FIRST INTERNATIONAL BANCORP INC
S-1/A, 1997-08-22
BLANK CHECKS
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<PAGE>
 
    
 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997     
                                                   
                                                REGISTRATION NO. 333-31339     
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                ---------------
                        
                     PRE-EFFECTIVE AMENDMENT NO. 1 TO     
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                                ---------------
                       FIRST INTERNATIONAL BANCORP, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                ---------------
         DELAWARE                    6711                      06-1151731
     (STATE OR OTHER          (PRIMARY STANDARD             (I.R.S. EMPLOYER
     JURISDICTION OF              INDUSTRIAL              IDENTIFICATION NO.)
     INCORPORATION OR        CLASSIFICATION CODE
      ORGANIZATION)                NUMBERS)
                             ONE COMMERCIAL PLAZA
                              HARTFORD, CT 06103
                                (860) 727-0700
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                               BRETT N. SILVERS
                      CHAIRMAN OF THE BOARD AND PRESIDENT
                       FIRST INTERNATIONAL BANCORP, INC.
                             ONE COMMERCIAL PLAZA
                              HARTFORD, CT 06103
                                (860) 727-0700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                                ---------------
                                WITH COPIES TO:
 
   NEAL J. CURTIN, ESQ.      LESLIE A. GALBRAITH          JAMES R. TANENBAUM,
  BINGHAM, DANA & GOULD         EXECUTIVE VICE                    ESQ.
           LLP               PRESIDENT, SECRETARY         STROOCK & STROOCK &
    150 FEDERAL STREET          AND TREASURER                  LAVAN LLP
     BOSTON, MA 02110        FIRST INTERNATIONAL            180 MAIDEN LANE
      (617) 951-8437            BANCORP, INC.              NEW YORK, NY 10038
   FACSIMILE NO. (617)       ONE COMMERCIAL PLAZA            (212) 806-5400
         951-8736             HARTFORD, CT 06103          FACSIMILE NO. (212)
                                (860) 241-2529                  806-6006
                                
                             FACSIMILE NO. (860)
                                241-2501     
 
                                ---------------
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
     practicable after the effective date of this Registration Statement.
 
                                ---------------
  If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
  If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
       
       
       
                                ---------------
       
       
       
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+                                                                              +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A         +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE   +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY  +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT        +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR   +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE      +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE    +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF  +
+ANY SUCH STATE.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                 
              SUBJECT TO COMPLETION--DATED SEPTEMBER   , 1997     
 
PROSPECTUS
 
- --------------------------------------------------------------------------------
                                1,700,000 Shares
 
                       FIRST INTERNATIONAL BANCORP, INC.
(LOGO)
 
                                  Common Stock
- --------------------------------------------------------------------------------
 
All of the 1,700,000 shares of common stock, par share (the "Common Stock"),
offered hereby (the "Offering") are being sold by First International Bancorp,
Inc. (the "Company").
   
Prior to the Offering, there has been no public market for the Common Stock. It
is currently estimated that the public offering price will be between $10.00
and $12.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the public offering price. The Common Stock has been
approved for inclusion in The Nasdaq Stock Market's National Market System (the
"Nasdaq National Market") under the symbol "FNCE."     
 
SEE "RISK FACTORS" ON PAGES 8 TO 13 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
 
- --------------------------------------------------------------------------------
THESE SECURITIES  HAVE NOT BEEN APPROVED  OR DISAPPROVED BY THE  SECURITIES AND
 EXCHANGE  COMMISSION  NOR  ANY  STATE   SECURITIES  COMMISSION  NOR  HAS  THE
 SECURITIES AND EXCHANGE COMMISSION OR  ANY STATE SECURITIES COMMISSION PASSED
  UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
  CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                      Underwriting
                                            Price to  Discount and   Proceeds to
                                             Public  Commissions (1) Company (2)
- --------------------------------------------------------------------------------
<S>                                         <C>      <C>             <C>
Per Share.................................    $            $             $
- --------------------------------------------------------------------------------
Total (3).................................   $            $             $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
    certain liabilities, including liabilities under the Securities Act of
    1933. See "Underwriting."
   
(2) Before deducting expenses payable by the Company estimated to be $600,000.
           
(3) The Company has granted the Underwriters a 30-day over-allotment option to
    purchase up to 255,000 additional shares of the Common Stock on the same
    terms and conditions as set forth above. If all such additional shares are
    purchased by the Underwriters, the total Price to Public will be $   , the
    total Underwriting Discount and Commissions will be $    and the total
    Proceeds to Company will be $   . See "Underwriting."     
 
- --------------------------------------------------------------------------------
   
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and
to withdrawal, cancellation or modification of the offer without notice.
Delivery of the shares to the Underwriters is expected to be made at the office
of Prudential Securities Incorporated, One New York Plaza, New York, New York,
on or about September  , 1997.     
   
PRUDENTIAL SECURITIES INCORPORATED            KEEFE, BRUYETTE & WOODS, INC.     
   
September  , 1997     
<PAGE>
 
                       FIRST INTERNATIONAL BANCORP, INC.
 
                            THROUGH ITS SUBSIDIARY
 
                     FIRST NATIONAL BANK OF NEW ENGLAND(R)               [LOGO]
 
                      FINANCING MANUFACTURERS WORLDWIDESM
 
                                   [PICTURE]
 
 
                               ----------------
 
  THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF THE COMPANY'S SUBSIDIARY, FIRST NATIONAL BANK OF NEW
ENGLAND (THE "BANK"), AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
 
                               ----------------
 
  CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT
POSITION IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
 
                               ----------------
<PAGE>
 
                               PROSPECTUS SUMMARY
   
  The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus: (i) assumes that the Underwriters' over-
allotment option will not be exercised, and (ii) has been adjusted to reflect
the 3.5-for-1 stock split approved by the Company's stockholders on June 26,
1997 and effected by the Company in August 1997 (the "Stock Split").
Additionally, unless otherwise indicated, all references to the "Company" shall
refer to the Company and the Bank on a combined basis. For a discussion of
certain factors that should be considered by the purchaser of the Common Stock
offered hereby, see "Risk Factors."     
 
                                  THE COMPANY
 
OVERVIEW
 
  First International Bancorp, Inc., a Delaware corporation, is a one bank
holding company incorporated in 1985 and regulated by the Board of Governors of
the Federal Reserve System. Its principal asset and subsidiary is First
National Bank of New England, a national banking association established in
1955 and regulated by the Office of the Comptroller of the Currency (the
"OCC").
   
  The Company specializes in providing credit, trade and depository services to
small and medium size manufacturing companies located in the United States and
in foreign "Big Emerging Markets" as defined by the U.S. Department of
Commerce. The Company serves its target market by offering flexible and
attractive terms to borrowers and manages its credit risk through the combined
utilization of commercial loan guarantee programs made available by three U.S.
federal agencies: the U.S. Small Business Administration (the "SBA"), the U.S.
Department of Agriculture (the "USDA"), and the Export-Import Bank of the U.S.
("Ex-Im Bank").     
 
  For the federal fiscal year ending September 30, 1996, the Company was the
country's fifth largest SBA 7(a) lender measured by dollar volume, the third
largest USDA Business and Industry lender measured by dollar volume, and the
second largest Ex-Im Bank lender measured by number of transactions. The
Company is the only "Top 5" lender in the nation for all three agencies, and
maintains preferred status for several jurisdictions and programs. In
recognition of the Company's efforts in promoting small business exports and
its high volume of loan originations, the Company received Ex-Im Bank's annual
"Small Business Bank of the Year Award" in May 1997.
   
  As of June 30, 1997, the Company had total assets of $177.5 million, total
balance sheet loans of $118.2 million, total deposits of $158.7 million and
total stockholders' equity of $16.0 million. The Company had a total commercial
and international loan servicing portfolio of $344.6 million at December 31,
1996 which increased 26% to $433.1 million at June 30, 1997. The total
portfolio serviced for investors increased 56% from $98.7 million at December
31, 1994 to $153.9 million at December 31, 1995, increased 73% to $265.8
million at December 31, 1996 and increased 30% to $344.9 million at June 30,
1997. Net income for the year ending December 31, 1996 was $3.2 million, and
return on average assets and return on average equity were 2.1% and 25.5%,
respectively. Net income for the six months ended June 30, 1996 was $1.6
million and increased 26% to $2.1 million at June 30, 1997. Return on average
assets and return on average equity for the six months ended June 30, 1997 were
2.5% and 27.8%, respectively. As of June 30, 1997, the Bank was "well-
capitalized" for federal bank regulatory capital adequacy purposes.     
 
                                       3
<PAGE>
 
 
LOAN ORIGINATIONS
 
  Management believes that the specialized market knowledge and experience of
the Company's loan officers combined with the broad range of commercial loan
products offered enable the Company to satisfy the needs of its small and
medium size manufacturing clients. Brand recognition for the Company is
maintained by incorporating the servicemark FINANCING MANUFACTURERS
WORLDWIDE SM in its logos. The Company's domestic and international lending
relationships generally range from $150,000 to $2.5 million.
 
  The Company's Commercial Banking Department underwrites lines of credit, term
loans and industrial property mortgages through the use of SBA, USDA and non-
guaranteed loans for businesses located primarily in the Northeast United
States. Commercial lending teams operate from the Hartford, Connecticut
headquarters, as well as from regional representative offices located in Boston
and Springfield, Massachusetts, Providence, Rhode Island, Morristown, New
Jersey, Pittsburgh and Philadelphia, Pennsylvania, Rochester, New York and
Washington, D.C. The Company's domestic loan officers are trained to understand
the specific financial needs of small and medium size manufacturers, and to use
government guarantee and other commercial loan products to respond to those
needs. Domestic loan officers participate in industrial trade organizations
representing the Company's target market and conduct other marketing activities
to reach potential borrowers.
   
  The Company's International Banking Department underwrites Ex-Im Bank
guaranteed loans to small and medium size manufacturers located throughout the
United States and in eight "Big Emerging Markets." See "Business--International
Banking Services and Products." International lending activities support trade
flows between the United States and the "Big Emerging Markets," which have
grown 12% annually since 1990 and reached $473 billion in 1996. The Company's
international lending teams operate from the Hartford, Connecticut headquarters
and are assisted in their efforts by contractual international marketing
representatives who are actively involved in providing financial, accounting,
consulting and/or engineering services to manufacturers in their home
countries. Contractual marketing arrangements have been established with
professionals in Brazil, Mexico, Poland, Turkey and India. The Company began
lending internationally in 1994 and has increased such loan originations from
$397,000 in 1994 to $1.8 million in 1995, $13.6 million in 1996 and $27.3
million for the six months ended June 30, 1997.     
 
UNDERWRITING
 
  The Company's underwriting activities are initiated from each of its lending
offices and supported and approved at the Hartford, Connecticut headquarters.
Commercial lending officers analyze the creditworthiness of proposed borrowers
and evaluate each borrower's financial statements, credit reports, business
plans and other data to determine if the credit and proposed collateral satisfy
the Company's specific lending standards and policies. All credit memoranda are
reviewed by an independent loan officer and may require additional approval
depending on the particular circumstances of the financing package. Domestic
and international loans undergo a substantially identical approval process.
 
LOAN SALES
   
  The Company achieves high returns while meeting the growing credit needs of
its target market by selling a portion of its commercial and international
loans on a non-recourse, servicing-retained basis. A separate Capital Markets
Department was established in 1996 to sell loans, including commercial and
international loans without federal guarantees. The Capital Markets Department
directs its resources toward identifying non-government guarantee secondary
loan markets as a further means of mitigating credit risk, leveraging capital
and replenishing liquidity. As of June 30, 1996, $20.5 million, or 10%, of the
loan portfolio serviced for investors did not have government guarantees or
credit enhancements compared to $57.9 million, or 17%, of such servicing
portfolio as of June 30, 1997.     
 
                                       4
<PAGE>
 
 
DEPOSITS
 
  The Company's lending and investing activities are funded primarily by
interest-bearing deposits from commercial borrowers, their principals and other
private banking clients. The Private Banking Department provides stable, low-
cost funding to the Company by managing the deposit base while offering a full
array of financial products to serve the personal needs of, and facilitate
relationships with, the Company's client base. The Private Bankers continually
seek to expand the Company's deposit base by soliciting deposits from
individuals who seek highly personalized service and to strengthen existing
deposit relationships by offering new financial products and services to both
existing and prospective clients.
 
STRATEGY
 
  The Company's strategy is to serve small and medium size manufacturers by:
(i) expanding domestic loan origination activities in existing and new
geographic markets in the U.S., (ii) strengthening the Company's international
lending presence in the "Big Emerging Markets" by establishing new marketing
relationships and expanding on the Company's existing relationships, (iii)
expanding commercial loan sales activities, (iv) developing new financing
products, and (v) continuing to maintain low-cost funding for the Company while
offering existing and prospective clients a broad range of services through its
Private Banking Department.
 
  The Company's headquarters and executive management are located at One
Commercial Plaza, Hartford, Connecticut 06103 and its telephone number is (860)
727-0700. The Company maintains a website at http://eximbankloans.com.
 
                                  THE OFFERING
 
<TABLE>   
 <C>                                                <S>
 Common Stock Offered Hereby....................... 1,700,000 shares
 Common Stock to be Outstanding after the Offering. 7,474,085 shares (1)
 Use of Proceeds................................... The Company intends to use
                                                    the net proceeds from the
                                                    Offering to support and
                                                    expand the Company's
                                                    international and domestic
                                                    financing activities.
                                                    Approximatly 50% of the
                                                    proceeds will be
                                                    contributed to the Bank for
                                                    such purposes. See "Use of
                                                    Proceeds."
 Nasdaq National Market symbol..................... FNCE
</TABLE>    
       
- --------
   
(1) Excludes 1,057,506 shares of Common Stock reserved for issuance under the
    Company's stock option plans and certain other option grants, of which
    799,178 shares were subject to outstanding options as of the date hereof.
    See "Capitalization;" "Management--Stock Option Plans" and "Shares Eligible
    for Future Sale."     
                                  
                               RISK FACTORS     
   
  Investors should consider the material risk factors involved in connection
with an investment in the Common Stock and the impact to investors from various
events which could adversely affect the Company's business. See "Risk Factors."
    
       
                                       5
<PAGE>
 
                      SUMMARY CONSOLIDATED FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>   
<CAPTION>
                                                                           FOR THE SIX MONTHS
                               FOR THE YEARS ENDED DECEMBER 31,              ENDED JUNE 30,
                         ------------------------------------------------  --------------------
                           1992      1993      1994      1995      1996      1996       1997
                         --------  --------  --------  --------  --------  ---------  ---------
                                                                               (UNAUDITED)
<S>                      <C>       <C>       <C>       <C>       <C>       <C>        <C>
INCOME STATEMENT DATA:
 Interest income........ $  7,319  $  6,559  $  7,997  $ 11,601  $ 13,305  $   6,564  $   6,622
 Interest expense.......    3,660     2,891     3,150     4,869     5,741      2,836      3,011
                         --------  --------  --------  --------  --------  ---------  ---------
  Net interest income...    3,659     3,668     4,847     6,732     7,564      3,728      3,611
 Provision for possible
  loan losses...........   (1,773)   (2,225)   (1,683)   (1,237)   (3,487)      (554)      (959)
                         --------  --------  --------  --------  --------  ---------  ---------
 Net interest income
  after provision for
  possible loan losses..    1,886     1,443     3,164     5,495     4,077      3,174      2,652
 Non-interest income:
  Service charges and
   other deposit fees...      386       484       385       398       424        229        204
  Loan servicing income
   and fees.............      164       288       493       896     1,475        605      1,121
 Gain on loan sales:
  SBA guaranteed........    1,133     2,258     2,577     1,570     3,558      1,803      2,559
  USDA guaranteed.......      --        --        136       822       805        458      1,205
  Ex-Im working capital
   guaranteed...........      --        --        --        104       201         51         89
  Ex-Im medium term
   guaranteed...........      --        --        --        248       340         73        967
  Unguaranteed portions
   of SBA and USDA......      --        --        --        --        842        275        370
  Other commercial......      --        --        --         97        91         33        228
  Residential...........      113       153        17        18         7          3         59
                         --------  --------  --------  --------  --------  ---------  ---------
   Total gain on loan
    sales...............    1,246     2,411     2,730     2,859     5,844      2,696      5,477
                         --------  --------  --------  --------  --------  ---------  ---------
 Gain on branch sale....      --        --        --        --      2,202        --         --
 Gain on securities.....      230       392       --        --        --         --         --
                         --------  --------  --------  --------  --------  ---------  ---------
   Total non-interest
    income..............    2,026     3,575     3,608     4,153     9,945      3,530      6,802
                         --------  --------  --------  --------  --------  ---------  ---------
 Operating expenses.....   (3,756)   (4,576)   (5,129)   (6,128)   (8,425)    (3,900)    (5,909)
                         --------  --------  --------  --------  --------  ---------  ---------
 Income before income
  taxes.................      156       442     1,643     3,520     5,597      2,804      3,545
 Provision for income
  taxes.................      (48)     (137)     (583)   (1,494)   (2,353)    (1,179)    (1,492)
                         --------  --------  --------  --------  --------  ---------  ---------
 Net income............. $    108  $    305  $  1,060  $  2,026  $  3,244  $   1,625  $   2,053
                         ========  ========  ========  ========  ========  =========  =========
<CAPTION>
                                      AS OF DECEMBER 31,                     AS OF JUNE 30,
                         ------------------------------------------------  --------------------
                           1992      1993      1994      1995      1996      1996       1997
                         --------  --------  --------  --------  --------  ---------  ---------
                                                                               (UNAUDITED)
<S>                      <C>       <C>       <C>       <C>       <C>       <C>        <C>
BALANCE SHEET DATA:
 Total assets........... $105,663  $109,735  $125,609  $141,223  $161,642  $ 164,262  $ 177,471
 Loans:
 SBA....................    4,928    11,324    29,939    37,873    31,692     46,898     36,750
 USDA...................      --        --        535     3,265     3,211      3,115      5,816
 Ex-Im working capital..      --        --        --        184     3,419        999      2,725
 Ex-Im medium term......      --        --        153       120     2,067         99      2,487
 Other commercial.......   22,689    20,077    20,544    28,826    33,713     31,839     38,680
 Commercial mortgage....    8,346    13,911    16,238    15,518    18,808     18,912     16,950
 Investment property
  mortgage..............   10,942     9,610     9,396     7,698     7,620      6,882      6,286
 Residential and other
  consumer..............   15,043    16,491    18,313    13,508    14,097     13,815      8,495
                         --------  --------  --------  --------  --------  ---------  ---------
   Total loans..........   61,948    71,413    95,118   106,992   114,627    122,559    118,189
 Total cash and cash
  equivalents...........   11,190    11,612     7,585    10,050    18,867     24,524     16,440
 Total investment
  securities............   26,015    19,727    13,981    11,631    15,874      9,645     15,767
 Core deposits (1)......   51,911    63,719    76,622   104,379   105,414    114,971    117,566
 Time deposits..........   41,573    32,068    35,227    23,982    38,902     34,980     41,081
                         --------  --------  --------  --------  --------  ---------  ---------
   Total deposits.......   93,484    95,787   111,849   128,361   144,316    149,951    158,647
 Total stockholders'
  equity................    8,518     8,823     9,675    11,602    14,216     12,985     15,995
</TABLE>    
- --------
(1) Represents checking and savings accounts.
 
                                       6
<PAGE>
 
 
<TABLE>   
<CAPTION>
                                                                                           FOR THE SIX
                                                                                          MONTHS ENDED
                                     FOR THE YEARS ENDED DECEMBER 31,                        JUNE 30,
                          ----------------------------------------------------------  ----------------------
                             1992        1993        1994        1995        1996        1996        1997
                          ----------  ----------  ----------  ----------  ----------  ----------  ----------
                                                                                           (UNAUDITED)
<S>                       <C>         <C>         <C>         <C>         <C>         <C>         <C>
PER COMMON SHARE DATA:
 Net income per common
  share (2).............  $     0.02  $     0.06  $     0.18  $     0.34  $      .54  $     0.27  $     0.34
 Book value per common
  share.................  $     1.63  $     1.69  $     1.84  $     2.19  $     2.63  $     2.42  $     2.94
 Average weighted shares
  (2)...................   5,476,268   5,476,268   5,785,353   6,027,343   6,014,509   6,008,947   6,023,075
 Dividend payout ratio
  (2)(3)................         --          --          --         8.50%      21.19%      21.11%      16.62%
PERFORMANCE RATIOS:
 Net interest spread
  (4)...................        3.61%       3.55%       4.35%       4.82%       4.79%       4.90%       4.21%
 Net interest margin
  (4)(5)................        4.05%       3.97%       4.68%       5.56%       5.48%       5.53%       5.04%
 Return on average
  equity (4)............        1.30%       3.58%      11.70%      19.31%      25.49%      23.62%      27.84%
 Return on average
  assets (4)............        0.11%       0.30%       0.93%       1.51%       2.06%       1.85%       2.53%
 Efficiency ratio (6)...       66.07%      63.18%      60.66%      56.29%      55.04%      53.93%      56.75%
ASSET QUALITY RATIOS:
 Allowance for loan
  losses as a percentage
  of loans..............        0.81%       2.00%       2.10%       1.87%       2.62%       1.67%       2.54%
 Allowance for loan
  losses as a percentage
  of non-performing
  loans.................         --       188.60%      89.06%     158.93%     133.23%     102.11%     115.65%
 Non-performing loans as
  a percentage of loans.         --         1.06%       2.36%       1.18%       1.96%       1.60%       2.19%
 Net charge-offs as a
  percentage of average
  outstanding loans (4).        5.35%       1.97%       1.38%       1.24%       2.12%       0.95%       1.64%
 Total losses as a
  percentage of average
  outstanding loans
  serviced (4)(7).......        3.60%       1.16%       0.69%       1.18%       1.33%       0.47%       1.13%
 Provision for loan
  losses as a percentage
  of average outstanding
  loans (4).............        2.79%       3.38%       2.09%       1.24%       2.97%       0.95%       1.64%
CAPITAL RATIOS:
 Total capital (to risk-
  weighted assets)......       11.64%      10.77%       9.28%      10.73%      11.62%      10.58%      11.50%
 Tier 1 capital (to
  risk-weighted assets)
  (8)...................       12.34%      12.03%      11.27%       9.47%      10.36%       9.33%      10.25%
 Tier 1 capital (to
  average assets).......        8.21%       7.96%       7.87%       7.71%       8.44%       7.56%       8.97%
 Equity to assets ratio
  (9)...................        8.31%       8.33%       7.93%       7.84%       8.08%       7.84%       9.07%
</TABLE>    
- --------
   
(2) Includes common stock equivalents associated with any Company stock options
    issued one year prior to the expected public offering date of September
    1997. In accordance with Staff Accounting Bulletin Topic 4-D, for all
    periods presented, the effect of such equivalents was computed under the
    treasury stock method, assuming the repurchase of such options by the
    Company at an assumed offering price of $11.00 per share.     
(3) Represents cash dividends paid per share as a percentage of net income per
    share.
   
(4) Annualized for the six month periods.     
(5) Calculated as the differential between interest income and interest expense
    as a percentage of average interest-bearing assets during the period
    presented.
(6) Amount reflects non-interest expense as a percentage of net interest income
    plus non-interest income and excludes the gain on the branch sale for the
    year ended December 31, 1996.
(7) Amount reflects the Company charge-offs on portfolio loans plus amounts
    paid by government guarantee agencies pursuant to guarantees on loans
    serviced by the Company, as a percentage of total loans serviced.
(8) The Company's Tier 1 capital includes common equity, less goodwill and any
    disallowed intangibles.
(9) Represents average equity as a percentage of average assets.
<TABLE>   
<CAPTION>
                                                                        FOR THE SIX
                                                                       MONTHS ENDED
                               FOR THE YEARS ENDED DECEMBER 31,           JUNE 30,
                          ------------------------------------------ -----------------
                           1992    1993     1994     1995     1996     1996     1997
                          ------- ------- -------- -------- -------- -------- --------
                                                                        (UNAUDITED)
                                             (DOLLARS IN THOUSANDS)
<S>                       <C>     <C>     <C>      <C>      <C>      <C>      <C>
OPERATING DATA:
 Commercial loan
  originations and
  sales:
 SBA loan originations..  $17,202 $28,879 $ 58,753 $ 37,522 $ 85,303 $ 45,139 $ 47,302
 SBA guaranteed loan
  sales.................  $13,731 $21,659 $ 39,607 $ 27,413 $ 58,878 $ 30,079 $ 33,985
 SBA unguaranteed loan
  sales.................  $   --  $   --  $    --  $    --  $ 29,867 $  4,550 $  6,327
 USDA loans
  originations..........  $   --  $   --  $  2,825 $ 19,241 $ 12,700 $  7,180 $ 17,679
 USDA guaranteed loan
  sales.................  $   --  $   --  $  2,260 $ 14,984 $ 10,199 $  5,784 $ 14,143
 USDA unguaranteed loan
  sales.................  $   --  $   --  $    --  $    --  $  3,207 $  2,699 $    815
 Ex-Im working capital
  loan originations.....  $   --  $   --  $    --  $  6,882 $ 23,300 $  1,700 $ 10,625
 Ex-Im working capital
  loan sales............  $   --  $   --  $    --  $  2,632 $  8,614 $  1,100 $  8,179
 Ex-Im medium term loan
  originations..........  $   --  $   --  $    397 $  1,814 $ 13,617 $  2,289 $ 27,297
 Ex-Im medium term loan
  sales.................  $   --  $   --  $    245 $  1,814 $ 12,745 $  2,289 $ 27,297
 Other commercial loan
  sales.................  $   --  $   --  $    --  $  8,843 $  9,329 $  4,767 $  8,879
 Total commercial loan
  sales.................  $13,731 $21,659 $ 42,112 $ 55,686 $132,839 $ 51,268 $ 99,625
 Commercial loans
  serviced for the Bank
  and others
  (at period end).......  $66,631 $95,501 $157,557 $226,294 $344,622 $288,015 $433,057
</TABLE>    
 
                                       7
<PAGE>
 
                                 RISK FACTORS
 
  An investment in the shares of Common Stock involves a high degree of risk.
Prospective investors should carefully consider the following risk factors, in
addition to the other information set forth in this Prospectus, in connection
with the investment in the shares of Common Stock.
 
  When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans of operations, business strategy, results of operations and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Factors that could cause or contribute to such differences include, but are
not limited to, those described below, and under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.
   
  RISKS ASSOCIATED WITH GOVERNMENT GUARANTEE LOAN PROGRAMS. A substantial
portion of the Company's business depends upon the continuation of various
government guarantee loan programs, such as the SBA, USDA and Ex-Im Bank loan
guarantee programs. Of the total loans originated by the Company during the
year ended December 31, 1996 and the six months ended June 30, 1997,
approximately 73% and 78% by principal amount, respectively, were SBA loans,
USDA loans or Ex-Im Bank loans. There can be no assurance that guarantee
programs currently used by the Company will continue to be available in their
present form. The ongoing federal budget debate has included discussions about
the role and relevance of the loan guarantee programs used by the Company. The
SBA experienced funding crises in 1993, 1994 and 1995 which impeded the
Company and other lenders from using the agency's programs consistently within
their intended guidelines. In 1995, Congressional inaction on the budget
closed the SBA and Ex-Im Bank for 22 days.     
   
  In May 1997, the SBA mistakenly projected a funding shortfall for the fiscal
year ended September 30, 1997 but corrected its prognosis after 30 days. The
USDA has projected that its Business and Industry Program (the "B and I
Program") will have a funding shortfall for the current federal fiscal year
ended September 30, 1997.     
   
  The Ex-Im Bank charter is currently being evaluated by the federal
government for renewal, and while the Company believes renewal is likely, this
renewal process has prompted discussion concerning the continued relevance and
appropriate funding level for such a program. The Company believes that the
Ex-Im Bank small business programs will be fully funded for the current fiscal
year. Approximately 20% and 29% of the Company's originations were made under
Ex-Im Bank programs for the year ended December 31, 1996 and the six months
ended June 30, 1997, respectively.     
 
  Any material increase in government guarantee loan program costs, reduction
in government risk coverage, or decrease in program availability may have a
material adverse impact on the Company's financial condition and results of
operations.
   
  ABILITY OF THE COMPANY TO CONTINUE ITS GROWTH STRATEGY. The Company has
achieved recent growth and profitability in its operations by following a non-
traditional operating strategy. The Company derives a majority of its revenues
from non-interest income, principally gains on the sale of commercial and
international loans and related loan servicing income. Such loan-related non-
interest income increased 92%, from $3.8 million in 1995 to $7.3 million in
1996, and 100% from $3.3 million for the six months ended June 30, 1996 to
$6.6 million for the six months ended June 30, 1997 as the Company originated
and sold an increasing number of loans on a servicing-retained basis.
Historical growth rates are not necessarily indicative of future results, and
it may become more difficult for the Company to maintain historical rates of
growth as it expands. The Company's ability to implement its strategy for
continued growth of its commercial and international loan origination and sale
activities largely depends on its ability to attract and retain new clients
for the Company's services in a     
 
                                       8
<PAGE>
 
competitive market and on the business growth of those clients. This will
require the Company to achieve a greater share of its existing markets as well
as to successfully expand into new geographic markets, potentially requiring
additional personnel, new offices or new marketing representatives which could
affect the Company's profitability. Moreover, as part of its growth strategy,
the Company expects to increase originations of non-government guarantee
loans, including international loans, which may result in increased credit and
other business risks associated with lending. A significant loss in these
activities could have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Business Strategy."
   
  POTENTIAL DECREASE IN VALUATION OF SERVICING ASSETS. The Company sells a
majority of its loans on a non-recourse, servicing-retained basis. As the
servicer of the loans, the Company collects interest and principal over the
term of the loan from the borrower and retains a portion of the interest
collected as a loan servicing fee. Gains on the sale of such loans consist of
any premiums received on the sale, as well as a servicing asset if the
Company's loan servicing fee is greater than the amount determined to
represent "adequate compensation" (as defined in Statement of Financial
Accounting Standards ("SFAS") No. 125) for such loan type. In recording any
gain when only a portion of a loan is sold, the Company also follows the
guidance provided by Emerging Issues Task Force Issue 88-11. The Company
calculates the value of any servicing asset recognized at the time of a loan
sale by estimating (i) the amount of "adequate compensation," (ii) the
expected life of the underlying loan and (iii) the discount factor used in the
present value calculation of the servicing asset. Based on these factors and
the principal amount of the loan serviced, the Company records a servicing
asset on its balance sheet which is amortized over the estimated life of the
loan as a charge to servicing income. A portion of the cash payments received
from the borrower as interest is credited to this non-interest income account
as collected.     
 
  Realization of the servicing asset is subject to the prepayment and loss
characteristics of the underlying loan. Estimates of prepayment rates are made
based on management's expectations of future prepayment rates, which are
based, in part, on the historic performance of the Company's loans and other
considerations. No assurance can be given that management's estimates are
accurate. If actual prepayments occur more quickly than management's
estimates, the carrying value of the servicing asset may have to be written
down. Furthermore, there is no active market for such servicing assets and, in
some cases, the Company is contractually prohibited from selling such
servicing rights and, therefore, there is no assurance that the Company would
be able to sell the servicing assets at their stated balance sheet values. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Accounting for Loan Sales."
 
  ECONOMIC CONDITIONS; GEOGRAPHIC CONCENTRATION. All of the Company's present
domestic lending activity is focused within the Northeast, and although the
Company's lending activity has recently expanded throughout the Northeast,
there remains a significant lending concentration in the State of Connecticut.
The Company believes that certain parts of the Northeast have emerged more
slowly from the 1989-1992 recession than other areas of the country. The
Northeast has been characterized as a region with certain economic risks,
including higher "embedded" costs of doing business, including higher taxes,
fluctuating real estate values and the declining importance of manufacturing
as the key industry in the region. Although some of the Company's borrowers
have diversified their businesses from exclusive reliance on this region,
continued economic sluggishness in the Northeast combined with uncompetitive
economic and regulatory conditions, may limit the Company's ability to operate
profitably. Consequently, the Company has begun to expand its business beyond
the Northeast; however, there can be no assurance that local, regional,
national and international economic conditions affecting the supply of and
demand for U.S. manufactured products would not adversely affect the Company's
profitability in the future. The Company's business may be adversely affected
by periods of economic slowdown or recession in the geographic markets served
by the Company which could negatively impact the Company's ability to attract
and retain deposits and originate loans, the ability of the Company's
borrowers to repay loans, the value of any collateral securing such loans, and
consequently, the financial condition and results of operations of the
Company. See "Business--Loan Originations."
   
  COMMERCIAL LENDING RISKS. At June 30, 1997, the Company's outstanding loan
portfolio was $118.2 million, of which commercial loans represented 93%,
exposing the Company to risks inherent in financing based upon analyses of
credit risk, including risks associated with the value of underlying
collateral, especially real     
 
                                       9
<PAGE>
 
estate, the adequacy of the documentation relating to such collateral and
other more intangible factors considered in making commercial loans. Although
the Company provides an allowance for loan losses, the Company's profitability
may be negatively impacted by errors in risk analyses and by loan defaults.
Furthermore, the ability of certain borrowers to repay such loans may be
adversely affected by any downturn in general economic conditions.
Furthermore, a decrease in pledged collateral value could occur due to changes
in equipment resale market conditions, the failure by users of collateral to
properly maintain and protect such other collateral or other events. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
  IMPACT OF CHANGES IN INTEREST RATES. The Company's results of operations may
be directly affected by the levels of and fluctuations in interest rates.
Changes in interest rates may affect the Company's net interest income by
impairing the Company's ability to earn a spread between the interest received
on its loans and the cost of borrowings, reduce gains from loan sales, result
in higher loan losses, reduce loan originations and corresponding loan
servicing income, and require write downs to servicing assets. A substantial
or sustained increase in interest rates could adversely affect the Company's
ability to originate or sell loans with returns consistent with past
practices, and because most of the loans serviced are variable rate, increases
in interest rates could impact the borrowers' abilities to meet scheduled debt
service requirements. A significant decline in interest rates could decrease
the size of the Company's loan servicing portfolio by increasing the level of
loan prepayments if borrowers chose to refinance their loans. Additionally, to
the extent that servicing assets have been recognized on the books of the
Company, higher than anticipated prepayment rates or losses would require the
Company to write down the value of such servicing assets, adversely impacting
earnings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
 
  COMPETITION FOR COMMERCIAL AND EXPORT LOANS. The Company's business is
highly competitive. The Company competes for commercial and export borrowers
with other commercial and savings banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking firms and certain other nonfinancial institutions, many of
whom are able to devote far greater resources than the Company to market,
underwrite and service loans to the same customer base. As a bank holding
company and national bank, respectively, the Company and the Bank are subject
to extensive regulation and supervision, including in many cases regulation
which limits the types and scope of their activities. Nonfinancial
institutions which compete with the Company for government guarantee loan
programs are not subject to such extensive regulation and supervision. For
example, as a financial institution, the Bank is subject to limitations on the
amount of unguaranteed portions of SBA guaranteed loans which it may sell or
securitize. See "Regulation and Supervision." There can be no assurance that
the Company will be able to originate the same or an increasing volume of
loans in the lines of business in which it has operated, or with the same or
increasing returns in an environment of heightened competition. Furthermore,
future market conditions may impede the origination of loans sold on a
servicing-retained basis and may change the demand for and pricing of such
loans, all of which may have a material adverse impact on the Company's growth
and profitability. See "Business--Competition."
   
  POTENTIAL FOR POLITICAL AND ECONOMIC INSTABILITY IN FOREIGN MARKETS. An
increasingly significant aspect of the Company's business focuses on borrowers
located in Mexico, Brazil, Turkey, India, Poland, Argentina, South Africa,
Indonesia and the Philippines. These originations represented 7% and 21% of
total loans originated by the Company for the year ended December 31, 1996 and
the six months ended June 30, 1997, respectively. The majority of such loans
have been made to borrowers in Brazil. In these countries, some creditworthy
middle market borrowers have experienced difficulty in obtaining competitively
priced financing from their often unstable local financial services sectors.
To varying degrees, each of these countries has experienced economic
difficulties, including periods of slow or negative growth, large government
budget deficits, high inflation, currency devaluation, government influence
over the private sector and unavailability of foreign exchange, including U.S.
dollars. Some of these countries have a history of political and economic
instability. The Company depends, to a significant extent, on the marketing
efforts of foreign professionals with whom the Company has established
contractual relationships for foreign loan origination. Serious economic
downturns or a return to non-democratic forms of government in one or more of
these countries, particularly Brazil, could limit     
 
                                      10
<PAGE>
 
the ability of these foreign representatives as well as the Company to
effectively market the Company's loan and other products, thus reducing the
ability of the Company to originate international loans and adversely
affecting the Company's financial condition and results of operations. See
"Business--International Banking Services and Products."
   
  DEPENDENCE ON MARKETING REPRESENTATIVES. The Company has contractual
marketing arrangements with various professional firms or individuals in its
targeted foreign markets for local solicitation and coordination of Ex-Im Bank
medium term loans. There can be no assurance that these professionals will
continue to work on behalf of the Company, rather than with local or U.S.
competitors. In 1996 related gains on loan sales from such sources represented
10% of pre-tax income, excluding the non-recurring branch sale gain, and such
amounts represented 27% of pre-tax income for the six months ended June 30,
1997. International loan originations are expected to represent an
increasingly higher proportion of the Company's income in future periods.
Accordingly, the loss of such marketing representatives could have a material
impact on the volume of Ex-Im Bank medium term loans originated and a
resulting material adverse effect on the Company's financial condition and
results of operations. See "Business--International Banking--Big Emerging
Markets."     
   
  DEPENDENCE ON KEY EMPLOYEES. The Company's continued growth and
profitability depend upon the abilities and experience of members of its
senior management, including its Chairman and President, Brett N. Silvers, and
certain of the Company's Executive Vice Presidents, who would be difficult to
replace. The loss of the services of any of these key employees could have a
material adverse impact on the Company. The future success of the Company also
depends to a significant degree on its ability to identify, attract and retain
additional qualified personnel. There can be no assurance that the Company
will be successful in attracting or retaining additional qualified personnel.
See "Management--Employment Agreement; Key-Man Insurance Policies."     
 
  REGULATION AND SUPERVISION. Bank holding companies and banks operate in a
highly regulated environment and are subject to extensive supervision and
examination by several federal regulatory agencies. The Company is subject to
the Bank Holding Company Act of 1956, as amended (the "BHCA"), and to
regulation and supervision by the Board of Governors of the Federal Reserve
System (the "FRB"). The Bank, a national banking association, is subject to
regulation and supervision by the OCC. These regulations are intended
primarily for the protection of depositors rather than for the benefit of
investors. Federal laws and regulations govern numerous matters, including
changes in the ownership or control of banks and bank holding companies,
maintenance of adequate capital and the financial condition of a financial
institution, permissible types, amounts and terms of extensions of credit and
investments, permissible non-banking activities, the level of reserves against
deposits, and restrictions on dividend payments. The federal regulatory
agencies possess cease and desist powers to prevent or remedy unsafe or
similar unsound practices or violations of law by bank holding companies and
national banks. These and other restrictions limit the manner in which the
Company and the Bank may conduct business and obtain financing. Furthermore,
the commercial banking business is affected not only by general economic
conditions, but also by the monetary policies of the FRB. Changes in monetary
or legislative policies may affect the interest rates the Bank must offer to
attract deposits and the interest rates it must charge on its loans, as well
as the manner in which it offers deposits and makes loans. These monetary
policies have had, and are expected to continue to have, significant effects
on the operating results of commercial banks, including the Bank. See
"Regulation and Supervision."
 
  CONCENTRATED OWNERSHIP INTEREST AND POSSIBLE EFFECT. Following consummation
of the Offering, the Company's executive officers, directors and certain other
stockholders (the "Principal Owners") will beneficially own approximately
64.21% of the outstanding shares of Common Stock (approximately 62.09% of such
shares of Common Stock if the Underwriters' over-allotment option is exercised
in full) (assuming no exercise of any outstanding stock options). Accordingly,
the Principal Owners will be able to control the outcome of all matters
required to be submitted to the stockholders of the Company for approval,
including decisions relating to the election of the Board of Directors of the
Company, the determination of the day-to-day corporate and management policies
of the Company. The Principal Owners will also be able to control the outcome
of any proposed merger or consolidation of the Company under applicable
Delaware law. In addition, the Principal
 
                                      11
<PAGE>
 
Owners' significant ownership interest in the Company may discourage third
parties from seeking to acquire control of the Company which may adversely
affect the market price of the Common Stock. See "Management;" "Principal
Stockholders;" and "Description of Capital Stock--Delaware Law and Certain
Charter and By-Law Provisions."
   
  DILUTION. Purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value per share of
Common Stock of $6.63 per share. In the event that the Underwriters exercise
their over-allotment option in full, resulting in an additional 255,000 shares
of Common Stock being sold, purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution in net tangible book value per
share of Common Stock of $6.43 per share. See "Dilution."     
   
  BROAD DISCRETION IN THE USE OF PROCEEDS. The Company intends to contribute a
majority of the net proceeds of the Offering to the capital of the Bank to
support future growth in the Bank's domestic and international lending and
other financing activities. Accordingly, the Company will have broad
discretion as to the application of such proceeds. An investor will not have
the opportunity to evaluate the economic, financial and other relevant
information utilized by the Company in determining the application of such
proceeds. See "Use of Proceeds."     
 
  NO PRIOR TRADING MARKET; VOLATILITY OF STOCK PRICE. Prior to the Offering,
there has been no public market for the Common Stock and there can be no
assurance that an active trading market will develop or be sustained after the
Offering or that if such a market develops, the market price will not decline
below the public offering price. The public offering price of the Common Stock
will be determined through negotiations between the Company and the
Representatives (as defined) of the Underwriters, and may not be indicative of
future market prices. See "Underwriting." Among the factors to be considered
in making such a determination will be an assessment of the Company's results
of operations, an evaluation of the Company's management, the future prospects
of the Company and its industry in general, relative price to earnings and
book value ratios of securities of companies engaged in activities similar to
those of the Company, and the prevailing conditions in the securities market.
The market price of the Common Stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results of the Company
or its competitors, changes in earnings estimates by analysts or changes in
general economic conditions.
   
  SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have 7,474,085 shares of Common Stock outstanding (7,729,085
shares if the Underwriters' over-allotment option is exercised in full),
2,353,818 shares (2,608,818 shares if the Underwriters' over-allotment option
is exercised in full) of which will be freely tradeable without restriction or
the requirement of future registration under the Securities Act of 1933, as
amended (the "Securities Act"). All of the remaining 5,120,267 shares of
Common Stock are either "restricted securities" as defined by Rule 144
promulgated under the Securities Act or are held by persons who may be deemed
"affiliates" of the Company. Of such shares, 289,459 shares will be eligible
for sale without restriction and without lock-up agreement in the public
market immediately following commencement of the Offering and 32,200 shares
will become eligible for sale without restriction 90 days following
commencement of the Offering.     
 
