest income decreased $394,000, or 18.0%, and
operating expenses increased $1,303,000, or 23.6%, as compared to the six months
ended June 30, 2003. The decline in net income for the six months ended June 30,
2004 was primarily the result of reduced levels of gains on sales of securities
and a significant increase in operating expenses.

      Net loss for the three months ended June 30, 2004 was $42,000 compared
with net income of $305,000 for the three months ended June 30, 2003, a decrease
of $347,000, or 113.8%. For the three months ended June 30, 2004, net interest
income increased $203,000, or 8.5%, non-interest income decreased $123,000, or
13.5%, and operating expenses increased $655,000, or 22.9%, as compared to the
three months ended June 30, 2003. The significant increase in operating expenses
was related to increases in salaries and employee benefits, occupancy and
equipment expenses, professional fees, and advertising costs. Because of the
Company's increased capital capacity, as well as continued loan growth,
management anticipates, though cannot assure, improved earnings in the third
quarter of 2004.

Interest and Dividend Income

      Total interest and dividend income for the six months June 30, 2004 was
$8.2 million, which was $486,000, or 6.3%, higher than the six months ended June
30, 2003. This increase was due to the favorable impact on interest and dividend
income of higher average interest-earning assets of $320.1 million for the six
months ended June 30, 2004, as compared to $289.1 million for the six months
ended June 30, 2003. The yield on earning assets of 5.1% for the six months
ended June 30, 2004 was 21 basis points lower than for the six months ended June
30, 2003. Average net loans for the six months ended June 30, 2004 increased
$16.7 million, or 11.7%, to $159.4 million, while the yield on loans for the six
months ended June 30, 2004 was 6.39%; 50 basis points lower than the six months
ended June 30, 2003. A lower loan yield was due to lower average treasury yields
in early 2004 and competitive conditions, which produced lower rates on new
loans and loans re-pricing as well as increased residential refinancing activity
into lower fixed rates. A higher concentration of higher-yielding commercial
loan balances and construction loan balances in 2004 as compared to 2003
partially mitigated the impact of lower residential loan yields.


                                       13
<PAGE>

      Total interest and dividend income for the quarter-ended June 30, 2004 was
$4.1 million, which was $251,000, or 6.6%, higher than the quarter-ended June
30, 2003. This increase was due to the favorable impact on interest and dividend
income of higher average interest-earning assets of $324.8 million for the
quarter ended June 30, 2004, as compared to $292.2 million for the quarter ended
June 30, 2003. This increase was partially offset by the impact of a lower yield
on earning assets of 5.0% for the quarter-ended June 30, 2004; 22 basis points
lower than the quarter ended June 30, 2003. Average net loans for the quarter
ended June 30, 2004 increased $14.6 million, or 9.9%, to $161.6 million, while
the yield on loans for the quarter ended June 30, 2004 was 6.37%; 54 basis
points lower than the quarter-ended June 30, 2003.

Interest Expense

      Interest expense on interest-bearing deposits for the six months ended
June 30, 2004 decreased $102,000, or 7.7%, to $1.2 million as compared to the
six months ended June 30, 2003. This decrease was due to a lower cost of
deposits of 1.42% for the six months ended June 30, 2004 versus 1.67% for the
six months ended June 30, 2003, partially offset by an increase in average
deposit balances in 2004 of $13.4 million, or 8.4%, to $172.3 million. The
decrease in the cost of deposits was due primarily to a lower deposit cost on
savings and NOW account balances which were due primarily to the general level
of interest rates, a 19.8% increase, or $5.4 million, in lower cost savings
balances, and a lower cost on term deposits, partially offset by a higher yield
on money market deposit accounts as the Bank attempts to attract new money in
this popular category.

      Interest expense on deposits for the quarter-ended June 30, 2004 increased
$45,000, or 6.8%, to $705,000 as compared to the quarter-ended June 30, 2003 due
primarily to an increase of $23.9 million, or 14.7%, to $186.1 million in
average interest-bearing deposit balances as a result of the aforementioned term
deposit promotion in May.

      Interest expense on borrowed funds for the six months ended June 30, 2004
increased $54,000, or 3.6%, to $1.6 million as compared to the six months ended
June 30, 2003. The increase was due primarily to an increase of 41 basis points
to 2.53% in other borrowings and a higher average balance in Federal Home Loan
Bank advances in 2004 of $8.2 million, or 9.8%, partially offset by a lower cost
of Federal Home Loan Bank advances of 2.49%, 19 basis points, or 7.1% lower than
the six months ended June 30, 2003.