  Certain of the Company's officers, directors and stockholders, owning upon
completion of the Offering, in the aggregate     shares of Common Stock, have
agreed that they will not, subject to certain exceptions, for a period of 180
days from the date of this Prospectus, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock of the
Company or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock, or other capital stock of the Company without
the prior written consent of Prudential Securities Incorporated on behalf of
the Underwriters. Further, holders of outstanding stock options for, in the
aggregate, an additional     shares of Common Stock are subject to 180 day
lock-up agreements with the Company and/or Prudential Securities Incorporated
on behalf of the Underwriters. The Company has agreed that it will not, for a
period of 180 days from the date of this Prospectus, directly or indirectly,
offer, sell,
 
                                      12
<PAGE>
 
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock of the
Company or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock, or other capital stock of the Company without
the prior written consent of Prudential Securities Incorporated, on behalf of
the Underwriters, except that such agreement does not prevent the exercise of
outstanding options or the Company from granting additional options under the
Company's stock option plans. Prudential Securities Incorporated may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements.
   
  Upon the expiration of or release from such lock-up agreements, 4,183,639
shares will be eligible for immediate sale under Rule 144 or Rule 701 and
316,400 additional shares subject to outstanding vested stock options could
also be sold, subject in some cases to compliance with certain volume
limitations.     
 
  Sales of such shares in the future could adversely affect the prevailing
market price of the Common Stock. No prediction can be made as to the effect,
if any, that future sales of shares or the availability of shares for sale
will have on the market price for Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock in the public market, or the
perception of the availability of shares for sale, could adversely affect the
prevailing market price of the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
   
  ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW, CERTAIN CHARTER AND BY-LAW
PROVISIONS AND EMPLOYMENT AGREEMENT. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Charter") and Amended
and Restated By-laws (the "By-laws") and of Delaware law could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such
provisions could limit the price that investors might be willing to pay in the
future for Common Stock. These provisions require that the Company have a
Board of Directors comprised of three classes of directors with staggered
terms of office, provide for the issuance of "blank check" preferred stock by
the Board of Directors without stockholder approval, require that all
stockholder actions be taken at duly called annual or special meetings and not
by written consent, and impose various procedural and other requirements that
could make it more difficult for stockholders to effect certain corporate
actions. Additionally, pursuant to the terms of Mr. Silvers' employment
agreement with the Company and the Bank, in the event that the Chase family,
who will own, in the aggregate, 48.97% of the Common Stock after the Offering,
enter into an agreement to sell all or a majority of their shares, the Chase
family has agreed to cause the buyer to give Mr. Silvers the opportunity to
sell the same percentage of his shares of Common Stock on the same terms as
the Chase family proposes to sell their shares. See "Management--Employment
Agreement; Key-Man Insurance Policies." This provision could have the effect
of making it more difficult for a third party to acquire control of the
Company through a purchase of the shares owned by the Chase family.
Furthermore, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law ("DGCL"), which prohibits the
Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person first becomes an "interested stockholder," unless the
business combination is approved in a prescribed manner. The application of
Section 203 could also have the effect of delaying or preventing a change of
control of the Company. See "Description of Capital Stock."     
 
                                      13
<PAGE>
 
                                USE OF PROCEEDS
   
  The net proceeds to the Company from the sale of the 1,700,000 shares of
Common Stock offered hereby, based on the public offering price of $11.00 per
share (the midpoint of the range set forth on the cover page of this
Prospectus), after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company, are estimated to be
$16,978,000 ($19,614,700 if the Underwriters' over-allotment option is
exercised in full).     
   
  The Company intends to use the net proceeds to support and expand the
Company's on-going international and domestic lending and other financing
activities, including by investing in technological improvements to improve
the delivery of services and products. The Company anticipates that
approximately 50% of the proceeds will be contributed to the Bank. The balance
of the proceeds will be retained by the Company to support the Bank's
operations. The Company may also establish one or more non-bank subsidiaries
to expand the Company's operations. The Company has not yet allocated specific
amounts of such net proceeds to any of these uses. Pending such uses, the net
proceeds will be invested in short-term, investment grade, interest-bearing
securities and deposit accounts.     
 
                                DIVIDEND POLICY
   
  Holders of the Common Stock are entitled to receive dividends when, as, and
if declared by the Board of Directors, out of funds legally available for such
purpose. The Company has paid quarterly dividends to its stockholders since
October 1995. For each quarter from October 1995 to July 1997, the Company
paid quarterly cash dividends equal to $.03 per share (adjusted to reflect the
Stock Split).     
 
  The Company currently plans to continue to declare and pay quarterly cash
dividends on approximately the same basis to the holders of the Common Stock.
However, there can be no assurance that dividends will be declared and paid in
the future. Additionally, the Company's ability to declare and pay dividends
depends upon the receipt of dividends from the Bank. In determining whether,
and to what extent, the Company should declare and pay dividends, the
Company's Board of Directors will consider, among other factors, the Company's
consolidated financial condition and results of operations, tax
considerations, general economic conditions and capital requirements. The
payment of dividends by the Company and the Bank is also restricted by the
requirements of federal banking law. See "Regulation and Supervision."
 
                                      14
<PAGE>
 
                                   DILUTION
   
  Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the pro forma book value of the Common Stock from the
public offering price. The net tangible book value of the Company as of June
30, 1997 was $15,690,557 or $2.72 per share of Common Stock after giving
effect to the Stock Split. Net tangible book value per share represents the
amount of the Company's total tangible assets less total liabilities, divided
by the total number of shares of Common Stock outstanding.     
   
  After giving effect to the sale of the 1,700,000 shares of the Common Stock
offered hereby and the receipt by the Company of the estimated net proceeds
therefrom, based on the public offering price of $11 per share (the midpoint
of the estimated range set forth on the cover page of this Prospectus), and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, the pro forma net tangible book value of the
Company as of June 30, 1997 would have been approximately $32,668,557, or
$4.37 per share. This represents an immediate increase in net tangible book
value of $1.65 per share to existing stockholders and an immediate and
substantial dilution of $6.63 per share to new investors. The following table
illustrates this per share dilution:     
 
<TABLE>   
   <S>                                                               <C>   <C>
   Assumed offering price per share................................        $11.00
    Net tangible book value per share as of June 30, 1997..........  $2.72
    Increase per share attributable to new stockholders............   1.65
   Pro forma net tangible book value per share as of June 30, 1997.          4.37
                                                                           ------
   Dilution per share to new investors.............................        $ 6.63
                                                                           ======
</TABLE>    
   
  Assuming the Underwriters' over-allotment option is exercised in full,
1,955,000 shares would be issued in the Offering and the pro forma net
tangible book value per share of Common Stock and the dilution per share to
new stockholders would be $4.57 and $6.43, respectively.     
   
  The following table summarizes, as of August 15, 1997, after giving effect
to the sale of the shares of the Common Stock offered hereby, the number of
shares of Common Stock purchased from the Company, the net consideration paid
and the average net price per share paid by existing stockholders and by
purchasers of the Common Stock in the Offering:     
 
<TABLE>   
<CAPTION>
                            SHARES PURCHASED   NET CONSIDERATION
                            ----------------- ------------------- AVERAGE NET PRICE
                             NUMBER   PERCENT   AMOUNT    PERCENT  PAID PER SHARE
                            --------- ------- ----------- ------- -----------------
   <S>                      <C>       <C>     <C>         <C>     <C>
   Existing Stockholders... 5,774,085    77%  $ 8,811,914    34%       $ 1.53
   New Investors........... 1,700,000    23%   16,978,000    66%         9.99
                            ---------   ---   -----------   ---        ------
     Total................. 7,474,085   100%  $25,789,914   100%       $ 3.45
                            =========   ===   ===========   ===        ======
</TABLE>    
   
  The foregoing table assumes no exercise of any stock options subsequent to
August 15, 1997. As of August 15, 1997, an aggregate of 1,057,506 shares of
Common Stock were reserved but unissued under the Company's stock option plans
and certain other option grants to purchase an aggregate of 799,178 shares at
a weighted average exercise price of $3.92 per share were outstanding. To the
extent such options are exercised, there will be further dilution to new
stockholders.     
 
                                      15
<PAGE>
 
                                CAPITALIZATION
   
  The following table sets forth the capitalization of the Company at June 30,
1997, and as adjusted to reflect the sale of the Common Stock offered hereby
and the receipt by the Company of the estimated net proceeds therefrom, based
on the public offering price of $11.00 per share (the midpoint of the
estimated range set forth on the cover page of this Prospectus) and after
deducting the underwriting discounts and commissions and estimated offering
expenses of $1,722,000 payable by the Company. The information set forth below
should be read in conjunction with the consolidated financial statements and
related notes thereto included elsewhere in this Prospectus.     
 
<TABLE>   
<CAPTION>
                                                         AT JUNE 30, 1997
                                                    ---------------------------
                                                      ACTUAL     AS ADJUSTED(1)
                                                    -----------  --------------
<S>                                                 <C>          <C>
Stockholders' equity:
 Preferred Stock, $0.10 par value; 2,000,000
  shares authorized and no shares issued and
  outstanding...................................... $       --    $       --
 Common Stock, $0.10 par value; 12,000,000 shares
  authorized and 5,773,560 shares issued and
  outstanding, actual; 12,000,000 shares
  authorized and 7,473,560 shares issued and
  outstanding, as adjusted.........................     577,356       747,356
Paid-in capital in excess of par value.............   8,233,407    25,041,407
Stockholder note receivable........................    (953,967)     (862,452)
Unrealized holding loss on investments available
 for sale, net.....................................     (30,126)      (30,126)
Retained earnings..................................   8,168,801     8,003,801
                                                    -----------   -----------
    Total stockholders' equity..................... $15,995,471   $32,899,986
                                                    ===========   ===========
</TABLE>    
- --------
(1) Includes a charge to earnings of $165,000 equal to the bonus payable by
    the Company to Mr. Silvers, Chairman of the Board and President of the
    Company and the Bank in connection with the forgiveness of certain
    interest payments and reimbursement of the tax liabilities associated
    therewith with respect to a promissory note issued by Mr. Silvers to the
    Company. See "Management--Employment Agreements; Key-Man Insurance
    Policies."
   
  Set forth below is a summary of regulatory minimum capital requirements, the
Bank's June 30, 1997 actual capital ratios and the Bank's capital ratios
adjusted to reflect the sale of the Common Stock offered hereby based on the
receipt by the Bank of at least 50% (an estimate) of the net proceeds
therefrom. See also "Regulation and Supervision--Capital Adequacy."     
 
<TABLE>   
<CAPTION>
                                                  REGULATORY          PRO FORMA
                                                   MINIMUM   ACTUAL  AS ADJUSTED
                                                  ---------- ------  -----------
   <S>                                            <C>        <C>     <C>
   Bank regulatory capital ratios:
    Risk-based:
     Tier 1......................................    4.00%   10.25%     16.18%
     Total.......................................    8.00%   11.50%     17.43%
    Leverage.....................................    4.00%    8.97%     14.17%
</TABLE>    
 
                                      16
<PAGE>
 
                     SELECTED CONSOLIDATED FINANCIAL DATA
                 
              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)     
   
  The selected consolidated income statement data for the three years in the
period ended December 31, 1996 and the balance sheet data at December 31, 1995
and 1996 set forth below have been derived from the audited consolidated
financial statements of the Company contained elsewhere herein. The selected
consolidated income statement data for the years ended December 31, 1992 and
1993 and the balance sheet data at December 31, 1992, 1993 and 1994 are
derived from audited consolidated financial statements not included herein.
The consolidated financial statements as of and for the years ended December
31, 1992, 1993, 1994, 1995 and 1996 have been audited by Coopers & Lybrand
L.L.P., independent auditors. The income statement data for the six months
ended June 30, 1996 and 1997 and the balance sheet data as of June 30, 1997
have been prepared by management and are derived from unaudited financial
statements of the Company, and, in the opinion of management, reflect all
adjustments, consisting of normal recurring adjustments necessary to fairly
state the information set forth therein. Operating results for the six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the full year. The data set forth below should be read in
conjunction with the consolidated financial statements and related notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations;" included elsewhere in this Prospectus.     
 
<TABLE>   
<CAPTION>
                                                                         FOR THE SIX MONTHS
                              FOR THE YEARS ENDED DECEMBER 31,             ENDED  JUNE 30,
                         ----------------------------------------------  --------------------
                          1992      1993     1994      1995      1996      1996       1997
                         -------  --------  -------  --------  --------  ---------  ---------
                                                                             (UNAUDITED)
<S>                      <C>      <C>       <C>      <C>       <C>       <C>        <C>
INCOME STATEMENT DATA:
 Interest income........ $ 7,319  $  6,559  $ 7,997  $ 11,601  $ 13,305  $   6,564  $   6,622
 Interest expense.......   3,660     2,891    3,150     4,869     5,741      2,836      3,011
                         -------  --------  -------  --------  --------  ---------  ---------
  Net interest income...   3,659     3,668    4,847     6,732     7,564      3,728      3,611
 Provision for possible
  loan losses...........  (1,773)   (2,225)  (1,683)   (1,237)   (3,487)      (554)      (959)
                         -------  --------  -------  --------  --------  ---------  ---------
Net interest income
 after provision for
 possible loan losses...   1,886     1,443    3,164     5,495     4,077      3,174      2,652
Non-interest income:
 Service charges and
  other deposit fees....     386       484      385       398       424        229        204
 Loan servicing income
  and fees..............     164       288      493       896     1,475        605      1,121
 Gain on loan sales:
  SBA guaranteed........   1,133     2,258    2,577     1,570     3,558      1,803      2,559
  USDA guaranteed.......     --        --       136       822       805        458      1,205
  Ex-Im working capital
   guaranteed...........     --        --       --        104       201         51         89
  Ex-Im medium term
   guaranteed...........     --        --       --        248       340         73        967
  Unguaranteed portions
   of SBA and USDA......     --        --       --        --        842        275        370
  Other commercial......     --        --       --         97        91         33        228
  Residential...........     113       153       17        18         7          3         59
                         -------  --------  -------  --------  --------  ---------  ---------
 Total gain on loan
  sales.................   1,246     2,411    2,730     2,859     5,844      2,696      5,477
 Gain on branch sale....     --        --       --        --      2,202        --         --
 Gain on securities.....     230       392      --        --        --         --         --
                         -------  --------  -------  --------  --------  ---------  ---------
  Total non-interest
   income...............   2,026     3,575    3,608     4,153     9,945      3,530      6,802
                         -------  --------  -------  --------  --------  ---------  ---------
Operating expenses......  (3,756)  (4,576)   (5,129)   (6,128)   (8,425)    (3,900)    (5,909)
                         -------  --------  -------  --------  --------  ---------  ---------
Income before income
 taxes..................     156       442    1,643     3,520     5,597      2,804      3,545
Provision for income
 taxes..................     (48)     (137)    (583)   (1,494)   (2,353)    (1,179)    (1,492)
                         -------  --------  -------  --------  --------  ---------  ---------
 Net income............. $   108  $    305  $ 1,060  $  2,026  $  3,244  $   1,625  $   2,053
                         =======  ========  =======  ========  ========  =========  =========
</TABLE>    
 
 
                                      17
<PAGE>
 
<TABLE>   
<CAPTION>
                                                                            AS OF
                                      AS OF DECEMBER 31,                  JUNE 30,
                         -------------------------------------------- -----------------
                           1992     1993     1994     1995     1996     1996     1997
                         -------- -------- -------- -------- -------- -------- --------
                                                                         (UNAUDITED)
<S>                      <C>      <C>      <C>      <C>      <C>      <C>      <C>
BALANCE SHEET DATA:
 Total assets........... $105,663 $109,735 $125,609 $141,223 $161,642 $164,262 $177,471
 Loans:
 SBA....................    4,928   11,324   29,939   37,873   31,692   46,898   36,750
 USDA...................      --       --       535    3,265    3,211    3,115    5,816
 Ex-Im working capital..      --       --       --       184    3,419      999    2,725
 Ex-Im medium term......      --       --       153      120    2,067       99    2,487
 Other commercial.......   22,689   20,077   20,544   28,826   33,713   31,839   38,680
 Commercial mortgage....    8,346   13,911   16,238   15,518   18,808   18,912   16,950
 Investment property
  mortgage..............   10,942    9,610    9,396    7,698    7,620    6,882    6,286
 Residential and other
  consumer..............   15,043   16,491   18,313   13,508   14,097   13,815    8,495
                         -------- -------- -------- -------- -------- -------- --------
   Total loans..........   61,948   71,413   95,118  106,992  114,627  122,559  118,189
 Total cash and cash
  equivalents...........   11,190   11,612    7,585   10,050   18,867   24,524   16,440
 Total investment
  securities............   26,015   19,727   13,981   11,631   15,874    9,645   15,767
 Core deposits (1)......   51,911   63,719   76,622  104,379  105,414  114,971  117,566
 Time deposits..........   41,573   32,068   35,227   23,982   38,902   34,980   41,081
                         -------- -------- -------- -------- -------- -------- --------
   Total deposits.......   93,484   95,787  111,849  128,361  144,316  149,951  158,647
   Total stockholders'
    equity..............    8,518    8,823    9,675   11,602   14,216   12,985   15,995
</TABLE>    
- --------
(1) Represents checking and savings accounts.
 
<TABLE>   
<CAPTION>
                                                                                          FOR THE SIX
                                    FOR THE YEARS ENDED DECEMBER 31,                 MONTHS ENDED JUNE 30,
                         ----------------------------------------------------------  ----------------------
                            1992        1993        1994        1995        1996        1996        1997
                         ----------  ----------  ----------  ----------  ----------  ----------  ----------
                                                                                          (UNAUDITED)
<S>                      <C>         <C>         <C>         <C>         <C>         <C>         <C>
PER COMMON SHARE DATA:
 Net income per common
  share (2)............. $     0.02  $     0.06  $     0.18  $     0.34  $      .54  $     0.27  $     0.34
 Book value per common
  share................. $     1.63  $     1.69  $     1.84  $     2.19  $     2.63  $     2.42  $     2.94
 Average weighted shares
  (2)...................  5,476,268   5,476,268   5,785,353   6,027,343   6,014,509   6,008,947   6,023,075
 Dividend payout ratio
  (2)(3)................        --          --          --         8.50%      21.19%      21.11%      16.62%
PERFORMANCE RATIOS:
 Net interest spread
  (4)...................       3.61%       3.55%       4.35%       4.82%       4.79%       4.90%       4.21%
 Net interest margin
  (4)(5)................       4.05%       3.97%       4.68%       5.56%       5.48%       5.53%       5.04%
 Return on average
  equity (4)............       1.30%       3.58%      11.70%      19.31%      25.49%      23.62%      27.84%
 Return on average
  assets (4)............       0.11%       0.30%       0.93%       1.51%       2.06%       1.85%       2.53%
 Efficiency ratio (6)...      66.07%      63.18%      60.66%      56.29%      55.04%      53.73%      56.75%
ASSET QUALITY RATIOS:
 Allowance for loan
  losses as a percentage
  of loans..............       0.81%       2.00%       2.10%       1.87%       2.62%       1.67%        2.54%
 Allowance for loan
  losses as a percentage
  of non-performing
  loans.................        --       188.60%      89.06%     158.93%     133.23%     102.11%     115.65%
 Non-performing loans as
  a percentage of loans.        --         1.06%       2.36%       1.18%       1.96%       1.60%       2.19%
 Net charge-offs as a
  percentage of average
  outstanding loans (4).       5.35%       1.97%       1.38%       1.24%       2.12%       0.95%       1.64%
 Total losses as a
  percentage of average
  outstanding loans
  serviced (4)(7).......       3.60%       1.16%       0.69%       1.18%       1.33%       0.47%       1.13%
 Provision for loan
  losses as a percentage
  of average outstanding
  loans (4).............       2.79%       3.38%       2.09%       1.24%       2.97%       0.95%       1.64%
CAPITAL RATIOS:
 Total capital (to risk-
  weighted assets)......      11.64%      10.77%       9.28%      10.73%      11.62%      10.58%      11.50%
 Tier 1 capital (to
  risk-weighted
  assets) (8) ..........      12.34%      12.03%      11.27%       9.47%      10.36%       9.33%      10.25%
 Tier 1 capital (to
  average assets).......       8.21%       7.96%       7.87%       7.71%       8.44%       7.56%       8.97%
 Equity to assets ratio
  (9)...................       8.31%       8.33%       7.93%       7.84%       8.08%       7.84%       9.07%
</TABLE>    
- --------
   
(2) Includes common stock equivalents associated with any Company stock
    options issued one year prior to the expected public offering date of
    September 1997. In accordance with Staff Accounting Bulletin Topic 4-D,
    for all periods presented, the effect of such equivalents was computed
    under the treasury stock method, assuming the repurchase of such options
    by the Company at an assumed offering price of $11.00 per share.     
(3) Represents cash dividends paid per share as a percentage of net income per
    share.
                                                        
                                                     (footnotes continued)     
 
                                      18
<PAGE>
 
   
(4) Annualized for the six month periods.     
(5) Calculated as the differential between interest income and interest
    expense as a percentage of average interest-bearing assets during the
    period presented.
(6) Amount reflects non-interest expense as a percentage of net interest
    income plus non-interest income and excludes the gain on the branch sale
    for the year ended December 31, 1996.
(7) Amount reflects the Company charge-offs on portfolio loans plus amounts
    paid by government guarantee agencies pursuant to guarantees on loans
    serviced by the Company, as a percentage of total loans serviced.
(8) The Company's Tier 1 capital includes common equity, less goodwill and any
    disallowed intangibles.
(9) Represents average equity as a percentage of average assets.
 
<TABLE>   
<CAPTION>
                                                                        FOR THE SIX
                                                                       MONTHS ENDED
                               FOR THE YEARS ENDED DECEMBER 31,          JUNE 30,
                          ------------------------------------------ -----------------
                           1992    1993     1994     1995     1996     1996     1997
                          ------- ------- -------- -------- -------- -------- --------
                                                                        (UNAUDITED)
<S>                       <C>     <C>     <C>      <C>      <C>      <C>      <C>
OPERATING DATA:
 Commercial loan
  originations and
  sales:
 SBA loan originations..  $17,202 $28,879 $ 58,753 $ 37,522 $ 85,303 $ 45,139 $ 47,302
 SBA guaranteed loan
  sales.................  $13,731 $21,659 $ 39,607 $ 27,413 $ 58,878 $ 30,079 $ 33,985
 SBA unguaranteed loan
  sales.................      --      --       --       --  $ 29,867 $  4,550 $  6,327
 USDA loans
  originations..........      --      --  $  2,825 $ 19,241 $ 12,700 $  7,180 $ 17,679
 USDA guaranteed loan
  sales.................      --      --  $  2,260 $ 14,984 $ 10,199 $  5,784 $ 14,143
 USDA unguaranteed loan
  sales.................      --      --       --       --  $  3,207 $  2,699 $    815
 Ex-Im working capital
  loan originations.....      --      --       --  $  6,882 $ 23,300 $  1,700 $ 10,625
 Ex-Im working capital
  loan sales............      --      --       --  $  2,632 $  8,614 $  1,100 $  8,179
 Ex-Im medium term loan
  originations..........      --      --  $    397 $  1,814 $ 13,617 $  2,289 $ 27,297
 Ex-Im medium term loan
  sales.................      --      --  $    245 $  1,814 $ 12,745 $  2,289 $ 27,297
 Other commercial loan
  sales.................      --      --       --  $  8,843 $  9,329 $  4,767 $  8,879
 Total commercial loan
  sales.................  $13,731 $21,659 $ 42,112 $ 55,686 $132,839 $ 51,268 $ 99,625
 Commercial loans
  serviced for the Bank
  and others
  (at period end).......  $66,631 $95,501 $157,557 $226,294 $344,622 $288,015 $433,057
</TABLE>    
 
                                      19
<PAGE>
 
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following discussion and analysis of the consolidated financial
condition and results of operations of the Company should be read in
conjunction with the Company's consolidated financial statements, including
the related notes thereto, and other information contained elsewhere in this
Prospectus.
 
GENERAL
   
  The Company provides a wide variety of credit, trade and depository services
to its niche market of small and medium size manufacturers. Management
believes the Company's experienced loan officers and broad range of commercial
loan and deposit products enable the Company to satisfy the needs of its
manufacturing clients. In serving these clients, the Company has relied on a
mix of government guarantee loan programs, traditional commercial loan
offerings and private banking services to generate both fee and net interest
income for the Company. In contrast to many of its competitors, the Company
derives a majority of its revenues from non-interest income, principally gains
on the sale of commercial and international loans and related loan servicing
income.     
 
Recent Growth
 
  During the past three years of operations, the Company has achieved
significant earnings growth primarily as a result of increases in the sale of
government guarantee and other commercial loans, net interest income, which is
the difference between interest earned on interest-earning assets (principally
loans) and interest paid on interest-bearing liabilities (principally
deposits), and fee income on loans serviced for others. Net income in 1996
also benefited from a gain realized on the sale of the Company's suburban
branch facility, explained below.
 
<TABLE>   
<CAPTION>
                                        FOR THE YEARS ENDED  FOR THE  SIX MONTHS
                                            DECEMBER 31,       ENDED JUNE 30,
                                        -------------------- -------------------
                                         1994   1995   1996    1996      1997
                                        ------ ------ ------ --------- ---------
                                               (NET INCOME IN THOUSANDS)
<S>                                     <C>    <C>    <C>    <C>       <C>
Net income............................. $1,060 $2,026 $3,244 $   1,625 $   2,053
Earnings per share..................... $  .18 $  .34 $  .54 $     .27 $     .34
</TABLE>    
   
  The Company intends to expand its domestic loan origination activities in
existing markets and in new geographic areas and its international presence in
the Big Emerging Markets. The Company plans to continue to rely on government
guarantee loan programs as it expands into new markets; however, the Company
is also developing new non-government guarantee loan products to meet the
needs of its niche market and to mitigate the potential risk that resources
available to the government guarantee loan programs will diminish. See "Risk
Factors--Ability of the Company to Continue its Growth Strategy" and
"Business--Business Strategy."     
   
  The following discussions make reference to average balances of certain
assets and liabilities as well as volume and rate changes. For further
information with respect to these matters see the tables set forth on pages
26, 27, 33 and 34.     
 
ACCOUNTING FOR LOAN SALES
   
  Gains from loan sales and servicing income represented approximately 48% and
63% of the total net interest income and non-interest income for the year
ended December 31, 1996 (excluding the gain realized on the sale of the
branch, as explained below) and the six months ended June 30, 1997,
respectively. Detailed below is a discussion of the relevant accounting
principles governing loan sales and servicing activities.     
 
 
                                      20
<PAGE>
 
SBA and USDA Loan Sales
 
  The majority of the Company's SBA and USDA guaranteed loans are variable
rate, indexed to the Prime Rate as quoted in The Wall Street Journal
("Prime").
 
  The Company generally sells, for a premium, the guaranteed portions of these
loans at origination. For example, if the Company sells a 20-year SBA or USDA
guaranteed mortgage loan with an interest rate of Prime plus 1.50%, the
Company receives a premium because the market demands a yield of less than
Prime plus 1.50%. Guaranteed portions do not trade at the level of U.S.
Treasury bills, but at rates between those of a government bill and a
commercial loan due to prepayment risks and other factors. After the loan
sale, an investor will receive the pro rata principal and pro rata interest at
the note rate less any ongoing guarantee and Company servicing fees. Sales of
the unguaranteed portions of SBA and USDA loans are generally at or above the
carrying value and the Company continues to retain an unguaranteed
participation equal to either 10% or 5%, respectively, of the original loan.
 
  Emerging Issues Task Force ("EITF") 88-11 governs accounting for sales by
the Company of a part of a loan and, as discussed in Note 1 to the
consolidated financial statements, requires that the gain on the sale of a
portion of a loan be based on the relative fair market value of the loan sold,
the portion of the loan retained and any other assets created in the
transaction. The Company creates a servicing asset when it sells loans on a
servicing-retained basis with a servicing fee in excess of what accounting
literature defines as "adequate compensation," which is equal to the net
present value of the estimated cash flows in excess of such compensation. The
original principal basis of a loan must be allocated between the guaranteed
portion sold, the unguaranteed portion retained and the servicing asset,
resulting in a discount being recognized on the unguaranteed retained portion
of the loan.
 
  In connection with calculating gain on sale, the Company must make certain
assumptions which include (i) the amount of "adequate compensation" used to
determine the amount of the servicing asset that the Company can recognize at
the date of the sale, (ii) the estimated life of the underlying loan used in
projecting the time period over which the Company will receive the servicing
fee and (iii) the discount rate used in the present value calculation of the
servicing asset.
   
  Management has defined adequate compensation as 40 basis points. The
constant prepayment rates utilized by the Company in estimating the lives of
the loans depend on the original term of the loan, industry and Company
historical data. Such constant prepayment rates range from 6% to 12% per
annum. The discount rate utilized in the net present value calculation is
equal to 200 basis points above the stated note rate, which, for 1996 and the
six month period ended June 30, 1997, was approximately 10-12%.     
   
  Actual prepayment rates may be affected by a variety of economic and other
factors, including prevailing interest rates and the availability of
alternative financing. The effect of these factors varies depending on the
types of loans. Estimated prepayment rates are based on management's
expectations of future prepayments, and, while management believes that the
term of amortization and market interest rate on the variable rate loans
somewhat reduce the prepayment risk, there can be no assurance that
management's prepayment estimates are accurate. If the actual prepayment rate
of loans sold is higher than projected at the time such loans were sold, the
carrying value of the servicing asset would be reduced by a charge to
earnings. Because the Company also recognizes a discount on the retained loan,
an adjustment to the discount would be made which would partially offset the
effect of the negative servicing adjustment. If the actual prepayment rate for
loans sold is lower than estimated, the carrying value of the servicing asset
is not increased, although the total income over the life of the loan would
exceed previously estimated amounts.     
   
  The servicing asset is amortized against the servicing fee income received
monthly, using an effective interest method, and the discount on the retained
loan is accreted to interest income using an effective interest method. The
servicing asset is carried at the lower of amortized cost or net realizable
value.     
 
 
                                      21
<PAGE>
 
Ex-Im Bank and Other Commercial Loan Sales
 
  Sales of 100% of Ex-Im Bank guaranteed medium term loans are generally made
at the carrying value although the Company receives a servicing fee above the
amount defined as "adequate compensation," resulting in the recognition of a
gain at the time of the sale equal to the calculated servicing asset and any
net loan origination fees. The Company uses a discount factor on the estimated
cash flows equal to 200 basis points above the note rate. The Company adjusts
for prepayments on these 3-5 year term loans as they occur, although
prepayments are minimal due to the lack of alternative U.S. dollar financing
in the Big Emerging Markets and the fact that such Em-Im Bank financing is
unsecured.
 
  The Company also sells 100% of certain other unguaranteed commercial loans
and certain residential and other consumer loans where no portion of the loan
is retained on the Company's balance sheet.
 
RESULTS OF OPERATIONS
   
Comparison of the Six Months Ended June 30, 1996 and 1997     
   
  Net Income. Net income increased $428,000, or 26%, from $1.6 million for the
six months ended June 30, 1996 to $2.1 million for the six months ended June
30, 1997. This increase was primarily attributable to increased loan
production and a corresponding $3.3 million, or 100%, increase in gains on
loans sold and loan servicing fees, partially offset by a $2 million, or 52%,
increase in non-interest expense and a $405,000, or 73%, increase in the
provision for possible loan losses.     
   
  Net Interest Income. Net interest income decreased $117,000, or 3%, from
$3.7 million for the six months ended June 30, 1996 to $3.6 million for the
six months ended June 30, 1997 due to a decrease in the yield on assets
attributable to loan sales and a shift to more expensive deposits following
the September 1996 branch sale. An $8 million, or 6%, increase in average
earning assets was offset by a 49 basis point decrease in net interest margin.
       
  The Company sold checking and savings accounts totaling $24 million from its
last suburban branch facility for a premium of approximately 9% in September
1996. The deposit base of the branch was comprised of personal accounts with
an average balance of $6,500; lower than the Company's average checking and
savings account balance of $30,000 as of June 30, 1997. The Company's sale of
the branch was part of its strategy of targeting commercial depository
accounts of small and medium size manufacturers and accounts of individuals
who seek highly personalized service.     
   
  Interest Income. Interest income remained relatively flat from $6.6 million
for the six months ended June 30, 1996, increasing only $58,000, or 1%, for
the six month period ended June 30, 1997. Interest income on loans decreased
$191,000, or 3%, for the period due to a lower average balance and lower yield
on the portfolio following the September 1996 $20 million bulk-loan sale of
the unguaranteed portions of SBA guaranteed loans to provide funding for the
deposit liabilities transferred in the branch sale. The impact of this sale
was partially offset by a 13 basis point increase in the average prime rate
from the six months ended June 30, 1996 as compared to the six months ended
June 30, 1997. Interest income on investments and federal funds sold increased
$249,000 or 46% due primarily to an $8.9 million increase in the average
balance for the six month period.     
   
  Interest Expense. Interest expense increased $174,000, or 6%, from the six
months ended June 30, 1996 to the six months ended June 30, 1997, as the
average balance of interest-bearing deposits increased 2%, from $116.6 million
to $118.5 million and deposits shifted to more expensive deposit products.
       
  Provision for Possible Loan Losses. The provision for possible loan losses
totaled $554,000 for the six months ended June 30, 1996 as compared to
$959,000 for the six months ended June 30, 1997. See "--Allowance for Loan
Losses."     
 
                                      22
<PAGE>
 
  Non-Interest Income. Non-interest income is comprised of the following
items:
 
<TABLE>   
<CAPTION>
                                                          FOR THE SIX MONTHS
                                                            ENDED JUNE 30,
                                                        -----------------------
                                                           1996        1997
                                                        ----------- -----------
                                                        (DOLLARS IN THOUSANDS)
   <S>                                                  <C>         <C>
   NON-INTEREST INCOME
   Gain on loan sales:
    SBA loan sales..................................... $     1,803 $     2,559
    USDA loan sales....................................         458       1,205
    Ex-Im working capital loan sales...................          51          89
    Ex-Im medium term loan sales.......................          73         967
    Unguaranteed portions of SBA and USDA..............         275         370
    Other commercial loans.............................          33         228
    Residential loans..................................           3          59
                                                        ----------- -----------
       Total gain on loan sales........................       2,696       5,477
   Loan servicing income and fees......................         605       1,121
   Service charges and other deposit fees..............         229         204
                                                        ----------- -----------
       Total non-interest income....................... $     3,530 $     6,802
                                                        =========== ===========
</TABLE>    
   
  The 93%, or $3.3 million, increase in non-interest income from the six
months ended June 30, 1996 compared to the six months ended June 30, 1997 was
due to a $2.8 million, or 103%, increase in the gain on the sale of loans and
a $516,000, or 85%, increase in loan servicing income and fees. This growth
corresponds to the 72%, or, $144 million, increase in the average balance of
loans serviced for others to $345 million for the six months ended June 30,
1997.     
   
  The increase in SBA and USDA loan sale gains reflects the Company's
geographic expansion, while the Ex-Im Bank medium term loan sales increase
reflects stronger marketing relationships in the Big Emerging Markets, which
have begun to produce referrals for the Company's international loan officers.
The Company has sold other unguaranteed commercial loans on a servicing-
retained, non-recourse basis since 1995 but in 1997 undertook a more
systematic selling program as a number of buyers have been identified. See "--
Accounting for Loan Sales" and "Business."     
 
  Loan Servicing Income. Loan servicing income is comprised of servicing fees
received on loans sold on a servicing-retained basis, net of amortization of
the servicing asset. The amount of the servicing fee varies in accordance with
the terms of the loan sale. See "--Accounting for Loan Sales."
 
<TABLE>   
<CAPTION>
                                                          FOR THE SIX MONTHS
                                                            ENDED JUNE 30,
                                                        -----------------------
                                                           1996        1997
                                                        ----------- -----------
                                                        (DOLLARS IN THOUSANDS)
   <S>                                                  <C>         <C>
   LOAN SERVICING INCOME AND FEES
   Loan servicing income:
    SBA guaranteed loans............................... $       424 $       574
    USDA guaranteed loans..............................          57         125
    Ex-Im working capital loans........................          13          77
    Ex-Im medium term loans............................          17          56
    Other commercial loans.............................          27          58
    Residential and consumer loans.....................          27          26
                                                        ----------- -----------
      Total loan servicing income......................         565         916
   Other loan fees.....................................          40         205
                                                        ----------- -----------
       Total loan servicing income and fees............ $       605 $     1,121
                                                        =========== ===========
   LOANS SERVICED FOR OTHERS (AT PERIOD END)
    Outstanding balance................................ $   200,883 $   344,898
                                                        =========== ===========
</TABLE>    
 
                                      23
<PAGE>
 
   
  The increase in loan servicing income reflects the growth of the respective
portfolios. Loan servicing income as a percentage of loans serviced for others
was 56 basis points and 53 basis points, on an annualized basis, for the six
months ended June 30, 1996 and 1997, respectively. Other loan fees have
increased due to a greater demand from the Company's borrowers for letters of
credit.     
   
  Data with respect to the retained portions of SBA and USDA loans are set
forth in the tables below:     
 
<TABLE>   
<CAPTION>
                                                            AT JUNE 30,
                                                      ------------------------
                                                         1996         1997
                                                      -----------  -----------
                                                      (DOLLARS IN THOUSANDS)
   <S>                                                <C>          <C>
   PORTFOLIO BALANCE
   Unguaranteed portions of:
     SBA loans....................................... $    46,898  $    36,750
     USDA loans......................................       3,115        5,816
                                                      -----------  -----------
       Total SBA and USDA loans......................      50,013       42,566
   Less:
     Discount........................................       2,817        2,402
                                                      -----------  -----------
       Net carrying value............................ $    47,196  $    40,164
                                                      ===========  ===========
<CAPTION>
                                                        FOR THE SIX MONTHS
                                                          ENDED JUNE 30,
                                                      ------------------------
                                                         1996         1997
                                                      -----------  -----------
                                                      (DOLLARS IN THOUSANDS)
   <S>                                                <C>          <C>
   DISCOUNT ON RETAINED SBA AND USDA LOANS ACTIVITY
   Balance at beginning of period.................... $     2,300  $     2,232
    Current period sales.............................       1,005          890
    Deletion due to sales............................        (275)        (444)
    Accretion........................................        (213)        (276)
                                                      -----------  -----------
   Balance at end of period.......................... $     2,817  $     2,402
                                                      ===========  ===========
 
  The servicing asset for all loans sold is as follows:
 
<CAPTION>
                                                            AT JUNE 30,
                                                      ------------------------
                                                         1996         1997
                                                      -----------  -----------
                                                      (DOLLARS IN THOUSANDS)
   <S>                                                <C>          <C>
    SERVICING ASSET
   Servicing on other loan sales:
    Ex-Im medium term................................ $       192  $     1,001
    Other commercial.................................         182          123
    Other consumer...................................          12            6
                                                      -----------  -----------
       Total other servicing.........................         386        1,130
   Servicing on SBA and USDA loan sales:
    SBA..............................................       2,855        3,293
    USDA.............................................         461          424
                                                      -----------  -----------
       Total SBA and USDA servicing..................       3,316        3,717
                                                      -----------  -----------
         Total servicing asset....................... $     3,702  $     4,847
                                                      ===========  ===========
 
  The activity in the servicing asset is detailed below:
 
<CAPTION>
                                                        FOR THE SIX MONTHS
                                                          ENDED JUNE 30,
                                                      ------------------------
                                                         1996         1997
                                                      -----------  -----------
                                                      (DOLLARS IN THOUSANDS)
   <S>                                                <C>          <C>
   SERVICING ASSET ACTIVITY
   Balance at beginning of period.................... $     2,809  $     4,138
    Current period sales.............................       1,188        1,289
    Amortization.....................................        (295)        (580)
                                                      -----------  -----------
   Balance at end of period.......................... $     3,702  $     4,847
                                                      ===========  ===========
</TABLE>    
 
 
                                      24
<PAGE>
 
  Non-Interest Expense. The increases in non-interest expense reflect the
Company's growth over the periods as indicated below:
 
<TABLE>   
<CAPTION>
                                                          FOR THE SIX MONTHS
                                                            ENDED JUNE 30,
                                                        -----------------------
                                                           1996        1997
                                                        ----------- -----------
                                                        (DOLLARS IN THOUSANDS)
   <S>                                                  <C>         <C>
   NON-INTEREST EXPENSE
   Salaries and benefits............................... $     2,136 $     3,844
   Occupancy and equipment expense.....................         593         764
   FDIC and OCC........................................          42          33
   Outside services....................................         119         228
   Foreclosed property and collection, net.............         305          97
   Other...............................................         705         943
                                                        ----------- -----------
     Total non-interest expense........................ $     3,900 $     5,909
                                                        =========== ===========
</TABLE>    
 
<TABLE>   
<CAPTION>
                                                                AT JUNE  30,
                                                              -----------------
                                                                1996     1997
                                                              -------- --------
                                                                 (DOLLARS IN
                                                                 THOUSANDS)
   <S>                                                        <C>      <C>
   SELECTED DATA
   Total servicing portfolio................................. $323,442 $463,087
                                                              ======== ========
   Number of loans serviced..................................    1,404    1,627
                                                              ======== ========
   Number of total personnel.................................       84      114
                                                              ======== ========
   Number of loan officers...................................       18       36
                                                              ======== ========
</TABLE>    
   
  The 52%, or $2.0 million, increase in non-interest expense for the six
months ended June 30, 1996 compared to the six months ended June 30, 1997
reflects a 36% increase in full-time employees, from 84 employees at June 30,
1996 to 114 employees at June 30, 1997. The increase in salaries and benefits
also reflects a shift in the mix of employees to more professionals following
elimination of eight clerical branch positions as a result of the September
1996 branch sale, as well as a full six months expense for the 25 new hires
which occurred during 1996. The occupancy and equipment expense increase
includes additional headquarter space leased to house the new employees, and
includes rental expense for the Morristown, New Jersey, Pittsburgh,
Pennsylvania and Washington, D.C. representative offices for part of the six
month period. The decrease in FDIC and OCC assessments reflects a decrease in
the statutory rate of the deposit insurance premium. The outside services
expense, comprised of legal and accounting fees, reflects legal costs
associated with the establishment of international marketing representatives
relationships and other related diligence.     
 
  Other non-interest expense is comprised of the following:
 
<TABLE>   
<CAPTION>
                                                          FOR THE SIX MONTHS
                                                             ENDED JUNE 30
                                                        -----------------------
                                                           1996        1997
                                                        ----------- -----------
                                                        (DOLLARS IN THOUSANDS)
   <S>                                                  <C>         <C>
   OTHER NON-INTEREST EXPENSE
   Office expenses..................................... $       349 $       390
   Marketing...........................................         250         386
   Operating services..................................          60          50
   Insurance...........................................          33          42
   Other expenses......................................          13          75
                                                        ----------- -----------
     Total other non-interest expense.................. $       705 $       943
                                                        =========== ===========
</TABLE>    
   
  Other non-interest expense increases reflect costs to support the growth of
personnel, the Company's geographic growth and more formalized marketing
efforts.     
 