      Interest expense on borrowed funds for the quarter-ended June 30, 2004
increased $3,000, or .4%, to $767,000 as compared to the quarter-ended June 30,
2003.

Net Interest Income

      Net interest income for the six months ended June 30, 2004 increased
$534,000, or 11.1%, to $5.4 million as compared to the six months ended June 30,
2003. The increase in net interest income in 2004 was due primarily to higher
average earning assets. Average earning assets increased $30.9 million, or
10.7%, to $320.1 million for the six months ended June 30, 2004 as a result of
an increase in average loans and average investment securities. The net interest
margin increased primarily as a result of higher average balances in loans,
which earned higher yields than investment securities, and a lower cost of
funds. This was partially offset by a lower yield on loans and higher balances
and yields on money market deposit balances. The cost of average deposits
decreased 25 basis points, or 14.9%, to 1.42% for the six months ended June 30,
2004. The lower cost of deposits and borrowings was primarily a result of the
interest rate environment, particularly the short and intermediate portion of
the yield curve, which is typically the primary driver of bank funding costs.
Although the Company has increased deposits through premium-rate pricing, the
actual rates paid in the current year are still lower than those in the prior
year. Despite the reduction in rates paid, average deposit balances increased
for the six months ended June 30, 2004 as compared to the six months ended June
30, 2003 due primarily to the branch-wide certificate of deposit promotion in


                                       14
<PAGE>

May and the acquisition of the Cambridge branch in April. The net interest
margin was also impacted favorably by an increase of $6.4 million, or 19.3%, to
$39.5 million in average non-interesting bearing deposit balances for the six
months ended June 30, 2004 as compared to the six months ended June 30, 2003.

      Net interest income for the quarter ended June 30, 2004 increased
$203,000, or 8.5%, to $2.6 million as compared to the quarter ended June 30,
2003. The increase in net interest income in the second quarter of 2004 was due
primarily to higher average earning assets, partially offset by a lower net
interest margin of 3.19%, or 8 basis points, as compared to the quarter ended
June 30, 2003. Average earning assets increased $32.6 million, or 11.2%, to
$324.8 million in the first quarter of 2004 primarily as a result of the
increase in average loans.

      Retail deposit marketing efforts primarily focus on generating
non-maturity core deposit accounts, particularly in new markets. Due to
competitive conditions, market conditions, and other factors, lack of growth in
non-maturity accounts may ultimately limit asset growth. Growth sufficient to
support loan funding requirements is considered likely, though not assured. The
Bank may thus rely upon higher cost certificates of deposit, or wholesale
sources, to support funding needs. As previously noted, the Bank recently raised
approximately $31 million of premium-rate, nine-month certificate of deposit
funds in the second quarter of 2004. The primary objective of raising new funds
in new markets is to develop new and expanded long-term deposit and loan banking
relationships. In the meantime, however, premium-rate short-term funds have
produced an immediate increase in the cost of funds. The Company is, however,
planning on market-priced long-term growth in all core deposit categories in all
markets it serves for the remainder of 2004.


                                       15
<PAGE>

Average Balances and Yields

      The following table presents a summary of the Company's interest-earning
assets and their average yields, and interest-bearing liabilities and their
average rates for the six months ended June 30, 2004 and 2003. The average
balances are derived from average daily balances.

<TABLE>
<CAPTION>
                                                                       Six Months Ended June 30,
                                                           2004                                            2003
                                         Interest                                         Interest
                                          Income/        Average       Average Rate        Income/      Average       Average Rate
                                          Expense        Balance       Earned/Paid         Expense      Balance       Earned/Paid
                                        --------------------------------------------------------------------------------------------
                                                                        (Dollars in thousands)
<S>                                        <C>           <C>                <C>            <C>         <C>                  <C>
Assets
Interest earning assets:
  Federal funds sold and certificate
     of deposit                            $   70        $  2,560           5.47%          $    3      $    607             0.99%
  Investment securities(1):
    Taxable                                 2,608         141,147           3.70%           2,513       135,656             3.70%
    Tax-exempt                                383          16,933           4.52%             238        10,099             4.71%
  Loans, net                                5,098         159,442           6.39%           4,919       142,766             6.89%
                                          -----------------------                        ----------------------
    Total interest-earning assets           8,159         320,082           5.10%           7,673       289,128             5.31%
                                          -------                                        --------
Noninterest-earning assets                                 20,358                                        21,029
                                                        ---------                                     ---------
Total assets                                              340,440                                       310,157
                                                        =========                                     =========

Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
  Savings                                      81          32,627           0.50%             103        27,238             0.76%
  NOW                                          36          36,006           0.20%              48        34,433             0.28%
  MMDA                                        419          46,077           1.82%             339        41,118             1.65%
  CD's                                        687          57,586           2.39%             835        56,079             2.98%
                                          -----------------------                        ----------------------
    Total interest-bearing deposits         1,223         172,296           1.42%           1,325       158,868             1.67%
  Other borrowed funds                        133          10,528           2.53%              95         8,961             2.12%
  Federal Home Loan Bank advances           1,153          92,616           2.49%           1,132        84,373             2.68%
  Subordinated debentures                     288           9,000           6.40%             293         9,000             6.51%
                                          -----------------------                        ----------------------
    Total interest-bearing liabilities      2,797         284,440           1.97%           2,845       261,202             2.18%
                                          -------                                        --------
Noninterest-bearing deposits                               39,453                                        33,101
Other noninterest-bearing liabilities                       1,246                                         1,483
                                                        ---------                                     ---------
Total liabilities                                         325,139                                       295,786
Total stockholders' equity                                 15,301                                        14,371
                                                        ---------                                     ---------
Total liabilities and stockholders'
     Equity                                              $340,440                                      $310,157
                                                        =========                                     =========

Net interest income                        $5,362                                          $4,828
                                          =======                                        ========
Interest rate spread                                                        3.13%                                           3.13%
                                                                          =======                                        ========
Net interest margin                                                         3.35%                                           3.34%
                                                                          =======                                        ========
</TABLE>

(1)   Excludes investment securities traded and not settled.


                                       16
<PAGE>

      The following table presents a summary of the Company's interest-earning
assets and their average yields, and interest-bearing liabilities and their
average rates for the three months ended June 30, 2004 and 2003. The average
balances are derived from average daily balances.

<TABLE>
<CAPTION>
                                                                  Three Months Ended June 30,
                                                           2004                                            2003
                                         Interest                                       Interest
                                          Income/      Average       Average Rate        Income/      Average       Average Rate
                                          Expense      Balance       Earned/Paid         Expense      Balance       Earned/Paid
                                        --------------------------------------------------------------------------------------------
                                                                        (Dollars in thousands)
<S>                                     <C>          <C>                <C>               <C>         <C>                <C>
Assets
Interest earning assets:
  Federal funds sold and certificate
     of deposit                         $   35       $  2,621            5.34%            $    2      $    812           0.99%
  Investment securities(1):
    Taxable                              1,260        143,650            3.51%             1,131       132,849           3.41%
    Tax-exempt                             191         16,907            4.52%               140        11,591           4.83%
  Loans, net                             2,575        161,572            6.37%             2,537       146,934           6.91%
                                       ----------------------                           ----------------------
    Total interest-earning assets        4,061        324,750            5.00%             3,810       292,186           5.22%
                                       -------                                          --------
Noninterest-earning assets                             21,575                                           21,074
                                                    ---------                                        ---------
Total assets                                          346,325                                          313,260
                                                    =========                                        =========

Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
  Savings                                   42         34,027            0.49%                52        27,898           0.75%
  NOW                                       23         37,941            0.24%                23        34,482           0.27%
  MMDA                                     261         49,501            2.11%               166        42,175           1.57%
  CD's                                     379         64,634            2.35%               419        57,687           2.91%
                                       ----------------------                           ----------------------
    Total interest-bearing deposits        705        186,103            1.52%               660       162,242           1.63%
  Other borrowed funds                      79         11,332            2.79%                50         9,296           2.15%
  Federal Home Loan Bank advances          544         82,063            2.65%               568        83,127           2.73%
  Subordinated debentures                  144          9,000            6.40%               146         9,000           6.49%
                                       ----------------------                           ----------------------
    Total interest-bearing
      liabilities                        1,472        288,498            2.04%             1,424       263,665           2.16%
                                       -------                                          --------
Noninterest-bearing deposits                           41,789                                           34,188
Other noninterest-bearing
  liabilities                                           1,068                                              789
                                                    ---------                                        ---------
Total liabilities                                     331,355                                          298,642
Total stockholders' equity                             14,970                                           14,618
                                                    ---------                                        ---------
Total liabilities and
  stockholders' equity                               $346,325                                         $313,260
                                                    =========                                        =========

Net interest income                     $2,589                                            $2,386
                                       =======                                          ========
Interest rate spread                                                     2.96%                                           3.06%
                                                                       =======                                        ========
Net interest margin                                                      3.19%                                           3.27%
                                                                       =======                                        ========
</TABLE>

(1) - Excludes investment securities traded and not settled.