                                      25
<PAGE>
 
   
  The Company's efficiency ratios, calculated as the ratio of non-interest
expense to the sum of net interest income and non-interest income were 54% and
57% for the six months ended June 30, 1996 and 1997, respectively.     
   
  Income Taxes. The Company is subject to federal income tax and state income
taxes in Connecticut and the other states in which it operates representative
offices. The effective income tax rates remained constant for the six months
ended June 30, 1996 and 1997 at 42.1%.     
 
  The following table sets forth the components of the Company's net interest
income and yields on average interest-earning assets and interest-bearing
liabilities.
 
<TABLE>   
<CAPTION>
                                          FOR THE SIX MONTHS ENDED
                             ---------------------------------------------------
                                   JUNE 30, 1996             JUNE 30, 1997
                             ------------------------- -------------------------
                                      INTEREST AVERAGE          INTEREST AVERAGE
                             AVERAGE  EARNED/  YIELD/  AVERAGE  EARNED/  YIELD/
                             BALANCE    PAID    RATE   BALANCE    PAID    RATE
                             -------- -------- ------- -------- -------- -------
                                           (DOLLARS IN THOUSANDS)
<S>                          <C>      <C>      <C>     <C>      <C>      <C>
TOTAL EARNINGS ASSETS
Loans (1):
 Commercial................  $101,803  $5,437   10.68% $103,566  $5,426   10.48%
 Residential...............    12,839     550    8.57%    9,391     335    7.13%
 Other consumer............       679      35   10.36%    1,463      69    9.51%
                             --------  ------   -----  --------  ------   -----
 Total loans...............   115,321   6,022   10.44%  114,420   5,830   10.19%
 Investment securities.....    10,578     321    6.07%   16,226     479    5.90%
 Federal funds sold........     8,556     222    5.22%   11,826     313    5.34%
                             --------  ------   -----  --------  ------   -----
 Total investment
  securities and federal
  funds sold...............    19,134     543    5.69%   28,052     792    5.67%
                             --------  ------   -----  --------  ------   -----
Total earning assets.......   134,455   6,565    9.77%  142,472   6,622    9.30%
                                       ------   -----            ------   -----
Total non-earning assets...    19,544                    20,115
                             --------                  --------
Total assets...............  $153,999                  $162,587
                             ========                  ========
INTEREST-BEARING
 LIABILITIES
Deposits:
 Interest-bearing demand
  deposits.................  $  9,607  $  138    2.89% $  6,954  $   87    2.52%
 Premier money market......    60,979   1,576    5.20%   68,586   1,771    5.21%
 Other savings.............    13,759     229    3.35%    4,665      44    1.90%
 Certificates of deposit...    25,902     705    5.47%   31,882     916    5.79%
 IRA CD's..................     6,378     174    5.49%    6,456     174    5.44%
                             --------  ------   -----  --------  ------   -----
 Total deposits............   116,625   2,822    4.87%  118,543   2,992    5.09%
 Other borrowings..........       622      15    4.85%      749      19    5.12%
                             --------  ------   -----  --------  ------   -----
 Total interest bearing
  liabilities..............   117,247   2,837    4.87%  119,292   3,011    5.09%
                             --------  ------   -----  --------  ------   -----
Non-interest bearing
 liabilities:
 Demand deposits...........    23,383                    26,295
 Other liabilities.........     1,293                     2,250
                             --------                  --------
 Total non-interest bearing
  liabilities..............    24,676                    28,545
 Stockholders' equity......    12,076                    14,750
                             --------                  --------
 Total liabilities and
  stockholders' equity.....  $153,999                  $162,587
                             ========                  ========
NET INTEREST INCOME/NET
 INTEREST SPREAD...........            $3,728    4.90%           $3,611    4.21%
                                       ======   =====            ======   =====
NET INTEREST MARGIN........                      5.53%                     5.04%
                                                =====                     =====
</TABLE>    
- --------
   
(1) For purposes of these computations, non-accruing loans are included in the
    average balances.     
 
                                      26
<PAGE>
 
  The following rate/volume analysis shows the portions of the net change in
interest income due to changes in volume or rate. The changes in interest due
to both volume and rate have been allocated proportionally to changes due to
volume and changes due to rate.
 
<TABLE>   
<CAPTION>
                                                              SIX MONTHS
                                                          ENDED JUNE 30, 1996
                                                           COMPARED TO 1997
                                                           CHANGES DUE TO:
                                                         ---------------------
                                                         VOLUME  RATE   TOTAL
                                                         ------ ------  ------
                                                             (DOLLARS IN
                                                              THOUSANDS)
<S>                                                      <C>    <C>     <C>
INCREASE (DECREASE) IN NET INTEREST INCOME DUE TO
Loans:
 Commercial loans.......................................  $ 92  $ (103) $  (11)
 Residential loans......................................  (123)    (92)   (215)
 Other consumer loans...................................    37      (3)     34
                                                          ----  ------  ------
  Total loans...........................................     6    (198)   (192)
Investment securities...................................   167      (9)    158
Federal funds sold......................................    87       4      91
                                                          ----  ------  ------
  Total investments and federal funds sold..............   254      (5)    249
                                                          ----  ------  ------
  Total interest earning assets.........................   260    (203)     57
Deposits
 Interest-bearing demand deposits.......................   (33)    (18)    (51)
 Premier money market savings...........................   196      (1)    195
 Other savings..........................................   (86)    (99)   (185)
 Time deposits..........................................   172      39     211
 IRA time deposits......................................     2      (2)      0
                                                          ----  ------  ------
  Total deposits........................................   251     (81)    170
FHLB advances...........................................     3       1       4
                                                          ----  ------  ------
  Total interest-bearing liabilities....................   254     (80)    174
                                                          ----  ------  ------
    Change in net interest income.......................  $  6  $ (123) $ (117)
                                                          ====  ======  ======
</TABLE>    
 
Comparison of the Years Ended December 31, 1994, 1995 and 1996
 
  Net Income. Net income totaled $1.1 million in 1994 and increased $1.0
million, or 91%, to $2.0 million in 1995 and increased $1.2 million, or 60%,
to $3.2 million in 1996. The increase in net income from 1994 to 1995 reflects
a $1.9 million, or 39%, increase in net interest income due to a favorable
interest rate environment and an increase in commercial loan sales gains and
servicing income, as sales activities increased 32%, from $42.1 million in
1994 to $55.7 million in 1995. These results were partially offset by an
increase in personnel-related expenses associated with increases in the loan
production and servicing staff.
   
  The increase in net income from 1995 to 1996 reflects the continued
geographic expansion of the Company's U.S. and international commercial loan
origination and related sales activities. Geographic expansion contributed to
a $3.6 million, or 95%, increase in lending-related non-interest income from
1995 to 1996. The loan loss provision increased $2.3 million from 1995 to 1996
due to a $1.2 million increase in charge-offs attributable to continued poor
performance of the investor mortgage portfolio, a line of business abandoned
in 1990, and a $1 million increase in the allowance for loan losses to reflect
the continued growth of the Company's loan portfolio. See "--Allowance for
Loan Losses." This increase in the allowance for loan losses was offset by a
$2.2 million gain realized on the branch sale in September 1996.     
 
  Net Interest Income. Net interest income increased $1.9 million, or 39%,
from 1994 to 1995 resulting from an 88 basis point increase in the net
interest margin. The increase in net interest margin was attributable to
changes in the Company's asset and liability mix as the yield on assets
increased faster than the increased rate
 
                                      27
<PAGE>
 
paid on deposits. Net interest income increased $832,000, or 12%, from $6.7
million in 1995 to $7.6 million in 1996 as growth more than offset the net
interest margin decrease of 8 basis points. Average interest-earning assets
increased $17.0 million, or 14%, while average interest-bearing liabilities
increased $16.1 million, or 16%, from 1995 to 1996. The higher asset growth,
however, was offset by a greater increase in the cost of deposits over the
yield on assets. The deposit cost increased due to a shift of the deposits
into higher rate money market savings and certificates of deposit used to
replace the sold retail deposits.
 
  Interest Income. Interest income increased $3.6 million, or 45%, from $8.0
million in 1994 to $11.6 million in 1995 due to a 160 basis point increase in
the average Prime rate from 1994 to 1995, and a shift in the composition of
average interest-earning assets towards loan balances. In 1994, 76% of
interest-earning assets were held in the form of higher yielding loans
compared to 81% held in such loans in 1995. Interest income increased by $1.7
million, or 15%, from $11.6 million in 1995 to $13.3 million in 1996 due
primarily to a $19.6 million increase in the average balance of commercial
loans. This increase was partially offset in 1996 by a lower yield on
commercial loans due to a 25 basis point decrease in the Prime rate in
February 1996. The annual average Prime rate decreased 50 basis points from
1995 to 1996. The yield on loans also decreased in the fourth quarter of 1996
due to a bulk-sale of unguaranteed portions of SBA loans. Interest income on
investment securities decreased $104,000 due to a $2.4 million average balance
decrease in the investment portfolio. Interest earned on federal funds sold
increased 8% to $632,000 due to a $2.0 million average balance increase
maintained to fund loan demand partially offset by a 25 basis point decrease
in short-term interest rates in February 1996.
 
  Interest Expense. Interest expense increased $1.7 million, or 55%, from 1994
to 1995 due to an increase in the average balance of the Company's externally
indexed money market accounts from $20.4 million in 1994 to $41.8 million in
1995, and a 180 basis point increase in the average rate of the underlying
external index of those accounts from 1994 to 1995. Interest expense increased
$872,000, or 18%, from 1995 to 1996, due principally to a $19.7 million
increase in the average balance of the money market accounts from $41.8
million in 1995 to $61.5 million in 1996. The impact of the increase in these
account balances was partially offset by a 25 basis point reduction, in
October 1995, of the margin added to the Company's external index. The
reduction in the margin was made after consideration of prevailing market
rates; this action had no discernible effect on the Company's ability to
attract such deposits because the Company maintained competitive rates.
   
  Provision for Possible Loan Losses. The provision for possible loan losses
totaled $1.7 million in 1994, $1.2 million in 1995 and $3.5 million in 1996.
The provision is affected by net loan charge-offs, changes in the level and
mix of loans, changes in asset quality and general economic conditions.
Approximately 74% of the charge-offs for the period from January 1, 1994 to
June 30, 1997 are attributable to the Company's investor mortgage portfolio.
See "--Allowance for Loan Losses."     
 
                                      28
<PAGE>
 
  Non-Interest Income. The components of non-interest income are detailed
below:
 
<TABLE>   
<CAPTION>
                                                           FOR THE YEARS ENDED
                                                               DECEMBER 31,
                                                           --------------------
                                                            1994   1995   1996
                                                           ------ ------ ------
                                                               (DOLLARS IN
                                                                THOUSANDS)
<S>                                                        <C>    <C>    <C>
NON-INTEREST INCOME
Gain on loan sales:
 SBA loan sales........................................... $2,577 $1,570 $3,558
 USDA loan sales..........................................    136    822    805
 Ex-Im working capital loan sales.........................    --     104    201
 Ex-Im medium term loan sales.............................    --     248    340
 Unguaranteed SBA and USDA loan portions..................    --     --     842
 Other commercial loans...................................    --      97     91
 Residential loans........................................     17     18      7
                                                           ------ ------ ------
    Total gain on loan sales..............................  2,730  2,859  5,844
Loan servicing income and fees............................    493    896  1,475
Gain on sale of branch....................................    --     --   2,202
Service charges and other deposit fees....................    385    398    424
                                                           ------ ------ ------
    Total non-interest income............................. $3,608 $4,153 $9,945
                                                           ====== ====== ======
</TABLE>    
 
  The non-interest income increase of $545,000, or 15%, from 1994 to 1995 was
attributable to a $403,000 increase in loan servicing income, which was
directly proportional to the increase in the average loan portfolio serviced
for others from year to year. Gains on SBA loan sales decreased as limitations
on loan size were imposed by the SBA to preserve its funding. Such limits
resulted in a decrease in the average balance of SBA loans originated from
$556,000 in 1994 to an average balance of $395,000 in 1995. As a result of
these loan limits, a greater number of originations was required to yield the
same return. However, this decrease in income from the sale of SBA loans was
offset by increases in gains on the sale of USDA and Ex-Im Bank loans as more
opportunities for USDA loans were identified and Ex-Im Bank marketing efforts
increased.
 
  The non-interest income increase of $5.8 million from 1995 to 1996 reflects
the non-recurring $2.2 million gain realized on the sale of the Company's
suburban branch facility and its deposits as well as increasing gains on the
sale of the guaranteed and unguaranteed portions of SBA and USDA loans. The
increased loan sales activity reflects the Company's addition of new regional
representative offices and the hiring of nine additional commercial loan
officers. The Company completed its first bulk-sale of the unguaranteed
portions of SBA and USDA loans in 1996. These sales, along with the on-going
sales of government guarantee loans on a servicing-retained basis, increased
the loan servicing portfolio, which resulted in an increase in servicing fees
for the year.
 
  In January 1995, the SBA adopted certain policies, such as the temporary
reduction of the maximum SBA loan amount to $500,000 and the temporary
prohibition of the use of SBA loan proceeds for certain refinancings. These
temporary limits were removed in October 1995, but resulted in the Company
originating loans with a smaller average balance in 1995. The Company
originated and sold 109 SBA loans in 1994 with a total outstanding balance of
$40 million compared to 95 loans in 1995 with a total balance of $27 million.
Sales totaled $59 million for 170 SBA loans in 1996.
 
  On May 5, 1997, the SBA adopted a similar temporary restriction on the
maximum SBA loan amount to $500,000 but lifted this on June 5, 1997. Although
the Company is not aware of any other pending SBA program changes, management
continues to manage such risk through its continued diversification to Ex-Im
Bank guaranteed loan products as well as through the introduction of new non-
guaranteed financing products.
 
  The Company began selling certain unguaranteed portions of SBA and USDA
loans in 1996 on a non-recourse, servicing-retained basis. The unguaranteed
portion of such loans were sold above the carrying value and resulted in
gains. In 1996, gains from the sale of the unguaranteed portions of SBA and
USDA loans totaled
 
                                      29
<PAGE>
 
$842,000 on sales of loans totaling $33.1 million. Many of these loans sold
were originated prior to 1996. The Company can give no assurance that it will
have a similar volume of loans available to sell and therefore that it will
attain similar gains in the future.
 
  Loan servicing income comprises the servicing fees received on loans sold on
a servicing retained basis, net of amortization of the servicing asset.
 
<TABLE>   
<CAPTION>
                                                       FOR THE YEARS ENDED
                                                          DECEMBER 31,
                                                    ---------------------------
                                                     1994      1995      1996
                                                    -------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                 <C>      <C>       <C>
LOAN SERVICING INCOME AND FEES
Loan servicing income:
 SBA guaranteed loans.............................. $   442  $    766  $    921
 USDA guaranteed loans.............................       2        43       151
 Ex-Im working capital loans.......................     --          7        56
 Ex-Im medium term loans...........................     --        --         43
 Other commercial loans............................     --         16        65
 Residential and consumer loans....................      43        48        59
                                                    -------  --------  --------
    Total loan servicing income....................     487       880     1,295
  Other loan fees..................................       6        16       180
                                                    -------  --------  --------
    Total loan servicing income and fees........... $   493  $    896  $  1,475
                                                    =======  ========  ========
LOANS SERVICED FOR OTHERS (AT PERIOD END):
  Outstanding balance.............................. $98,740  $153,850  $265,805
                                                    =======  ========  ========
 
  The increases in loan servicing income reflect the growth of the servicing
portfolios. Stated as a percentage of the average balance of loans serviced for
others, loan servicing income totaled 49, 57 and 49 basis points for the years
ended December 31, 1994, 1995 and 1996, respectively. This ratio will vary in
accordance with the mix of loans comprising the servicing portfolio and
generally will move in the same direction as the cost of servicing.
 
  Data with respect to the retained portions of loans of SBA and USDA loan
sales and related accounts are set forth in the tables below.
 
<CAPTION>
                                                         AT DECEMBER 31,
                                                    ---------------------------
                                                     1994      1995      1996
                                                    -------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                 <C>      <C>       <C>
PORTFOLIO BALANCE
Unguaranteed portions of:
 SBA loans......................................... $29,908  $ 37,873  $ 31,691
 USDA loans........................................     535     3,265     3,211
                                                    -------  --------  --------
    Total SBA and USDA loans.......................  30,443    41,138    34,902
Less:
  Discount.........................................   1,792     2,300     2,232
                                                    -------  --------  --------
    Net carrying value............................. $28,651  $ 38,838  $ 32,670
                                                    =======  ========  ========
<CAPTION>
                                                       FOR THE YEARS ENDED
                                                          DECEMBER 31,
                                                    ---------------------------
                                                     1994      1995      1996
                                                    -------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                 <C>      <C>       <C>
DISCOUNT ON RETAINED SBA AND USDA LOANS
Balance at beginning of year....................... $   805  $  1,792  $  2,300
   Current period sales............................   1,089       839     1,510
   Deletions due to sales..........................     --        --     (1,112)
   Accretion.......................................    (102)     (331)     (466)
                                                    -------  --------  --------
Balance at end of year............................. $ 1,792  $  2,300  $  2,232
                                                    =======  ========  ========
</TABLE>    
 
 
                                      30
<PAGE>
 
  The servicing assets for all loans sold is as follows:
 
<TABLE>   
<CAPTION>
                                                        AT DECEMBER 31,
                                                   ----------------------------
                                                     1994      1995      1996
                                                   --------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                <C>       <C>       <C>
SERVICING ASSET
Servicing on other loan sales:
 Ex-Im medium term................................ $    --   $    161  $    374
 Other commercial.................................      --        140       173
 Other consumer...................................       14        16         8
                                                   --------  --------  --------
    Total other servicing.........................       14       317       555
Servicing on SBA and USDA loan sales:
 SBA..............................................    2,031     2,290     3,100
 USDA.............................................       39       202       483
                                                   --------  --------  --------
    Total SBA and USDA servicing..................    2,070     2,492     3,583
                                                   --------  --------  --------
     Total servicing asset........................ $  2,084  $  2,809  $  4,138
                                                   ========  ========  ========
 
  The activity in the servicing asset is detailed below:
 
<CAPTION>
                                                      FOR THE YEARS ENDED
                                                          DECEMBER 31,
                                                   ----------------------------
                                                     1994      1995      1996
                                                   --------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                <C>       <C>       <C>
SERVICING ASSET ACTIVITY
Balance at beginning of period.................... $  1,210  $  2,084  $  2,809
 Current period sales.............................    1,040     1,127     1,979
 Amortization.....................................     (166)     (402)     (650)
                                                   --------  --------  --------
Balance at end of period.......................... $  2,084  $  2,809  $  4,138
                                                   ========  ========  ========
 
  Non-Interest Expense. Increases in non-interest expense reflect the Company's
growth over the periods as indicated below:
 
<CAPTION>
                                                      FOR THE YEARS ENDED
                                                          DECEMBER 31,
                                                   ----------------------------
                                                     1994      1995      1996
                                                   --------  --------  --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                                <C>       <C>       <C>
NON-INTEREST EXPENSE
Salaries and benefits............................. $  2,485  $  3,399  $  4,963
Occupancy and equipment expense...................      837       980     1,236
FDIC and OCC......................................      296       206        69
Outside services..................................      198       210       231
Foreclosed property and collection, net...........      365       311       360
Other.............................................      948     1,022     1,566
                                                   --------  --------  --------
  Total non-interest expense...................... $  5,129  $  6,128  $  8,425
                                                   ========  ========  ========
SELECTED DATA
Total servicing portfolio......................... $193,858  $260,842  $380,432
                                                   ========  ========  ========
Number of loans serviced..........................    1,176     1,308     1,519
                                                   ========  ========  ========
Number of total personnel.........................       55        67        92
                                                   ========  ========  ========
Number of loan officers...........................        7        11        26
                                                   ========  ========  ========
</TABLE>    
 
                                      31
<PAGE>
 
   
  Non-interest expense increased 20%, or $1.0 million, from 1994 to 1995 which
reflects a 22% increase in the number of employees from 55 full-time employees
at December 31, 1994 to 67 full-time employees at December 31, 1995. Occupancy
and equipment expense increased 17% due to the cost of additional space leased
at the Hartford, Connecticut headquarters as well as a partial year's rental
expense for the representative offices in Boston and Springfield,
Massachusetts and Providence, Rhode Island. The FDIC and OCC assessments
reflects a statutory decrease in the FDIC Bank Insurance Fund assessment rate
effective May 1995; this rate may be increased at any time by the FDIC and
fluctuates with the Company's deposit base.     
 
  The $2.3 million, or 38%, increase in total non-interest expense from 1995
to 1996 reflects the personnel increases and related occupancy increases as
the Company acquired additional leased space at its headquarters facility to
accommodate additional lending staff and the support staff hired in 1996. The
occupancy and equipment expense increase reflects the cost of additional
leased space acquired for the Springfield and Boston, Massachusetts and
Providence, Rhode Island representative offices, each of which had twelve
months rental expense in 1996 compared to a partial year's expense in 1995.
The annual occupancy and equipment expense on each such representative office
is approximately $50,000. FDIC and OCC assessments decreased $137,000, or 67%,
from 1995 to 1996 due to the May 1995 statutory decrease in the deposit
premium insurance rate.
 
  Other non-interest expense is comprised of the following:
 
<TABLE>   
<CAPTION>
                                                               FOR THE YEARS
                                                             ENDED DECEMBER 31,
                                                             ------------------
                                                             1994  1995   1996
                                                             ---- ------ ------
                                                                (DOLLARS IN
                                                                 THOUSANDS)
<S>                                                          <C>  <C>    <C>
OTHER NON-INTEREST EXPENSE
Office expenses............................................. $367 $  539 $  692
Marketing...................................................  156    288    632
Operating services..........................................  109    107    126
Insurance...................................................   62     61     62
Other expenses..............................................  204     27     52
Loss on sale of equipment...................................   50    --       2
                                                             ---- ------ ------
  Total other non-interest expense.......................... $948 $1,022 $1,566
                                                             ==== ====== ======
</TABLE>    
   
  The overall increase in other non-interest expense was only $74,000, or 8%,
from 1994 to 1995. However, the 1994 expenses included expenditures of
$171,000 related to due diligence on an abandoned acquisition, offset by a
$172,000 increase in office expenses in 1995, due to a 22% increase in
personnel and a $36,000, or 54%, increase in postage due to the introduction
of an international mass mailing program, and a 10% increase in the postal
rates in January 1995. The mass mailing program, based on proprietary
information compiled by the Company, was undertaken by the Company's
international loan officers to reach potential foreign-based buyers of U.S.-
made goods prior to the time the Company had relationships with local
marketing representatives. The Company's international loan officers have
continued such mass mailing efforts on a more limited scale to supplement
referrals from the marketing representatives.     
 
  The increase in office and marketing expense from 1995 to 1996 reflects
costs to support the growth of personnel over the periods and the Company's
geographically wider and more formalized marketing efforts. The $153,000, or
28%, increase in office expense from 1995 to 1996 includes a $54,000 increase
in telephone expense and $24,000 increase in postage. Such expenses increased
as international loan officers responded to inquiries from potential borrowers
and domestic commercial loan officers expanded their marketing efforts. The
$344,000, or 119%, increase in marketing expense from 1995 to 1996 reflects an
investment in the development of international marketing relationships and
marketing literature. The Company also engaged a public relations firm to
create various marketing pieces for use in mass mailing solicitations and
other expanded and regionalized calling efforts. International development
efforts included legal expenses, visits by Company officers to the locations
of prospective international marketing representatives and related due
diligence, as well as training in Connecticut of the international marketing
representatives. The Company's domestic and international loan
 
                                      32
<PAGE>
 
   
officers also incurred greater travel and other business development costs as
they expanded their marketing efforts, and the number of officers increased
from 11 to 26.     
 
  The Company's efficiency ratios, calculated as the ratio of non-interest
expenses to the sum of net interest income and non-interest income, excluding
the 1996 gain on the branch sale, were 61%, 56% and 55% for the years ended
December 31, 1994, 1995 and 1996, respectively.
 
  Income Taxes. The effective income tax rates for the years ended December
31, 1994, 1995 and 1996 were 35.5%, 42.4% and 42.0%, respectively. The 1994
tax provision reflects utilization of a state net operating loss carryforward.
 
  The following table sets forth the components of the Company's net interest
income and yield on average interest earning assets and rate on interest
bearing liabilities.
 
<TABLE>   
<CAPTION>
                                                       FOR THE YEARS ENDED
                          -----------------------------------------------------------------------------
                              DECEMBER 31, 1994         DECEMBER 31, 1995         DECEMBER 31, 1996
                          ------------------------- ------------------------- -------------------------
                                   INTEREST AVERAGE          INTEREST AVERAGE          INTEREST AVERAGE
                          AVERAGE  EARNED/  YIELD/  AVERAGE  EARNED/  YIELD/  AVERAGE  EARNED/  YIELD/
                          BALANCE    PAID    RATE   BALANCE    PAID    RATE   BALANCE    PAID    RATE
                          -------- -------- ------- -------- -------- ------- -------- -------- -------
                                                     (DOLLARS IN THOUSANDS)
<S>                       <C>      <C>      <C>     <C>      <C>      <C>     <C>      <C>      <C>
TOTAL EARNING ASSETS
Loans(1):
 Commercial.............  $ 61,400  $5,558   9.05%  $ 82,040  $8,976   10.94% $101,656 $10,882   10.70%
 Residential............    14,104   1,037   7.35%    14,472   1,152    7.96%   12,848   1,059    8.24%
 Other consumer.........     3,639     300   8.24%     1,388     138    9.94%      874      86    9.84%
                          --------  ------   ----   --------  ------   -----  -------- -------   -----
 Total loans............    79,143   6,895   8.71%    97,900  10,266   10.49%  115,378  12,027   10.42%
 Investment securities..    17,302     799   4.62%    12,921     750    5.80%   10,495     646    6.16%
 Federal funds sold.....     7,202     303   4.21%    10,179     585    5.75%   12,153     632    5.20%
                          --------  ------   ----   --------  ------   -----  -------- -------   -----
 Total investment
  securities and federal
  funds sold............    24,504   1,102   4.50%    23,100   1,335    5.78%   22,648   1,278    5.64%
                          --------  ------   ----   --------  ------   -----  -------- -------   -----
Total earning assets....   103,647   7,997   7.72%   121,000  11,601    9.59%  138,026  13,305    9.64%
Total non-earning
 assets.................    10,644                    12,924                    19,466
                          --------                  --------                  --------
Total assets............  $114,291                  $133,924                  $157,492
                          ========                  ========                  ========
INTEREST-BEARING
 LIABILITIES
Deposits:
 Interest-bearing demand
  deposits..............  $ 14,953  $  211   1.41%  $  9,970  $  229    2.30% $  8,705 $   241    2.77%
 Premier money market...    20,448     846   4.14%    41,822   2,417    5.78%   61,519   3,176    5.16%
 Other savings..........    23,162     623   2.69%    16,462     425    2.58%   12,607     386    3.06%
 Certificates of
  deposit...............    24,512   1,027   4.19%    25,626   1,356    5.29%   28,384   1,564    5.51%
 IRA CD's...............     5,784     253   4.37%     6,262     344    5.49%    6,436     347    5.39%
                          --------  ------   ----   --------  ------   -----  -------- -------   -----
 Total deposits.........    88,859   2,960   3.33%   100,142   4,771    4.76%  117,651   5,714    4.86%
 Other borrowings.......     4,495     190   4.23%     1,999      98    4.90%      623      27    4.33%
                          --------  ------   ----   --------  ------   -----  -------- -------   -----
 Total interest bearing
  liabilities...........    93,354   3,150   3.37%   102,141   4,869    4.77%  118,274   5,741    4.85%
                          --------  ------   ----   --------  ------   -----  -------- -------   -----
Non-interest-bearing
 liabilities:
 Demand deposits........    11,400                    20,220                    24,862
 Other liabilities......       476                     1,068                     1,630
                          --------                  --------                  --------
 Total non-interest
  bearing liabilities...    11,876                    21,288                    26,492
 Stockholders' equity...     9,061                    10,495                    12,726
                          --------                  --------                  --------
 Total liabilities and
  stockholders' equity..  $114,291                  $133,924                  $157,492
                          ========                  ========                  ========
NET INTEREST INCOME/NET
 INTEREST SPREAD........            $4,847   4.35%            $6,732    4.82%          $ 7,564    4.79%
                                    ======   ====             ======   =====           =======   =====
NET INTEREST MARGIN.....                     4.68%                      5.56%                     5.48%
                                             ====                      =====                     =====
</TABLE>    
- --------
   
(1) For purposes of these computations, non-accruing loans are included in the
    average balances.     
 
                                      33
<PAGE>
 
  The following rate/volume analysis shows the portions of the net change in
interest income due to changes in volume or rate. The changes in interest due
to both volume and rate have been allocated proportionally to changes due to
volume and changes due to rate.
 
<TABLE>   
<CAPTION>
                          YEAR ENDED DECEMBER 31,     YEAR ENDED DECEMBER 31,
                           1994 COMPARED TO 1995       1995 COMPARED TO 1996
                              CHANGES DUE TO:             CHANGES DUE TO:
                          -------------------------  ---------------------------
                          VOLUME    RATE     TOTAL    VOLUME    RATE     TOTAL
                          -------- -------  -------  --------  -------  --------
                                       (DOLLARS IN THOUSANDS)
<S>                       <C>      <C>      <C>      <C>       <C>      <C>
INCREASE (DECREASE) IN
 NET INTEREST INCOME DUE
 TO:
Loans:
 Commercial loans.......  $ 2,258  $ 1,160  $ 3,418  $  2,100  $  (194) $  1,906
 Residential loans......       29       86      115      (134)      41       (93)
 Other consumer loans...     (224)      62     (162)      (51)      (1)      (52)
                          -------  -------  -------  --------  -------  --------
  Total loans...........    2,063    1,308    3,371     1,915     (154)    1,761
Investment securities...     (254)     205      (49)     (149)      45      (104)
Federal funds sold......      171      111      282       103      (56)       47
                          -------  -------  -------  --------  -------  --------
  Total investments and
   federal funds sold...      (83)     316      233       (46)     (11)      (57)
                          -------  -------  -------  --------  -------  --------
  Total interest earning
   assets...............    1,980    1,624    3,604     1,869     (165)    1,704
Deposits:
 Interest-bearing demand
  deposits..............     (114)     132       18       (35)      47        12
 Premier money market
  savings...............    1,235      336    1,571     1,017     (258)      759
 Other savings..........     (173)     (25)    (198)     (118)      79       (39)
 Time deposits..........       59      270      329       152       56       208
 IRA time deposits......       26       65       91         9       (6)        3
                          -------  -------  -------  --------  -------  --------
  Total deposits........    1,033      778    1,811     1,025      (82)      943
FHLB advances...........     (122)      30      (92)      (60)     (11)      (71)
  Total interest-bearing
   liabilities..........      911      808    1,719       965      (93)      872
                          -------  -------  -------  --------  -------  --------
    Change in net
     interest income....  $ 1,069  $   816  $ 1,885  $    904  $   (72) $    832
                          =======  =======  =======  ========  =======  ========
</TABLE>    
 
FINANCIAL CONDITION
   
  General. Total assets increased $15.6 million, or 12%, from $125.6 million
at December 31, 1994 to $141.2 million at December 31, 1995, and $20.4
million, or 15%, from $141.2 million at December 31, 1995 to $161.6 million at
December 31, 1996. These increases reflect the increased loan portfolio and
the corresponding growth in deposits used to fund loan originations. Assets
increased $15.8 million, or 10%, to $177.5 million at June 30, 1997 due to the
$3.4 million, or 3%, increase, in net loans and a $13.2 million, or 128%,
increase in receivable from loans sold due to month end June 1997 sales.     
   
  Cash and Cash Equivalents. Cash and cash equivalents increased $2.5 million,
or 33%, from $7.6 million at December 31, 1994 to $10.1 million at December
31, 1995, increased $8.8 million, or 87%, to $18.9 million at December 31,
1996 and decreased $2.4 million, or 13%, to $16.4 million at June 30,1997. The
Company maintains such funds on hand as Federal Funds Sold, providing
overnight liquidity for the Company's loan originations.     
          
  Investment Securities. The investment securities portfolio decreased $2.4
million, or 17%, from $14.0 million at December 31, 1994 to $11.6 million at
December 31, 1995 and increased $4.2 million, or 37%, from December 31, 1995
to $15.9 million at December 31, 1996 and totaled $15.8 million at June 30,
1997. The portfolios are managed for liquidity and security, rather than
yield, and are comprised primarily of U.S. Treasury and other U.S. government
mortgage-backed securities and collateralized mortgage obligations with
average lives of less than five years. The portfolios are also utilized to
collateralize lines of credit with correspondent banks, providing letter of
credit facilities to supplement the Company's own product offerings.     
 
 
                                      34
<PAGE>
 
   
  Loans. Loans increased $12 million, or 13%, from $95.1 million in 1994 to
$107.0 million in 1995, and increased $7.6 million, or 7%, from December 31,
1995 to $114.6 million at December 31, 1996 and increased $3.6 million, or 3%,
from December 31, 1996 to $118.2 million at June 30, 1997. The growth in the
portfolios resulted from the retained portions of SBA and USDA loans and was
partially offset by the sale from portfolio in 1996 of a total of $33.1
million of the unguaranteed portions of SBA and USDA loans, many of which had
been originated in earlier years. This sale was undertaken to provide the
funding required for the September 1996 branch sale as well as to provide
general liquidity for originations and investment portfolio purchases. For the
six months ended June 30, 1997, sales of the unguaranteed portions of SBA and
USDA loans totaled $7.1 million.     
   
  Allowance for Loan Losses. The Company reviews the adequacy of the allowance
for loan losses quarterly. The allowance totaled $2 million at December 31,
1994 and at December 31, 1995. The allowance for loan losses increased $1
million, from $2 million at December 31, 1995 to $3 million at December 31,
1996, to include a specific allocation for certain investor property mortgage
loans, and to reflect a general allocation to the commercial loan portfolios
due to increases in the outstanding loan balances. The allowance for loan
losses remained flat at $3 million from the December 31, 1996 balance to the
June 30, 1997 balance.     
 
<TABLE>   
<CAPTION>
                                      AT DECEMBER 31,            AT JUNE 30,
                                 ---------------------------  ------------------
ACTIVITY IN THE ALLOWANCE         1994      1995      1996      1996      1997
FOR LOAN LOSSES                  -------  --------  --------  --------  --------
                                           (DOLLARS IN THOUSANDS)
<S>                              <C>      <C>       <C>       <C>       <C>
Balance of allowance for loan
 losses at the beginning of the
 period........................  $ 1,425  $  2,000  $  2,000  $  2,000  $  3,000
Charge-offs:
  Investor mortgage............      709     1,086     1,730       512       801
  SBA..........................      --         18       478        73        74
  USDA.........................      --        --        --        --        --
  Commercial...................      418       173       168       --         17
  Private......................       82         8        27       --          1
  Ex-Im working capital........      --        --        --        --        --
  Ex-Im medium term............      --        --        --        --        --
  Construction.................      --          4       --        --        --
  Residential and other consum-
  er...........................        3        32       124       --         78
                                 -------  --------  --------  --------  --------
    Total charge-offs..........    1,212     1,321     2,527       585       971
Recoveries:
  Investor mortgage............      --         13        13        12       --
  Commercial...................       34         6        16        15         3
  Private......................       69        63        10         4       --
  Residential and other consum-
   er..........................        1         2         1       --          9
                                 -------  --------  --------  --------  --------
Total recoveries...............      104        84        40        31        12
                                 -------  --------  --------  --------  --------
Net charge-offs................    1,108     1,237     2,487       554       959
                                 -------  --------  --------  --------  --------
Provision for loan losses......    1,683     1,237     3,487       554       959
                                 -------  --------  --------  --------  --------
Balance of allowance for loan
 losses at end of period.......  $ 2,000  $  2,000  $  3,000  $  2,000  $  3,000
                                 =======  ========  ========  ========  ========
Total loans....................  $95,118  $106,992  $114,627  $122,559  $118,189
                                 =======  ========  ========  ========  ========
Allowance to total loans.......      2.1%      1.9%      2.6%      1.6%      2.5%
                                 =======  ========  ========  ========  ========
</TABLE>    
   
  Charge-offs from the investor mortgage portfolio represented 59%, 82%, 69%,
88% and 83% of the total charge-offs for the years ended December 31, 1994,
1995 and 1996, and the six months ended June 30, 1996 and June 30, 1997,
respectively. The Company's portfolio of investor mortgages is collateralized
by multi-family urban residential units located in various Connecticut inner
cities. Following the recession in 1990, management determined that no new
loans collateralized by urban residential units would be made as the Company's
focus turned toward its current target market of small and medium size
manufacturers. In the early 1990's the Company     
 
                                      35
<PAGE>
 
   
worked to resolve investor mortgages related to certain urban residential
loans by facilitating sales of the troubled properties to experienced property
managers who had an interest in acquiring and rehabilitating them. Due to
deteriorating economic conditions in Hartford and New Haven, Connecticut, many
of these properties experienced cash flow difficulties again in 1995 which
worsened through 1996 due to continued deterioration in the socio-economic
environment. The Company increased the allocated allowance for loan losses for
such properties in 1996 and charged-off $801,000 of this additional allowance
during the first six months of 1997 upon resolution of a long-outstanding loan
from this portfolio. The Company continues to monitor this portfolio and,
based on current information, believes that it maintains appropriate reserves.
The outstanding balance of this portfolio at June 30, 1997 totaled $6.3
million and was comprised of 40 loans.     
   
  The provision for loan losses reflects the charge to earnings deemed
appropriate by management to maintain an adequate allowance for loan losses.
The provision totaled $1.7 million in 1994 and decreased $446,000, or 27%, to
$1.2 million for the year ended December 31, 1995 and increased $2.3 million,
or 192%, to $3.5 million for the year ended December 31, 1996. The provision
for loan losses totaled $554,000 for the six months ended June 30, 1996 and
increased $405,000, or 73%, to $959,000 for the six months ended June 30,
1997.     
   
  The $2.3 million increase in the provision for loan losses in 1996 was
necessitated by the continued deterioration of the investor mortgage portfolio
which became evident in the third and fourth quarters of 1996. It was at that
time that management determined that the cash flow difficulties of the
underlying properties were other than temporary. Management also determined
that the unallocated portion of the allowance should be increased to reflect a
broader geographic base of originations to areas where the Company had no
previous experience. The $405,000, or 73%, increase in the provision for loan
losses from the six months ended June 30, 1996 to the six months ended June
30, 1997 was due to additional reserves allocated to the non-performing
portfolio which increased $700,000, or 37%, from $1.9 million at June 30, 1996
to $2.6 million at June 30, 1997.     
   
  The Company manages charge-offs by relationships and has noted no
appreciable increase in the number of relationships charged-off. For the years
ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996
and 1997, the charge-offs were comprised of 12, 19, 21, 5 and 10 lending
relationships, respectively.     
 
  The SBA net loan charge-offs for the year ended 1996 represented losses
realized on seven of the Company's 435 SBA loans after liquidation of the
collateral, and represent an annual loss ratio of 1.0% of the average balance
of the unguaranteed portion of SBA loans which were retained in the Company's
portfolio.
 
  The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis, and
therefore allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict use of the allowance to
absorb losses in any category. The unallocated portion of the allowance
represents an amount that is not specifically allocable to one of the loan
portfolios. All of the loans included in the Company's portfolio are to
domestic companies. Loans to foreign entities are 100% Ex-Im Bank guaranteed
and sold at origination.
 
<TABLE>   
<CAPTION>
                                              DECEMBER 31,
                                    --------------------------------- JUNE 30,
                                    1992   1993   1994   1995   1996    1997
                                    ----- ------ ------ ------ ------ --------
                                              (DOLLARS IN THOUSANDS)
<S>                                 <C>   <C>    <C>    <C>    <C>    <C>
ALLOCATION OF THE ALLOWANCE BY
 CATEGORY OF LOANS
Unguaranteed portions of:
  SBA and USDA loans............... $  37 $  147 $  338 $  563 $  491  $  833
  Ex-Im Bank working capital loans.   --     --     --       3     44     104
Commercial mortgage loans..........    63    416    237    482    271     211
Other commercial loans.............   196    346    353    316    475     522
Investor mortgage loans............    82    223    581    399  1,061     540
Residential and other consumer
 loans.............................    38     99    106     72    113     171
Unallocated........................    84    194    385    165    545     619
                                    ----- ------ ------ ------ ------  ------
  Total allowance for loan losses.. $ 500 $1,425 $2,000 $2,000 $3,000  $3,000
                                    ===== ====== ====== ====== ======  ======
</TABLE>    
 
                                      36
<PAGE>
 
<TABLE>   
<CAPTION>
                                           DECEMBER 31,
                                   ---------------------------------  JUNE 30,
                                   1992   1993   1994   1995   1996     1997
                                   -----  -----  -----  -----  -----  --------
                                           (DOLLARS IN THOUSANDS)
<S>                                <C>    <C>    <C>    <C>    <C>    <C>
PERCENT OF LOANS IN EACH CATEGORY
 TO TOTAL LOANS
Unguaranteed portions of:
  SBA and USDA loans..............   8.0%  15.9%  32.0%  38.5%  30.5%   36.0%
  Ex-Im Bank working capital
   loans..........................   --     --     --     0.2    3.0     2.3
Ex-Im Bank medium term loans......   0.0    0.0    0.2    0.1    1.8     2.1
Commercial mortgage loans.........  13.5   19.5   17.1   14.5   16.4    14.3
Other commercial loans............  36.6   28.1   21.6   26.9   29.4    32.8
Investor mortgages loans..........  17.6   13.5    9.9    7.2    6.6     5.3
Residential and other consumer
 loans............................  24.3   23.0   19.2   12.6   12.3     7.2
                                   -----  -----  -----  -----  -----   -----
  Total........................... 100.0% 100.0% 100.0% 100.0% 100.0%  100.0%
                                   =====  =====  =====  =====  =====   =====
</TABLE>    
       
  The following table sets forth information regarding the Company's non-
performing loans at the dates indicated:
 
<TABLE>   
<CAPTION>
                                          DECEMBER 31,
                                -----------------------------------  JUNE 30,
                                1992  1993    1994    1995    1995     1997
NON-PERFORMING LOANS            ----- -----  ------  ------  ------  --------
                                         (DOLLARS IN THOUSANDS)
<S>                             <C>   <C>    <C>     <C>     <C>     <C>
Commercial:
 Unguaranteed portions:
  SBA/USDA loans............... $ --  $ --   $  --   $  419  $  188   $  835(1)
  Ex-Im bank working capital
   loans.......................   --    --      --      --      --       --
 Commercial mortgage loans.....   --    --      703     --      --       --
 Other commercial loans........   --    --      106     --      132      136
 Investor mortgages loans......   --    755   1,437     839   1,853    1,050
Consumer.......................   --    --      --      --       79      573
                                ----- -----  ------  ------  ------   ------
Total non-performing loans..... $ --  $ 755  $2,246  $1,258  $2,252   $2,594
                                ===== =====  ======  ======  ======   ======
Total non-performing loans to
 total loans...................   --   1.06%   2.36%   1.18%   1.96%    2.19%
                                ===== =====  ======  ======  ======   ======
Total non-performing loans to
 total assets..................   --   0.69%   1.79%    .89%   1.39%    1.46%
                                ===== =====  ======  ======  ======   ======
Allowance to total non-
 performing loans..............   --    189%     89%    159%    133%     116%
                                ===== =====  ======  ======  ======   ======
</TABLE>    
- --------
(1) Excludes the Company's only guaranteed USDA loan not sold of $345,000
    which is fully guaranteed as to the collection of principal and interest.
   