Non-interest Income

      Total non-interest income decreased $394,000, or 18.0%, to $1,801,000 for
the six months ended June 30, 2004 as compared to the six months ended June 30,
2003. The decrease was primarily due to a decrease in gains on the sale of
securities of $559,000, or 59.9%, to $375,000. The existence or level of gains
on the sale of securities cannot be assured or predicted as the amounts derived
from such activity are a function of many factors, including, but not limited
to, the duration, mix, and other risk attributes of securities owned, the level


                                       17
<PAGE>

and slope of the yield curve, product spreads and other market forces that
change on a daily basis. Additionally, the ongoing evaluation of the composition
of the Bank's loan and deposit balances are critical factors that are considered
in the determination of investment security purchases and sales. Service charges
on deposit accounts increased $119,000, or 22.4%, to $650,000 for the six months
ended June 30, 2004 primarily as a result of growth in fee-based deposit
balances, which is due at least partially to geographic growth in the retail
network, as well as an updated fee schedule. Management anticipates, but cannot
assure, that branch expansion and continued focus on growth in core deposit
categories will generate continued growth in service charges fee income on
deposit accounts.

      Total non-interest income decreased $123,000, or 13.5%, to $788,000 for
the quarter ended June 30, 2004 as compared to the quarter ended June 30, 2003.
The decrease in the second quarter of 2004 was primarily due to a decrease in
gains on the sale of securities of $305,000, or 103.7%. Service charges on
deposit accounts increased $79,000, or 27.7%, to $364,000 for the quarter-ended
June 30, 2004 primarily as a result of growth in fee-based deposit balances,
which is due at least partially to geographic growth in the retail network.
Trust fees increased $28,000, or 33.3%, to $112,000 for the quarter ended June
30, 2004 as compared to June 30, 2003 due to higher assets under management and
more favorable equity market conditions versus 2003. Non-deposit investment fees
increased $25,000, or 55.6%, to $70,000 for the quarter-ended June 30, 2004 due
primarily to a higher rate of successful referrals from the retail staff and
growth in the branch network. Although management is pleased with the growth in
fee income in its major business lines and expects continued growth in all areas
through the remainder of 2004, there can be no assurance that such trends
continue.

Non-interest Expense

      Total operating expenses increased $1.3 million, or 23.6%, to $6.8 million
for the six months ended June 30, 2004. Salaries and employee benefits increased
$759,000, or 25.8%, due primarily to an increase in full-time equivalent
employees to 124 as of June 30, 2004 from 107 at June 30, 2003, a 2004 executive
bonus approved by the Board of Directors in January 2004, and the initial
accrual in the second quarter for the supplemental executive retirement
agreements of which $91,000 represented prior service costs. An increase in
full-time equivalent employees was primarily associated with staffing for new
branch locations, new lenders hired for new markets, the addition of an
investment executive to lead the search for the acquisition of an investment
company, and the growth in the staff infrastructure at the main office to
support continued growth and expansion. Professional fees increased $179,000, or
56.7%, to $495,000 for the six months ended June 30, 2004 due primarily to an
increase in legal expenses associated with several matters related to growth
plans and expansion initiatives. Occupancy and equipment expenses increased
$82,000, or 9.4%, to $959,000 for the six months ended June 30, 2004 due
primarily to increased rent, maintenance, and other operating expenses
associated with the opening of new branches and the renovation of existing
sites. Advertising and marketing expenses increased $47,000, or 21.8%, to
$263,000 for the six months ended June 30, 2004 due to a new marketing campaign
and promotional costs associated with new branches. Data processing expenses
increased $67,000, or 28.8%, to $300,000 for the six months ended June 30, 2004
due primarily to investment in new and enhanced technologies to support
continued expansion in retail branches, staffing expansion, and growth in
customer accounts and activity. Although the Company anticipates a reduced rate
of growth in operating expense in the last six months of 2004 in comparison to
the first six months of 2004, there can be no assurance that this will occur.

      Total operating expenses increased $655,000, or 22.9%, to $3.5 million for
the quarter ended June 30, 2004. Salaries and employee benefits increased
$285,000, or 18.6%, due primarily to the aforementioned increase in full-time
equivalent employees and the initial accrual for the supplemental executive
retirement agreements. Due to branch expansion, occupancy and equipment expenses
increased $63,000, or 14%, to $513,000, for the quarter ended June 30, 2004. As
a result of several business initiatives, professional fees, primarily legal
expenses, increased $68,000, or 48.6%, to $208,000 for the quarter-ended June
30, 2004. Advertising and marketing expenses increase $69,000, or 55.7%, to
$193,000 for the quarter-ended June 30, 2004 due primarily to an enhanced
marketing campaign and promotional costs at the new Beverly and Cambridge
branches that opened for business in the second quarter of 2004.


                                       18
<PAGE>

      The operating efficiency ratio, which represents operating expenses
divided by total revenue excluding securities gains, increased to 96.3% for the
six months ended June 30, 2004 versus 87.7% for the six months ended June 30,
2003. The ratio was higher for the six months ended June 30, 2004 due primarily
to a higher rate of growth in operating expenses than revenue. The increases in
net interest income of $534,000, or 11.1%, and non-interest income, excluding
securities gains, of $165,000, or 13.1%, were offset by the increase in
operating expenses of $1.3 million, or 23.6%.

Income Taxes

      The provision for income taxes decreased $439,000, or 94.6%, to $25,000
for the six months ended June 30, 2004 as a result of lower pre-tax income for
the six months ended June 30, 2004 as compared to the six months ended June 30,
2003. The Company's effective tax rate has declined to 7.5% for the six months
ending June 30, 2004 from 31.0% for the six months ended June 30, 2003. The
decrease in the effective tax rate from 31.0% for the six months ended June 30,
2003 to 7.5% for the six months ended June 30, 2004 is primarily due to two
factors. First, the significant decrease in pre-tax income is primarily related
to a decrease in income at the Bank level, as opposed to the subsidiary security
corporations which have a lower state tax rate. Second, federal tax-exempt
income represents a higher percentage of pre-tax income in 2004 than 2003.

      The level of federal tax-exempt income is also the primary reason that the
effective tax benefit rate is 70.4% for the three months ended June 30, 2004, as
compared to the effective tax rate of 29.6% for the three months ended June 20,
2003. The federal tax-exempt income effectively increases the loss for tax
purposes in 2004.

Asset/Liability Management

      A principal operating objective of the Bank is to produce stable earnings
by achieving a favorable interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Since the Bank's principal
interest-earning assets generally have longer terms to maturity than its primary
source of funds, i.e., deposit liabilities, increases in general interest rates
will generally result in an increase in the Bank's cost of funds before the
yield on its asset portfolio increases. A continual trade-off, which is managed
and monitored on an ongoing basis, exists between exposure to interest rate risk
and current income. In general, during periods with a normalized yield curve, a
wider mismatch between the re-pricing periods of interest rate sensitive assets
and liabilities can produce higher current net interest income. The management
of interest rate risk considers several factors, including, but not limited to,
the nature and extent of actual and anticipated embedded options and other
attributes of the balance sheet, the perceived direction of market interest
rates, and the risk appetite of management and the Asset/Liability Management
Committee ("ALCO"). Members of the ALCO consist of the chief executive officer,
the chief financial officer, the senior loan officer, one board member, and
others. The Committee discusses the asset/liability mix on the balance sheet and
reviews the impact of projected behavioral changes in the components of the
balance sheet as a result of changes in interest rates.

      Certain strategies were implemented in the first quarter of 2004 to reduce
the current level of interest rate risk on the balance sheet with the prospects
for an improving economy and an increase in market interest rates. These
strategies currently include, but are not limited to, fixing the cost of certain
liability sources, adding interest rate sensitivity to the investment securities
portfolio, and shortening the duration of certain newly originated commercial
loan products.

      Certain retail strategies were implemented in the second quarter of 2004
to generate deposit growth, particularly in new markets. As a result of
significant new deposit funds added at a premium rate from the term deposit
special in May, certain investment securities were acquired to generate
additional net interest income. To generate the desired amount of incremental
income, a significant mismatch between the expected maturity or average life of
the investment securities and the final maturity on the nine-month term deposits
exists.