  The gross interest income that would have been recorded if the nonaccrual
loans had been current in accordance with their original terms would have been
$100,000 for the period ended June 30, 1997. The actual amount of interest
income recognized on those loans was $35,000 for the period ended June 30,
1997. The Company had no loans past due 90 days and accruing interest at any
period end as presented in the above table.     
 
  Other Real Estate Owned. It is the Company's policy, whenever possible, not
to take title to real property collateralizing loans, thereby avoiding
management time and any environmental liabilities associated with holding such
properties. From the end of the 1994 to 1997 reporting periods discussed
herein, the highest balance of other real estate owned totaled $300,000.
   
  Receivable From Loans Sold. Receivable from loans sold represents the
balance of loans sold for which funding has not yet been received. Government
guaranteed loans are generally sold within a day of origination and settled
within 30 days of the trade date. During this thirty day period, the Company
reviews and delivers closing documents to the investor. The receivable balance
fluctuates with the month's loan sale activity and tends to be higher at any
quarter end due to increased loan closing activity. The average balance of
this receivable was $2.6 million, $3.5 million and $8.0 million for the fiscal
years ended December 31, 1994, 1995 and 1996, respectively and $7.0 million
for the six months ended June 30, 1997. The Company actively monitors the
settlement of loans to ensure that this source of liquidity is properly
managed.     
 
                                      37
<PAGE>
 
  Prepaid Expenses and Other Assets. Prepaid Expenses and Other Assets is
comprised principally of servicing assets as discussed in "--Accounting for
Loan Sales."
 
<TABLE>   
<CAPTION>
                                                       DECEMBER 31,
                                                   -------------------- JUNE 30,
                                                    1994   1995   1996    1997
                                                   ------ ------ ------ --------
                                                      (DOLLARS IN THOUSANDS)
<S>                                                <C>    <C>    <C>    <C>
OTHER ASSETS
Servicing assets.................................. $2,084 $2,809 $4,138  $4,847
Prepaid expenses and other assets.................    226    280    631     730
                                                   ------ ------ ------  ------
  Total other assets.............................. $2,310 $3,089 $4,769  $5,577
                                                   ====== ====== ======  ======
</TABLE>    
 
  Deposits. Deposits are the Company's primary funding source and have
increased to sustain the Company's balance sheet growth. See "Business--
Funding Sources."
   
  Federal Home Loan Bank of Boston Advances. Federal Home Loan Bank ("FHLB")
advances were utilized in 1994 to "match fund" certain community reinvestment
initiatives and were repaid in 1995 when alternative, less expensive deposits
became available. Since 1995, these advances have been utilized to provide
short-term liquidity. As of June 30, 1997, the Bank had a $2.9 million unused
line of credit from the FHLB and had the ability to borrow approximately $3.8
million from the FHLB under various term advance programs. See "Business--
Funding Sources."     
   
  Stockholders' Equity. Stockholders' equity increased $1.9 million from $9.7
million at year end 1994 to $11.6 million at year end 1995, and $2.6 million
from year end 1995 to $14.2 million at year end 1996, and $1.8 million to
$16.0 million at June 30, 1997 due to the retention of earnings. The Company
has paid quarterly dividends of $.03 per share (restated for the Stock Split)
since the fourth quarter of 1995. As explained in Note 7 to the Company's
consolidated financial statements, the Company holds a note receivable from
the Company's Chairman of the Board and President related to the issuance of
614,600 shares of Common Stock (restated to reflect the Stock Split) in June
1994, the repayment of which would result in an increase in stockholders'
equity although this note may be reduced or forgiven under certain
circumstances. See "Management--Employment Agreements; Key-Man Insurance
Policies."     
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company's primary sources of liquidity and funding are its diverse
deposit base and loan sales and participations. Secondary sources of liquidity
include FHLB advances and the sale of investments. As an FDIC-insured
institution, the Bank may make available traditional business and consumer
depository products, including checking, savings and time deposit accounts.
See "Business--Funding Sources" for a discussion of marketing efforts
regarding this deposit base.
 
  Management considers scheduled cash flows from existing clients and
borrowers and projected deposit levels as well as estimated liquidity needs
from maturing and disintermediating deposits, approved extensions of credit
and unadvanced commitments to existing borrowers, in determining the level and
maturity of deposits necessary to support operations. Historically, the
Company has increased the level of deposits to support its planned loan
growth. Marketing efforts are focused on externally indexed "core accounts" of
checking and savings deposits, which have proven to be generally less interest
rate sensitive than time deposits. The Company, in addition to its primary
deposit solicitation efforts, may, from time to time, target time deposit
campaigns to the general public in conjunction with anticipated liquidity
needs in order to better allow an appropriate matching of its funding sources
to its funding needs.
   
  Average balances of deposits accounts increased $20 million from $100
million in 1994 to $120 million in 1995, and $22 million from 1995 to $143
million in 1996, with the majority of the increases in the savings account
balances. The deposit base remained flat for the first six months of 1997,
with the average balance of deposits totaling $145 million.     
 
                                      38
<PAGE>
 
  The Company's liquidity position is monitored daily by management to
maintain a level of liquidity conducive to efficient operations and is
continuously evaluated as part of the asset/liability management process. The
Company believes that its liquidity sources will continue to provide funding
sufficient to support operating activities, loan originations and commitments,
and deposit withdrawals.
 
  The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
result in certain mandatory and discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
condition. The regulations require that the Bank meet specific capital
adequacy guidelines as calculated under regulatory accounting practices. The
Bank's capital classification is also subject to qualitative judgments by the
regulators about interest rate risk, concentration of credit risk and other
factors.
   
  Quantitative measures established by regulations to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of Tier I capital to total average assets (as defined), and
minimum ratios of Tier I and total capital to risk weighted assets. The Bank's
actual capital amounts and ratios are also presented in the table. The Company
is not subject to any additional capital ratio requirements.     
 
<TABLE>   
<CAPTION>
                                               REGULATORY
                                               MINIMUM FOR        REGULATORY
                                            CAPITAL ADEQUACY     MINIMUM TO BE
                                ACTUAL          PURPOSES       WELL CAPITALIZED
                            --------------  -----------------  -----------------
                            DOLLAR  DOLLAR   DOLLAR
                            AMOUNT  RATIO    AMOUNT    RATIO    AMOUNT    RATIO
                            ------- ------  --------- -------  --------- -------
                                          (DOLLARS IN THOUSANDS)
<S>                         <C>     <C>     <C>       <C>      <C>       <C>
As of December 31, 1995:
  Total capital (to risk
   weighted assets)........ $12,268 10.73%  $   9,148   8.00%  $  11,435   10.00%
  Tier I capital (to risk
   weighted assets)........ $10,831  9.47%  $   4,574   4.00%  $   6,861    6.00%
  Tier I capital (to
   average assets)......... $10,831  7.71%  $   5,622   4.00%  $   7,028    5.00%
As of December 31, 1996:
  Total capital (to risk
   weighted assets)........ $14,253 11.62%  $   9,811   8.00%  $  12,264   10.00%
  Tier I capital (to risk
   weighted assets)........ $12,702 10.36%  $   4,906   4.00%  $   7,358    6.00%
  Tier I capital (to
   average assets)......... $12,702  8.44%  $   6,017   4.00%  $   7,522    5.00%
As of June 30, 1997:
  Total capital (to risk
   weighted assets)........ $16,475 11.50%  $  11,457   8.00%  $  14,321   10.00%
  Tier I capital (to risk
   weighted assets)........ $14,676 10.25%  $   5,728   4.00%  $   8,593    6.00%
  Tier I capital (to
   average assets)......... $14,676  8.97%  $   6,541   4.00%  $   8,176    5.00%
</TABLE>    
 
ASSET/LIABILITY MANAGEMENT
   
  The Company seeks to manage its assets and liabilities to reduce the
potential adverse impact on net interest income that might result from changes
in interest rates. Control of interest rate risk is conducted through
systematic monitoring of maturity mismatches. The Company's investment
decision-making takes into account not only the rates of return and their
underlying degree of risk, but also liquidity requirements, including minimum
cash reserves, withdrawal and maturity of deposits and additional demand for
funds. For any given period, the pricing structure is matched when an equal
amount of assets and liabilities reprice. An excess of assets or liabilities
over these matched items results in a gap or mismatch, as shown on the
following table. A negative gap denotes liability sensitivity and normally
means that a decline in interest rates would have a positive effect on net
interest income, while an increase in interest rates would have a negative
effect on net interest income. However, significant variations may exist in
the degree of interest rate sensitivity between individual asset and liability
types within the repricing periods presented due to differences in their
repricing elasticity relative to changes in the general level of interest
rates. All of the Company's assets and liabilities are U.S. dollar-denominated
and, therefore, the Company bears no foreign exchange risk.     
   
  The majority of the Company's assets reprice according to contractual
arrangements although the Company has fairly broad discretion over the
frequency and magnitude of interest rate changes on its liabilities which has
enabled the Company to minimize the impact of any general changes in the
interest rate environment.     
 
                                      39
<PAGE>
 
   
  The Company utilizes the analysis detailed below to generally monitor the
composition of assets and liabilities and focuses on the one-year mismatch.
The Company believes the negative one year cumulative gap -$6.7 million, or
5%, reflects a relatively balanced position.     
 
  For purposes of the following analysis, checking and savings accounts are
presented 20% in the 0-90 day period, 20% in the 91-180 day period, and 30% in
the 181-365 day period and 30% in the 1-5 year period. Although the elasticity
of such deposits cannot be tied to any one time period, these are the
assumptions which have been developed by the Company based on historical
experience and are utilized for internal and regulatory reporting purposes.
 
<TABLE>   
<CAPTION>
                                             AT JUNE 30, 1997
                         ----------------------------------------------------------------
                         0 TO 90   91 TO 180  181 TO 365   1 TO 5     OVER 5
                           DAYS      DAYS        DAYS      YEARS      YEARS       TOTAL
                         --------  ---------  ----------  --------   --------   ---------
                                          (DOLLARS IN THOUSANDS)
<S>                      <C>       <C>        <C>         <C>        <C>        <C>
Commercial loans........ $ 89,785  $  5,384    $  3,586   $  8,944   $  1,995   $ 109,694
Residential loans.......    1,245       681         992      2,771        966       6,655
Other consumer loans....    1,346        14          10        417         53       1,840
Investments.............    1,319     1,108         542     11,275      1,574      15,818
Federal funds sold......    8,000       --          --         --         --        8,000
                         --------  --------    --------   --------   --------   ---------
  Total................. $101,695  $  7,187    $  5,130   $ 23,407   $  4,588   $ 142,007
                         ========  ========    ========   ========   ========   =========
Checking................ $  7,115  $  7,115    $ 10,664   $ 10,664        --    $  35,558
Money market savings....   15,343    15,344      23,016     23,015        --       76,718
Other savings...........    1,058     1,058       1,587      1,587        --        5,290
Time deposits...........   10,924     7,221      20,221      2,715        --       41,081
Treasury, tax and loan..       58       --          --         --         --           58
                         --------  --------    --------   --------   --------   ---------
  Total................. $ 34,498  $ 30,738    $ 55,488   $ 37,981        --    $ 158,705
                         ========  ========    ========   ========   ========   =========
Interest sensitivity
 gap.................... $ 67,197  $(23,551)   $(50,358)  $(14,574)  $  4,588   $ (16,698)
                         --------  --------    --------   --------   --------   =========
Cumulative gap.......... $ 67,197  $ 43,646    $ (6,712)  $(21,286)  $(16,698)
                         ========  ========    ========   ========   ========
Cumulative gap as a
 percentage of total
 earning assets.........       47%       31%         (5)%      (15)%      (12)%
                         ========  ========    ========   ========   ========
</TABLE>    
 
SEASONALITY
 
  The Company's business is seasonal as the level of loan originations tend to
be lower during the third quarter when many manufacturing companies shut down
for a limited time for summer vacation.
 
IMPACT OF INFLATION
 
  The consolidated financial statements and related data presented in this
report have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. The primary
impact of inflation on the operations of the Company is reflected in increased
operating costs. Interest rates have a significant impact on the Company's
performance. Increases in interest rates affect the ability of the Company's
borrowers to service their variable rate debt. Furthermore, inflation can
directly affect the value of loan collateral in general, and real estate
collateral in particular. These factors are taken into account in the initial
underwriting process and over the life of the loans. The Company believes that
it has the systems in place to continue to manage the rates, liquidity and
interest rate sensitivity of the Company's assets and liabilities.
 
                                      40
<PAGE>
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
 SFAS No. 125
 
  In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 requires that, after a transfer
of financial assets, an entity recognize the financial and servicing assets it
controls and the liabilities it has incurred, derecognize financial assets
when control has been surrendered, and derecognize liabilities when
extinguished. SFAS No. 125 is intended to provide consistent standards by
which a company may distinguish transfers of financial assets that are sales
from transfers that are secured borrowings. SFAS No. 125 applies to transfers
and servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996, and is to be applied prospectively; earlier or
retroactive application is not permitted. Implementation of SFAS No. 125,
beginning on January 1, 1997, did not have a significant effect on the
financial condition or results of operations of the Company.
 
 SFAS No. 128
 
  In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
(i) replaces the presentation of primary earnings per share ("EPS") with a
presentation of basic EPS; (ii) requires dual presentation of basic and
diluted EPS on the face of the consolidated statements of income regardless of
whether basic and diluted EPS are the same; and (iii) requires a
reconciliation of the numerator and denominator used in computing basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Accounting Principles Board Opinion
No. 15. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted. SFAS No. 128 requires restatement of all prior-period EPS
data presented.
   
 SFAS No. 129     
   
  In February 1997, the FASB also issued SFAS No. 129 "Disclosure of
Information about Capital Structure." This pronouncement establishes standards
for the disclosure of information about an entity's capital structure and is
effective for financial statements issued for periods ending after December
15, 1997. The adoption of this pronouncement is expected to have no impact on
the financial statements of the Company.     
   
 SFAS No. 130     
   
  In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income which is defined as the change in equity of a business enterprise
during a period from nonowner sources. SFAS No. 130 is effective for years
beginning after December 15, 1997 and requires reclassification of financial
statements for all prior years presented. The adoption of SFAS No. 130 is
expected to impact the presentation of financial information only.     
   
 SFAS No. 131     
   
  Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires public
companies to report financial and descriptive information about operating
segments in annual financial statements and requires selected information
about operating segments to be reported in interim financial reports issued to
shareholders. Operating segment financial     
 
                                      41
<PAGE>
 
   
information is required to be reported on the basis that it is used internally
for evaluating segment performance and allocation of resources. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997 and requires presentation of comparative information for prior periods
presented. The adoption of SFAS No. 131 is expected to impact the way the
Company reports information about its operations.     
 
YEAR 2000 COMPLIANCE
 
  As the year 2000 approaches, a critical business issue has emerged regarding
how existing application software programs and operating systems can
accommodate this date value. In brief, many existing application software
products in the marketplace were designed to only accommodate a two digit date
position which represents the year (e.g., '95 is stored on the system and
represents the year 1995). As a result, the year 1999 (i.e., '99) could be the
maximum date value these systems will be able to accurately process.
Management is in the process of working with its software vendors to assure
that the Company is prepared for the year 2000. Management does not anticipate
that the Company will incur significant operating expenses or be required to
invest heavily in computer system improvements to be year 2000 compliant.
 
                                      42
<PAGE>
 
                                   BUSINESS
 
GENERAL
 
 Overview
 
  First International Bancorp, Inc., a Delaware corporation, is a one bank
holding company incorporated in 1985 and regulated by the Board of Governors
of the Federal Reserve System. Its principal asset and subsidiary is First
National Bank of New England, a national banking association established in
1955 and regulated by the OCC.
 
  The Company specializes in providing credit, trade and depository services
to small and medium size manufacturing companies located in the United States
and in foreign "Big Emerging Markets" as defined by the U.S. Department of
Commerce. The Company serves its target market by offering flexible and
attractive terms to borrowers and manages its credit risk through the combined
utilization of commercial loan guarantee programs made available by three U.S.
federal agencies: the SBA, USDA and Ex-Im Bank.
 
  For the federal fiscal year ending September 30, 1996, the Company was the
country's fifth largest SBA 7(a) lender measured by dollar volume, the third
largest USDA Business and Industry lender measured by dollar volume, and the
second largest Ex-Im Bank lender measured by number of transactions. The
Company is the only "Top 5" lender in the nation for all three agencies, and
maintains preferred status for several jurisdictions and programs. In
recognition of the Company's efforts in promoting small business exports and
its high volume of loan originations, the Company received Ex-Im Bank's annual
"Small Business Bank of the Year Award" in May 1997.
   
  As of June 30, 1997, the Company had total assets of $177.5 million, total
balance sheet loans of $118.2 million, total deposits of $158.7 million and
total stockholders' equity of $16.0 million. The Company had a total
commercial and international loan servicing portfolio of $344.6 million at
December 31, 1996 which increased 26% to $433.1 million at June 30, 1997. The
total portfolio serviced for investors increased 56% from $98.7 million at
December 31, 1994 to $153.9 million at December 31, 1995, increased 73% to
$265.8 million at December 31, 1996 and increased 30% to $344.9 million at
June 30, 1997. Net income for the year ending December 31, 1996 was $3.2
million, and return on average assets and return on average equity were 2.1%
and 25.5%, respectively. Net income for the six months ended June 30, 1996 was
$1.6 million and increased 26% to $2.1 million at June 30, 1997. As of June
30, 1997, the Bank was "well-capitalized" for federal bank regulatory capital
adequacy purposes. Return on average assets and return on average equity for
the six months ended June 30, 1997 were 2.5% and 27.8%, respectively.     
 
 Loan Originations
 
  Management believes that the specialized market knowledge and experience of
the Company's loan officers combined with the broad range of commercial loan
products offered enable the Company to satisfy the needs of its small and
medium size manufacturing clients. Brand recognition for the Company is
maintained by incorporating the servicemark FINANCING MANUFACTURERS
WORLDWIDE SM in its logos. The Company's domestic and international lending
relationships generally range from $150,000 to $2.5 million.
 
  The Company's Commercial Banking Department underwrites lines of credit,
term loans and industrial property mortgages through the use of SBA, USDA and
non-guaranteed loans for businesses located primarily in the Northeast United
States. Commercial lending teams operate from the Hartford, Connecticut
headquarters, as well as from regional representative offices located in
Boston and Springfield, Massachusetts, Providence, Rhode Island, Morristown,
New Jersey, Pittsburgh and Philadelphia, Pennsylvania, Rochester, New York and
Washington D.C. The Company's domestic loan officers are trained to understand
the specific financial needs of small and medium size manufacturers, and to
use government guaranteed and other commercial loan products to respond to
those needs. Domestic loan officers participate in industrial trade
organizations representing the Company's target market and conduct other
marketing activities to reach potential borrowers.
 
                                      43
<PAGE>
 
   
  The Company's International Banking Department underwrites Ex-Im Bank
guaranteed loans to small and medium size manufacturers located throughout the
United States and in eight "Big Emerging Markets." See "--International
Banking Services and Products." International lending activities support trade
flows between the United States and the "Big Emerging Markets," which have
grown 12% annually since 1990 and reached $473 billion in 1996. The Company's
international lending teams operate from the Hartford, Connecticut
headquarters and are assisted in their efforts by contractual international
marketing representatives who are actively involved in providing financial,
accounting, consulting and/or engineering services to manufacturers in their
home countries. Contractual marketing arrangements have been established with
professionals in Brazil, Mexico, Poland, Turkey and India. The Company began
lending internationally in 1994 and has increased its loan originations from
$397,000 in 1994 to $1.8 million in 1995, $13.6 million in 1996 and $27.3
million for the six months ended June 30, 1997.     
 
 Underwriting
 
  The Company's underwriting activities are initiated from each of its lending
offices and supported and approved at the Hartford, Connecticut headquarters.
Commercial loan officers analyze the creditworthiness of proposed borrowers
and evaluate each borrower's financial statements, credit reports, business
plans and other data to determine if the credit and proposed collateral
satisfy the Company's specific loan standards and policies. All credit
memoranda are reviewed by an independent loan officer and may require
additional approval depending on the particular circumstances of the financing
package. Domestic and international loans undergo a substantially identical
approval process.
 
 Loan Sales
   
  The Company achieves high returns while meeting the growing credit needs of
its target market by selling a portion of its commercial and international
loans on a non-recourse, servicing-retained basis. A separate Capital Markets
Department was established in 1996 to sell loans, including commercial and
international loans without federal guarantees. The Capital Markets Department
directs its resources toward identifying non-government guaranteed secondary
loan markets as a further means of mitigating credit risk, leveraging capital
and replenishing liquidity. As of June 30, 1996, $20.5 million, or 10%, of the
loan portfolio serviced for investors did not have government guarantees or
credit enhancements compared to $57.9 million, or 17%, of such servicing
portfolio as of June 30, 1997.     
 
 Deposits
 
  The Company's lending and investing activities are funded primarily by
interest-bearing deposits from commercial borrowers, their principals and
other private banking clients. The Private Banking Department provides stable,
low-cost funding to the Company by managing the deposit base while offering a
full array of financial products to serve the personal needs of, and
facilitate relationships with, the Company's client base. The Private Bankers
continually seek to expand the Company's deposit base by soliciting deposits
from individuals who seek highly personalized service and to strengthen
existing deposit relationships by offering new financial products and services
to both existing and prospective clients.
 
BUSINESS STRATEGY
 
  The Company's strategy is to serve small and medium size manufacturers
through the following key activities:
     
    Expand Domestic Loan Origination Activities. Commercial lending teams
  currently operate from the Hartford, Connecticut headquarters as well as
  from eight regional loan production or "representative" offices, located in
  Boston and Springfield, Massachusetts, Providence, Rhode Island, Pittsburgh
  and Philadelphia, Pennsylvania, Morristown, New Jersey, Rochester, New York
  and the Washington, D.C. area. The Company intends to continue to expand in
  its established geographic markets by adding additional staff over the
  second half of 1997 and in 1998. In addition, the Company will continue to
  enter new markets by     
 
                                      44
<PAGE>
 
  opening representative offices as marketing diligence is completed. In the
  fourth quarter of 1997, the Company plans to establish an office in Long
  Island, New York.
     
    Increase International Presence In "Big Emerging Markets." The
  International banking department operating from the Hartford, Connecticut
  headquarters is assisted in its efforts abroad by its contractual
  relationships with international marketing representatives in Brazil,
  Mexico, Poland, Turkey and India. The marketing representatives are
  actively involved in providing professional financial services to privately
  owned manufacturers in their home countries. The Company intends to
  continue to develop its network of marketing representatives and expand the
  nature of the services provided by the marketing representatives to
  increase the Company's presence in targeted countries. In the third quarter
  of 1997, the Company plans to establish similar contractual marketing
  relationships in Argentina, South Africa, Indonesia and the Philippines.
         
    Expand Commercial Loan Sales Activities. The Capital Markets Department
  was established in July 1996 to sell the non-recourse, servicing-retained
  portions of government guarantee and non-government guarantee loans. Sales
  of the unguaranteed portions of SBA and USDA loans and unguaranteed
  commercial loans have increased as the Capital Markets Department has
  analyzed and developed a network of purchasers. The Company plans to
  continue developing this network of purchasers as loan origination
  activities increase and the commercial loan secondary market develops for
  all categories of loans.     
     
    Develop New Products. Due to the increasingly competitive nature of the
  environment in which the Company operates and the inherent uncertainty
  associated with funding for government guarantee loan programs, the
  financing and deposit-related needs of its targeted privately owned
  manufacturing clientele must be constantly evaluated. Product development
  efforts are on-going and the Company's centralized infrastructure enables
  it to bring new products and services to the market on a timely basis,
  designed to enhance service to and improve relationships with its niche
  clientele. The Company introduced a commercial lockbox product and expanded
  its foreign exchange services in 1996. In the second half of 1997, the
  Company plans to introduce additional export-related financing programs.
         
    Utilize Private Banking To Provide Stable, Low-Cost Funding And Enhance
  Client Relations. The Private Banking Department was established to provide
  stable, low-cost funding to the Company. Private banking services are
  offered to serve the personal needs of, and facilitate relationships with,
  the Company's existing clients and their principals and other private
  banking clients. The Company intends to grow by expanding its deposit base
  by strengthening existing deposit relationships, soliciting deposits from
  individuals who seek highly personalized service and offering new products
  consistent with the needs of these clients.     
 
LENDING ACTIVITIES AND POLICIES
 
  The Company's distribution of domestic and international commercial loan
originations are detailed below:
 
<TABLE>   
<CAPTION>
                                         FOR THE YEAR ENDED   FOR THE SIX MONTHS
                                         DECEMBER 31, 1996   ENDED JUNE 30, 1997
                                        -------------------- --------------------
                                        PRINCIPAL            PRINCIPAL
                                         BALANCE  PERCENTAGE  BALANCE  PERCENTAGE
LOAN ORIGINATIONS BY DEPARTMENT         --------- ---------- --------- ----------
                                                 (DOLLARS IN THOUSANDS)
<S>                                     <C>       <C>        <C>       <C>
Domestic:
 SBA loans............................. $ 85,303      50%      47,302      40%
 USDA loans............................   12,700       7%      17,679      15%
 Other commercial loans................   37,824      22%      15,190      13%
                                        --------     ----    --------     ----
  Total domestic banking...............  135,827      79%      80,171      68%
                                        --------     ----    --------     ----
International:
 Ex-Im working capital lines...........   23,300      13%      10,625       9%
 Ex-Im medium term loans...............   13,617       8%      27,297      23%
                                        --------     ----    --------     ----
  Total international banking..........   36,917      21%      37,922      32%
                                        --------     ----    --------     ----
  Total commercial loan originations... $172,744     100%    $118,093     100%
                                        ========     ====    ========     ====
</TABLE>    
 
                                      45
<PAGE>
 
MARKETING
 
Domestic Commercial Banking
   
  The Company originates domestic loans through its network of 26 commercial
loan officers in nine offices who seek to establish long-term relationships
with their clients. The Company believes it is uniquely positioned to serve
its domestic market through its ability to provide clients with a flexible
combination of lines of credit, term loans and mortgages for industrial
property and trade financing. The Company generally utilizes the SBA, USDA
and/or Ex-Im Bank loan guarantee programs as a part of a financing package in
light of an applicant's particular situation. The Company's participation in
three government guarantee loan programs enables it to provide its clients
with longer term loans than are typically available to small and medium size
manufacturers.     
 
  Commercial loan officers are responsible for marketing, underwriting,
servicing, monitoring and collecting their portfolio of loans. The Company
believes that this broad range of responsibilities enables the commercial loan
officers to establish strong working relationships with both existing and
prospective clients and promotes strong client service and prudent loan
portfolio management. Commercial loan officers are encouraged to keep apprised
of market conditions through frequent contact with clients and potential
borrowers, to develop specific knowledge of its clients' businesses and are
trained to offer flexible structuring of the Company's loan products. In
consultation with the borrower, the commercial loan officer will evaluate the
financing needs of the business and then recommend the best way to structure
the lending transaction to fit the client's unique needs.
 
  The marketing efforts by commercial loan officers consist of participation
in trade associations serving the needs of small and medium size
manufacturers; contacting accountants, attorneys and other professionals known
to the Company to have contact with businesses in need of financing; personal
visits, direct mail solicitations; and referrals from existing clients. Since
the target client of the domestic and international loan officers is generally
the same, there is an active cross-selling effort between these two teams.
 
International Banking
 
  Domestically, the Company has four international loan officers who target
U.S. exporters able to take advantage of the Company's trade financing
programs, including those supported by Ex-Im Bank. These loan officers market
the working capital lines of credit for use by the exporter. As with the
domestic commercial banking relationships, the U.S. international loan
officers are responsible for marketing, underwriting, servicing, monitoring
and collecting their portfolios of loans. If a borrower has both a domestic
and international banking loan facility, the relationship is evaluated and
monitored on an aggregate basis and each loan officer is responsible for his
or her loan and further responsible for close coordination with his or her
lending counterpart to ensure proper maintenance of the entire relationship.
   
  Internationally, the Company has established contractual marketing
relationships with professionals in five of the Big Emerging Markets who,
during the course of conducting their primary business of accounting,
consulting and equipment sales have frequent contact with local manufacturers
who require financing for their purchase of U.S. goods. These professionals
are located by the Company through its review of databases from the U.S.
Department of Commerce and direct private sector sources. Prior to entering
into relationships with these individuals, the Company conducts due diligence,
including visiting the prospective representative and conducting inquiries of
local professionals. The Company also requires that each representative be
trained in the Company's products and services at the Hartford, Connecticut
headquarters. Each of the foreign marketing representatives markets, on behalf
of the Company, medium term loans guaranteed by Ex-Im Bank in their respective
foreign market. The contractual marketing relationships generally provide for
an eighteen month term, with certain minimum loan origination volumes required
of the representative and a narrowly-defined expense reimbursement policy.
Once the foreign marketing representatives develop a lead with a potential
borrower they direct the prospect to the U.S.-based loan officer who completes
the application process. The marketing representative receives a negotiated
fee when a loan referral made to a Company international loan officer is
originated. The marketing representative assists the lender in obtaining
certain information from the applicant     
 
                                      46
<PAGE>
 
   
and in responding to inquiries of the applicant, but does not have any direct
underwriting responsibilities. All decisions with respect to referrals of the
foreign representatives are made by the Company which retains control over the
Company's international loan originations.     
   
  The Company generally grants each foreign representative a non-exclusive
license during the term of the agreement to use the Company's name, logo and
intellectual property in its separate foreign market. Each marketing
representative agrees not to engage in any activities on behalf of any
organization other than the Company if such organization offers products that
compete with the Company, as determined by the Company. The foreign
representative agreements generally provide that the Company may terminate
such agreements if the foreign representative fails to meet certain specified
levels of loan originations within the first six months of the term.     
   
  The Company has contractual marketing relationships with firms in Brazil,
Mexico, Poland, Turkey and India. However, $36.6 million, or 87%, of the $42.0
million medium term loan portfolio at June 30, 1997 represents loans to
borrowers in Brazil and Mexico. This concentration of originations reflects
the length of time which the Company has been marketing to Brazil and Mexico
and is not expected to reflect the concentration of activity in the future as
more recently-added marketing relationships in Big Emerging Markets generate
referrals. Loan origination activity does not begin until some months after
the date the marketing relationship is established as the Company's marketing
representatives are trained, marketing plans are developed and calling efforts
are undertaken prior to generating viable leads for the Company.     
   
  Marketing efforts include visitations and direct mail solicitation of U.S.-
based exporters of capital goods (most of which are performed by the Company's
U.S. loan officers), direct mail solicitation of foreign-based manufacturers
and industrial trade organizations interested in financing their purchases of
U.S. products and services, and local marketing by the Company's network of
international marketing professionals.     
 
DOMESTIC COMMERCIAL BANKING SERVICES AND PRODUCTS
 
Loan Products and the Origination Process
 
  The commercial loans originated by the Company include commercial real
estate mortgages (i.e., loans to businesses secured by commercial property),
term equipment loans and revolving lines of credit to manufacturers, capital
goods wholesalers and distributors, many of which are exporters. The typical
commercial borrower is a privately owned and operated company with annual
sales of $2-$25 million, employing 10-175 workers, which has been in business
for at least three years. A number of the Company's borrowers have a
proprietary product, export their products and/or have a geographically
diverse client base. The Company is typically the borrower's primary lender
and provides a mortgage loan, a term equipment loan and either a term working
capital loan or a revolving working capital line of credit collateralized by
accounts receivable and inventory. The Company's Private Banking Department
also provides a variety of business and personal depository and cash
management products to a borrower and its principals. The Company believes it
has a competitive advantage in the marketplace because it is able to provide a
full range of financing alternatives, as well as a broad array of deposit
products and services.
 
 
  The Company originates loans to a variety of industries; however, based upon
its loss experience and economic forecasts, the Company may decide to de-
emphasize industries from time to time.
 
                                      47
<PAGE>
 
   
  At December 31, 1996, the Company's commercial loans serviced were
distributed among the following lines of business:     
 
<TABLE>
<CAPTION>
                                                                  PERCENTAGE OF
   INDUSTRY CLASSIFICATION                                        TOTAL SERVICED
   -----------------------                                        --------------
   <S>                                                            <C>
   Manufacturing:
    Industrial and commercial machinery..........................       17%
    Metal fabrication............................................       12%
    Electronic and other electrical..............................        8%
    Transportation...............................................        8%
    Other........................................................       12%
                                                                       ---
     Total manufacturing.........................................       57%
   Wholesale/distribution........................................       12%
   Professional services.........................................       10%
   Retail........................................................        6%
   Foreign.......................................................        6%
   Other.........................................................        9%
                                                                       ---
     Total.......................................................      100%
                                                                       ===
</TABLE>
   
  The Company's commercial loans are typically Prime-based, variable monthly
or quarterly. The term of a loan depends upon whether the loan is guaranteed.
Government guarantee programs give clients access to longer term financing and
slower amortization than otherwise available. A government guaranteed mortgage
has a maximum term and amortization of up to 25-30 years, while an
unguaranteed mortgage loan maximum term and amortization typically does not
exceed 15 years. Equipment loans are underwritten to correspond to the useful
life of the equipment and generally range from 5-15 years. SBA guaranteed
working capital term loans range from 7-10 years while unguaranteed working
capital revolving lines of credit have a one-year term. Term loans are
generally fully amortizing.     
 
  The primary collateral sought by the Company for commercial loans consists
of first liens on owner-occupied commercial real estate, equipment, inventory
or accounts receivable, although additional collateral may include junior
liens on residential properties. The Company typically requests the personal
guarantee of the principals of the business because the Company believes this
induces the guarantor to facilitate repayment of the loan.
 
  In striving to meet the credit needs of its clients, the Company utilizes
government guarantee loan programs which allow it to offer longer-term loans
while mitigating the credit risk to the Company through the government
guarantee. The two government guarantee loan programs utilized by the
Company's domestic lending department to provide financing to its niche market
are discussed below.
   
  SBA Guaranteed Loan Originations     
 
  The Company utilizes the SBA's 7(a) loan program for eligible borrowers.
Eight of the Company's nine offices have Preferred Lender status. Preferred
lender status allows the Bank to approve loans on behalf of the SBA, with the
national SBA processing center's concurrence that the applicant meets the SBA
eligibility requirements. The SBA generally completes its eligibility review
within 24 hours of submission. Eight of the Company's offices also have
Certified Lender status. Certified Lender status entitles the Bank to a 72-
hour turnaround of local district SBA approval of loan applications which
require the slightly expanded Certified Lender process. Examples of loans
requiring such extended processing are those used to refinance the Bank's
existing debt or another lender's SBA guaranteed loan. The majority of the
Bank's SBA loans are, however, processed under the expedited Preferred Lender
Program. The preferred authorities provide the Bank with a competitive
advantage by allowing the Bank to respond more quickly to customer requests.
The Bank, however,
 
                                      48
<PAGE>
 
usually is not competing against a lender offering an SBA-guaranteed loan, but
rather against a lender offering a conventional loan on slightly different
terms. The Company is able to utilize the SBA 7(a) program to provide small
business borrowers with terms not otherwise available and, because the Company
has preferred and certified designations, it is not at a competitive
disadvantage from a timing standpoint.
 
  The SBA's 7(a) loan program provides for the guarantee of a loan equal to
75% of the principal balance, up to a maximum guarantee of $750,000 per
borrower. The SBA's 7(a) program includes an International Trade or "IT"
subprogram which allows a borrower to obtain guarantees equal to 75% of the
loan, up to a maximum $1,250,000 guarantee per borrower. This program is
available to companies which are exporting or are considering export
activities.
 
  Funding for the SBA 7(a) loan programs is established through annual U.S.
Congressional budget appropriations; for the fiscal year ended September 30,
1997, the SBA had funding to support the origination of loans totaling $10.3
billion.
 
  The Company also makes use of the SBA's Defense Loan and Technical
Assistance ("DELTA") Program which is designed to assist defense-dependent
subcontractors diversify their operations into the commercial sector. This
program provides for a 75% guarantee with a maximum loan size of $1,250,000.
Although such loans are administered by the SBA, the Department of Defense
funds this program and has made appropriations to guarantee loans totaling
$3.0 billion over the three-year period ending September 30, 1998.
 
  The Company uses the SBA loan guarantee programs for term loans made to
businesses which qualify under SBA regulations as a "small business." The
primary operative SBA eligibility criteria for the Company's marketing efforts
are privately-owned manufacturers employing fewer than 500 workers. Loans may
be used for the acquisition or refinancing of property, plant and equipment,
working capital and debt consolidation, although loans guaranteed under the IT
and DELTA programs cannot be utilized for refinancing or debt consolidation
purposes.
 
  In the event of a default, the SBA and the Company share in any collections
or collateral on a pari passu basis. For example, if a loan carries a 75%
guarantee, the SBA receives 75% of all collections while the Company receives
25% of such amounts, beginning with the initial collections. In the event of
default by a borrower on an SBA loan, if the SBA establishes that any
resulting loss is attributable to a failure by the Company to comply with SBA
policies and procedures in connection with the origination, documentation or
funding of the loan, the SBA may seek recovery of funds from the Company. With
respect to guaranteed SBA loan participations which have been sold, the SBA
will first honor its guarantee and then seek compensation from the Company in
the event that a loss is deemed to be attributable to such failure to comply
with SBA policies and procedures. To date, the SBA has not sought recovery
from the Company on any of its SBA Loans, however, after evaluating available
options, the Company chose to absorb a portion of the guaranteed balance of
one loan, increasing the Company's charge-off by $17,000 in the first quarter
of 1996.
   
  USDA Guaranteed Loan Originations     
 
  The Company utilizes the B and I Program of the USDA, when available, based
on the applicant's geographical location and other characteristics. The B and
I Program provides for 80% guarantees on loans with principal balances up to
$5 million and 70% guarantees on loans up to $10 million, and therefore
enables the Company to provide financing to borrowers with greater financing
needs than those eligible for the SBA loan guarantee program or from a non-
guaranteed commercial loan by the Company, due to the Company's legal lending
limits. The stated purpose of this program is to improve, develop and finance
business, industry and employment and improve the economic and environmental
climate in rural communities. The fiscal 1997 U.S. Congressional Budget
appropriation for the B and I Program supports loans of $688 million.
 
  The B and I Program loan guarantees are available to privately or publicly
owned companies operating in rural areas, which are designated from time to
time by the USDA. Such areas are generally comprised of towns with fewer than
50,000 inhabitants. The Company's current marketing area includes a number of
USDA-eligible towns. Such loans may be utilized for acquisition, improvement
or refinance of property, plant and equipment, working capital or debt
consolidation.
 
                                      49
<PAGE>
 
  Loans to be guaranteed under the B and I Program must be submitted to the
USDA district office and, depending on that office's loan authority, must be
forwarded to the national USDA for approval. The USDA recently approved the
Company as a Certified Lender in six states making it one of the first USDA
Certified Lenders nationally. The authority conferred with this status is yet
to be determined, but is expected to facilitate the processing of USDA loans
and allow for the reservation of funds.
 
  The guarantee of the USDA also provides for pari passu application of loan
or collection proceeds, and for recourse to the Company similar to that
discussed above for SBA loans in the event the Company is found to have been
negligent in the origination, documentation or funding of USDA loans.
 
DOMESTIC COMMERCIAL BANKING UNDERWRITING
 
  The underwriting process allows the Company's staff to: (i) analyze
borrowers' credit profiles, (ii) assess the collateral underlying a loan,
(iii) assure compliance with all eligibility requirements for inclusion under
the guarantee programs and (iv) provide all documentation and servicing
required by loan purchasers.
 
  Commercial loan officers receive and assemble initial applications, analyze
the creditworthiness of proposed borrowers and prepare credit memoranda and
are assisted by administrative assistants who prepare any required government
guarantee loan application packages and credit analysts who format the
historical financial data provided by the client and conduct credit, customer
and vendor reference checks. Commercial loan officers evaluate each
applicant's financial statements, credit reports, business plans and other
data to determine if the credit and collateral satisfy the Company's
standards. Such standards include meeting certain prescribed limits with
respect to historic debt service coverage ratios, analyzing the reasonableness
of the borrower's projections (when submitted), and evaluating the experience,
strength and continuity of the borrower's management, financial condition of
the individual guarantors, and value of the collateral, as well as compliance
with any applicable government guarantee loan program requirements. An
originating officer and, generally, another senior officer perform on-site
inspections to determine the condition of the facility, the manner in which
business is being conducted, the orderliness of the inventory, the maintenance
of the structure and any equipment, and to observe the economic conditions of
the local market and inspect the real property in order to identify any
apparent structural defects or environmental issues.
 
  The originating commercial loan officers have no authority to approve a loan
on their own. Subject to compliance with credit policies and program
parameters the Senior Vice Presidents of the Hartford, Connecticut office and
each representative office have limited lending authority in accordance with
their experience, and loans above their lending authority must be approved by
the Chief Operating Officer ("COO"), while loans above the COO's authority are
presented to a Loan Committee of the Bank's Board of Directors after being
approved by the Chief Credit Officer. All loans to a borrower and its
affiliates are aggregated to determine whether a loan is within a loan
officer's lending authority. The Company has established a matrix governing
the particular loan approval authorities granted to the various parties
involved in the loan origination process. Under no circumstances may an
originating loan officer, individually, approve an extension of credit or
modification of an existing loan. The lending authorities granted are based on
the experience of the loan officer, the dollar amount of the request, the
amount of any government guarantees and the risk rating of the loan.
 
  Upon initial approval by a Senior Vice President, the credit memorandum must
be approved by the Credit Policy Officer, who reports to the Chief Credit
Officer. The Credit Policy Officer reviews the memorandum and supporting file
for compliance with internal Company credit policies as well as any applicable
government guarantee program parameters. If additional approvals are required,
the credit memorandum is forwarded to the appropriate parties as noted above.
If the financing package includes a government guarantee loan product, the
application is forwarded to the applicable government agency.
 
  The Company performs a credit analysis of all applications, considering the
type and value of the asset(s) securing a loan, the characteristics of the
borrower, the industry of the borrower and the anticipated debt service ratio.
The Company requires that the borrower's most recently completed fiscal year's
results demonstrate that the borrower be able to service the debt by requiring
a pro forma debt service coverage ratio of at least 1.25 to 1.
 
                                      50
<PAGE>
 
If the requested funds are to be utilized for plant or line of business
expansions, consideration may also be given to projected results, and
therefore certain loans may be granted when the pro forma debt service
coverage is less than 1.25 to 1.
 
  Any real property taken as primary collateral for a loan is appraised by an
independent appraiser in accordance with federal banking regulations, and the
appraisal is then subject to an internal review in accordance with such
regulations. Equipment serving as primary collateral for a loan is generally
appraised by an independent equipment appraiser. The Company will generally
obtain a Phase I environmental report completed in accordance with the
standards of the American Society for Testing and Materials on any commercial
real property to be mortgaged. Additional environmental reports and
remediation are required prior to closing if there are environmental issues.
 
  The loan-to-value ratio included in the credit analysis refers to the ratio
of the amount of the loan to the value of the collateral securing the loans.
For such purpose, the Company discounts the appraised or estimated value of
the collateral based on the type of collateral, the lien position and other
relevant factors.
 
  The Company's standard underwriting criteria details the maximum advance
rates which are utilized for each type of collateral. Commercial property is
generally given a collateral value for underwriting purposes equal to 80% of
the appraised value; finished goods and raw material inventories are generally
valued at 50% of book value; trade accounts receivable under 90 days are
generally valued at 75% of book value.
 
  Although the maximum prescribed collateral values are generally utilized in
the Company's analyses, there may be instances in a borrower's situation where
the maximum values are reduced or, again due to the borrower's situation,
special consideration may be given to applications exceeding the general
standards. Exceptions to the Company's loan policy are entertained by the
approving officers and Loan Committee when applicable, on a case-by-case
basis, and depend upon the overall creditworthiness of the applicant. The
overall trends in underwriting exceptions are monitored by the Chief Credit
Officer and the Company's Audit Committee.
 
INTERNATIONAL BANKING SERVICES AND PRODUCTS
 
  The International Banking Department offers Ex-Im Bank guaranteed revolving
lines of credit for U.S. manufacturers, term loans to foreign buyers of U.S.
goods and letters of credit issued under such facilities.
 
  The International Banking Department is organized as follows:
 
<TABLE>   
<CAPTION>
  DIVISION/TERRITORY            EX-IM PRODUCT USED                    DESCRIPTION
  ------------------            ------------------                    -----------
<S>                     <C>                                <C>
United States           Working capital line of credit;    One year revolving line of credit
 (principally the       90% guaranteed; indexed to U.S.    for U.S. manufacturers
 Northeast)             Prime, variable daily              collateralized
                                                           by export accounts receivable and
                                                           inventory

Big Emerging Markets    Medium term loan; 100%             3- to 5-year term loan to foreign
 (principally Mexico,   guaranteed; indexed to 6-month     purchasers of qualified U.S. made
 Brazil, Argentina,     LIBOR, variable semi-annually;     equipment
 India, Poland, Turkey, U.S. dollar
 South Africa,
 Indonesia and the
 Philippines)
</TABLE>    
 
  Ex-Im Bank is an independent corporate agency of the U.S. which was first
organized as a District of Columbia banking corporation in 1934. Ex-Im Bank's
mission is to facilitate export financing of U.S. goods and services by
neutralizing the effect of export credit subsidies from other governments and
absorbing credit risks that the private sector will not accept. The Company
utilizes the two Ex-Im Bank's loan guarantee programs designed to support
small U.S. exporters: working capital and medium term loan guarantee programs.
 
                                      51
<PAGE>
 
  Annual Congressional budget appropriations to support Ex-Im Bank's programs
have remained flat for federal fiscal year-ended 1995, 1996 and 1997. Due to
Ex-Im Bank's independent corporate structure, the annual appropriations are
less directly allocable to specific Ex-Im Bank programs than the allocations
made to SBA and USDA programs. For the federal fiscal year ended September
1996, however, Ex-Im Bank authorized guarantees totaling $378 million and $721
million under the working capital and medium term loan guarantee programs,
respectively.
 
 International Banking--United States
 Working Capital Loan Products and the Origination Process
 
  The typical U.S. International Banking client is a privately-owned U.S.-
based manufacturer with sales of $2 to $25 million and export financing needs.
The U.S. International Banking team lends primarily to the same target client
base as the Company's domestic loan officers.
 
  The one-year revolving Ex-Im Bank working capital lines of credit are
indexed to Prime and adjust daily. The primary collateral for these loans is
export inventory and export-related accounts receivable. The accounts
receivable are generally insured under an Ex-Im Bank insurance policy or an
acceptable letter of credit. Open accounts receivable may qualify as
collateral if approved in advance by the Company and Ex-Im Bank. Borrowers
must submit borrowing base certificates to the Company to evidence the
availability of acceptable collateral when an advance is requested, and
monthly thereafter.
 
  The Company is one of eight lenders in the U.S. with "AA" Level Delegated
Authority status with respect to Ex-Im Bank's working capital loan guarantee
program and, therefore, has the authority to approve working capital lines up
to $5 million per borrower, up to an aggregate portfolio of $75 million
without prior Ex-Im Bank approval. The Company believes that this authority
provides it with a significant competitive advantage as it is able to react
quickly to loan application requests.
 
  In the event of a loan default, the Company and Ex-Im Bank share in all loan
proceeds on a pari passu basis in accordance with the 90% guaranteed/10%
unguaranteed ratio. The Company also has the responsibility to ensure that the
loans are underwritten, documented and funded in accordance with Ex-Im Bank
policies and procedures in order to avoid loss of the guarantee. The Company
has had no instances of lost or impaired guarantees on such loans.
 
 International Banking - Big Emerging Markets
 Medium Term Loan Products and the Origination Process
 
  The foreign-based client of the Big Emerging Markets International Banking
teams or "Medium Term" client, is typically a privately-owned or small
publicly-owned manufacturer requiring financing to purchase equipment,
components and raw materials from the U.S. The Company believes there are
significant growth opportunities among small and medium size manufacturers in
foreign markets and has devoted an increasing amount of resources to marketing
and developing relationships in this market. The Company believes there is an
opportunity for growth in this market because generally, local financing is
not available on commercially reasonable terms to foreign manufacturers
requiring financing, or a supplier from another industrialized country is
offering its products with very attractive financing.
 
  The medium term loan is a 100% Ex-Im Bank guaranteed loan, typically 3-5
years in term, utilized to fund the acquisition of qualified U.S.-made capital
goods. The Ex-Im Bank program allows the financing of up to the lower of 85%
of the purchase price or 100% of the U.S. content. Certain other U.S. content
and product requirements must also be met. The loans range in size from
$150,000 to $10 million and are U.S. dollar-denominated. Although the
equipment is financed, the loans are unsecured; the Company relies on the
borrower's cash flow and the 100% Ex-Im Bank guarantee.
 
  The medium term loan officers are responsible for marketing, underwriting,
servicing, monitoring and collecting their portfolios of loans. Because the
loans are short term and fully amortizing with semi-annual payments, there is
less post-closing analysis on performing loans than on other types of the
Company's loans.
 
                                      52
<PAGE>
 
   
  In August 1997, the Company was approved as Ex-Im Bank's first medium term
priority lender, which enables it to obtain 20-day turnaround on applications
submitted to Ex-Im Bank.     
 
  In the event of default, Ex-Im Bank handles the liquidation of medium term
loans and pays the Company 100% of the principal balance, plus accrued
interest. See "--Delinquency and Collection Activities."
 
 International Banking Underwriting
 
  International loan officers receive and assemble initial applications,
analyze the creditworthiness of proposed borrowers and prepare loan memoranda
and are assisted in this effort by administrative assistants who prepare the
required Ex-Im Bank loan application packages and credit analysts who format
the historical financial data provided by the client and conduct credit,
customer and vendor reference checks. For medium term loans, the local
marketing representative, if any, aids in the transaction by obtaining
required financial or operational data, and generally assisting in the loan
origination and closing process.
 
  The U.S. loan officer will visit the prospective borrower's place of
business and perform on-site inspections and the Company will generally
instruct its local marketing representative to make such inspections for
foreign borrowers. Although inventory serves as collateral for the working
capital lines of credit, other tangible assets are generally not taken as
collateral under the Ex-Im Bank loan programs, site inspections are conducted
because such information is helpful in assessing a borrower's operations.
 
  The approval process is substantially similar to that followed by the
commercial loan officers. The Credit Policy Officer reviews the memorandum and
supporting file for compliance with internal Company credit policies as well
as applicable Ex-Im Bank guarantee program parameters. As with the domestic
commercial lending, exceptions to the Company's and Ex-Im Bank's loan policies
are entertained on a case-by-case basis by the approving loan officers and
acceptance depends upon the overall creditworthiness of the applicant.
 
  Working capital lines of credit are collateralized by export-related
inventory and accounts receivable less than 90 days old; such collateral has
maximum prescribed collateral values of 75% and 90%, respectively. As is the
case with respect to commercial loans, the appropriateness of the collateral
value is determined based on the borrower's individual circumstance, and
applications exceeding the general standards may receive special
consideration.
 
  Medium term loans are unsecured although debt service coverage and operating
history are reviewed in the underwriting process. The officer also considers
the availability to the borrower of U.S. dollars and other "hard" currency,
which generally does not pose a significant difficulty for the borrower, as
many are exporting goods to the U.S. or have access to fairly stable currency
markets.
 
  While most working capital lines of credit are within the Company's AA
Delegated Authority, applications exceeding the maximum collateral values or
other program criteria, as well as loans above the Company's authority,
require Ex-Im Bank approval. All medium term and any "exception" working
capital applications are forwarded to Ex-Im Bank for approval after all
required internal approvals are obtained.
 
                                      53
<PAGE>
 
   
CAPITAL MARKETS AND LOAN SERVICING     
 
 Loan Sales and Servicing
 
  As detailed below, the Company's loan origination and sales activities have
increased in volume and have become more expansive as new lending programs are
introduced and a more focused sales effort is undertaken.
 
<TABLE>   
<CAPTION>
                                        DECEMBER 31,                    JUNE 30,
                          ----------------------------------------- -----------------
                           1992    1993    1994     1995     1996     1996     1997
                          ------- ------- ------- -------- -------- -------- --------
                                            (DOLLARS IN THOUSANDS)
<S>                       <C>     <C>     <C>     <C>      <C>      <C>      <C>
SBA loans:
 Total loans originated.  $17,202 $28,879 $58,753 $ 37,522 $ 85,303 $ 45,139 $ 47,302
 Total number of loans
  originated............       29      56     109       95      170       87       97
 Average loan
  originated............  $   593 $   516 $   556 $    395 $    460 $    519 $    488
 Total guaranteed loans
  sold..................  $13,731 $21,659 $39,607 $ 27,413 $ 58,878 $ 30,079 $ 33,985
 Total unguaranteed
  loans sold............      --              --       --  $ 29,867 $  4,550 $  6,327
USDA loans:
 Total loans originated.      --      --  $ 2,825 $ 19,241 $ 12,700 $  7,180 $ 17,679
 Total number of loans
  originated............      --      --        2       12        6        4        9
 Average loan
  originated............      --      --  $ 1,413 $  1,603 $  2,117 $  1,795 $  1,964
 Total guaranteed loans
  sold..................      --      --  $ 2,260 $ 14,984 $ 10,199 $  5,784 $ 14,143
 Total unguaranteed
  loans sold............      --      --      --       --  $  3,207 $  2,699 $    815
Ex-Im medium term loans:
 Total loans originated.      --      --  $   397 $  1,814 $ 13,617 $  2,289 $ 27,297
 Total number of loans
  originated............      --      --        2        7       26        4       36
 Average loan
  originated............      --      --  $   199 $    259 $    524 $    425 $    758
 Total guaranteed loans
  sold..................      --      --  $   245 $  1,814 $ 12,745 $  2,289 $ 27,297
Ex-Im working capital
 lines:
 Total loans originated.      --      --      --  $  6,882 $ 23,300 $  1,700 $ 10,625
 Total number of loans
  originated............      --      --      --        12       17        4       12
 Average loan
  originated............      --      --      --  $    574 $  1,371 $    425 $    885
 Total guaranteed
  advances sold.........      --      --      --  $  2,632 $  8,614 $  1,100 $  8,179
Other commercial loans:
 Total loans sold.......      --      --      --  $  8,843 $  9,329 $  4,767 $  8,879
 Total number of loans
  sold..................      --      --      --        18       23       19       22
  Total loans sold......  $13,731 $21,659 $42,112 $ 55,686 $132,839 $ 51,268 $ 99,625
Loans serviced for
 others (at period end):
 Total commercial loans.  $19,725 $40,579 $80,752 $132,810 $244,092 $179,271 $323,363
 Total residential
  loans.................  $12,899 $17,781 $17,988 $ 21,040 $ 21,713 $ 21,612 $ 21,535
Total Number Commercial
 Loans..................      411     482     590      739      984      849    1,141
Total Number Residential
 Loans..................      293     331     335      336      318      322      267
</TABLE>    
 
                                       54
<PAGE>
 
 Capital Markets Activities
 
  The Capital Markets Department was formally established in July 1996 to
assume responsibility for the non-recourse, servicing-retained sale of SBA,
USDA and Ex-Im Bank government guarantee loans and to investigate and find
buyers and markets for the sale of non-guaranteed mortgage, term and revolving
commercial loans on a non-recourse, servicing-retained basis. The Capital
Markets Department activities allow the Company to reduce reliance on
government guarantee loan programs for revenue, leverage capital, replenish
liquidity and mitigate the risk of balance sheet exposure to a single
borrower.
   
  The guaranteed portions of SBA and USDA loans are sold within one-day of
origination on a single loan basis to established brokers. Brokers generally
pool the SBA guaranteed portions. Although the Bank is an approved SBA pool
assembler, it has not undertaken this activity due to the additional liquidity
and resources required to fund and market the pools. USDA loans are sold to
individual investors. The guaranteed portions of the Ex-Im loans and lines of
credit are sold primarily to the Private Funding Export Funding Corporation
("PEFCO"), although additional private purchasers have been identified for
these products, and the Company expects that this investor base will become
more diversified during the second half of 1997. PEFCO is a private
corporation established with the support of the United States Treasury and Ex-
Im to assist in the financing of exports of U.S. goods and services by direct
loans to foreign importers of U.S. made goods, and providing liquidity support
for certain Ex-Im guaranteed loans. The Company is a 1% shareholder and one of
among approximately 50 PEFCO shareholders, with a common stock investment of
$599,000 at June 30, 1997.     
       
       
  SBA and USDA regulations permit the Company to sell a portion of the
unguaranteed amounts of the loans originated under their respective programs.
SBA regulations currently require a bank lender to retain an unguaranteed
interest equal to 10% of the SBA loan, and do not permit such a lender to
securitize any unguaranteed portions. Finance companies and other "non-bank"
lenders are currently not restricted in the amount of unguaranteed portions
which may be sold or securitized. The SBA, however, has published draft
regulations for comment which would allow banks to securitize or sell the
unguaranteed portions of SBA Loans subject to certain criteria designed to
ensure that originators retain a continuing economic interest in the loan. The
proposed rules would most likely include a provision to reduce the required
unguaranteed retention to 5% of the total SBA loan, thereby allowing the
Company to sell a greater percentage of such unguaranteed loan portions,
freeing up capital and liquidity for future loan originations. USDA
regulations permit the Company to sell unguaranteed portions equal to all but
5% of the total USDA loan. Upon the sale of such unguaranteed portions, the
Company shares in the payment stream and collateral on a pari passu basis with
all (guaranteed and unguaranteed) investors, beginning with the initial
collection.
   
  In 1996, sales of unguaranteed portions of SBA Loans and USDA loans totaled
approximately $29.9 million and $3.2 million, respectively, for a total gain
of $842,000. A significant portion of the loans sold had been originated in
1994 and 1995 and, although originations are expected to continue to increase
the portfolio, there can be no assurance that this volume of loan sales will
be representative of on-going non-guaranteed loan sales activity. At June 30,
1997, the Company had approximately $16.0 million in unguaranteed portions of
SBA and USDA loans which could be sold under current regulations. The Company
would evaluate the return on the sales as well as the impact on net interest
income and alternative investment opportunities prior to selling any such
amounts.     
 
  The Capital Markets Department has developed a portfolio of buyers of non-
guaranteed mortgage loans, term loans and revolving lines of credit and
devotes substantial resources to the identification of such buyers. A primary
objective in the negotiation and sale of such loans is the Company's retention
of sole responsibility for borrower contact. Investors meet with borrowers
only in rare circumstances, and generally rely on the Company to prudently
service and monitor the lending relationship. The Company believes that this
is important to its clientele and that it reflects investor confidence in its
servicing ability and reputation.
 
                                      55
<PAGE>
 
 Loan Servicing Activities
   
  At June 30, 1997, the total loan portfolio serviced by the Company was
comprised of the following:     
 
<TABLE>   
<CAPTION>
                                                              TOTAL   NUMBER OF
                                       SERVICED FOR COMPANY  BALANCE    LOANS
LOAN TYPE                                 OTHERS    BALANCE  SERVICED SERVICED
- ---------                              ------------ -------- -------- ---------
                                                (DOLLARS IN THOUSANDS)
<S>                                    <C>          <C>      <C>      <C>
Commercial banking portfolio:
 SBA loans............................   $205,298   $ 36,750 $242,048     535
 USDA loans...........................     45,052      5,816   50,868      29
 Business loans.......................      2,828     10,059   12,887     109
 Revolving lines of credit............        594     25,503   26,097     236
 Commercial mortgages.................     16,104     16,950   33,054      86
 Investor property mortgages..........        592      6,285    6,877      40
 Private loans........................        --       3,119    3,119      18
                                         --------   -------- --------   -----
  Total commercial banking............    270,468    104,482  374,950   1,053
International banking portfolio:
 Ex-Im medium term loans..............     39,525      2,487   42,012      65
 Ex-Im working capital lines..........     13,370      2,725   16,095      23
                                         --------   -------- --------   -----
  Total international banking.........     52,895      5,212   58,107      88
Private banking portfolio:
 Residential mortgages................     17,429      6,655   24,084     267
 Other consumer loans.................      4,106      1,840    5,946     219
                                         --------   -------- --------   -----
  Total private banking...............     21,535      8,495   30,030     486
                                         --------   -------- --------   -----
  Total...............................   $344,898   $118,189 $463,087   1,627
                                         ========   ======== ========   =====
</TABLE>    
 
  The Company services substantially all of the loans it originates, whether
sold to investors or held in portfolio. Servicing includes collecting payments
from borrowers and remitting applicable payments and required reports to any
investors; accounting for principal, interest and any real estate tax or other
escrow receipts and payments; contacting delinquent borrowers; supervising
foreclosures; and liquidating collateral when required. Other than tasks
performed by the assigned loan officers, loan servicing functions are
centralized in the Hartford, Connecticut headquarters.
 
  The Company receives servicing fees on loans serviced for others in varying
amounts, as determined under the particular terms of the sale. Management
believes that servicing loans originated enhances the Company's relationship
with the borrower by allowing it to maintain contact with borrower. This
contact allows the Company to continue to market and provide its loan and
deposit products to the client who may need additional financing or retail
services. Further, such arrangements provide an additional and profitable
revenue stream that is less cyclical than the business of originating and
selling loans.
 
  After a loan is closed, the loan servicing department initially reviews the
loan files to confirm that loans were originated in accordance with any
applicable government guarantee program guidelines and Company policies.
Thereafter, the loan officers and the Loan Review Department conduct periodic
reviews of the borrower's financial condition.
 
DELINQUENCY AND COLLECTION ACTIVITIES
 
  The assigned loan officer retains responsibility for the routine collection
of his or her portfolio. The Company attempts to collect all loans on a 30-day
basis, leaving very few loans past due 30 days or more at any month end. An
officer's initial collection efforts generally begin when an account is 15
days past due. At 20 days past due, a reminder notice is sent to the borrower
and the loan officer again attempts to contact the borrower to determine the
reason for the delinquency and if the account will be brought current.
 
                                      56
<PAGE>
 
  If a borrower is unable to make a payment within 30 days of the due date,
and has not made acceptable alternative arrangements with the Company, the
account is transferred to the Company's Loan Workout Officer for consideration
of additional collection procedures, including issuance of a demand letter and
possible liquidation of collateral.
 
  The Loan Workout Officer is responsible for contacting the borrower and
analyzing its current and projected financial condition; the reasons leading
to the delinquency; and the value of the collateral available to the Company;
and then proposing a workout plan to the Chief Credit Officer and other
involved members of Senior Management. The Loan Workout Officer will also
provide any required notices and generally seek to comply with any government
guarantee program or investor requirements.
 
  A loan is placed on non-accrual status when, in the Company's opinion, it is
unlikely that full collection of principal and interest will be made in
accordance with the original terms of the loan agreement. This determination
is generally made before a loan is 90 days delinquent and is reevaluated over
the course of the workout process, as more information becomes known. Any
interest accrued is charged-off against interest income when a loan is placed
on non-accrual.
 
  If a modification of loan terms or other acceptable workout cannot be
achieved within a reasonable time frame, the Company will liquidate the
collateral. The Company prefers not to take title to real property or
equipment unless required to facilitate the collection process. The Company
solicits assistance from the principals of the delinquent borrower to effect
the liquidation of any property, with title remaining in the borrower's name,
thereby avoiding a lengthy foreclosure or repossession process, and exposure
to the Company regarding environmental or other liability issues. The Company
has generally found the principals to be cooperative and able to assist the
Company in efficiently liquidating the collateral. The Company follows the
same general workout procedures for all commercial loans serviced.
 
 
  If a loan carries an SBA guarantee, the responsible District SBA Office will
be notified of the delinquency and will be presented with a liquidation plan
within 60-90 days of such delinquency. Unless the SBA objects, the Company
will carry out the terms of the liquidation plan. As a Preferred Lender, the
Bank has responsibility and authority over liquidation procedures on all SBA
guaranteed loans serviced. Any loss after liquidation of collateral is
allocated pro rata between the guaranteed and unguaranteed portions of the SBA
Loan. After an SBA loan becomes 60-90 days past due, the SBA, at the Company's
request, will repurchase the guaranteed portion of the principal balance of
the SBA Loan at par from the investor, together with accrued interest covering
a period of up to 120 days.
 
  USDA procedures require that the Company file a liquidation plan when it is
believed action should be taken on a delinquent loan, which is generally when
the loan is 60-90 days delinquent. The USDA has 30 days to review the plan.
The Company will then execute the approved plan or work with the USDA to
arrive at a mutually acceptable plan. Any loss after liquidation of collateral
is allocated pro rata between the guaranteed and unguaranteed portions of the
USDA loan. The holder of the guaranteed portion may request that the USDA
repurchase the guaranteed portion at any time, or the Company will request
repayment on such holder's behalf when liquidation is complete. The USDA does
not impose any restrictions on the number of days for which interest will be
paid on the guaranteed portions.
 
  The liquidation of delinquent working capital and medium term Ex-Im Bank
loans is handled by Ex-Im Bank. The Company may submit a claim for repurchase
at any time between 30 and 120 days of a delinquent loan, plus 15 days post-
Company demand for payment against the borrower and individual guarantors, but
at no time may such claim be made more than 150 days after the delinquency.
Ex-Im Bank will make payment under its guarantee 30 days after receipt and
acceptance of the Company's request.
 
  The Company retains responsibility for the proper documentation and
servicing of all loans serviced for others, and may incur losses related to
such loans if it is found to be negligent in carrying out these duties by a
guaranteeing agency or other investor.
 
                                      57
<PAGE>
 
  Unguaranteed loans or unguaranteed portions of loans held by investors are
subject to negotiated servicing agreements, although the agreements generally
provide the investor the option, after a loan becomes 60-90 days delinquent,
of assuming responsibility for all collection efforts. If the Company is to be
responsible for such efforts, the agreements generally require that the
investor pre-approve liquidation actions.
 
CREDIT RISK MANAGEMENT
 
  The Executive Vice President-Chief Credit Officer has primary responsibility
for credit risk management, ensuring the appropriateness of underwriting
criteria, and the application thereof, the maintenance and application of
RISCOPESM, the Company's proprietary commercial risk assessment model, and the
independent analyses of loans by the Loan Review Department.
 
  The Credit Policy Officer, who reports to the Chief Credit Officer, reviews
all credit memoranda for compliance with the requirements of government
guarantee programs and with Company credit policies. If, based on the
particular facts and circumstances, policy exceptions are proposed by the
officers, the Credit Policy Officer will also ensure that all appropriate
policy exceptions are documented and approved by the approving party, as the
case may be. The Chief Credit Officer periodically evaluates the nature and
trends of such exceptions, reporting them quarterly to the Board of Directors'
Audit Committee.
 
  As a nationally-chartered bank, the Bank is required to "risk rate" its loan
portfolio, by monitoring current changes in the financial condition of the
borrower and overall economic trends and assigning numerical ratings to the
loans in portfolio. The Company applies the regulatory definitions of the risk
ratings and has developed additional ratings for the "Pass" or uncriticized
loan category. Such a rating system, in conjunction with other available
quantitative and qualitative data, is utilized to assist management in its
quarterly evaluation of the adequacy of the allowance for loan losses.
 
  The assigned loan officer has primary responsibility for the risk ratings
and such officer's decisions are periodically reviewed by the Loan Review
department. The Company's risk ratings are based on consideration of the
borrower's operating cash flow and debt service coverage ability, industry,
product segment, market, earnings, assets and liabilities, management
experience, debt capacity and prior credit history with Company.
 
  The Company has developed a proprietary risk model, RISCOPESM, used in the
initial underwriting and post-closing monitoring and risk rating process by
the officers and the Loan Review Department. RISCOPESM assists the Company in
quantifying the credit risk of commercial clients. The model takes into
account quantitative and qualitative factors and was designed after analysis
of the Company's primary client base: privately-owned small and medium size
manufacturers. RISCOPESM is intended to quantify credit risk with respect to
the probability of default and, therefore, assists management in risk rating
loans and providing an appropriate allowance for loan losses and targeting
additional management attention to weaker credits earlier than might otherwise
be done if payment default were the sole trigger for such actions.
 
  In accordance with the Bank Board of Directors' approved annual plan, the
Loan Review Department reviews the Company's loan portfolio to evaluate the
appropriateness of the officer risk ratings and analyzes overall trends in the
portfolio. The loan review results are reported to the Company's Audit
Committee quarterly.
 
                                      58
<PAGE>
 
PRIVATE BANKING
 
  The Private Banking Department provides stable, low-cost funding for the
Company by enabling the Company to manage its deposit base, which consists of
demand deposits, money market savings accounts, and time certificates of
deposits, including individual retirement accounts. The Company does not
accept or solicit brokered deposits and completed its transition from a retail
to wholesale financial institution by selling its last suburban retail branch
facility and deposits totaling $24 million in September 1996. The Company
operates one depository main branch located on the first floor of its
Hartford, Connecticut headquarters as many of the Company's commercial clients
transact business through electronic funds transfer, telephone and the mail.
   
  The Private Banking Department targets commercial depository accounts of
small and medium size manufacturers as well as the personal accounts of their
principals by offering a full array of deposit products to serve the personal
needs of, and facilitate relationships with, the Company's existing clients
and their principals. As of June 30, 1997, 55% of the $159 million in total
deposits were in the form of accounts from commercial clients. The private
bankers administer deposits and related services, such as automatic sweep
accounts, merchant and corporate credit card services, payroll processing,
business and individual retirement accounts, and international funds transfer
and foreign exchange conversions.     
 
  The Private Banking Department continually seeks to expand the Company's
deposit base by strengthening existing deposit relationships, soliciting
deposits from individuals who seek highly personalized service and offering
new products. Private bankers are trained to focus on, and respond to, the
needs of the commercial borrowers which management believes are often not
served effectively by other depository institutions. Private bankers, based in
Hartford, Connecticut, market the Company's services through direct mail and
telephone campaigns which reach businesses, institutions and individuals in
the areas were the Company maintains domestic offices and international
marketing relationships. The Company maintains an interactive voice response
system, First Access/SM/, which enables clients to obtain information about
their loan or deposit accounts through a toll free telephone call, and
recently introduced a commercial lockbox product and expanded its foreign
exchange services.
 
  The following table sets forth the Company's deposit structure as noted:
 
<TABLE>   
<CAPTION>
                                                   DECEMBER 31,
                                            -------------------------- JUNE 30,
                                              1994     1995     1996     1997
DEPOSIT TYPE                                -------- -------- -------- --------
                                                  (DOLLARS IN THOUSANDS)
<S>                                         <C>      <C>      <C>      <C>
Business accounts:
 Non-interest bearing checking............. $ 14,643 $ 19,337 $ 27,485 $ 26,480
 Interest bearing checking.................    5,794    5,897    4,567    5,595
 Savings...................................   20,738   31,453   46,660   55,316
                                            -------- -------- -------- --------
  Total business...........................   41,175   56,687   78,712   87,391
Consumer accounts:
 Non-interest bearing checking.............    3,938    3,284      403      520
 Interest bearing checking.................    4,736    4,835    3,681    2,962
 Savings...................................   26,773   39,573   22,618   26,693
                                            -------- -------- -------- --------
  Total consumer...........................   35,447   47,692   26,702   30,175
Time deposits accounts:
 Non-IRA time deposits.....................   29,365   17,904   32,372   34,583
 IRA time deposits.........................    5,862    6,078    6,530    6,498
                                            -------- -------- -------- --------
  Total time deposits......................   35,227   23,982   38,902   41,081
                                            -------- -------- -------- --------
    Total deposits......................... $111,849 $128,361 $144,316 $158,647
                                            ======== ======== ======== ========
Externally indexed savings accounts
 included above............................ $ 26,953 $ 57,310 $ 65,779 $ 76,719
                                            ======== ======== ======== ========
</TABLE>    
 
                                      59
<PAGE>
 
   
  As of June 30, 1997, the average balances held in checking and savings
accounts were $12,200 and $17,800, respectively. These balances are higher
than industry norms which the Company believes is attributable to the
Company's focus of attracting commercial deposits. Management believes that
such business deposits are more stable than those obtained from a consumer
deposit base. The Company does not generally compete with retail branches of
other depository institutions, but rather with mutual and money market funds,
yet it retains the advantage of FDIC insurance. The Company's basic business
cash management and private banking savings accounts are variable rate money
market accounts tied to an external index published daily in The Wall Street
Journal and are designed to compete with money fund alternatives.     
 
  The following table sets forth, by account types the aggregate amount and
weighted average rate of the Company's deposits:
 
<TABLE>   
<CAPTION>
                                             DECEMBER 31,
                         -----------------------------------------------------     JUNE 30,
                               1994              1995              1996              1997
                         ----------------- ----------------- ----------------- -----------------
                                  WEIGHTED          WEIGHTED          WEIGHTED          WEIGHTED
                                  AVERAGE           AVERAGE           AVERAGE           AVERAGE
                          AMOUNT    RATE    AMOUNT    RATE    AMOUNT    RATE    AMOUNT    RATE
                         -------- -------- -------- -------- -------- -------- -------- --------
                                                 (DOLLARS IN THOUSANDS)
<S>                      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
 Transaction accounts:
  Non-interest bearing
   checking............. $ 18,581     --%  $ 22,621     --%  $ 27,888     --%  $ 27,000     --%
  Interest-bearing
   checking.............   10,530   2.60     10,732   2.95      8,248   2.52      8,557   2.51
                         --------   ----   --------   ----   --------   ----   --------   ----
  Subtotal..............   29,111    .94     33,353    .95     36,136    .57     35,557    .60
 Savings accounts.......   47,511   4.06     71,026   5.14     69,278   5.09     82,009   5.20
 Time deposits..........   35,227   4.67     23,982   5.43     38,902   5.55     41,081   5.79
                         --------   ----   --------   ----   --------   ----   --------   ----
  Total deposits........ $111,849   3.44%  $128,361   4.11%  $144,316   4.08%  $158,647   4.32%
                         ========   ====   ========   ====   ========   ====   ========   ====
</TABLE>    
   
  The following table sets forth the Company's certificate of deposits over
$100,000 by time remaining until maturity as of June 30, 1997:     
 
<TABLE>   
<CAPTION>
              MATURITY PERIOD                           CERTIFICATES OF DEPOSIT
              ---------------                           -----------------------
                                                        (DOLLARS IN THOUSANDS)
   <S>                                                  <C>
   Three months or less................................         $1,804
   Over three through six months.......................          2,099
   Over six through twelve months......................          4,035
   Over one year.......................................            683
                                                                ------
     Total certificate of deposits over $100,000.......         $8,621
                                                                ======
</TABLE>    
 
  Additional funding for the Company's operations is also is available from
the following sources:
   
  On-going sales of guaranteed and non-guaranteed loans. Proceeds from such
loan sales totaled $137 million and $88 million for the year ended December
31, 1996 and for the six months ended June 30, 1997, respectively.     
   
  Federal Home Loan Bank of Boston advances. Approximately $6.7 million was
available in overnight and term borrowings from the Federal Home Loan Bank of
Boston for short and longer term needs as of June 30, 1997. Funding from this
source has been, and is anticipated to be, used infrequently since the Company
relies on lower cost core deposits, leaving advances available to fund
temporary shortfalls.     
   
  Federal funds sold. Federal funds sold provide daily liquidity and are
invested on an overnight basis. Such investments had an average balance of $12
million average balance for the year ended December 31, 1996 and $12 million
for the six months ended June 30, 1997. It has been the Company's policy that
investment securities be generally comprised of U.S. government and agency
bonds with an average term of less than five years. Such investments will
continue to comprise the majority of the portfolio after the Offering to
enable use of such funds to higher yielding loans.     
 
                                      60
<PAGE>
 
COMPETITION
 
  The Company competes for commercial and export borrowers with other
commercial and savings banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies, brokerage and investment
banking firms and certain other nonfinancial institutions, many of whom are
able to devote far greater resources than the Company to market, underwrite
and service loans to the same client base. The Company competes by emphasizing
its expertise and knowledge of its client's businesses, customer service,
flexibility in structuring financing transactions and strong client
relationships. Through the combined utilization of government guarantee loan
programs, the Company is able to provide flexible longer-term financing than
would otherwise be available to borrowers, and through its Private Banking
Department, the Company is able to offer traditional personal deposit
products.
 
INTELLECTUAL PROPERTY
   
  The Company possesses federal trademark for protection of the name, "First
National Bank of New England(R)." The Company has also applied for federal
protection of two of its servicemarks, Financing Manufacturers WorldwideSM,
the Company's slogan, and RISCOPESM, the Company's proprietary risk model.
    
LEGAL PROCEEDINGS
 
  Neither the Company nor the Bank is involved in any legal proceedings except
for routine litigation incidental to the business of banking, none of which is
expected to have a material adverse effect on the Company's financial
position, results of operations or cash flows.
 
EMPLOYEES
   
  At June 30, 1997, the Company had 114 full-time employees. The Company's
employees are not represented by a collective bargaining agreement, and the
Company considers its relations with its employees to be good.     
 
PROPERTIES
 
  The Company leases approximately 38,000 square feet in Hartford, Connecticut
to house its headquarters and only full-service branch. The Company maintains
leased space for representative offices in Boston and Springfield,
Massachusetts; Providence, Rhode Island; Morristown, New Jersey; Rochester,
New York; Philadelphia and Pittsburgh, Pennsylvania; and Washington, D.C. The
Company's leases generally provide for two five-year renewal options and
options on additional space. The leases with respect to the Pittsburgh and
Washington, D.C. space are for one-year terms. Management believes that its
existing facilities are adequate for their present and proposed uses and that
suitable facilities will be available on reasonable terms for any additional
offices.
 
                                      61
<PAGE>
 
                          REGULATION AND SUPERVISION
   
REGULATION OF THE COMPANY     
 
  The Company is registered as a bank holding company and regulated and
subject to periodic examination by the FRB under the BHCA.
 
  Pursuant to the BHCA and the FRB's regulations, the Company is limited to
the business of owning, managing or controlling banks and engaging in certain
other bank-related activities, including those activities that the FRB
determines from time to time to be so closely related to the business of
banking as to be a proper incident thereto. The BHCA requires, among other
things, the prior approval of the FRB if a bank holding company proposes to
(i) acquire all or substantially all of the assets of a bank, (ii) acquire
direct or indirect ownership or control of more than 5% of the outstanding
voting stock of any bank (unless it already owns a majority of such bank's
voting shares) or (iii) merge or consolidate with any other bank holding
company.
 
  As a bank holding company, the Company is required by the FRB to act as a
source of financial strength and to take measures to preserve and protect the
Bank. As a result, the Company may be required to inject capital in the Bank
if the Bank at any time lacks and requires such capital. The FRB may charge a
bank holding company such as the Company with unsafe and unsound practices for
failure to commit resources to a subsidiary bank when required. Any loans from
the Company to the Bank which would count as capital of the Bank must be on
terms subordinate in right of payment to deposits and to most other
indebtedness of the Bank.
 
  The FRB, the OCC and the Federal Deposit Insurance Corporation (the "FDIC")
collectively have extensive enforcement authority over bank holding companies
and national banks in the United States. This enforcement authority, initiated
generally for violations of law and unsafe and unsound practices, includes,
among other things, the ability to assess civil money penalties, to initiate
injunctive actions and to terminate deposit insurance in extreme cases.
 
  The bank regulatory agencies' enforcement authority was substantially
enhanced by the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"). FIRREA significantly increased the amount of civil money
penalties and the grounds for imposing such penalties. Also, under FIRREA,
should a Bank failure result in a loss to the FDIC, any other FDIC-insured
subsidiaries of the Company could be required to compensate the FDIC for the
estimated amount of the loss. Additionally, pursuant to FDICIA, the Company in
the future could have the potential obligation to guarantee the capital
restoration plans of any undercapitalized FDIC-insured depository institution
subsidiaries it may control.
 
INTERSTATE BANKING
 
  As of September 29, 1995, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "RNA") permitted adequately capitalized and
managed bank holding companies to acquire control of banks in any state.
Additionally, beginning on June 1, 1997, the RNA provides for banks to branch
across state lines, although individual states are authorized to permit
interstate branches earlier or to elect to opt out entirely.
 
REGULATION OF THE BANK
 
 General
 
  The Bank, as an FDIC-insured national bank, is subject to regulation
primarily by the OCC, and secondarily by the FDIC. As a national bank, the
Bank is a member of the Federal Reserve System, and its operations are also
subject to certain FRB regulations. Various other federal and state consumer
laws and regulations also affect the operations of the Bank.
 
  As a national bank, the Bank may be able to engage in certain activities
approved by the OCC which the FRB would not necessarily approve for the
Company. The OCC has been particularly aggressive in recent years
 
                                      62
<PAGE>
 
in allowing national banks to undertake an ever-increasing range of securities
and insurance activities. Along these lines, pursuant to certain revisions to
the OCC's regulations pertaining to the national bank activities effective on
December 31, 1996, national banks, among other things, are permitted, on a
case-by-case basis, to operate subsidiaries engaging in activities not
permissible for the Bank itself. Although the revised regulations do not
authorize any new activities, it is expected that national banks, if eligible
and if they obtain the approval of the OCC, will use these regulations to
expand further into the businesses of underwriting insurance and securities.
 
  The revised OCC regulations contain "fire walls" intended to protect a
national bank from the risks taken by a subsidiary, including imposing a 10%
cap on the amount of bank capital that may be invested in a new subsidiary, as
well as requirements that extensions of credit to an operating subsidiary be
fully-collateralized and that transactions between the bank and a subsidiary
be conducted at arm's-length. The parent national bank's exposure to any
losses the subsidiary may incur are limited to the bank's equity investment in
the subsidiary. Parent national banks are required to be well-capitalized both
before and after an investment is made.
 
  Since OCC approval is required on a case-by-case basis for an eligible bank
to engage in activities not permissible for the bank to conduct directly, the
effect of these revised regulations on the operations of national banks is
unclear. Further, it is expected that Congress will consider new banking
legislation in the near future addressing these revisions.
 
  As a national bank, the Bank may ordinarily lend up to 15% of its capital on
an unsecured basis to any one borrower, and may lend up to an additional 10%
of its capital to that same borrower on a fully secured basis involving
readily marketable collateral having a market value, as determined by reliable
and continuously available price quotations, equal at least to the amount
borrowed. In addition, there are various other circumstances in which the Bank
may lend in excess of such limits, including authority to lend up to 35% of
capital and surplus when the loan is secured by documents of title to readily
marketable staples, unlimited authority if loans are guaranteed by a U.S.
government agency and certain other exceptions relevant to international trade
finance.
 
  Federal law also imposes additional restrictions on the Bank with respect to
loans and extension of credit to certain related parties and purchases from
and other transactions with the Company's principal stockholders, officers,
directors and affiliates. Extensions of credit to such persons (i) must be
made on substantially the same terms (including interest rates and collateral)
as, and follow credit underwriting procedures not less stringent than, those
prevailing for comparable transactions with members of the general public, and
(ii) must not involve more than the normal risk of repayment or present other
unfavorable features. In addition, extensions of credit to each such person
beyond certain limits set by applicable law must be approved by the Bank's
Board of Directors, with the individual who is applying for the credit
abstaining from participation in the decision. The Bank is also subject to
certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil money penalties against the Bank or any officer, director, employee,
agent or other person participating in the conduct of the affairs of the Bank
and/or may result in the imposition by the OCC of a cease and desist order
against the Bank.
   
  Capital Adequacy     
 
  The federal bank regulatory authorities have adopted risk-based capital
guidelines to which the Bank is subject. The guidelines establish a systematic
framework that makes regulatory capital requirements more sensitive to
differences in risk profile among banking organizations, takes off-balance
sheet exposures into explicit account in assessing capital adequacy and
minimizes disincentives to holding liquid, low-risk assets. These risk-based
capital ratios are determined by allocating assets and specified off-balance
sheet financial instruments into four weighting categories, with higher levels
of capital required for the categories perceived as representing greater risk.
 
                                      63
<PAGE>
 
  Under these guidelines, a banking organization's capital is divided into two
tiers. The first tier ("Tier 1") includes common equity, perpetual preferred
stock (excluding auction rate, money market or remarketable issues) and
minority interests held by others in a consolidated subsidiary, less goodwill
and any disallowed intangibles. Supplementary ("Tier 2") capital includes,
among other items, cumulative and limited-life preferred stock, mandatory
convertible securities, subordinated debt and the allowance for loan and lease
losses, subject to certain limitations and less required deductions as
provided by regulation.
   
  Banking organizations are required to maintain a risk-based capital ratio of
total capital (Tier 1 plus Tier 2) to risk-weighted assets of 8%, of which at
least 4% must be Tier 1 capital. The federal bank regulatory authorities may,
however, set higher capital requirements when a banking organization's
particular circumstances warrant. As a general matter, banking organizations
are expected to maintain capital ratios well above the regulatory minimums.
The risk-based capital ratios of the Bank as of December 31, 1995, December
31, 1996 and June 30, 1997 are set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."     
   
  In addition, federal bank regulatory authorities have established guidelines
for a minimum leverage ratio (Tier 1 capital to average total assets). These
guidelines provide for a minimum leverage ratio of 3% for banking
organizations that meet certain specified criteria, including excellent asset
quality, high liquidity, low interest rate exposure and the highest regulatory
rating. Banking organizations not meeting these criteria or which are
experiencing or anticipating significant growth are required to maintain a
leverage ratio which exceeds the 3% minimum by a least 100 to 200 basis
points. The leverage ratios of the Bank as of December 31, 1995, December 31,
1996 and June 30, 1997 are set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."     
 