                                       19
<PAGE>

      On an ongoing basis, management analyzes the pros and cons of positioning
with a narrower or wider interest rate mismatch and whether an asset sensitive
or liability sensitive balance sheet is targeted and to what degree. This
analysis considers, but is not limited to, originating adjustable and fixed rate
mortgage loans, managing the cost and structure of deposits, analyzing actual
and projected asset cash flow, considering the trade-offs of short versus
long-term borrowings, and reviewing the pros and cons of certain investment
security sectors.

      On a quarterly basis, an outside advisor performs financial modeling of
the balance sheet using certain industry data assumptions. The output from the
models, which project the Bank's financial performance over certain periods
under certain interest rate environments, are reviewed and analyzed as a basis
for targeting certain product structures in the future, as well as commenting on
pricing decisions in order to encourage or discourage customer choices.

Liquidity and Capital Resources

      The Bank's primary sources of funds consist of deposits, borrowings,
repayment and prepayment of loans and investment securities, sales of
securities, maturities and early calls of securities, and funds provided from
operations. While scheduled repayments of loans and investment securities are
predictable sources of funds, prepayments on loans and investment securities as
well as other behavioral variables on certain other balance sheet components are
not predictable with certainty. For example, the general level of interest
rates, economic conditions, and competition largely influence prepayments on
loans and investment securities and the renewal rate on term deposits. The Bank
primarily uses its liquidity resources to fund existing and future loan
commitments, to fund net deposit outflows, to invest in other interest-earning
assets, to maintain liquidity, and to pay operating expenses.

      From time to time, the Bank utilizes advances from the Federal Home Loan
Bank of Boston (the "FHLB") primarily in connection with its management of the
interest rate sensitivity of its assets and liabilities, complement or
supplement the volume of retail funding, as well as to selectively capitalize on
leverage opportunities. Total advances outstanding at June 30, 2004 amounted to
$83.9 million. The Bank's ability to borrow from the FHLB is dependent upon the
amount and type of collateral the Bank has to secure the borrowings. Such
collateral consists of, but is not limited to, one-to-four family owner-occupied
residential mortgage loans and federal agency obligations. As of June 30, 2004,
the Bank's total borrowing capacity through the FHLB was $167.3 million. The
Bank has additional capacity to borrow federal funds from other banks and
through such instruments as repurchase agreements utilizing federal agency
obligations and mortgage-backed securities as collateral, as well as brokered
deposits.

      A major portion of the Bank's liquidity consists of cash and cash
equivalents, short-term investments, U.S. Government and federal agency
obligations, mortgage-backed securities, and other debt securities. The level of
these assets is dependent upon the Bank's operating, lending, and financing
activities during any given period. At June 30, 2004, the Bank had $15.7 million
of outstanding commitments to originate loans and $35.9 million of unused lines
of credit. The Bank anticipates that it will have sufficient funds available to
meet these commitments. Certificates of deposit, which are scheduled to mature
in one year or less, totaled $62.1 million at June 30, 2004. Based upon
historical experience, the Bank believes that a significant portion of such
deposits will remain with the Bank. On a monthly basis, the Company currently
generates an average of approximately $6 million in cash flow from the loan and
investment securities portfolios. These funds are primarily used to either
re-invest in new loans and investment securities or utilized in conjunction with
the management of the level of deposit balances or borrowed funds.


                                       20
<PAGE>

      At June 30, 2004, the Company and the Bank continued to exceed all
regulatory capital requirements applicable to them. The table below presents the
capital ratios at June 30, 2004, for the Company and the Bank, as well as the
minimum regulatory requirements.

<TABLE>
<CAPTION>
                                                                                       Minimum
                                                                                       Capital
                                                              Actual                 Requirements
                                                         Amount      Ratio        Amount      Ratio
                                                        --------------------- ----------------------
<S>                                                     <C>         <C>          <C>           <C>
Bank:
        Total capital to risk-weighted assets           $24,456     11.81%       $16,566       8.00%
        Tier 1 capital to risk-weighted assets           23,138     11.17%         8,283       4.00%
        Tier 1 capital to average assets                 23,138      6.68%        13,850       4.00%

Company:
        Total capital to risk-weighted assets           $28,984     13.97%       $16,602       8.00%
        Tier 1 capital to risk-weighted assets           24,887     11.99%         8,301       4.00%
        Tier 1 capital to average assets                 24,887      7.18%        13,868       4.00%
</TABLE>

ITEM 3. Controls and Procedures

(a)   Evaluation of disclosure controls and procedures.