  Failure to meet applicable capital guidelines could subject a bank or bank
holding company to a variety of enforcement remedies available to the federal
bank regulatory authorities, including limitation on the ability to pay
dividends, the issuance of a capital directive to increase capital and, in the
case of a bank, the termination of deposit insurance by the FDIC or (in severe
cases) the appointment of a conservator or receiver.
   
  Dividends     
 
  The Bank is subject to legal limitations on the frequency and amount of
dividends that can be paid to the Company. The OCC, in general, also has the
power to prohibit the payment of dividends by the Bank which would otherwise
be permitted under applicable regulations if the OCC determines that such
dividends would constitute an unsafe or unsound practice.
   
  OCC approval is required for the payment of dividends by the Bank in any
calendar year if the total of all dividends declared by the Bank in that year
exceeds the current year's net income combined with the retained net income of
the two preceding years. "Retained net income" means the net income of a
specified period less any common or preferred stock dividends declared for
that period. Moreover, no dividends may be paid by a national bank in excess
of its undivided profits account. In addition, the FRB and the FDIC have
issued policy statements which provide that, as a general matter, insured
banks and bank holding companies may pay dividends only out of current
operating earnings. In accordance with such regulatory restrictions, the Bank
currently has the ability to pay dividends, and on June 30, 1997 an aggregate
of $7.3 million was available for the payment of dividends to the Company
without prior OCC approval.     
 
  There are also statutory limits on other transfers of funds to the Company
and any other future non-banking subsidiaries of the Company by the Bank,
whether in the form of loans or other extensions of credit, investments or
asset purchases. Such transfers by the Bank generally are limited in amount to
10% of the Bank's capital and surplus, to the Company or any such future
subsidiary of the Company, or 20% in the aggregate to the Company and all such
subsidiaries. Furthermore, such loans and extensions of credit are required to
be fully collateralized in specified amounts depending on the nature of the
collateral involved.
 
                                      64
<PAGE>
 
   
  FDICIA     
 
  FDICIA was enacted on December 19, 1991. It substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and
made significant revisions to other federal banking statutes. FDICIA provided
for, among other things, (i) a recapitalization of the Bank Insurance Fund of
the FDIC (the "BIF") by increasing the FDIC's borrowing authority and provided
for adjustments in its assessment rates; (ii) annual on-site examinations of
federally-insured depository institutions by banking regulators; (iii)
publicly available annual financial condition and management reports for
financial institutions, including audits by independent accountants; (iv) the
establishment of uniform accounting standards by federal banking agencies; (v)
the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with more
scrutiny and restrictions placed on depository institutions with lower levels
of capital; (vi) additional grounds for the appointment of a conservator or
receiver; (vii) a requirement that the FDIC use the least-cost method of
resolving cases of troubled institutions in order to keep the costs to
insurance funds at a minimum; (viii) more comprehensive regulation and
examination of foreign banks; (ix) consumer protection provisions, including a
Truth-in-Savings Act; (x) a requirement that the FDIC establish a risk-based
deposit insurance assessment system; (xi) restrictions or prohibitions on
accepting brokered deposits, except for institutions which significantly
exceed minimum capital requirements; and (xii) certain additional limits on
deposit insurance coverage.
 
  A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository
institutions that do not meet minimum capital requirements. Pursuant to
FDICIA, the federal bank regulatory authorities have adopted regulations
setting forth a five-tiered system for measuring the capital adequacy of the
depository institutions they supervise. Under these regulations, a depository
institution is classified in one of the following capital categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Based on the Bank's
current regulatory capital position, management believes that the Bank is
"well capitalized."
 
  FDICIA generally prohibits the Bank from making any capital distribution
(including payment of a cash dividend) or paying any management fees to the
Company if the Bank would thereafter be undercapitalized. Undercapitalized
depository institutions are subject to growth limitations and are required to
submit capital restoration plans acceptable to federal banking agencies. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized."
 
  Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, and requirements to
reduce total assets and to stop accepting deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator, generally within 90 days of the date of such
institution is determined to be critically undercapitalized.
 
  FDICIA also provides for increased funding of the FDIC insurance funds.
Under the FDIC's risk-based insurance premium assessment system, each bank
whose deposits are insured by the BIF is assigned one of the nine risk
classifications based upon certain capital and supervisory measures and,
depending upon its classification, is assessed premiums. On November 14, 1995,
the FDIC board of directors voted to lower the BIF premium to a range of zero
to 27 basis points per $100 of assessable deposits, effective January 1996.
The rate schedule is subject to adjustment by the FDIC from time to time, by
the FDIC. In addition, the FDIC has authority to impose special assessments
from time to time. In addition to such premiums, as a result of the enactment
of the Federal Deposit Insurance Funds Act of 1996 on September 30, 1996,
commercial banks are now required to pay part of the interest on the Financing
Corporation's ("FICO") bonds issued to deal with the savings and loan crisis
of the late 1980s. As a result, commercial bank deposits are now also subject
to assessment by FICO upon the approval by the Board of Directors of the FDIC
of such assessment. Beginning in 1997, and until the earlier of December 31,
1999 or the date on which the last savings and loan association ceases to
exist, the assessment rate FICO imposes on a commercial bank must be at a rate
equal to one-fifth the assessment rate applicable to deposits assessable by
the Savings Association Insurance Fund.
 
                                      65
<PAGE>
 
   
  Reserve Requirements     
 
  The Bank is required to maintain reserves against its transaction accounts.
The reserves must be maintained in vault cash on hand and in an interest-free
account at the Federal Reserve Bank of Boston. Reserve requirements are
subject to adjustment by the FRB from time to time. The current rate for
reserves is 3% of a depository institution's transaction accounts (less
certain permissible deductions) up to $52 million, plus 10% of the amount over
$52 million.
 
COMMUNITY REINVESTMENT ACT
 
  The Federal Community Reinvestment Act (the "CRA") requires the OCC to
evaluate the Bank's performance in helping to meet the credit needs of the
community. The Bank defines its CRA marketplace as the State of Connecticut.
This definition is not intended to restrict the availability of credit
services throughout the Bank's general service area, but represents a special
commitment the Bank has made to provide access to lending and depository
services to the community. As a part of the CRA program, the Bank is subject
to periodic examinations by the OCC, and maintains comprehensive records of
its CRA activities for this purpose. Following its most recent examination in
November 1995, the Bank received a rating of "Outstanding."
 
  The Bank is specifically interested in making financing available to small
and medium size manufacturers in its defined lending area. The Bank evaluates
credit applications without regard to race, color, religion, national origin,
gender, marital status or age, and does not discriminate against any loan
applicant whose income may come entirely or in part from any public assistance
program, or against any applicant who has exercised in good faith any right
under the Consumer Protection Act. The Company maintains preferred status with
the SBA, USDA and Ex-Im Bank which enables it to provide access to credit
products that might otherwise be unavailable.
 
 
                                      66
<PAGE>
 
                                  MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
  The Board of Directors of the Company (the "Company Board") is divided into
three classes, each comprised of two directors. The Directors of the Company
are elected by the stockholders of the Company for staggered three-year terms,
or until their successors are elected and qualified. The Board of Directors of
the Bank (the "Bank Board") are elected annually for one-year terms. The
executive officers of the Company and the Bank are elected by the Company
Board and Bank Board, respectively, and hold office until their respective
successors have been elected and qualified or until such person's death,
resignation or removal by the applicable Board. The terms of Mr. Silvers'
employment with the Company and the Bank are governed by an employment
agreement among Mr. Silvers, the Company and the Bank. See"--Employment
Agreements; Key-Man Insurance Policies."
 
  The executive officers and directors of the Company and the Bank are as
follows:
 
<TABLE>   
<CAPTION>
       NAME              AGE                                  POSITION
       ----              ---                                  --------
<S>                      <C> <C>
Brett N. Silvers(2).....  42 Chairman of the Board and President of the Company and the Bank
Brian J. Charlebois.....  37 Executive Vice President--Chief Operating Officer and Director of the Bank
Leslie A. Galbraith.....  35 Executive Vice President, Chief Financial Officer, Secretary and Treasurer
                             of the Company and Executive Vice President, Chief Financial Officer and
                             Director of the Bank
Michael R. Carter(1)....  43 Director of the Company and the Bank
Arnold L. Chase(3)......  45 Director of the Company and the Bank
Cheryl A. Chase,          43 Director of the Company and the Bank
 Esq.(3)................
Frank P. Longobardi(1)..  42 Director of the Company and the Bank
Bernard R. Waldman(2)...  76 Director of the Company and the Bank
William J. Anderson.....  58 Executive Vice President and Director of the Bank
Craig M. Cooper.........  40 Director of the Bank
David G. Sandberg.......  46 Director of the Bank
Kenneth R. Sonenclar....  43 Director of the Bank
</TABLE>    
- --------
(1) Term as Director of the Company expires at the 1998 Annual Meeting of the
    Company's stockholders.
(2)Term as Director of the Company expires at the 1999 Annual Meeting of the
Company's stockholders.
(3)Term as Director of the Company expires at the 2000 Annual Meeting of the
Company's stockholders.
 
BIOGRAPHICAL INFORMATION OF EXECUTIVE OFFICERS AND DIRECTORS
 
  BRETT N. SILVERS has served as Chairman of the Board and President of the
Company and the Bank since 1988. From 1985 until 1988, Mr. Silvers was
Executive Vice President of the Bank of New Haven, Assistant Treasurer of
Chase Manhattan Bank from 1982 until 1985 and an international economist at
BankBoston, N.A. from 1979 until 1982. Mr. Silvers is currently an Advisory
Board Member of the Private Export Funding Corporation and has served as an
Advisory Committee Member of the Ex-Im Bank.
 
  BRIAN J. CHARLEBOIS has served as Executive Vice President--Chief Operating
Officer of the Bank since May 1997. Since joining the Bank in 1988, Mr.
Charlebois has also served as Executive Vice President of Commercial Banking
and as a Senior Vice President of the Bank. From 1985 until 1988, Mr.
Charlebois was a Commercial Loan Officer for American National Bank of Hamden,
Connecticut.
 
                                      67
<PAGE>
 
  LESLIE A. GALBRAITH has served as Chief Financial Officer and Treasurer of
the Company since October 1990 and as Secretary of the Company since March
1992. Since joining the Company, Ms. Galbraith has also been Vice President
and Senior Vice President of the Company and is currently an Executive Vice
President of the Company. Ms. Galbraith has also served as Chief Financial
Officer of the Bank since October 1990 and as a Director of the Bank since
1993. Prior to joining the Company, Ms. Galbraith was an Audit Manager at
Coopers & Lybrand, L.L.P.
 
  MICHAEL R. CARTER has been a Director of the Company since June 1997 and a
Director of the Bank since March 1990. Mr. Carter is President of Carter &
Company and Carter Capital Corporation, a regional investment banking firm and
registered broker-dealer, respectively. Mr. Carter is also a director of
Cannondale Corporation, a manufacturer and distributor of bicycles and related
accessories.
 
  ARNOLD L. CHASE has been a Director of the Company since 1985 and a Director
of the Bank since 1972. Mr. Chase is Executive Vice President of David T.
Chase Enterprises, Inc., a diversified conglomerate with extensive holdings in
real estate, media, insurance, banking and international investments. Mr.
Chase's sister, Cheryl A. Chase, is also a Director of the Company and the
Bank.
 
  CHERYL A. CHASE, ESQ. has been a Director of the Company since 1985 and a
Director of the Bank since 1979. Ms. Chase is Executive Vice President of
David T. Chase Enterprises, Inc. Ms. Chase's brother, Arnold L. Chase, is also
a Director of the Company and the Bank.
 
  FRANK P. LONGOBARDI has been a Director of the Company since June 1997 and a
Director of the Bank since March 1990. Mr. Longobardi is a partner in the
certified public accounting firm of Haggett, Longobardi & Co. LLC, of
Glastonbury, Connecticut.
 
  BERNARD M. WALDMAN has been a Director of the Company since 1985 and a
Director of the Bank since 1976. Mr. Waldman is currently retired.
 
  WILLIAM J. ANDERSON has been a Director of the Bank since 1993. Since
joining the Bank in 1990, Mr. Anderson has been Senior Vice President of the
Bank and is currently Executive Vice President--Private Banking.
 
  CRAIG M. COOPER has been a Director of the Bank since March 1990. Mr. Cooper
is Executive Vice President of Fairbank Mortgage Corp., a regional sub-prime
mortgage banking lender located in Waterbury, Connecticut.
 
  DAVID G. SANDBERG has been a Director of the Bank since March 1990. Mr.
Sandberg is a partner in The Cornerstone Companies, a commercial real estate
firm, and is President of Cornerstone Capital Advisors, Inc., a registered
investment advisor.
 
  KENNETH R. SONENCLAR has been a Director of the Bank since March 1990. Mr.
Sonenclar is currently the President of Classics Interactive, Inc., an
independent management consulting firm. Until 1993, Mr. Sonenclar was Chairman
and Chief Executive Officer of New Science Associates, Inc., a computer
industry consulting firm.
 
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE COMPANY AND THE BANK
 
  Each of the Company Board and the Bank Board meet quarterly. During the year
ended December 31, 1996, the Board of Directors of the Bank met monthly. Each
of the Boards of Directors may have additional special meetings upon the
request of the Chairman of the Board, the President or a majority of their
respective Directors. During the year ended December 31, 1996, the Company
Board met 5 times and the Bank Board met 12 times. No director attended fewer
than 80% of the total number of board meetings held by either the Company or
the Bank during the year ended December 31, 1996.
 
  The Company Board and the Bank Board have appointed certain committees.
Among these committees are the Executive Committee, the Audit Committee, the
CRA Committee, the Loan Committee, the Human Resources Committee and the
Technology Committee.
 
                                      68
<PAGE>
 
  The Executive Committee of the Bank Board meets on an ad hoc basis when
empowered by the full Bank Board to take action on projects which may arise
from time to time requiring more diligence or additional consultations with
management or others. The Executive Committee of the Bank Board is comprised
of Messrs. Silvers, Carter, Chase, Longobardi and Waldman and Ms. Chase and is
chaired by Mr. Silvers.
 
  The Audit Committee of the Company Board was established in February 1997
and reviews the scope and results of the annual audit of the Company's
consolidated financial statements conducted by the Company's independent
accountants, the scope of other services provided by the Company's independent
accountants, proposed changes in the Company's financial and accounting
standards and principles, and the Company's policies and procedures with
respect to its internal loan review system, regulatory compliance, internal
accounting, auditing and financial controls, and makes recommendations to the
Company Board on the engagement of the independent accountants, as well as
other matters which may come before it or as may be directed by the Company
Board. The Audit Committee of the Company consists of Messrs. Longobardi,
Chase, Carter, Sandberg and Ms. Chase and is chaired by Mr. Longobardi. The
Audit Committee meets quarterly. Prior to the establishment of the Audit
Committee, such matters were handled by the full Company Board.
 
  The CRA Committee of the Bank Board is responsible for overseeing,
coordinating and evaluating the Bank's performance under the Community
Reinvestment Act. The Committee reviews specific policies and policy
statements and assesses the Bank's compliance with those policies and overall
compliance with federal and state law. The CRA Committee of the Bank consists
of Messrs. Anderson, Charlebois, Cooper, Waldman and Ms. Galbraith and is
chaired by Mr. Anderson. The CRA Committee meets quarterly.
 
  The Loan Committee of the Bank Board is responsible for reviewing and
approving loans made to borrowers in amounts greater than the authority vested
with the Chief Operating Officer. The Loan Committee of the Bank consists of
Messrs. Charlebois, Sandberg, Longobardi, Waldman and Ms. Chase and is chaired
by Mr. Charlebois. The Loan Committee meets quarterly.
 
  The Human Resources Committee of the Bank is responsible for establishing
the compensation of the Company's directors, officers and employees, including
salaries, bonuses, commissions, benefit plans, the grant of options and other
forms of, or matters relating to, compensation. The Human Resources Committee
consists of Messrs. Sandberg, Chase, Anderson, Carter and Longobardi and is
chaired by Mr. Sandberg. The Human Resources Committee meets quarterly.
 
  The Technology Committee of the Bank is responsible for monitoring and
implementing periodic technological changes to the Bank's delivery systems.
The Technology Committee consists of Messrs. Sonenclar, Anderson, Charlebois,
Chase and Cooper and is chaired by Mr. Sonenclar. The Technology Committee
meets quarterly.
 
DIRECTOR'S COMPENSATION
   
  Non-employee directors are compensated in the form of an annual retainer and
fees for each meeting attended. Annual retainers are $2,500 for directors of
the Company, $10,000 for directors of the Bank and $2,500 for members of the
Audit and Loan Committees. In addition, directors receive a fee of $275 for
each board or committee meeting attended.     
   
  In July 1997, the Company Board granted to each non-employee director of the
Company and the Bank options to purchase up to 5,000 shares of the Common
Stock at an exercise price of $8.50 per share. All of the options vest six
months after the Offering. The options are exercisable at any time after the
vesting date and prior to July 31, 2007, so long as the holder continues to be
a director of the Company or the Bank at the time of exercise.     
 
EXECUTIVE COMPENSATION
 
  The following table sets forth certain information regarding the Company's
President and each of the most highly compensated other executive officers
(the "Named Executive Officers") during the year ended December 31, 1996.
 
 
                                      69
<PAGE>
 
                          SUMMARY COMPENSATION TABLE
 
<TABLE>   
<CAPTION>
                                                  LONG-TERM
                                                 COMPENSATION
                                               NUMBER OF SHARES
                                                  UNDERLYING       ALL OTHER
 NAME AND PRINCIPAL POSITION    SALARY  BONUS  OPTIONS GRANTED  COMPENSATION(1)
 ---------------------------   -------- ------ ---------------- ---------------
<S>                            <C>      <C>    <C>              <C>
Brett N. Silvers.............. $241,917 $  --          --           $6,870
 Chairman of the Board and
 President of the Company and
 the Bank
Leslie A. Galbraith...........  127,764 24,600      12,481           5,400
 Executive Vice President,
 Chief Financial Officer,
 Secretary and Treasurer of
 the Company and Executive
 Vice President and Chief
 Financial Officer of the Bank
Brian J. Charlebois...........  117,956 21,400      12,663           4,985
 Executive Vice President and
 Chief Operating Officer of
 the Bank
</TABLE>    
- --------
(1)  Represents contributions to the Company's 401(k) Plan made by the Company
     on the Named Executive Officer's behalf.
 
  Options granted to the Named Executive Officers during the fiscal year ended
December 31, 1996 are set forth in the following table. For disclosure
regarding the terms of stock options, see "--Stock Option Plans." The Company
has not granted any stock appreciation rights.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                              INDIVIDUAL GRANTS
                              --------------------------------------------------
                              NUMBER OF   PERCENT OF
                                SHARES   TOTAL OPTIONS
                              UNDERLYING  GRANTED TO   EXERCISE
                               OPTIONS   EMPLOYEES IN    PRICE
            NAME               GRANTED    FISCAL 1996  ($/SHARE) EXPIRATION DATE
            ----              ---------- ------------- --------- ---------------
<S>                           <C>        <C>           <C>       <C>
Brett N. Silvers.............      --         --           --          --
Leslie A. Galbraith..........   12,481        9.6%       $2.19        2006
Brian J. Charlebois..........   12,663        9.7%       $2.19        2006
</TABLE>
 
  The following table sets forth certain information regarding the number of
shares of Common Stock received upon exercise of options during the last
fiscal year, the aggregate dollar value realized upon exercise and the total
number of unexercised options held by each of the Named Executive Officers as
of December 31, 1996.
     
  AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
                                  VALUES     
 
<TABLE>   
<CAPTION>
                                                                 NUMBER OF SECURITIES     VALUE OF UNEXERCISED IN THE
                                                                UNDERLYING UNEXERCISED         MONEY OPTIONS AT
                                                              OPTIONS AT FISCAL YEAR-END      FISCAL YEAR-END (1)
                           NUMBER OF SHARES                  ---------------------------- -------------------------------
          NAME           ACQUIRED IN EXERCISE VALUE REALIZED EXERCISABLE(2) UNEXERCISABLE EXERCISABLE      UNEXERCISABLE
          ----           -------------------- -------------- -------------- ------------- --------------   --------------
<S>                      <C>                  <C>            <C>            <C>           <C>              <C>
Brett N. Silvers........         --                --               --            --                  --                --
Leslie A. Galbraith.....         --                --            63,875         1,106      $      535,789     $       9,257
Brian J. Charlebois.....         --                --            63,875         1,288      $      535,789     $      10,781
</TABLE>    
- --------
   
(1)  There was no public market for Common Stock on December 31, 1996.
     Accordingly, solely for purposes of this table, the values in these
     columns have been calculated on the basis of the public offering price of
     $11.00 per share (rather than a determination of the fair market value of
     Common Stock on December 31, 1996), less the applicable option exercise
     price.     
   
(2)  In January 1997, the Company granted stock options, none of which are
     currently exercisable, to Ms. Galbraith and Mr. Charlebois to purchase
     61,250 shares of Common Stock, at an option exercise price of $2.63 per
     share. In July 1997 the Company granted stock options, none of which are
     currently exercisable, to Ms. Galbraith and Mr. Charlebois to purchase
     25,000 and 35,000 shares of common stock, respectively at an option
     exercise price of $8.50 per share.     
 
                                      70
<PAGE>
 
STOCK OPTION PLANS
   
  1996 Stock Option Plan. The First International Bancorp, Inc. 1996 Stock
Option Plan (the "1996 Plan") was adopted by the Company Board on October 17,
1996 and was approved by the Company's stockholders on June 26, 1997. The
aggregate number of shares of the Company's Common Stock available for awards
under the 1996 Plan is 701,106 shares. The 1996 Plan provides for the grant or
award to officers and directors of the Company non-qualified options ("Stock
Options") to purchase shares of the Company's Common Stock. The purpose of the
1996 Plan is to attract and retain outstanding directors and key employees
through the incentives of stock ownership. As of August 15, 1997, 442,778 of
the 701,106 shares reserved for issuance under the 1996 Plan were subject to
outstanding Stock Options at a weighted average exercise price of $5.00 per
share.     
 
  The 1996 Plan is administered by the Company Board. Subject to the
provisions of the 1996 Plan, the Company Board has the authority to designate
officer participants and to determine the number of shares to be covered by
each Stock Option, the price of the exercise of the Stock Option, the time at
which Stock Options are exercisable or may be settled, the method of payment
and any other terms and conditions of the awards. Except as otherwise
determined by the Company Board, the 1996 Plan provides for a four-year
vesting schedule, beginning one year after the date of grant. Additionally,
the 1996 Plan also provides for certain minimum annual grants of Stock
Options. Each Vice President, Senior Vice President and Executive Vice
President is eligible to receive each year an option to purchase an amount of
shares determined by (a) multiplying the base salary for such officer as of
the end of the immediately preceding fiscal year by 5% for Vice Presidents,
10% for Senior Vice Presidents and 20% for Executive Vice Presidents divided
by (b) the fair market value of a share of the Common Stock.
 
  Effective June 26, 1997, the 1996 Plan also provides for Stock Options to
purchase 500 shares of Common Stock to be granted each year to each Company or
Bank director who attended at least 80% of the combined number of Company or
Bank Board and applicable Board Committee meetings in the preceding year; the
directors are not eligible to receive any other Stock Options under the 1996
Plan.
 
  The Company Board determines the prices at which Stock Options may be
exercised under the 1996 Plan, however, the exercise price must be at least
100% of the fair market value (as determined under the terms of the 1996 Plan)
of a share of Common Stock on the date of grant; the exercise price for Stock
Options granted to directors will be 100% of the fair market value of the
Common Stock on the date of grant in all circumstances. The Company Board, as
specified in the 1996 Plan, estimates the fair market value of the Common
Stock at each grant date because prior to the Offering, there has been no
active trading market for the Common Stock. The Company Board's determination
is based on current economic conditions, characteristics of the Common Stock,
the Company's financial performance and other relevant factors. Stock Options
must be exercised by the tenth anniversary of the date of grant.
   
  1994 Incentive Stock Option Plan. The 1994 Incentive Stock Plan (the "1994
Plan") was adopted by the Company Board on December 22, 1993 and was approved
by the Company's stockholders on March 17, 1994. The aggregate number of
shares of the Common Stock available for awards under the 1994 Plan is 316,400
shares. The 1994 Plan provides for the grant or award of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Under the 1994 Plan, incentive stock options
may be granted only to such officers of the Company and the Bank as selected
by the Company Board. As of August 15, 1997, all 316,400 shares reserved for
issuance under the 1994 Plan were subject to outstanding stock options at a
weighted average exercise price of $1.83 per share.     
 
 
                                      71
<PAGE>
 
  The 1994 Plan is administered by two or more members of the Company Board
who are not employees of the Company and who are "disinterested" directors, as
that term is defined in the 1994 Plan. The Company Board will also determine,
subject to the express provisions of the 1994 Plan, the time or times at which
options are granted, the purchase price of the Common Stock, the number of
shares covered by each option, the term of the options and the terms and
provisions of the option agreements (which need not be identical). The 1994
Plan requires that the purchase price of the Common Stock covered by each
option granted thereunder be not less than 100% of the fair market value of
the Common Stock on the date of grant, provided that options granted to
persons possessing voting power over more than 10% of the Common Stock must be
granted at a price not less than 110% of the fair market value, as determined
by the Company Board, on the date of grant.
       
  401(k) Plan. The Company has adopted an employee profit-sharing plan
pursuant to Section 401(k) of the Code (the "401(k) Plan"). Under the 401(k)
Plan, eligible participants may defer portions of their salaries for future
receipt and the Company will match 75% of the deferral contribution made by
such participant up to a maximum deferral contribution of 6% of a
participant's compensation.
   
EMPLOYMENT AGREEMENT; KEY-MAN INSURANCE POLICIES     
   
  Brett N. Silvers entered into an employment agreement with the Company and
the Bank, dated as of June 30, 1994, as amended July 7, 1997, pursuant to
which Mr. Silvers is employed as the Chairman of the Board and President of
the Company and the Bank. The employment agreement provides for a base annual
salary of $300,000 for the twelve month period ending March 31, 1998,
increasing by 5% on April 1st of each year thereafter, plus various benefits
including club memberships, life insurance, and use of an automobile. The term
of the agreement extends through December 31, 2000. If there is a material
change in the authority and responsibility of Mr. Silvers, Mr. Silvers will
have the right to terminate his employment and to receive severance pay equal
to one year's salary. If the employment of Mr. Silvers is terminated by the
Company without cause (as defined in the agreement), Mr. Silvers will have the
right to receive severance pay equal to one year's salary. The completion of
the Offering will not trigger these provisions of Mr. Silvers' employment
agreement.     
 
  In addition to the base annual salary, the employment agreement contemplates
that the Company Board may award annual discretionary performance bonuses to
Mr. Silvers in 1998, 1999 and 2000. The interest accrued on the promissory
note delivered by Mr. Silvers to the Company in connection with Mr. Silvers'
purchase of Common Stock in 1994 (see "--Certain Transactions"), and any
interest that would have accrued in the future, will be forgiven by the
Company if the Offering is consummated; in addition to such forgiveness of
interest, the Company will pay a bonus to Mr. Silvers in the amount of his
resulting income tax liability. See "Certain Transactions." This forgiveness
will result in a charge to earnings for the quarter ended September 30, 1997
of approximately $165,000 after income taxes if the Offering is completed.
   
  The principal balance of the Note will be canceled by the Company, and any
resulting income tax liability of Mr. Silvers will be paid by the Company, if
Mr. Silvers and his affiliates (the "Silvers Stockholders"), and Arnold L.
Chase, Cheryl A. Chase, Rhoda L. Chase, and David T. Chase and their
affiliates (the "Chase Stockholders"), at any time, cease in the aggregate (i)
to beneficially own at least 25% of the outstanding Common Stock of the
Company, or any successor thereto, (ii) to have the right to exercise at least
25% of the aggregate voting power of the Company, or any successor thereto,
(iii) to beneficially own, directly or indirectly, at least 25% of the Common
Stock of the Bank, or any successor thereto, or (iv) to have the right to
exercise, directly or indirectly, at least 25% of the aggregate voting power
of the Bank, or any successor thereto. The completion of the Offering will not
constitute an event resulting in the cancellation of the principal balance of
the promissory note.     
 
  The employment agreement also sets forth the agreement of the Chase
Stockholders that, if the Chase Stockholders enter into an agreement to sell
all or a majority of the shares of Common Stock of the Company owned by them,
they will cause the buyer to give Mr. Silvers the opportunity to sell the same
percentage of his shares of Common Stock of the Company as the Chase
Stockholders are selling, on the same terms as are applicable to the sale by
the Chase Stockholders.
 
                                      72
<PAGE>
 
  The Company has obtained "key-man" term insurance policies for Brett N.
Silvers, Chairman of the Board and President of the Company and the Bank,
Brian J. Charlebois, Executive Vice President-Chief Operating Officer of the
Bank and Leslie A. Galbraith, Executive Vice President-Chief Financial Officer
of the Bank.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  The Human Resources Committee (f/k/a the Compensation Committee) of the Bank
Board determines the compensation policies and programs of the Bank, subject
to final approval by the Bank Board. During the year ended December 31, 1996,
Mr. Silvers, Chairman of the Board and President of the Company and the Bank,
served as Chairman of the Compensation Committee. Mr. Silvers is not on the
Human Resources Committee for 1997. See "--Committees and Meetings of the
Board of Directors of the Company and the Bank."
 
                                      73
<PAGE>
 
                             CERTAIN TRANSACTIONS
   
  On April 15, 1994, the Company issued 175,600 shares (614,600 shares after
adjustment for the Stock Split) of Common Stock to Brett N. Silvers, Chairman
of the Board and President of the Company and the Bank, for an aggregate
purchase price of $1,037,796, or $5.91 per share ($1.69 per share after
adjustment for the Stock Split). Mr. Silvers delivered to the Company, as
payment of the purchase price, $17,560 in cash and a promissory note in the
principal amount of $1,020,236 (the "Note"). To secure the payment of the
Note, Mr. Silvers pledged all 175,600 shares of the Common Stock to the
Company. In enforcing the Note, the Company has recourse to Mr. Silvers'
assets after the Company has sold all of the pledged shares and applied the
proceeds thereof to the Note. No principal or interest is payable under the
Note prior to December 31, 2000. The interest accrued on the Note, none of
which has been recognized by the Company, and any interest that would have
accrued in the future, will be forgiven by the Company if the Offering is
consummated resulting in a charge to net income of $165,000. The principal
balance of the Note will be cancelled by the Company in certain circumstances
involving a reduction below specified levels of the amount of Common Stock
beneficially owned in the aggregate by Mr. Silvers and the Chase family. See
"Management--Employment Agreement; Key-Man Insurance Policies." In addition to
any possible forgiveness, the Company will provide a reimbursement to Mr.
Silvers for all tax liabilities associated with such forgiveness and bonus.
    
  On March 21, 1997, the Company engaged the services of Carter Capital
Corporation, a registered broker-dealer located in Southport, Connecticut,
whose managing director is Michael R. Carter, a director of the Company and
the Bank. Carter Capital Corporation has served as financial advisor during
the Offering. The Company has agreed to pay a minimum of three thousand
($3,000) dollars per month to Carter Capital Corporation for such services.
 
  The Company and the Bank have with respect to this Offering, and from time
to time, retained the services of the law firm of Bingham, Dana & Gould LLP.
The Company anticipates that legal fees to be paid to Bingham, Dana & Gould
LLP for 1997 will exceed $200,000. Bruce C. Silvers, a partner at Bingham,
Dana & Gould LLP, is the brother of Brett N. Silvers, Chairman of the Board
and President of the Company and the Bank.
   
  The Bank has had, and expects to have in the future, various loan and other
banking transactions in the ordinary course of business with the directors,
executive officers and principal stockholders of the Company, the Bank and
entities with which such persons may be associated. All such transactions: (i)
have been and will be made in the ordinary course of business; (ii) have been
and will be made on substantially the same terms, including interest rates and
collateral on loans, as those prevailing at the time for comparable
transactions with unrelated persons; and (iii) in the opinion of management do
not and will not involve more than the normal risk of collectability or
otherwise present other terms less favorable to the Bank than would otherwise
be obtained with unrelated persons. As of June 30, 1997, the total dollar
amount of extensions of credit to directors and executive officers identified
in "Management--Executive Officers and Directors," those stockholders named in
the table in "Principal Stockholders" and any of their associates were
approximately $2.4 million, which represented approximately 15% of total
stockholders' equity as of such date.     
 
                                      74
<PAGE>
 
                            PRINCIPAL STOCKHOLDERS
   
  The following table sets forth, as of August 15, 1997, and as adjusted to
reflect the Stock Split and the sale of the shares of Common Stock offered
hereby, certain information with respect to the beneficial ownership of the
Common Stock by: (i) each of the Company's and the Bank's Directors, (ii) all
directors and executive officers of the Company and the Bank as a group, and
(iii) each other person (including any "group," as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) who is known by the Company to own beneficially 5% or more of
the Common Stock. The Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole voting and investment power with respect to such shares, except as noted
below.     
 
<TABLE>   
<CAPTION>
                                      SHARES BENEFICIALLY   SHARES BENEFICIALLY
                                       OWNED BEFORE THE       OWNED AFTER THE
                                        OFFERING (1)(2)       OFFERING (1)(2)
                                      --------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER    NUMBER    PERCENT     NUMBER    PERCENT
- ------------------------------------  ----------- --------------------- ----------
<S>                                   <C>         <C>       <C>         <C>
Arnold L. Chase (3)................     3,659,682    63.38%   3,659,682    48.97%
Cheryl A. Chase (4)................     3,659,682    63.38%   3,659,682    48.97%
Rhoda L. Chase (5).................     3,659,682    63.38%   3,659,682    48.97%
David T. Chase (6).................     3,659,682    63.38%   3,659,682    48.97%
Brett N. Silvers (7)...............       632,699    10.96%     632,699     8.47%
Bernard M. Waldman (8).............       468,171     8.11%     468,171     6.26%
Anthony Gannuscio (9)
 c/o Fleet National Bank...........       289,457     5.01%     289,457     3.87%
William J. Anderson (10)...........        71,092     1.22%      71,092        *
Leslie A. Galbraith (10)...........        64,575     1.11%      64,575        *
Brian Charlebois (10)..............        63,875     1.09%      63,875        *
Craig M. Cooper (11)...............        22,050        *       22,050        *
David Sandberg.....................         5,096        *        5,096        *
Frank P. Longobardi (12)...........         1,050        *        1,050        *
Kenneth R. Sonenclar...............         1,050        *        1,050        *
Michael R. Carter..................           875        *          875        *
All executive officers and
 directors as a group (12 Persons).     4,990,215    86.95%   4,990,215    67.17%
</TABLE>    
- --------
*Less than 1%
   
 (1)  Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission (the "Commission") and includes
      voting or investment power with respect to the shares. Shares of Common
      Stock subject to options currently exercisable within sixty (60) days
      following August 15, 1997, are deemed outstanding for computing the
      share ownership and percentage of the person holding such options, but
      are not deemed outstanding for computing the percentage of any other
      person.     
   
 (2)  The number of shares of Common Stock deemed outstanding prior to the
      Offering includes (i) 5,774,085 shares of Common Stock outstanding as of
      August 15, 1997 and (ii) 316,400 shares issuable pursuant to options
      held by persons which may be exercised within sixty (60) days of August
      15, 1997. The number of shares of Common Stock deemed outstanding after
      the Offering includes the 1,700,000 shares of Common Stock offered
      hereby.     
   
 (3)  Includes (i) 1,355 shares owned in joint tenancy with Sandra M. Chase,
      his wife, (ii) 947,280 shares beneficially owned by Cheryl A. Chase, Mr.
      Chase's sister, (iii) 112,522 shares held by the Rothschild Trust Cayman
      Ltd. Trust, of which Cheryl A. Chase is the primary beneficiary, (iv)
      149,877 shares owned by David T. Chase, Mr. Chase's father, and (v)
      1,400,001 shares owned by Rhoda L. Chase, Mr. Chase's mother. Mr. Chase
      disclaims beneficial ownership over all shares beneficially owned by Mr.
      Chase's sister, father and mother.     
   
 (4)  Includes (i) 1,050,002 shares owned by Arnold L. Chase, Ms. Chase's
      brother, (ii) 112,522 shares held by the Rothschild Trust Cayman Ltd.
      Trust, of which Ms. Chase is the primary beneficiary, (iii) 149,877
      shares owned by David T. Chase, Ms. Chase's father and (iv) 1,400,001
      shares owned by Rhoda L. Chase, Ms. Chase's mother. Ms. Chase disclaims
      beneficial ownership over all shares beneficially owned by Ms. Chase's
      brother, mother and father.     
   
 (5) Includes (i) 1,050,002 shares owned by Arnold L. Chase, Ms. Chase's son,
     (ii) 947,280 shares beneficially owned by Cheryl A. Chase, Ms. Chase's
     daughter, (iii) 112,522 shares held by the Rothschild Trust Cayman Ltd.
     Trust, of which Cheryl A. Chase is the primary beneficiary, and (iv)
     149,877 shares owned by David T. Chase, Ms. Chase's husband. Ms. Chase
     disclaims beneficial ownership over all shares beneficially owned by Ms.
     Chase's children.     
                                                        
                                                     (footnotes continued)     
 
                                      75
<PAGE>
 
   
 (6)  Includes (i) 1,050,002 shares owned by Arnold L. Chase, Mr. Chase's son,
      (ii) 947,280 shares beneficially owned by Cheryl A. Chase, Mr. Chase's
      daughter, (iii) 112,522 shares held by the Rothschild Trust Cayman Ltd.
      Trust, of which Cheryl A. Chase is the primary beneficiary, and (iv)
      1,400,001 shares owned by Rhoda L. Chase, Mr. Chase's wife. Mr. Chase
      disclaims beneficial ownership over all shares beneficially owned by Mr.
      Chase's children.     
   
 (7)  Includes (i) 100,000 shares owned by The Silvers Family Trust f/b/o
      Rebecca Anne Silvers, (ii) 100,000 shares owned by The Silvers Family
      Trust f/b/o Claudia Belle Silvers, and (iii) 432,699 shares owned by Mr.
      Silvers' wife.     
   
 (8)  Includes (i) 225,593 shares owned by Bernice Waldman, Mr. Waldman's wife
      and (ii) 242,137 shares owned by Mr. Waldman's three adult children and
      grandchildren. Mr. Waldman disclaims beneficial ownership over all
      shares beneficially owned by Mr. Waldman's children and grandchildren.
          
 (9)  Under the terms of Mr. Gannuscio's agreement with Fleet National Bank,
      dated as of July 20, 1990, Fleet National Bank has voting power over
      such shares.
(10)  Includes shares of Common Stock subject to options which were
      exercisable as of July 15, 1997 and options which will be exercisable
      within sixty (60) days of July 15, 1997.
(11)  Includes 4,550 shares owned in joint tenancy with Valarie Cooper, Mr.
      Cooper's wife and 17,500 shares held by the pension account of Mr.
      Cooper's father. Mr. Cooper disclaims beneficial ownership over all
      shares beneficially owned by Mr. Cooper's father.
(12)  Includes 1,050 shares held in the name of Haggett, Longobardi & Co. LLC,
      of which Mr. Longobardi is a partner.
 
                                      76
<PAGE>
 
                         DESCRIPTION OF CAPITAL STOCK
 
  The authorized capital stock of the Company consists of 12,000,000 shares of
Common Stock, par value $.10 per share, and 2,000,000 shares of Preferred
Stock, par value $.10 per share.
 
COMMON STOCK
   
  As of August 15, 1997, a total of 5,774,085 shares of Common Stock were
outstanding after giving effect to the Stock Split. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
shares of Common Stock offered by the Company pursuant to this Offering, there
will be 7,474,085 shares of Common Stock outstanding upon the closing of the
Offering.     
 
  Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Holders of Common Stock do not
have cumulative voting rights. Accordingly, holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of any outstanding Preferred Stock. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Stock. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Common Stock are, and the shares offered by the Company in this
offering will be, when issued and paid for, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. Upon the closing of the Offering, there
will be no shares of Preferred Stock outstanding.
 
PREFERRED STOCK
 
  The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 2,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. The rights, preferences and privileges of
holders of the Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. The Company has no current plan
to issue any shares of Preferred Stock.
 
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
 
  The Amended and Restated Certificate of Incorporation of the Company (the
"Charter") provides for the division of the Board of Directors into three
classes as nearly equal in size as practicable with staggered three-year
terms. See "Management--Board of Directors."
 
  The Charter and the Amended and Restated By-laws ("By-laws") provide that
any action required or permitted to be taken by the stockholders of the
Company may be taken only at a duly called annual or special meeting of the
stockholders and that special meetings may be called only by the Chairman of
the Board of Directors, the President, a majority of the entire Board of
Directors of the Company or by holders of at least 30% of the shares of the
Common Stock. These provisions could have the effect of delaying until the
next annual stockholders meeting stockholder actions which are favored by
certain of the stockholders, including actions to remove directors. These
provisions may also discourage another person or entity from making a tender
offer for
 
                                      77
<PAGE>
 
the Company's Common Stock, because such person or entity, even if it acquired
all or a majority of the outstanding voting securities of the Company, would
be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders meeting, and not by
written consent.
 
  The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage.
The Charter requires the affirmative vote of a majority of the entire Board of
Directors or the holders of at least 66 2/3% of the outstanding voting stock
of the Company to amend or repeal any of the foregoing Charter provisions or
to reduce the number of authorized shares of Common Stock and Preferred Stock.
A 66 2/3% vote of the outstanding voting stock of the Company is also required
to amend or repeal the Company's By-laws. Such stockholder vote would in
either case be in addition to any separate class vote that might in the future
be required pursuant to the terms of any Preferred Stock that might be
outstanding at the time any such amendments are submitted to stockholders. The
By-laws may also be amended or repealed by a majority vote of the Board of
Directors.
 
  The By-laws provide that for nominations for the Board of Directors or for
other business to be properly brought by a stockholder before an annual
meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice generally must be delivered not later than 120 days in
advance of the first anniversary of the date that the Company's proxy
statement to stockholders is delivered in connection with the prior year's
annual meeting of stockholders or 90 days prior to the date of the meeting if
no such proxy statement was delivered to the stockholders. The notice must
contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting. Business transacted at a special meeting is limited to the purposes
for which the meeting is called.
 
  The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company. See "Risk Factors--Effect of Anti-takeover
Provisions; and "Management--Employment Agreement; Key-Man Insurance
Policies."
 
  The Charter contains certain provisions permitted under the DGCL relating to
the liability of directors. These provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Charter and By-laws also contain
provisions indemnifying the directors and officers of the Company to the
fullest extent permitted by the DGCL. The Company has obtained a directors and
officers liability insurance policy which provides for indemnification of its
directors and officers against certain liabilities incurred in their
capacities as such. The Company believes that these provisions will assist the
Company in attracting and retaining qualified individuals to serve as
directors.
 
  The Company is subject to the provisions of Section 203 of the DGCL. Subject
to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the Board of Directors
or unless the business combination is approved in a prescribed manner. A
"business combination" includes certain mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or owned within
three years prior, 15% or more of the corporation's voting stock.
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.
 
                                      78
<PAGE>
 
                        SHARES ELIGIBLE FOR FUTURE SALE
   
  Upon completion of the Offering, the Company will have outstanding 7,474,085
shares of Common Stock, assuming no exercise of options after August 15, 1997
(7,729,085 shares of the Underwriters over-allotment option is exercisable in
full). Of these shares, the 1,700,000 shares offered hereby (1,955,000 shares
if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act ("Rule 144") described below.
Of the remaining 5,774,085 shares of Common Stock outstanding upon closing of
the Offering, 5,120,267 shares are either "restricted securities" as that term
is defined in Rule 144 or are held by persons who may be deemed "affiliates"
of the Company. Of the remaining 5,774,085 shares,     shares are subject to
lock-up agreements (described below).     
   
  Upon completion of the Offering, 289,457 shares will be eligible for
immediate sale without lock-up agreement pursuant to Rule 144(k) and,
beginning 90 days after commencement of the Offering, 32,200 shares will
become eligible for sale pursuant to Rule 144 or Rule 701 under the Securities
Act ("Rule 701"). Upon expiration of the lock-up agreements, an aggregate of
653,838 shares will become immediately eligible for sale without restriction
pursuant to Rule 144(k) or Rule 701 (described below), and approximately
4,183,639 additional shares will be eligible for sale subject to the timing,
volume, and manner of sale restrictions of Rule 144. The 614,951 remaining
shares will be subject to all of the restrictions of Rule 144. In addition,
316,925 additional shares of Common Stock subject to outstanding and vested
stock options could also be sold, subject in some cases to compliance with
certain volume limitations as described below.     
 
  In general, under Rule 144, as recently amended, a person (or persons whose
shares are aggregated) who has beneficially owned shares for at least one year
(including the holding period of any prior owner except an affiliate from whom
such shares were purchased) is entitled to sell in "brokers' transactions" or
to market makers, within any three-month period commencing 90 days after the
date of this Prospectus, a number of shares that does not exceed the greater
of (i) one percent of the number of shares of Common Stock then outstanding
(approximately 74,741 shares immediately after the completion of the Offering)
or (ii) generally, the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner other than an affiliate from whom such shares were
purchased), is entitled to sell such shares without having to comply with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Under Rule 701, persons who purchase shares upon exercise of options
granted prior to the effective date of the Offering are entitled to sell such
shares 90 days after the effective date of the Offering in reliance on Rule
144, without having to comply with the holding period requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144.
 
  Pursuant to the lock-up agreements, certain of the Company's officers,
directors and stockholders, owning upon completion of the Offering, in the
aggregate,     shares of Common Stock, have executed agreements pursuant to
which each has agreed that, subject to certain exceptions, they will not, for
a period of 180 days from the date of this Prospectus, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, pledge, contract of sale, grant of any option to purchase or other sale
or disposition) of any shares of Common Stock or other capital stock of the
Company or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock, or other capital stock of the Company without
the prior written consent of Prudential Securities Incorporated, on behalf of
the Underwriters. Further, holders of outstanding and vested stock options
for, in the aggregate, an additional 316,400 shares of Common Stock are
subject to 180 day lock-up agreements with the Company and/or Prudential
Securities Incorporated on behalf of the Underwriters. The Company has agreed
that it will not, for a period of 180 days from the date of this Prospectus,
directly or indirectly, offer, sell, offer to
 
                                      79
<PAGE>
 
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or other capital stock of the Company or any securities
convertible into, or exercisable or exchangeable for, any shares of Common
Stock, or other capital stock of the Company without the prior written consent
of Prudential Securities Incorporated, on behalf of the Underwriters, except
that such agreement does not prevent the Company from granting additional
options under the Company's stock option plans. Prudential Securities
Incorporated may in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
   
  Approximately 180 days after the date of this Prospectus, the Company
intends to file a Registration Statement on Form S-8 covering an aggregate of
approximately 1,017,506 shares of Common Stock that have been reserved for
issuance under the 1996 Stock Option Plan, and the 1994 Incentive Stock Option
Plan, thus permitting the resale of such shares in the public market without
restriction under the Securities Act.     
 
  Prior to the Offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public
market could adversely affect the prevailing market prices and impair the
Company's ability to raise capital through the sale of equity securities.
 
                                      80
<PAGE>
 
                                 UNDERWRITING
 
  The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Keefe, Bruyette & Woods, Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company the number of shares of Common Stock set forth below opposite
their respective names:
 
<TABLE>
<CAPTION>
                                                                        NUMBER
   UNDERWRITER                                                         OF SHARES
   -----------                                                         ---------
   <S>                                                                 <C>
   Prudential Securities Incorporated.................................
   Keefe, Bruyette & Woods, Inc. .....................................
                                                                         ----
     Total............................................................
                                                                         ====
</TABLE>
 
  The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are
purchased.
 
  The Underwriters, through the Representatives, have advised the Company that
they propose to offer the Common Stock initially at the public offering price
set forth on the cover page of this Prospectus; that the Underwriters may
allow to selected dealers a concession of $   per share; and that such dealers
may reallow a concession of $   per share to certain other dealers. After the
Offering, the offering price and the concessions may be changed by the
Representatives.
 
  The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 255,000 additional
shares of Common Stock at the offering price, less underwriting discounts and
commissions, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the shares of Common Stock offered hereby.
To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to 1,700,000.
 
  The Company, certain of the directors, executive officers and other
securityholders of the Company have agreed that they will not, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, or grant any
option to purchase or otherwise sell or dispose of (or announce any offer,
sale, offer of sale, contract of sale, pledge or grant of any option to
purchase or other sale or disposition of any shares of Common Stock or of
equity securities of the Company substantially similar thereto or any
securities convertible into, or exchangeable or exercisable for, any shares of
Common Stock or such similar securities for a period of 180 days after the
date of this Prospectus, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters. In addition, the
Company has agreed that it will not, directly or indirectly, offer, sell,
offer to sell, pledge contract to sell or grant any option to purchase or
otherwise sell or dispose of (or announce any offer, sale, offer of sale,
pledge, contract for sale or grant of any option to purchase or other sale or
disposition of) any shares of Common Stock or of equity securities of the
Company substantially similar thereto or any other securities convertible
into, or exchangeable or exercisable for, any shares of Common Stock or such
similar securities for a period of 180 days after the date of this Prospectus,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, except that during such period, shares of Common
Stock may be issued upon the exercise of outstanding stock options and the
Company may issue employee stock options which are exercisable after the 180th
day after the date of this Prospectus. Prudential Securities Incorporated,
may, in its sole discretion, at any time and without prior notice, release all
or any portion of the shares of Common Stock subject to such agreements.
 
  The Company has agreed to indemnify the several Underwriters against or
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act.
 
 
                                      81
<PAGE>
 
  The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
 
  Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the offering price will be determined through
negotiations between the Company and the Representatives. Among the factors to
be considered in making such determination will be prevailing market
conditions, the Company's financial and operating history and condition, its
prospects and prospects for the industry in general, the management of the
Company and the market prices of securities for companies in businesses
similar to that of the Company.
 
  In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the selling Underwriters by selling more Common Stock in connection with the
Offering then they are committed to purchase from the Company, and in such
case may purchase Common Stock in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position, up to 255,000 shares
of Common Stock, by exercising the Underwriters' over-allotment option
referred to above. In addition, Prudential Securities Incorporated, on behalf
of the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to the Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if any is undertaken, it may be
discontinued at any time.
 
                                 LEGAL MATTERS
 
  The validity of the shares offered hereby will be passed upon for the
Company by Bingham, Dana & Gould LLP, Boston, Massachusetts. Certain legal
matters will be passed upon for the Underwriters by Stroock & Stroock & Lavan
LLP, New York, New York.
 
                                    EXPERTS
 
  The consolidated financial statements of the Company and its subsidiary
included in this Prospectus and Registration Statement have been audited by
Coopers & Lybrand L.L.P., certified independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in auditing and
accounting.
 
                            ADDITIONAL INFORMATION
 
  The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the shares of Common Stock offered
hereby, reference is hereby made to such Registration Statement and to the
schedules and exhibits filed as part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document are not
necessarily complete, and, in each instance, if such contract or document is
filed as
 
                                      82
<PAGE>
 
an exhibit, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. Copies of the Registration
Statement, including all schedules and exhibits thereto, may be inspected,
copied and obtained at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the Regional Offices of the
Commission at Suite 1400, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Thirteenth Floor, New York, New
York 10048. The Commission also maintains a website at (http://www.sec.gov).
 
                         ANNUAL AND QUARTERLY REPORTS
 
  The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited condensed financial information. In addition, after the Offering,
the Company will be subject to the information requirements of the Exchange
Act, and in accordance therewith will file reports, proxy statements and other
information with the Commission.
 
                                      83
<PAGE>
 
                       FIRST INTERNATIONAL BANCORP, INC.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Report of Independent Accountants......................................... F-2
Financial Statements of First International Bancorp, Inc.
  Consolidated Balance Sheets as of June 30, 1997 (unaudited), and
   December 31, 1996 and 1995............................................. F-3
  Consolidated Statements of Income for the six months ended June 30, 1997
   and 1996 (unaudited) and the years ended December 31, 1996, 1995 and
   1994................................................................... F-4
  Consolidated Statements of Changes in Stockholders' Equity for the six
   months ended June 30, 1997 (unaudited) and the years ended December 31,
   1996, 1995 and 1994.................................................... F-5
  Consolidated Statements of Cash Flows for the six months ended June 30,
   1997 and 1996 (unaudited) and the years ended December 31, 1996, 1995
   and 1994............................................................... F-6
  Notes to Consolidated Financial Statements.............................. F-7
</TABLE>    
 
 
                                      F-1
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
The Board of Directors and Stockholders of First International Bancorp, Inc.
 
  We have audited the consolidated balance sheets of First International
Bancorp, Inc. and Subsidiary (the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of First International Bancorp, Inc. and Subsidiary as of December 31, 1996
and 1995, and the consolidated results of their operations, and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
 
Coopers & Lybrand L.L.P.
 
Hartford, Connecticut
January 29, 1997
   
(except for Note 1, as it relates to
 "Earnings Per Share" and "Common
 Stock Split", and Note 13 as to
 which the date is July 21, 1997)
     
                                      F-2
<PAGE>
 
                FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>   
<CAPTION>
                                                          AT DECEMBER 31,
                                       AT JUNE 30,   --------------------------
                                           1997          1996          1995
                                       ------------  ------------  ------------
                                       (UNAUDITED)
<S>                                    <C>           <C>           <C>
ASSETS
Cash and due from banks..............  $  8,440,358  $  5,866,653  $  5,250,477
Federal funds sold...................     8,000,000    13,000,000     4,800,000
                                       ------------  ------------  ------------
    Cash and cash equivalents........    16,440,358    18,866,653    10,050,477
Investment securities (Note 2):
  Available for sale at fair value...    10,676,049    11,523,795     6,642,123
  Held to maturity at amortized cost
   (fair value $2,995,004, $3,055,997
   and $4,104,322)...................     3,021,820     3,062,478     4,116,443
  U.S. Agency stocks at cost.........     2,069,350     1,287,350       872,350
Loans, net (Note 3)..................   112,886,399   109,452,484   102,731,649
Accrued interest receivable..........     1,054,227       823,471       877,330
Other real estate owned, net.........           --            --        300,000
Premises and equipment, net (Note 4).     2,167,911     1,515,180     1,270,273
Receivable from loans sold (Note 1)..    23,578,227    10,341,091    11,272,960
Prepaid expenses and other assets
 (Note 3)............................     5,577,004     4,769,271     3,088,914
                                       ------------  ------------  ------------
    Total assets.....................  $177,471,345  $161,641,773  $141,222,519
                                       ============  ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 5)....................  $158,647,451  $144,316,149  $128,361,468
U.S. Treasury demand note............        58,314     1,061,449       220,685
Accrued interest payable.............       793,361       621,609       298,076
Other liabilities....................     1,976,748     1,426,991       740,666
                                       ------------  ------------  ------------
    Total liabilities................   161,475,874   147,426,198   129,620,895
                                       ------------  ------------  ------------
Commitments and Contingencies (Notes
 3 and 4)
Stockholders' equity (Notes 1, 7, 8,
 9 and 13):
  Common stock, $.10 par value,
   12,000,000 shares authorized;
   5,773,560, 5,766,385 and 5,753,260
   shares issued and outstanding.....       577,356       576,638       575,326
  Preferred stock, $.10 par value,
   2,000,000 shares
   authorized no shares issued and
   outstanding.......................           --            --            --
  Paid-in capital in excess of par
   value.............................     8,233,407     8,221,656     8,201,882
  Stockholder note receivable........      (953,967)     (953,967)   (1,006,678)
  Unrealized holding loss on invest-
   ments available-for-sale, net.....       (30,126)      (74,220)      (28,300)
  Retained earnings..................     8,168,801     6,445,468     3,859,394
                                       ------------  ------------  ------------
    Total stockholders' equity.......    15,995,471    14,215,575    11,601,624
                                       ------------  ------------  ------------
    Total liabilities and stockhold-
     ers' equity.....................  $177,471,345  $161,641,773  $141,222,519
                                       ============  ============  ============
</TABLE>    
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-3
<PAGE>
 
                FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>   
<CAPTION>
                                                            SIX MONTHS ENDED JUNE
                              YEAR ENDED DECEMBER 31,                30,
                         ---------------------------------- ---------------------
                            1996        1995        1994       1997       1996
                         ----------- ----------- ---------- ---------- ----------
                                                                 (UNAUDITED)
<S>                      <C>         <C>         <C>        <C>        <C>
Interest income:
  Loans, including net
   fees................. $12,027,413 $10,265,578 $6,895,123 $5,830,044 $6,021,327
  Investment securities.     646,059     750,300    799,499    479,221    320,745
  Federal funds sold....     631,967     585,073    302,756    313,201    222,353
                         ----------- ----------- ---------- ---------- ----------
    Total interest
     income.............  13,305,439  11,600,951  7,997,378  6,622,466  6,564,425
                         ----------- ----------- ---------- ---------- ----------
Interest expense:
  Deposits..............   5,714,156   4,770,934  2,959,649  2,991,608  2,821,997
  Other.................      27,229      97,790    190,719     19,562     14,663
                         ----------- ----------- ---------- ---------- ----------
    Total interest
     expense............   5,741,385   4,868,724  3,150,368  3,011,170  2,836,660
                         ----------- ----------- ---------- ---------- ----------
    Net interest income.   7,564,054   6,732,227  4,847,010  3,611,296  3,727,765
Provision for possible
 loan losses............   3,486,974   1,237,480  1,683,046    959,074    553,755
                         ----------- ----------- ---------- ---------- ----------
    Net interest income
     after provision for
     possible loan
     losses.............   4,077,080   5,494,747  3,163,964  2,652,222  3,174,010
Non-interest income:
  Service charges and
   other deposit fees...     423,887     397,874    385,404    203,829    229,349
  Loan servicing income
   and fees.............   1,475,392     896,387    492,961  1,120,791    605,344
  Gain on sale of
   guaranteed commercial
   loans................   4,904,588   2,744,249  2,712,663  4,820,123  2,384,545
  Gain on sale of
   unguaranteed portions
   of commercial loans..     841,700         --         --     370,447    274,996
  Gain on sale of other
   commercial loans.....      91,317      97,033        --     227,831     32,782
  Gain on residential
   loan sales...........       6,593      18,123     17,371     59,274      2,987
  Gain on branch sale...   2,201,781         --         --         --         --
                         ----------- ----------- ---------- ---------- ----------
    Total non-interest
     income.............   9,945,258   4,153,666  3,608,399  6,802,295  3,530,003
                         ----------- ----------- ---------- ---------- ----------
    Total operating
     income.............  14,022,338   9,648,413  6,772,363  9,454,517  6,704,013
                         ----------- ----------- ---------- ---------- ----------
Non-interest expense:
  Salaries and benefits.   4,963,436   3,398,992  2,485,375  3,844,207  2,135,872
  Occupancy.............     773,776     572,940    492,895    452,797    367,297
  Furniture and
   equipment............     462,288     407,221    344,385    311,000    225,545
  Outside services......     230,500     210,060    198,034    227,928    119,018
  Foreclosed property
   and collection, net..     360,395     311,335    364,517     96,901    305,026
  FDIC and OCC
   assessments..........      69,208     205,630    295,842     33,779     42,143
  Office expenses.......     692,056     538,437    366,838    390,072    349,368
  Marketing.............     631,829     287,536    155,718    386,143    249,525
  Other.................     241,733     194,633    425,819    166,671    105,874
                         ----------- ----------- ---------- ---------- ----------
    Total non-interest
     expense............   8,425,221   6,127,784  5,129,423  5,909,498  3,899,668
                         ----------- ----------- ---------- ---------- ----------
  Income before income
   taxes................   5,597,117   3,520,629  1,642,940  3,545,019  2,804,345
Provision for income
 taxes (Note 9).........   2,352,781   1,494,400    583,000  1,491,976  1,178,947
                         ----------- ----------- ---------- ---------- ----------
Net income.............. $ 3,244,336 $ 2,026,229 $1,059,940 $2,053,043 $1,625,398
                         =========== =========== ========== ========== ==========
Earnings per share
 (Notes 1 and 7)........ $       .54 $       .34 $      .18 $      .34 $      .27
                         =========== =========== ========== ========== ==========
</TABLE>    
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-4
<PAGE>
 
                FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
   
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND THE YEARS ENDED DECEMBER
                          31, 1996, 1995 AND 1994     
 
<TABLE>   
<CAPTION>
                                              PAID-IN
                                            CAPITAL IN                    UNREALIZED HOLDING
                                  COMMON   EXCESS OF PAR STOCKHOLDER NOTE LOSS ON INVESTMENTS
                                  STOCK        VALUE        RECEIVABLE    AVAILABLE-FOR-SALE  RETAINED EARNINGS
                                 --------  ------------- ---------------- ------------------- -----------------
<S>                              <C>       <C>           <C>              <C>                 <C>
Balance at January 1, 1994.....  $522,585   $7,362,486     $       --          $     --          $  937,603
Issuance of 614,600 shares of
 common stock (Note 7).........    61,460      976,336      (1,020,236)              --                 --
Repurchase and retirement of
 28,550 shares of common stock
 (Note 7)......................    (2,856)     (40,236)            --                --                 --
Unrealized holding loss, net of
 income taxes..................       --           --              --           (182,000)               --
1994 net income................       --           --              --                --           1,059,940
                                 --------   ----------     -----------         ---------         ----------
  Balance at December 31, 1994.  $581,189   $8,298,586     $(1,020,236)        $(182,000)        $1,997,543
Repurchase and retirement of
 62,132 shares of common stock
 (Note 7)......................    (6,213)    (102,529)            --                --                 --
Issuance of 3,500 shares of
 common stock under option plan
 (Note 8)......................       350        5,825             --                --                 --
Dividend on common stock
 ($.03/share)..................       --           --              --                --            (164,378)
Principal payment on
 stockholder note receivable
 (Note 7)......................       --           --           13,558               --                 --
Reduction in unrealized holding
 loss, net of income taxes.....       --           --              --            153,700                --
1995 net income................       --           --              --                --           2,026,229
                                 --------   ----------     -----------         ---------         ----------
  Balance at December 31, 1995.  $575,326   $8,201,882     $(1,006,678)        $ (28,300)        $3,859,394
Repurchase and retirement of
 7,875 shares of common stock
 (Note 7)......................      (788)     (21,071)            --                --                 --
Issuance of 21,000 shares of
 common stock under option plan
 (Note 8)......................     2,100       40,845             --                --                 --
Dividends on common stock
 ($.11/share)..................       --           --              --                --            (658,262)
Principal payment on
 stockholder note receivable
 (Note 7)......................       --           --           52,711               --                 --
Increase in unrealized holding
 loss, net of income taxes.....       --           --              --            (45,920)               --
1996 net income................       --           --              --                --           3,244,336
                                 --------   ----------     -----------         ---------         ----------
  Balance at December 31, 1996.  $576,638   $8,221,656     $  (953,967)        $ (74,220)        $6,445,468
Issuance of 7,175 shares of
 common stock under option
 plan..........................       718       11,751             --                --                 --
Dividends on common stock
 ($.06/share)..................       --           --              --                --            (329,710)
Reduction in unrealized holding
 loss, net of income taxes.....       --           --              --             44,094                --
Net income.....................       --           --              --                --           2,053,043
                                 --------   ----------     -----------         ---------         ----------
  Balance at June 30, 1997.....  $577,356   $8,233,407     $  (953,967)        $ (30,126)        $8,168,801
                                 ========   ==========     ===========         =========         ==========
</TABLE>    
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-5
<PAGE>
 
                FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>   
<CAPTION>
                                                                         SIX MONTHS ENDED
                                  YEAR ENDED DECEMBER 31,                    JUNE 30,
                           ----------------------------------------  --------------------------
                               1996          1995          1994          1997          1996
                           ------------  ------------  ------------  ------------  ------------
                                                                            (UNAUDITED)
 <S>                       <C>           <C>           <C>           <C>           <C>
 CASH FLOWS FROM
  OPERATING ACTIVITIES:
 Net income..............  $  3,244,336  $  2,026,229  $  1,059,940  $  2,053,043  $  1,625,398
                           ------------  ------------  ------------  ------------  ------------
 Adjustments to
  reconcile net income
  to net cash provided
  by operating
  activities:
  Depreciation and
   amortization..........       374,030       314,732       280,826       297,829       178,187
  Amortization of
   investment premiums,
   net...................        55,024        92,835       250,026         3,234        34,194
  Accretion of loan
   discount, net.........     1,041,935       484,661       980,531       612,614       734,334
  Provision for possible
   loan losses...........     3,486,974     1,237,480     1,683,046       959,074       553,755
  Provision for loss on
   other real estate
   owned.................       200,000       280,000       330,345           --        300,000
  Increase in other
   liabilities...........       686,325       122,040       485,540       613,618       (18,893)
  Increase (decrease) in
   deferred loan costs...       (15,517)       35,082        16,449       (40,356)      (63,340)
  (Decrease) increase in
   accrued interest
   receivable............        53,859      (193,936)     (147,164)     (230,756)      (64,886)
  Increase (decrease) in
   accrued interest
   payable...............       323,533          (779)       (2,889)      171,752       158,495
  Deferred income tax
   provision (benefit)...      (248,824)      (52,554)       47,300       (94,620)      (10,200)
  Gain on sale of loans..    (1,017,650)     (352,515)      437,479       478,586      (269,912)
  Loans originated for
   sale..................   (90,435,699)  (46,843,152)  (42,112,000)  (83,604,089)  (36,670,000)
  Proceeds from sale of
   loans originated for
   sale..................    94,338,292    49,350,042    45,279,513    87,518,415    38,876,434
  (Increase) decrease in
   receivable from loans
   sold..................       931,869    (2,813,185)   (2,914,623)  (13,237,136)    5,791,933
  (Increase) decrease in
   prepaid expenses and
   other assets..........    (1,394,953)   (1,437,681)   (1,129,819)     (807,564)   (1,398,994)
                           ------------  ------------  ------------  ------------  ------------
    Total adjustments....     8,379,198       223,070     3,484,560    (7,359,399)    8,131,107
                           ------------  ------------  ------------  ------------  ------------
    Net cash provided by
     (used) in operating
     activities..........    11,623,534     2,249,299     4,544,500    (5,306,356)    9,756,505
                           ------------  ------------  ------------  ------------  ------------
 CASH FLOWS FROM
  INVESTING ACTIVITIES:
 Net increase in loans...   (14,119,170)  (15,265,479)  (28,389,475)   (9,358,159)  (18,266,396)
 Purchase of investment
  securities available
  for sale...............   (10,513,906)   (1,497,969)   (3,498,428)     (497,500)   (1,496,094)
 Purchase of investment
  securities held to
  maturity...............      (500,000)      (75,000)   (1,000,000)          --            --
 Purchase of equity
  securities.............      (415,000)       (4,500)     (221,200)     (782,000)          --
 Proceeds from
  maturities and
  principal repayments
  of investment
  securities available
  for sale...............     5,522,946     3,105,542     8,820,945     1,416,695     2,016,767
 Proceeds from
  maturities and
  principal repayments
  of investment
  securities
  held to maturity.......     1,525,729       961,202     1,118,951        40,659     1,460,220
 Proceeds from sale of
  branch premises........       275,000           --            --            --            --
 Proceeds from sale of
  other real estate
  owned..................       100,000           --        286,663           --            --
 Capital expenditures,
  net....................      (893,937)     (371,783)     (164,303)     (950,560)     (252,253)
                           ------------  ------------  ------------  ------------  ------------
    Net cash used in
     investing
     activities..........   (19,018,338)  (13,147,987)  (23,046,847)  (10,130,865)  (16,537,756)
                           ------------  ------------  ------------  ------------  ------------
 CASH FLOWS FROM
  FINANCING ACTIVITIES:
 Net increase (decrease)
  in deposits............    15,954,681    16,512,269    16,062,341    14,331,302    21,589,490
 Net increase (decrease)
  in other borrowings....       840,764      (105,647)     (498,500)   (1,003,135)      (73,391)
 Increase in FHLBB
  Advances...............           --            --      2,100,000           --            --
 Repayments of FHLBB
  Advances...............           --     (2,788,589)   (3,172,000)          --            --
 Proceeds from sale of
  common stock...........        42,945         6,175        17,560        12,469        41,475
 Repurchase of common
  stock..................       (21,859)     (108,742)      (43,092)          --            --
 Dividends paid..........      (658,262)     (164,378)          --       (329,710)     (328,756)
 Principal payment on
  stockholder note
  receivable.............        52,711        13,558           --            --         26,356
                           ------------  ------------  ------------  ------------  ------------
    Net cash provided by
     (used in) financing
     activities..........    16,210,980    13,364,646    14,466,309    13,010,926    21,255,174
                           ------------  ------------  ------------  ------------  ------------
 Net increase (decrease)
  in cash and cash equiv-
  alents.................     8,816,176     2,465,958    (4,036,038)   (2,426,295)   14,473,923
 Cash and cash equiva-
  lents at beginning of
  year...................    10,050,477     7,584,519    11,620,557    18,866,653    10,050,477
                           ------------  ------------  ------------  ------------  ------------
 Cash and cash equiva-
  lents at end of year...  $ 18,866,653  $ 10,050,477  $  7,584,519  $ 16,440,358  $ 24,524,400
                           ============  ============  ============  ============  ============
 SUPPLEMENTAL DISCLOSURES
  OF CASH FLOW
  INFORMATION:
 Cash paid during the
  year for:
  Interest...............  $  5,417,852  $  4,869,184  $  3,153,585  $  2,839,418  $  2,678,265
  Income taxes...........  $  2,664,259  $  1,693,483  $    289,127  $  1,306,140  $  1,365,677
 Non-cash items:
  Real estate acquired
   in settlement of
   loans.................  $        --   $    580,000  $        --   $        --   $        --
</TABLE>    
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                      F-6
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
BASIS OF PRESENTATION
 
  The consolidated financial statements include the accounts of First
International Bancorp, Inc. (the Company) and its wholly-owned subsidiary,
First National Bank of New England (formerly known as First National Bank of
Connecticut). Intercompany accounts and transactions have been eliminated in
consolidation. First National Bank of New England (the Bank) sold its last
retail branch facility and certain deposits in 1996. The Bank operates a full
service branch at its headquarters in Hartford, Connecticut and representative
offices, which are responsible for regional loan origination efforts, in
Boston and Springfield, Massachusetts, Providence, Rhode Island, Morristown,
New Jersey, Pittsburgh, Pennsylvania and Washington D.C. The Bank's primary
revenues are derived from net interest income and the origination and sale, on
a servicing retained basis, of commercial loans. The Bank is a national leader
in the use of loan guarantee programs offered by the U.S. Small Business
Administration (SBA), the U.S. Department of Agriculture (USDA) and the
Export-Import Bank of the United States (Ex-Im Bank). Continued availability
of such loan guarantees are dependent upon timely and adequate federal budget
appropriations. Each of these federal programs is funded through September
1997, but there can be no assurance of sufficient budgetary allocations to
allow a continuation of such programs in substantially their current form.
 
  In preparing the consolidated financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and the results of operations
for the period. Material estimates in these consolidated financial statements
relate to the allowance and provision for possible loan losses, the valuation
of other real estate owned and the estimated lives of loans sold where
servicing has been retained. Market conditions are evaluated and independent
appraisals of significant properties are obtained by management as needed in
the process of setting the estimates. Notwithstanding this, such estimates are
particularly sensitive to the economic environment and can be significantly
affected by changing economic conditions affecting the value of the
collateral, interest rates, borrowers' financial position and other factors.
Accordingly, actual results could differ significantly from the estimates.
 
INVESTMENT SECURITIES
 
  Securities that may be sold as part of the Company's asset/liability or
liquidity management, or in response to or in anticipation of changes in
interest rates and resulting prepayment risk, or for other similar factors,
are classified as available-for-sale and carried at fair market value.
Unrealized holding gains and losses on such securities are reported net of
related taxes as a separate component of stockholders' equity. Debt securities
that the Company has the ability and positive intent to hold to maturity are
classified as held-to-maturity and carried at amortized cost. Realized gains
and losses on the sales of all investment securities are reported in earnings
and computed using the specific identification cost basis. Declines in the
market value of investment securities that are deemed to be other than
temporary are charged to income.
 
LOANS
 
  Loans are stated at their principal amount outstanding. Interest income on
loans is recognized on the simple interest method based upon the principal
amount outstanding.
   
  In May 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights,--an amendment of FASB Statement No. 65" (SFAS 122), which
the Company adopted on January 1, 1996. SFAS 122 amends FASB Statement No. 65,
"Accounting for Certain Mortgage Banking Activities," to provide that a
mortgage banking enterprise recognize as separate assets rights to service
mortgage loans for others, however those servicing rights     
 
                                      F-7
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are acquired. It also requires the Company to assess its capitalized mortgage
servicing rights for impairment based on the fair value of those rights. The
adoption of this statement did not have a material impact on the Company's
financial condition or its results of operations.
 
  In June 1996, FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are based
on consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. SFAS No. 125 also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. The adoption of this statement as of January 1, 1997 did not
have a material impact on the Company's financial condition or its results of
operations. This statement generally applies SFAS No. 122 concepts to a
variety of assets sold and the resultant retained servicing. SFAS No. 125 also
changed terminology used to describe the methods and assumptions used to
calculate the servicing assets. The discussion below reflects the concepts and
terminology included in SFAS No. 125.
 
  Receivable from loans sold and gain on commercial loan sales are primarily
attributable to the sale of commercial loans which have been at least
partially guaranteed by the SBA, the USDA and Ex-Im Bank. The Company is
required to retain at least 10% of the unguaranteed portions of SBA and 5% of
the unguaranteed portions of USDA loans. Transactions are generally settled
within 30 days of the sale. The gains are calculated in accordance with
Emerging Issues Task Force Issue No. 88-11 (EITF 88-11), which requires that
the gain on the sale of a portion of a loan be based on the relative fair
market values of the loan sold and the loan retained. A portion of the gain on
commercial loan sales is due to an excess servicing asset which represents the
present value of the differential between the servicing fee received by the
Bank and the sum of the Bank's costs and a normal profit after considering the
estimated effects of prepayments. The discount rate utilized in calculating
the excess servicing asset approximates the market rate an investor would
demand on a risk-adjusted basis. The excess servicing asset is amortized as a
charge to non-interest income over the estimated lives of the underlying
loans. The excess servicing asset is carried at the lower of amortized cost or
net realizable value.
 
  Unearned interest reflected as a reduction of loans in the consolidated
balance sheet relates primarily to the discount recognized under EITF 88-11 on
the retained portion of the commercial loans sold. The discount is recorded in
interest income over the estimated life of the retained loan.
 
LOAN ORIGINATION FEES (COSTS)
 
  Fees for loan originations and commitments, and related origination costs,
are deferred and recognized as a yield adjustment utilizing the interest
method over the contractual life of the related loan, adjusted for prepayment
and sales.
 
PROVISION/ALLOWANCE FOR POSSIBLE LOAN LOSSES
 
  On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan" and No.
118 "Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures" (SFAS 114 and 118). SFAS 114 and 118 require creditors to
evaluate the collectibility of impaired loans, as defined below, based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral- dependent loans are
measured for collectibility of contractual principal and interest based on the
estimated fair value of the collateral. As
 
                                      F-8
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
permitted by the Statements, smaller-balance homogeneous loans consisting of
residential mortgages and consumer loans are evaluated for collectibility by
the Company based on historical loss experience rather than on an individual
loan-by-loan basis. The Company considers a loan to be impaired for SFAS 114
and 118 purposes when, based on current information and events, it is probable
that it will be unable to collect all amounts of contractual interest and
principal as scheduled in the loan agreement. Such loans are placed on non-
accrual when such determination is made. An insignificant delay of under 60
days or a 10% shortfall in the amount of the payment is not an event that,
when considered in isolation, would automatically cause the Company to
consider a loan to be impaired for purposes of SFAS 114 and 118. The Company
evaluates all impaired loans, other than small balance loans, on an individual
loan-by-loan basis; it does not aggregate impaired loans into major risk
classifications. The Company places a loan on nonaccrual status when it is 90
days or more past due or when, in management's assessment, the full
collectability of principal and interest is uncertain. Except for certain
restructured loans, impaired loans are loans that are on nonaccrual status.
 
  When an impaired loan or a portion of an impaired loan is deemed
uncollectible, the portion deemed uncollectible is charged against the
allowance for loan losses and subsequent recoveries, if any, are credited to
the allowance.
 
  The Company generally recognizes interest income on impaired loans on a cash
basis and reverses any accrued interest income at the date of determination.
 
  Any loans restructured prior to the adoption of SFAS 114 and 118 are
accounted for in accordance with SFAS No. 15 "Accounting by Debtors and
Creditors for Troubled Debt Restructurings."
 
  Prior to the adoption of SFAS 114 and 118, the allowance for loan losses
related to all loans was based on undiscounted cash flows or the fair value of
the collateral for collateral dependent loans. The adoption of SFAS 114 and
118 did not result in any additions to the provision for loan losses.
 
  Management determines the adequacy of its allowance for possible loan losses
primarily through periodic reviews of the loan portfolio, loan delinquencies,
collateral on loans and past payment history adjusted for such factors as
known changes in the character of the loan portfolio, current economic
conditions and the provisions of SFAS 114 and 118. Consideration is also given
to anticipated economic conditions, as well as other relevant factors in
establishing the allowance. The allowance is increased by provisions for loan
losses charged to income and decreased by charge offs, net of recoveries.
 
OTHER REAL ESTATE OWNED
   
  Other real estate owned (OREO), representing property acquired by
foreclosure or acceptance of a deed in lieu of foreclosure is carried at the
lower of cost (the unpaid loan balance at the date of acquisition) or fair
value less estimated disposal costs. Improvements are capitalized to the
extent realizable.     
 
PREMISES AND EQUIPMENT
 
  Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-line
and accelerated methods over the estimated useful lives of the assets.
Leasehold improvements are amortized over the period of the related lease
using the straight-line method. Costs of maintenance and repairs are expensed,
while major improvements are capitalized.
 
INCOME TAXES
 
  Income taxes are provided based on the asset/liability method of accounting.
Deferred income taxes and tax benefits are recognized for the future income
tax consequences attributable to differences between the financial
 
                                      F-9
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A
valuation allowance is established when it is more likely than not that some
portion of the deferred tax asset will not be realized.
 
EARNINGS PER SHARE
   
  Earnings per share have been computed based on the weighted average
outstanding shares (December 31, 1996--6,014,509; 1995--6,027,343; 1994--
5,785,353; and June 30, 1997--6,023,075; 1996--6,008,947). In accordance with
Staff Accounting Bulletin Topic 4-D, for all periods presented, earnings per
share have been computed by including common stock equivalents associated with
the Company's stock options issued one year prior to the expected public
offering date of September 1997. The effect of such equivalents was computed
under the treasury stock method, assuming the repurchase of such options at an
assumed offering price of $12.00 per share. (See Notes 8 and 13.)     
 
STOCK OPTION PLANS
 
  SFAS 123, "Accounting for Stock Based Compensation" (SFAS 123) issued in
October 1995 gives companies the option of employing intrinsic value
accounting under the guidelines of Accounting Principles Board (APB) No. 25 or
fair value accounting for stock based compensation. While SFAS 123 does not
require the adoption of fair value accounting, it does require certain
disclosures in the financial statements as if fair value accounting had been
adopted, including pro forma net income and earnings per share. The Company
adopted this accounting standard effective January 1, 1996 for disclosure
purposes only and will continue to apply APB 25 in accounting for stock based
compensation.
 
COMMON STOCK SPLIT
 
  On June 26, 1997, the Company's stockholders approved a 3.5-for-1 stock
split to stockholders of record on July 14, 1997, to be effective August 7,
1997. Stockholders' equity has been restated to give retroactive recognition
to the stock split in prior periods by reclassifying from paid-in capital in
excess of par value to common stock an amount equal to the par value of the
additional shares arising from the split. In addition, all references to the
number of shares, per share amounts and stock option data have been restated.
 
STATEMENT OF CASH FLOWS
 
  For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for one day periods or terms of less than 30 days.
 
RECLASSIFICATIONS
 
  Certain amounts from 1995 and 1994 have been reclassified to conform to the
1996 presentation.
 
UNAUDITED INFORMATION
   
  The unaudited financial statements and related notes as of June 30, 1997 and
for the six-month periods ended June 30, 1997 and 1996 reflect, in the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the statements of operations, cash
flows and balance sheets as of and for the periods presented. These unaudited
financial statements should be read in conjunction with the audited financial
statements and related notes thereto. The results for the interim period
presented are not necessarily indicative of results to be expected for the
full year.     
 
                                     F-10
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENT SECURITIES:
   
  Securities classified as available for sale (carried at fair value) and as
held to maturity (carried at amortized cost) as of June 30, 1997 and December
31, 1996 and 1995 are as follows:     
 
<TABLE>   
<CAPTION>
                                                GROSS      GROSS     ESTIMATED
                                   AMORTIZED  UNREALIZED UNREALIZED    FAIR
                                     COST       GAINS      LOSSES      VALUE
JUNE 30, 1997                     ----------- ---------- ---------- -----------
<S>                               <C>         <C>        <C>        <C>
AVAILABLE FOR SALE
U.S. Treasury obligations........ $10,011,486   $  768    $(58,098) $ 9,954,156
U.S. government mortgaged backed
 securities......................     715,710    6,410        (227)     721,893
                                  -----------   ------    --------  -----------
                                  $10,727,196   $7,178    $(58,325) $10,676,049
                                  ===========   ======    ========  ===========
HELD TO MATURITY
U.S. government mortgaged backed
 securities...................... $ 1,871,820   $3,376    $(30,192) $ 1,845,004
Debt securities of foreign
 governments.....................   1,150,000      --          --     1,150,000
                                  -----------   ------    --------  -----------
                                  $ 3,021,820   $3,376    $(30,192) $ 2,995,004
                                  ===========   ======    ========  ===========
</TABLE>    
 
<TABLE>   
<CAPTION>
                                                GROSS      GROSS      ESTIMATED
                                   AMORTIZED  UNREALIZED UNREALIZED     FAIR
                                     COST       GAINS      LOSSES       VALUE
DECEMBER 31, 1996                 ----------- ---------- ----------  -----------
<S>                               <C>         <C>        <C>         <C>
AVAILABLE FOR SALE
U.S. Treasury obligations........ $10,515,353  $ 2,424   $ (62,777)  $10,455,000
U.S. government mortgaged backed
 securities......................   1,134,272    7,665     (73,142)    1,068,795
                                  -----------  -------   ---------   -----------
                                  $11,649,625  $10,089   $(135,919)  $11,523,795
                                  ===========  =======   =========   ===========
HELD TO MATURITY
U.S. government mortgaged backed
 securities...................... $ 1,912,478  $14,489   $ (20,970)  $ 1,905,997
Debt securities of foreign
 governments.....................   1,150,000      --          --      1,150,000
                                  -----------  -------   ---------   -----------
                                  $ 3,062,478  $14,489   $ (20,970)  $ 3,055,997
                                  ===========  =======   =========   ===========
<CAPTION>
                                                GROSS      GROSS      ESTIMATED
                                   AMORTIZED  UNREALIZED UNREALIZED     FAIR
                                     COST       GAINS      LOSSES       VALUE
DECEMBER 31, 1995                 ----------- ---------- ----------  -----------
<S>                               <C>         <C>        <C>         <C>
AVAILABLE FOR SALE
U.S. Treasury obligations........ $ 1,499,949  $ 9,425   $     --    $ 1,509,374
U.S. government mortgaged backed
 securities......................   5,185,674   23,495     (76,420)    5,132,749
                                  -----------  -------   ---------   -----------
                                  $ 6,685,623  $32,920   $ (76,420)  $ 6,642,123
                                  ===========  =======   =========   ===========
HELD TO MATURITY
U.S. government mortgaged backed
 securities...................... $ 3,451,443  $10,372   $ (22,493)  $ 3,439,322
Debt securities of foreign
 governments.....................     665,000      --          --        665,000
                                  -----------  -------   ---------   -----------
                                  $ 4,116,443  $10,372   $ (22,493)  $ 4,104,322
                                  ===========  =======   =========   ===========
</TABLE>    
 
  Stock securities are comprised of the following:
 
<TABLE>   
<CAPTION>
                                                  JUNE 30       DECEMBER 31
                                                 ---------- -------------------
                                                    1997       1996      1995
                                                 ---------- ---------- --------
<S>                                              <C>        <C>        <C>
Federal Reserve Bank............................ $  224,150 $  224,150 $224,150
Federal Home Loan Bank of Boston................  1,246,200    648,200  648,200
Private Export Funding Corporation..............    599,000    415,000      --
                                                 ---------- ---------- --------
                                                 $2,069,350 $1,287,350 $872,350
                                                 ========== ========== ========
</TABLE>    
 
                                     F-11
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
   
  At June 30, 1997 and December 31, 1996, investments with a carrying value of
$12,059,853 and $12,330,392, respectively, were pledged to collateralize
public and government deposits, as required by law, and certain of the Bank's
lines of credit. There were no sales of debt securities in the six months
ended June 30, 1997, and the years ended December 31, 1996 and 1995.     
   