            As required by Rule 15d-15 under the Securities Exchange Act of
      1934, as amended (the "Exchange Act"), the Company's management conducted
      an evaluation with the participation of the Company's Chief Executive
      Officer and Chief Financial Officer, regarding the effectiveness of the
      Company's disclosure controls and procedures, as of the end of the last
      fiscal quarter. In designing and evaluating the Company's disclosure
      controls and procedures, the Company and its management recognize that any
      controls and procedures, no matter how well designed and operated, can
      provide only a reasonable assurance of achieving the desired control
      objectives, and management necessarily was required to apply its judgment
      in evaluating and implementing possible controls and procedures. Based
      upon that evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that they believe the Company's disclosure controls and
      procedures are reasonably effective to ensure that information required to
      be disclosed by the Company in the reports it files or submits under the
      Exchange Act is recorded, processed, summarized and reported, within the
      time periods specified in the Securities and Exchange Commission's ("SEC")
      rules and forms. We intend to continue to review and document our
      disclosure controls and procedures, including our internal controls and
      procedures for financial reporting, and we may from time to time make
      changes to the disclosure controls and procedures to enhance their
      effectiveness and to ensure that our systems evolve with our business.

(b)   Changes in internal controls over financial reporting.

            There were no changes in the Company's internal controls over
      financial reporting identified in connection with the Company's evaluation
      of its disclosure controls and procedures that occurred during the
      Company's last fiscal quarter that have materially affected, or are
      reasonably likely to materially affect the Company's internal control over
      financial reporting.


                                       21
<PAGE>

PART II -- OTHER INFORMATION

ITEM 1. Legal Proceedings

      The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business that, in
the aggregate, involved amounts believed by management to be immaterial to the
financial condition and operations of the Company.

ITEM 2. Changes in Securities

      On June 30, 2004, the Company completed a public offering of its
securities. Pursuant to the offering, the Company sold 300,000 shares of common
stock, $1.00 par value, at an offering price of $13.00 per share pursuant to a
Registration Statement filed with the SEC by the Company on May 12, 2004 on form
SB-2 (as the prospectus contained therein was supplemented on each of June 23
and 30, 2004). The SEC file number assigned to the registration statement is
333-114018. The offering's effective date was May 13, 2004. No underwriters were
involved in the offering. The offering commenced on May 14, 2004.

<TABLE>
<CAPTION>
                           Aggregate Price of the          Amount       Aggregate Offering Price of the
Amount Registered        Offering Amount Registered         Sold                  Amount Sold
-----------------        --------------------------         ----                  -----------

<S>                              <C>                   <C>                         <C>
  300,000 shares                 $3,900,000            300,000 shares              $3,900,000
</TABLE>

      Offering expenses from the Registration Statement totaled approximately
$300,000 yielding net offering proceeds of $3.6 million. Subsequent to June 30,
2004, $2.0 million of the net proceeds were invested in the Bank for general
operations. The issuance expanded the number of shares issued and outstanding
common stock from 1,757,630 to 2,057,630. Shareholders not participating in this
offering would, consequentially, have been diluted by the issuance.

ITEM 3. Defaults Upon Senior Securities

      Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

      Not applicable.

ITEM 5. Other Information

      Not applicable.


                                       22
<PAGE>

ITEM 6. Exhibits and Reports on Form 8-K

      (a)   Exhibits

            31.1  Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a) of the Securities Exchange Act of 1934.

            31.2  Certification of Chief Financial Officer pursuant to Rule
                  13a-14(a) of the Securities Exchange Act of 1934.

            32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

            32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

      (b)   Reports on Form 8-K

            Not applicable.

                                   SIGNATURES

      In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


                                         FIRST IPSWICH BANCORP


Date: August 16, 2004                    By:   /s/ Donald P. Gill
                                               ----------------------
                                               Donald P. Gill
                                               President and Chief
                                               Executive Officer

Date: August 16, 2004                    By:   /s/ Michael J. Wolnik
                                               ----------------------
                                               Michael J. Wolnik
                                               Senior Vice President,
                                               Chief Financial Officer,
                                               and Treasurer


                                       23