  The contractual maturities of debt securities at June 30, 1997 and December
31, 1996 and 1995 are as follows:     
 
<TABLE>   
<CAPTION>
                                                                        WEIGHTED
                                                 AMORTIZED     FAIR     AVERAGE
                                                   COST        VALUE     YIELD
JUNE 30, 1997                                   ----------- ----------- --------
<S>                                             <C>         <C>         <C>
AVAILABLE FOR SALE
  Due in one year or less...................... $   499,728 $   497,813  5.125%
  Due after one year through five years........   9,511,758   9,456,343  5.823%
  Mortgage-backed securities...................     715,710     721,893  7.147%
                                                ----------- -----------  -----
                                                $10,727,196 $10,676,049  5.880%
                                                =========== ===========  =====
HELD TO MATURITY
  Due in one year or less...................... $    25,000 $    25,000  7.875%
  Due after one year through five years........     525,000     525,000  7.875%
  Due after five years through ten years.......     600,000     600,000  7.500%
  Mortgage-backed securities...................   1,871,820   1,845,004  5.618%
                                                ----------- -----------  -----
                                                $ 3,021,820 $ 2,995,004  6.410%
                                                =========== ===========  =====
<CAPTION>
DECEMBER 31, 1996
<S>                                             <C>         <C>         <C>
AVAILABLE FOR SALE
  Due in one year or less...................... $   998,200 $ 1,000,626
  Due after one year through five years........   9,517,153   9,454,374
  Mortgage-backed securities...................   1,134,272   1,068,795
                                                ----------- -----------
                                                $11,649,625 $11,523,795
                                                =========== ===========
HELD TO MATURITY
  Due after one year through five years........ $   350,000 $   350,000
  Due after five years through ten years.......     800,000     800,000
  Mortgage-backed securities...................   1,912,478   1,905,997
                                                ----------- -----------
                                                $ 3,062,478 $ 3,055,997
                                                =========== ===========
DECEMBER 31, 1995
AVAILABLE FOR SALE
  Due in one year or less...................... $ 1,499,949 $ 1,509,374
  Due after one year through five years........     999,725   1,010,500
  Mortgage-backed securities...................   4,185,949   4,122,249
                                                ----------- -----------
                                                $ 6,685,623 $ 6,642,123
                                                =========== ===========
HELD TO MATURITY
  Due after one year or less................... $    15,000 $    15,000
  Due after one year through five years........   1,150,000   1,150,000
  Due after five years through ten years.......     500,000     500,000
  Mortgage-backed securities...................   2,451,443   2,439,322
                                                ----------- -----------
                                                $ 4,116,443 $ 4,104,322
                                                =========== ===========
</TABLE>    
 
                                     F-12
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
3. LOANS:
 
  The outstanding balances of loans originated and held by the Bank are as
follows:
 
<TABLE>   
<CAPTION>
                                                          DECEMBER 31,
                                        JUNE 30,    --------------------------
                                          1997          1996          1995
                                      ------------  ------------  ------------
   <S>                                <C>           <C>           <C>
   Commercial and industrial......... $ 66,565,727  $ 61,435,058  $ 47,276,930
   Commercial real estate............   43,128,295    39,094,984    46,207,535
   Residential real estate...........    6,655,106    12,843,235    12,951,738
   Consumer loans and lines of
    credit...........................    1,839,879     1,253,483       555,815
                                      ------------  ------------  ------------
     Total loans.....................  118,189,007   114,626,760   106,992,018
   Less:
     Discount on retained loans......    2,409,687     2,240,999     2,311,575
     Allowance for possible loan
      losses.........................    3,000,000     3,000,000     2,000,000
     Net deferred loan origination
      costs..........................     (107,079)      (66,723)      (51,206)
                                      ------------  ------------  ------------
       Loans, net.................... $112,886,399  $109,452,484  $102,731,649
                                      ============  ============  ============
</TABLE>    
   
  The scheduled maturities of the Bank's loan portfolio as of December 31,
1996 are as follows:     
 
<TABLE>   
<CAPTION>
                                            AFTER ONE
                                              YEAR
                               WITHIN ONE    THROUGH   AFTER FIVE
                                  YEAR     FIVE YEARS     YEARS       TOTAL
                               ----------- ----------- ----------- ------------
<S>                            <C>         <C>         <C>         <C>
Commercial and industrial..... $19,558,139 $ 6,579,794 $35,297,124 $ 61,435,058
Commercial real estate........     747,095   5,979,996  32,367,893   39,094,984
Residential real etate........     486,281   1,673,126  10,683,829   12,843,235
Consumer loans and lines of
 credit.......................      17,097     367,582     868,804    1,253,483
                               ----------- ----------- ----------- ------------
  Total....................... $20,808,612 $14,600,498 $79,217,650 $114,626,760
                               =========== =========== =========== ============
</TABLE>    
   
  Approximately 40% of the commercial industrial and commercial real estate
loans at each period end are the unguaranteed portions of loans originated
under the federal guarantee programs discussed in Note 1. At December 31,
1996, the Company had fixed and variable rate loans with maturities greater
than one year totaling $8,685,754 and $88,917,278, respectively.     
 
  The outstanding balances of loans originated by the Bank and sold to others
on a servicing retained basis are as follows:
 
<TABLE>   
<CAPTION>
                                                             DECEMBER 31,
                                            JUNE 30,   -------------------------
                                              1997         1996         1995
                                          ------------ ------------ ------------
   <S>                                    <C>          <C>          <C>
   GUARANTEED LOANS
     SBA................................. $171,525,486 $145,620,429 $ 98,738,201
     USDA................................   41,077,424   26,900,567   17,323,504
     Ex-Im Bank..........................   52,894,242   26,669,557    8,018,309
     FHLMC...............................   17,429,119   17,731,007   17,825,600
                                          ------------ ------------ ------------
                                           282,926,271  216,921,560  141,905,614
   UNGUARANTEED PORTIONS AND
    UNGUARANTEED LOANS
     SBA.................................   33,773,679   28,813,955          --
     USDA................................    3,974,587    3,191,257          --
     Other commercial....................   20,117,832   12,895,857    8,730,134
     Home equity lines...................    4,106,049    3,982,247    3,214,303
                                          ------------ ------------ ------------
                                            61,972,147   48,883,316   11,944,437
                                          ------------ ------------ ------------
   Total loans serviced for others....... $344,898,418 $265,804,876 $153,850,051
                                          ============ ============ ============
</TABLE>    
 
 
                                     F-13
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  The following amounts are included in Loans, net:
 
<TABLE>   
<CAPTION>
                                                       DECEMBER 31,
                                  JUNE 30,   -----------------------------------
                                    1997        1996         1995        1994
   DISCOUNT ON RETAINED LOANS    ----------  -----------  ----------  ----------
   <S>                           <C>         <C>          <C>         <C>
   Balance at beginning of
    period...................... $2,240,999  $ 2,311,575  $1,791,953  $  805,463
    Discount on current period
     sales......................    890,151    1,509,724     851,602   1,089,367
    Deletions due to sales......   (443,926)  (1,112,511)        --          --
    Accretion...................   (277,537)    (467,789)   (331,980)   (102,877)
                                 ----------  -----------  ----------  ----------
     Balance at end of period... $2,409,687  $ 2,240,999  $2,311,575  $1,791,953
                                 ==========  ===========  ==========  ==========
</TABLE>    
 
  The following amounts are included in Prepaid expenses and other assets:
 
<TABLE>   
<CAPTION>
                                                      DECEMBER 31,
                                 JUNE 30,   ----------------------------------
                                   1997        1996        1995        1994
   SERVICING ASSETS             ----------  ----------  ----------  ----------
   <S>                          <C>         <C>         <C>         <C>
   Balance at beginning of
    period..................... $4,137,836  $2,808,930  $2,084,329  $1,209,820
     Net servicing on current
      period sales.............  1,289,185   1,978,810   1,126,723   1,040,276
     Amortization..............   (580,378)   (649,904)   (402,122)   (165,767)
                                ----------  ----------  ----------  ----------
       Balance at end of
        period................. $4,846,643  $4,137,836  $2,808,930  $2,084,329
                                ==========  ==========  ==========  ==========
</TABLE>    
 
  Changes in the Allowance for possible loan losses were as follows:
 
<TABLE>   
<CAPTION>
                                                    DECEMBER 31,
                              JUNE 30,   -------------------------------------
                                1997        1996         1995         1994
                             ----------  -----------  -----------  -----------
   <S>                       <C>         <C>          <C>          <C>
   Balance at beginning of
    period.................. $3,000,000  $ 2,000,000  $ 2,000,000  $ 1,425,000
     Provision charged to
      income................    959,074    3,486,974    1,237,480    1,683,046
     Recoveries on loans
      previously charged
      off...................     12,018       39,827       84,341      103,501
     Loans charged off......   (971,092)  (2,526,801)  (1,321,821)  (1,211,547)
                             ----------  -----------  -----------  -----------
       Balance at end of
        period.............. $3,000,000  $ 3,000,000  $ 2,000,000  $ 2,000,000
                             ==========  ===========  ===========  ===========
</TABLE>    
 
  Certain information with regard to impaired loans is detailed below:
 
<TABLE>   
<CAPTION>
                                                              DECEMBER 31,
                                                JUNE 30,  ---------------------
                                                  1997       1996       1995
                                               ---------- ---------- ----------
   <S>                                         <C>        <C>        <C>
   Impaired loans............................. $2,021,324 $2,172,830 $1,258,451
   Allocated allowance........................    656,513    543,145    680,000
   Average recorded investment................  2,226,505  1,669,654  1,904,393
   Interest income recognized.................     29,200    124,515     26,566
</TABLE>    
 
  The carrying value of the impaired loans has been calculated based on the
estimated fair value of the underlying collateral.
   
  Non-accrual loans totaled $2,594,210, $2,251,710 and $1,258,451 at June 30,
1997, December 31, 1996 and 1995, respectively. The gross interest income that
would have been recorded if the non-accrual loans had been current in
accordance with their original terms would have been $100,000 for the period
ended June 30, 1997. The actual amount of interest income recognized on those
loans was $35,000 for the period ended June 30, 1997. There were no loans over
90 days and still accruing interest at each period end presented.     
 
 
                                     F-14
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
  At December 31, 1995, the loan portfolio included restructured loans
totaling $214,000. The gross interest income that would have been recorded, if
these loans had been current in accordance with the original terms was
$24,300, while the interest included in income on these loans was $8,500 in
1995. These loans were paid off in 1996.
   
  Loans to principal stockholders, directors, companies of which directors are
principal owners, individuals directly related to or affiliated with
directors, and executive officers aggregated $2,369,000, $2,570,000 and
$2,784,000 at June 30, 1997, December 31, 1996 and 1995, respectively. During
1997 and 1996, repayments and sales amounted to $201,000 and $414,000,
respectively. Advances under new or existing loans totaled $200,000 in 1996.
    
  In the normal course of business, the Bank enters into agreements to extend
credit which are not reflected in the accompanying consolidated financial
statements.
 
  Outstanding credit commitments are detailed below:
 
<TABLE>   
<CAPTION>
                                             JUNE 30,        DECEMBER 31,
                                            ----------- -----------------------
                                               1997        1996        1995
                                            ----------- ----------- -----------
   <S>                                      <C>         <C>         <C>
   Commercial lines of credit.............. $26,704,646 $24,393,670 $18,814,000
   Consumer lines of credit................     352,646     229,067     217,000
   Performance letters of credit...........  10,381,106   1,435,172     740,400
   Financial letters of credit.............   1,178,890   1,392,447   1,227,600
                                            ----------- ----------- -----------
                                            $38,617,288 $27,450,356 $20,999,000
                                            =========== =========== ===========
</TABLE>    
   
  At June 30, 1997 and December 31, 1996, letters of credit totaling
$10,493,492 and $1,392,447, respectively, carry the guarantee of Ex-Im Bank.
    
  Commitments to extend such credit are agreements to lend to a client as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require the payment of a fee. Since some of the agreements may expire
without being drawn upon or may be terminated by the Bank, these amounts do
not necessarily represent a future cash requirement of the Bank. Prior to
entering into any agreement to extend credit, the Bank evaluates the client's
creditworthiness in accordance with loan underwriting standards as approved by
the Board of Directors. The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the client.
Collateral for commercial loan commitments varies but may include accounts
receivable, inventory, property, plant and equipment and commercial real
estate.
 
  Although the Bank's maximum exposure to credit loss is the total contract
amount of the commitments and letters of credit noted above, management does
not anticipate any material losses as a result of these agreements and does
not consider them to represent an undue level of credit, interest or liquidity
risk for the Bank.
 
  The Bank specializes in lending to small privately owned commercial
enterprises and professional firms throughout southern New England, although
the majority of the loans outstanding are made to borrowers located in
Connecticut. Such loans and loan commitments are generally collateralized by
real estate or other assets.
 
4. PREMISES, EQUIPMENT AND LEASES:
 
<TABLE>   
<CAPTION>
                                                              DECEMBER 31,
                                                JUNE 30,  ---------------------
                                                  1997       1996       1995
                                               ---------- ---------- ----------
   <S>                                         <C>        <C>        <C>
   Land....................................... $      --  $      --  $   12,700
   Buildings and leasehold improvements.......  1,330,639  1,001,610  1,014,120
   Furniture, fixtures and equipment..........  2,795,260  2,173,727  2,006,401
                                               ---------- ---------- ----------
                                                4,125,899  3,175,337  3,033,221
   Less: Accumulated depreciation and
    amortization..............................  1,957,988  1,660,157  1,762,948
                                               ---------- ---------- ----------
       Premises and equipment, net............ $2,167,911 $1,515,180 $1,270,273
                                               ========== ========== ==========
</TABLE>    
 
                                     F-15
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
   
  Each of the leases provide for minimum and contingent rentals and include
renewal options. Total rental expense for the six months ended June 30, 1997
and the years ended December 31, 1996, 1995 and 1994 was $390,788, $636,196,
$455,719 and $374,587, respectively. Minimum future obligations for premises
under noncancelable leases are as follows:     
 
<TABLE>
<CAPTION>
         YEAR ENDED                                             OPERATING LEASES
         ----------                                             ----------------
         <S>                                                    <C>
         1997..................................................    $  751,756
         1998..................................................       197,508
         1999..................................................       197,527
         2000..................................................       154,530
         2001..................................................        29,598
                                                                   ----------
                                                                   $1,330,919
                                                                   ==========
</TABLE>
 
5. DEPOSITS:
 
<TABLE>   
<CAPTION>
                                                             DECEMBER 31,
                                            JUNE 30,   -------------------------
                                              1997         1996         1995
                                          ------------ ------------ ------------
   <S>                                    <C>          <C>          <C>
   Non-interest bearing checking......... $ 27,000,586 $ 27,887,496 $ 22,621,086
   Interest-bearing checking.............    8,557,022    8,248,470   10,731,941
   Savings...............................   82,008,617   69,277,894   71,026,141
   Time deposits under $100,000..........   32,460,353   37,085,188   21,716,052
   Time deposits $100,000 or more........    8,620,873    1,817,101    2,266,248
                                          ------------ ------------ ------------
     Total deposits...................... $158,647,451 $144,316,149 $128,361,468
                                          ============ ============ ============
</TABLE>    
 
6. FEDERAL HOME LOAN BANK OF BOSTON ADVANCES:
   
  The Bank has a $2,870,000 unused line of credit from the Federal Home Loan
Bank of Boston (FHLBB) and currently has the ability to borrow approximately
$3,800,000 from the FHLBB under various term advance programs. Any outstanding
advances from the FHLBB are collateralized by holdings of stock in the FHLBB,
mortgage loans on residential properties and certain U.S. Treasury and Agency-
issued securities.     
 
7. STOCKHOLDERS' EQUITY:
   
STOCKHOLDER NOTE RECEIVABLE     
 
  In June 1994 the Board of Directors approved the issuance of 175,600 shares
(614,600 shares as adjusted for the Common Stock Split) of the Company's
common stock to the Company's President at a price of $1.69 per share. The
terms of the transaction provided for a cash down payment of $17,560 and a
promissory note in the amount of $1,020,236 for the balance. The note bears
interest at the rate of 7% and is collateralized by the stock issued and the
personal guaranty of the President. Principal and interest payments are due at
maturity on December 31, 2000, however, if the public offering is completed,
the interest will be forgiven (See Note 13). No interest income has been
reflected in the financial statements for the interest due under the note. The
President is legally entitled to any cash dividends declared, although the
promissory note provided that 75% of such cash dividends must be retained by
the Company and applied to the note as a repayment of principal. This
repayment provision was eliminated effective January 1, 1997.
 
  Although the stock is legally outstanding, since a note was accepted in
exchange for a portion of the issue price, the note receivable is presented as
a separate component of stockholders' equity, and only as repayments
 
                                     F-16
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of principal are received does this sale of stock serve to increase
stockholders' equity. Because these shares are legally outstanding, they are
included in the earnings per share calculations as of the date of issuance.
 
  Pursuant to this arrangement, when the Company paid dividends, the President
made principal payments on the note of $52,711 and $13,558 in 1996 and 1995,
respectively, which served to increase stockholders' equity.
   
REPURCHASE AND RETIREMENT OF COMMON STOCK     
   
  The Board of Directors authorized the repurchase and retirement of 7,875,
62,132, and 28,550 shares of the Company's common stock for average purchase
prices of $2.78, $1.75 and $1.51 per share in 1996, 1995 and 1994,
respectively.     
   
DIVIDENDS     
 
  Dividends payable by First International Bancorp, Inc. are generally
unrestricted (see below), although the ability of the Company to pay dividends
is dependent upon the dividends paid to it by the Bank. A national bank must
obtain the approval of the Office of the Comptroller of the Currency (OCC) if
the total of all dividends declared in any calendar year exceeds the bank's
net profits, as defined, for that year combined with its retained net profits
for the preceding two calendar years.
   
REGULATORY CAPITAL REQUIREMENTS     
   
  Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets (as defined in regulations). Management
believes, as of June 30, 1997 and December 31, 1996, the Bank meets all
capital adequacy requirements to which it is subject and that, under the
current regulations, the Bank will continue to meet its minimum capital
requirements in the foreseeable future.     
   
  As of June 30, 1997 and December 31, 1996, the most recent notifications
from the Office of the Comptroller of the Currency categorized the Bank as
well-capitalized under the regulatory framework for prompt corrective action.
To be categorized as well-capitalized, the Bank must maintain minimum total
and Tier I risk-based and Tier I leverage ratios as set forth in the table
below. There are no conditions or events since the notification that
management believes have changed the Bank's category.     
 
<TABLE>   
<CAPTION>
                                                                TO BE WELL CAPITALIZED
                                                FOR CAPITAL     UNDER PROMPT CORRECTIVE
                            ACTUAL RATIOS    ADEQUACY PURPOSES     ACTION PROVISIONS
                          -----------------  -----------------  --------------------------
                            AMOUNT    RATIO    AMOUNT    RATIO      AMOUNT      RATIO
                          ----------- -----  ----------- -----  -------------- -----------
<S>                       <C>         <C>    <C>         <C>    <C>            <C>
AS OF JUNE 30, 1997:
  Total Capital (to Risk
   Weighted Assets).....  $16,474,807 11.50% $11,456,912 8.00%  $   14,321,140    10.00%
  Tier I Capital (to
   Risk Weighted
   Assets)..............   14,675,586 10.25%   5,728,456 4.00%       8,592,684     6.00%
  Tier I Capital (to
   Average Assets)......   14,675,586  8.97%   6,540,699 4.00%       8,175,873     5.00%
AS OF DECEMBER 31, 1996:
  Total Capital (to Risk
   Weighted Assets).....  $14,253,389 11.62% $ 9,811,221 8.00%  $   12,264,027    10.00%
  Tier I Capital (to
   Risk Weighted
   Assets)..............   12,702,275 10.36%   4,905,611 4.00%       7,358,416     6.00%
  Tier I Capital (to
   Average Assets)......   12,702,275  8.44%   6,017,340 4.00%       7,521,675     5.00%
AS OF DECEMBER 31, 1995:
  Total Capital (to Risk
   Weighted Assets......  $12,267,631 10.73% $ 9,148,252 8.00%  $   11,435,315    10.00%
  Tier I Capital (to
   Risk Weighted
   Assets)..............   10,831,172  9.47%   4,574,126 4.00%       6,861,189     6.00%
  Tier I Capital (to
   Average Weighted
   Assets)..............   10,831,172  7.71%   5,622,007 4.00%       7,027,509     5.00%
</TABLE>    
 
                                     F-17
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
8. STOCK INCENTIVE PLAN:
 
  The Company's 1994 Incentive Stock Option plan allows for the award of
options to officers which vest immediately. As of December 31, 1996, options
to purchase 354,112 shares of the Company's common stock are available under
this plan.
 
  The Company adopted a 1996 Stock Option Plan which reserves 701,106 shares
of common stock for the issuance of options that may be granted to full time
officers and directors. These options would generally vest ratably over a four
year period beginning one year after the grant date.
 
  Both plans provide that the options may be granted to purchase common stock
at a price not less than the fair market price of the Company's stock at the
date for the granting of such options, and unless otherwise provided, the
options have a ten year term. The plans also provide that options granted and
the related option price are adjusted to reflect changes in the shares
outstanding due to stock splits and dividends, or other adjustments.
 
  The following tables detail the activity under the 1994 Incentive Stock
Option Plan and 1996 Stock Option Plan:
 
                       1994 INCENTIVE STOCK OPTION PLAN
 
<TABLE>   
<CAPTION>
                                                          AVERAGE
                                                 OPTION   OPTION
                                                 SHARES    PRICE
                                                 -------  -------
         <S>                                     <C>      <C>
         Outstanding at January 1, 1994.........     --      --
           Granted.............................. 178,500  $1.689
                                                 -------  ------
         Outstanding at December 31, 1994....... 178,500   1.689
           Granted.............................. 131,250   1.840
           Exercised............................  (3,500)  1.764
           Cancelled............................  (1,750)  1.840
                                                 -------  ------
         Outstanding at December 31, 1995....... 304,500   1.752
           Granted..............................  83,650   2.191
           Exercised............................ (21,000)  2.045
           Cancelled............................ (37,538)  1.866
                                                 -------  ------
         Outstanding at December 31, 1996....... 329,612   1.832
           Exercised............................  (7,175)  1.738
           Cancelled............................  (5,512)  2.191
                                                 -------  ------
         Outstanding at June 30, 1997........... 316,925  $1.828
                                                 =======  ======
</TABLE>    
                            1996 STOCK OPTION PLAN
<TABLE>   
<CAPTION>
                                                          AVERAGE
                                                 OPTION   OPTION
                                                 SHARES    PRICE
                                                 -------  -------
         <S>                                     <C>      <C>
         Outstanding at January 1, 1996.........     --      --
           Granted..............................  46,662  $2.191
           Cancelled............................  (1,568)  2.191
                                                 -------  ------
         Outstanding at December 31, 1996.......  45,094   2.191
           Granted.............................. 255,462   2.631
           Cancelled............................ (39,991)  2.603
                                                 -------  ------
         Outstanding at June 30, 1997........... 260,565  $2.560
                                                 =======  ======
</TABLE>    
 
                                     F-18
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
   
  The Company utilizes the minimum value methodology of SFAS 123 and has
determined that there is no compensation expense for any options granted in
1997, 1996 or 1995, assuming an original four-year expected life, annual
dividends ranging from 6.2% to 7.7% of the exercise prices and risk-free
interest rates of 5.9%, 5.9% and 5.4% for grants issued in the periods ended
June 30, 1997, December 31, 1996 and December 30, 1995, respectively.     
 
9. INCOME TAXES:
 
  The components of the income tax provision (benefit) for the years ended
December 31 are as follows:
 
<TABLE>   
<CAPTION>
                                                 1996        1995       1994
                                              ----------  ----------  --------
   <S>                                        <C>         <C>         <C>
   Current provision (benefit):
     Federal................................. $1,883,002  $1,155,382  $530,700
     State...................................    718,603     391,572     5,000
                                              ----------  ----------  --------
                                               2,601,605   1,546,954   535,700
   Deferred provision (benefit):
     Federal.................................   (183,844)    (60,086)   51,900
     State...................................    (64,980)     36,132    17,500
     Benefit from state net operating loss
      carryforward...........................        --      (28,600)  (22,100)
                                              ----------  ----------  --------
                                                (248,824)    (52,554)   47,300
                                              ----------  ----------  --------
       Total provision for income taxes...... $2,352,781  $1,494,400  $583,000
                                              ==========  ==========  ========
</TABLE>    
 
  The effective tax rates differ from the federal statutory rate due to state
taxes, net of the federal benefit.
 
  The components of the net deferred tax asset (liability) at December 31 are
follows:
 
<TABLE>
<CAPTION>
                                              1996                 1995
                                        ------------------  -------------------
                                        FEDERAL    STATE     FEDERAL    STATE
                                        --------  --------  ---------  --------
   <S>                                  <C>       <C>       <C>        <C>
   Deferred tax liabilities:
     Allowance for possible loan
      losses..........................  $   (-- ) $   (-- ) $ (77,395) $(27,418)
     Depreciation.....................   (56,232)  (19,403)   (67,221)  (23,814)
     Deferred loan costs..............   (20,304)   (7,006)   (15,538)   (5,505)
     Other............................    (5,656)     (603)      (389)     (137)
                                        --------  --------  ---------  --------
                                         (82,192)  (27,012)  (160,543)  (56,874)
   Deferred tax assets:
     Reserve for other real estate
      owned...........................       --        --      84,966    30,100
     Reserve for investment securities
      available for sale..............    38,235    13,545     11,232     3,968
     Allowance for possible loan
      losses..........................   152,366    52,575        --        --
     Other............................    92,408    31,886     54,316    19,242
                                        --------  --------  ---------  --------
                                         283,009    98,006    150,514    53,310
                                        --------  --------  ---------  --------
       Net deferred tax asset
        (liability)...................  $200,817  $ 70,994  $ (10,029) $ (3,564)
                                        ========  ========  =========  ========
</TABLE>
 
  A valuation allowance was provided against the deferred state tax assets in
1994 to reflect the possibility that all or a portion of these assets may not
have been realized due to a lack of sufficient taxable income in the future.
The valuation allowance decreased $24,200 and $198,901 in 1995 and 1994,
respectively, due principally to the utilization of state loss carryforwards
to offset taxable income for those years.
 
                                     F-19
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
10. EMPLOYEE BENEFIT PLAN:
   
  The Company maintains a contributory savings plan which qualifies under
Section 401(k) of the Internal Revenue Code for employees meeting certain
service requirements. Eligible employees may make contributions to the Plan
based on specified percentages of their compensation. In 1996, the Company
matched 75% of their contribution, up to 6% of compensation. The matching
contribution was 50% in prior years. The Company's matching contributions were
$60,273, $95,740, $55,679 and $43,807 for the six months ended June 30, 1997
and the years ended December 31, 1996, 1995 and 1994, respectively.     
 
11. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS:
 
  Statement of Financial Accounting Standards No. 107 "Disclosures About Fair
Value of Financial Instruments" (SFAS 107) requires the Company to disclose
fair value information for certain of its financial instruments, including
loans, securities, deposits, borrowings and other such instruments. Quoted
market prices are not available for a significant portion of the Company's
financial instruments and, as a result, the fair values presented may not be
indicative of net realizable or liquidation values. Fair values are estimates
derived using present value or other valuation techniques and are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics and other factors. In addition, fair value
estimates are based on market conditions and information about the financial
instrument at a specific point in time. Fair value estimates are based on
existing on- and off-balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Such items include
loan servicing, core deposit intangibles and other customer relationships,
premises and equipment, foreclosed real estate and income taxes. In addition,
the tax ramifications relating to the realization of the unrealized gains and
losses may have a significant effect on fair value estimates, and have not
been considered in the estimates.
 
  The following is a summary of the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments pursuant to
SFAS 107:
 
  CASH, CASH EQUIVALENTS AND OTHER: The fair value of cash and due from banks,
federal funds sold, accrued interest receivable and accrued interest payable,
is considered to approximate the book value due to their short-term nature and
negligible credit losses.
 
  SECURITIES: Securities classified as available-for-sale are carried at fair
value. Fair value for securities available for sale and held to maturity was
determined by secondary market and independent broker quotations.
 
  LOANS: The fair values for loans are estimated using discounted cash flow
analyses, and interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
 
  DEPOSIT LIABILITIES: The fair value for demand and savings deposits is equal
to the amount payable on demand at the balance sheet date which is equal to
the carrying value. The fair value of certificates of deposit was estimated by
discounting cash flows using rates currently offered by the Bank for deposits
of similar remaining maturities.
 
                                     F-20
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The fair value information of the Company's financial instruments required
to be valued by SFAS 107 are as follows:
 
<TABLE>
<CAPTION>
                                  DECEMBER 31,              DECEMBER 31,
                                      1996                      1995
                            ------------------------- -------------------------
                              CARRYING    ESTIMATED     CARRYING    ESTIMATED
                               VALUE      FAIR VALUE     VALUE      FAIR VALUE
                            ------------ ------------ ------------ ------------
<S>                         <C>          <C>          <C>          <C>
FINANCIAL ASSETS
 Cash and due from banks... $  5,866,653 $  5,866,653 $  5,250,477 $  5,250,477
 Federal funds sold........   13,000,000   13,000,000    4,800,000    4,800,000
 Securities available for
  sale.....................   11,523,795   11,523,795    6,642,123    6,642,123
 Securities held to
  maturity.................    3,062,478    3,055,997    4,116,443    4,104,322
 Loans.....................  109,452,484  108,910,302  102,731,649  102,628,830
 Accrued interest
  receivable...............      823,471      823,471      877,330      877,330
FINANCIAL LIABILITIES
 Deposits
  Checking................. $ 36,135,966 $ 36,135,966 $ 33,353,027 $ 33,353,027
  Savings..................   69,277,894   69,277,894   71,026,141   71,026,141
  Time deposits............   38,902,289   39,078,984   23,982,300   24,046,909
 U.S. Treasury Demand Note.    1,061,449    1,061,449      220,685      220,685
 Accrued interest payable..      621,609      621,609      298,076      298,076
</TABLE>
 
12. PARENT COMPANY FINANCIAL INFORMATION:
 
  First International Bancorp, Inc. is the parent company of First National
Bank of New England. There have been no loans extended from the Bank to First
International Bancorp, Inc. since inception of the holding company. First
Regional Investcorp, Inc. (Investcorp), a regional investment bank, was merged
into its parent in December 1994. The results of Investcorp's operations were
not material to the Company.
                                        
                                         
<TABLE>   
<CAPTION>
                                                              DECEMBER 31,
                                              JUNE 30,   -----------------------
                                                1997        1996        1995
CONDENSED BALANCE SHEETS                     ----------- ----------- -----------
                                             (UNAUDITED)
<S>                                          <C>         <C>         <C>
                   ASSETS
Cash on deposit with Bank subsidiary........ $    31,047 $    21,288 $   190,753
Investment in the Bank......................  15,964,424  14,194,288  11,410,871
                                             ----------- ----------- -----------
                                             $15,995,471 $14,215,576 $11,601,624
                                             =========== =========== ===========
    LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity........................ $15,995,471 $14,215,576 $11,601,624
                                             ----------- ----------- -----------
                                             $15,995,471 $14,215,576 $11,601,624
                                             =========== =========== ===========
</TABLE>    
 
                                     F-21
<PAGE>
 
                FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
       
       
<TABLE>   
<CAPTION>
                                                            FOR THE SIX MONTHS
                          FOR THE YEARS ENDED DECEMBER 31,    ENDED JUNE 30,
                          -------------------------------- ---------------------
CONDENSED STATEMENTS OF      1996       1995       1994       1997       1996
INCOME                    ---------- ---------- ---------- ---------- ----------
                                                                (UNAUDITED)
<S>                       <C>        <C>        <C>        <C>        <C>
Dividends from Bank
 subsidiary.............  $  415,000 $  430,000 $  100,000 $  327,000 $  125,000
Equity in undistributed
 net income of the Bank.   2,829,336  1,596,229    958,019  1,726,043  1,500,398
Other, net..............         --         --       1,921        --         --
                          ---------- ---------- ---------- ---------- ----------
Net income..............  $3,244,336 $2,026,229 $1,059,940 $2,053,043 $1,625,398
                          ========== ========== ========== ========== ==========
</TABLE>    
       
       
<TABLE>   
<CAPTION>
                                                                    SIX MONTHS ENDED
                                  YEAR ENDED DECEMBER 31,               JUNE 30,
                              ----------------------------------  ----------------------
CONDENSED STATEMENTS OF CASH     1996        1995        1994        1997        1996
FLOWS                         ----------  ----------  ----------  ----------  ----------
                                                                       (UNAUDITED)
<S>                           <C>         <C>         <C>         <C>         <C>
Net income..................  $3,244,336  $2,026,229  $1,059,940  $2,053,043  $1,625,398
Adjustments to reconcile net
 income to net cash provided
 by operating activities:
  Equity in undistributed
   net income of
   subsidiaries.............  (2,829,336) (1,596,229)   (958,375) (1,726,043) (1,500,398)
                              ----------  ----------  ----------  ----------  ----------
    Net cash provided by
     operations:............     415,000     430,000     101,565     327,000     125,000
Cash flows from investing
 activities:
  Return of capital from
   Investcorp...............         --          --       22,342         --          --
  Decrease in other
   investments..............         --          --          652         --          --
  Increase in Bank
   investment...............         --          --     (250,000)        --          --
                              ----------  ----------  ----------  ----------  ----------
    Net cash used in
     investing activities...         --          --     (227,006)        --          --
                              ----------  ----------  ----------  ----------  ----------
Cash flows from financing
 activities:
  Issuance of common stock..      42,945       6,175      17,560      12,469      42,945
  Repurchase of common
   stock....................     (21,859)   (108,742)    (43,092)        --       (1,469)
  Dividend paid.............    (658,262)   (164,378)        --     (329,710)   (328,756)
  Principal payment on
   stockholder note
   receivable...............      52,711      13,558         --          --       26,356
                              ----------  ----------  ----------  ----------  ----------
    Net cash used in
     financing activities...    (584,465)   (253,387)    (25,532)   (317,241)   (260,924)
                              ----------  ----------  ----------  ----------  ----------
    Net increase (decrease)
     in cash and cash
     equivalents............    (169,465)    176,613    (150,973)      9,759    (135,924)
                              ----------  ----------  ----------  ----------  ----------
Cash and cash equivalents
 beginning of year..........     190,753      14,140     165,113      21,288     190,753
                              ----------  ----------  ----------  ----------  ----------
Cash and cash equivalents
 end of year................  $   21,288  $  190,753  $   14,140  $   31,047  $   54,829
                              ==========  ==========  ==========  ==========  ==========
</TABLE>    
 
 
                                      F-22
<PAGE>
 
               FIRST INTERNATIONAL BANCORP, INC. AND SUBSIDIARY
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
          
13. SUBSEQUENT EVENTS:     
 
  At the June 26, 1997 annual meeting of stockholders, a proposal to amend the
Company's Certificate of Incorporation to authorize 12,000,000 shares of
common stock and to establish a class of 2,000,000 shares of preferred stock
was approved. In addition, the Board of Directors was granted the power to
establish and designate the different series and voting powers, designations,
preferences and other rights, qualifications, limitations or restrictions to
be placed upon any shares of preferred stock to be issued by the Company. The
stockholders approved a 3.5-for-1 common stock split (see Note 1).
   
  On June 26, 1997, the Company's Board authorized the filing of a
registration statement relating to a public offering of up to 2,000,000 shares
of common stock.     
   
  On July 21, 1997 the Board of Directors granted options to purchase 182,213
shares of common stock to certain officers under the Company's 1996 Stock
Option Plan. The options have a 10 year term and an option price of $8.50. The
options vest over various time periods ranging from two to four years. Also on
July 21, 1997, the Board of Directors granted options to purchase 40,000
shares of common stock to non-employee directors at an option price of $8.50.
Such options will vest upon completion of the planned public offering
discussed above.     
 
                                     F-23
<PAGE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
   
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.     
   
UNTIL      , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECU-
RITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.     
 
                                ---------------
 
                               TABLE OF CONTENTS
 
<TABLE>   
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
Prospectus Summary........................................................    3
Risk Factors..............................................................    8
Use of Proceeds...........................................................   14
Dividend Policy...........................................................   14
Dilution..................................................................   15
Capitalization............................................................   16
Selected Consolidated Financial Data......................................   17
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   20
Business..................................................................   43
Regulation and Supervision................................................   62
Management................................................................   67
Certain Transactions......................................................   74
Principal Stockholders....................................................   75
Description of Capital Stock..............................................   77
Shares Eligible for Future Sale...........................................   79
Underwriting..............................................................   81
Legal Matters.............................................................   82
Experts...................................................................   82
Additional Information....................................................   82
Annual and Quarterly Reports..............................................   83
Index to Consolidated Financial Statements................................  F-1
</TABLE>    
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                               1,700,000 Shares
                                    [LOGO]
 
                       FIRST INTERNATIONAL BANCORP, INC.
                                 Common Stock
                                ---------------
                                  PROSPECTUS
                                ---------------
 
                      PRUDENTIAL SECURITIES INCORPORATED
 
                         KEEFE, BRUYETTE & WOODS, INC.
 
                                       , 1997
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
 
                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
  Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than the underwriting discount, are
estimated as follows:
 
<TABLE>   
<CAPTION>
                                                                        TOTAL
                                                                       --------
     <S>                                                               <C>
     SEC Registration Fee............................................. $  7,750
     NASD Fees........................................................    2,846
     NASDAQ Listing Fees..............................................   36,186
     Printing and Engraving Expenses..................................  125,000
     Legal Fees and Expenses..........................................  175,000
     Accountants' Fees and Expenses...................................  100,000
     Expenses of Qualification Under State Securities Laws, Including
      Attorneys' Fees.................................................    4,500
     Transfer Agent and Registrar's Fees..............................    5,000
     Miscellaneous Costs..............................................  143,718
                                                                       --------
       Total.......................................................... $600,000
                                                                       ========
</TABLE>    
 
ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
 
  Section 145 of the Delaware General Corporation law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
to the extent and under the circumstances set forth therein.
 
  The Amended and Restated Certificate of Incorporation of the Company and the
Amended and Restated By-laws of the Company, copies of which are filed as
Exhibits 3.1 and 3.2, provide for indemnification of officers and directors of
the Company and certain other persons against liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
 
  On June 30, 1994, the Registrant issued 175,600 shares (614,600 shares as
adjusted for the 3.5 for 1 stock split effected by the Company in August 1997)
of Common Stock to Brett N. Silvers, Chairman of the Board and President of
the Registrant, for an aggregate consideration of $17,560 in cash and a
promissory note in the principal amount of $1,020,236.
   
  The Registrant has, from time to time, issued an aggregate of 9,200 shares
(32,200 shares as adjusted for the 3.5-for-1 stock split effected by the
Registrant in August 1997) of restricted Common Stock to various employees
upon the exercise of options granted pursuant to the Company's 1994 Incentive
Stock Option Plan for aggregate consideration of $62,739.50 at an average
exercise price of $6.82 per share ($1.95 per share as adjusted for the 3.5-
for-1 stock split effected by the Registrant in August 1997).     
 
 
                                     II-1
<PAGE>
 
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
  (a) The following is a list of exhibits filed as a part of this registration
statement:
 
<TABLE>   
<CAPTION>
 EXHIBITS
 --------
 <C>      <S>
   +1.1   Form of Underwriting Agreement.
   *3.1   Amended and Restated Certificate of Incorporation of the Registrant.
   *3.2   Amended and Restated By-laws of the Registrant.
   *4.1   Specimen Common Stock Certificate.
   +5.1   Opinion of Bingham, Dana & Gould LLP with respect to the legality of
          the shares being registered.
  *10.1   Employment Agreement among Registrant, First National Bank of New
          England (the "Bank") and Brett N. Silvers; as amended by Letter
          Agreement, dated July 7, 1997.
  *10.2   Promissory Note of Brett N. Silvers, payable to the Registrant, dated
          June 30, 1994, as amended.
  *10.3   Stock Pledge Agreement, dated June 30, 1994, between the Registrant
          and Brett N. Silvers, as amended.
  *10.4   Amended and Restated 1996 Stock Option Plan.
  *10.5   1994 Incentive Stock Option Plan, as amended.
  *10.6   401(k) Plan.
   10.7   Lease between Cambridge One Commercial Plaza, LLC and the Bank.
   11.1   Computation of Income Per Share.
  *21.1   Subsidiaries of Registrant.
   23.1   Consent of Coopers & Lybrand L.L.P.
  +23.2   Consent of Bingham, Dana & Gould LLP, counsel to Registrant (included
          in Exhibit 5.1).
  *24.1   Power of Attorney (included in signature page to Registration
          Statement).
   27     Financial Data Schedule.
</TABLE>    
- --------
   
* Previously filed.     
   
+ To be filed by Amendment.     
 
  (b) All other schedules have been omitted because either they are not
required, are not applicable, or the information is otherwise set forth in the
Consolidated Financial Statements and notes thereto.
 
ITEM 17. UNDERTAKINGS
 
  Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
 
 
                                     II-2
<PAGE>
 
  The undersigned Registrant hereby undertakes:
 
    (1) To provide the Underwriter at the closing specified in the
  Underwriting Agreement certificates in such denominations and registered in
  such names as required by the Underwriter to permit prompt delivery to each
  purchaser.
 
    (2) That for purposes of determining any liability under the Securities
  Act of 1933, the information omitted from the form of prospectus filed as
  part of this registration statement in reliance upon Rule 430A and
  contained in a form of prospectus filed by the Registrant pursuant to Rule
  424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be
  part of this registration statement as of the time it was declared
  effective.
 
    (3) That for the purpose of determining any liability under the
  Securities Act of 1933, each post-effective amendment that contains a form
  of prospectus shall be deemed to be a new registration statement relating
  to the securities offered therein, and the offering of such securities at
  that time shall be deemed to be the initial bona fide offering thereof.
 
                                     II-3
<PAGE>
 
                                  SIGNATURES
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
FIRST INTERNATIONAL BANCORP, INC., HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HARTFORD, STATE OF
CONNECTICUT, ON THIS 22ND DAY OF AUGUST, 1997.     
 
                                          First International Bancorp, Inc.
 
                                                   /s/ Brett N. Silvers
                                          By: _________________________________
                                                     BRETT N. SILVERS
                                                 CHAIRMAN OF THE BOARD AND
                                                         PRESIDENT
          
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:     
 
              SIGNATURE                        TITLE                 DATE
 
 
                                       Chairman of the         
      /s/ Brett N. Silvers          Board and President    August 22, 1997
_____________________________________                          
          BRETT N. SILVERS
 
                                          Director                     
          Michael R. Carter*                                  August 22, 1997
_____________________________________                               
          MICHAEL R. CARTER
 
                                          Director                          
            Arnold L. Chase*                                   August 22, 1997
_____________________________________                          
           ARNOLD L. CHASE
 
                                      Director                
           Cheryl A. Chase*                                   August 22, 1997
_____________________________________                          
           CHERYL A. CHASE
 
                                      Director                
         Frank P. Longobardi*                                August 22, 1997
_____________________________________                          
         FRANK P. LONGOBARDI
 
                                      Director                
         Bernard M. Waldman*                                 August 22, 1997
_____________________________________                          
         BERNARD M. WALDMAN
 
                                      Executive Vice          
    /s/ Leslie A. Galbraith           President,             August 22, 1997
_____________________________________   Secretary and          
                                        Treasurer
      LESLIE A. GALBRAITH 
      
      /s/ Brett N. Silvers 

*By: ___________________________ 
        
        BRETT N. SILVERS 
        ATTORNEY-IN-FACT     
 
                                     II-4
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>   
<CAPTION>
 EXHIBIT
   NO.                                DESCRIPTION
 -------                              -----------
 <C>     <S>
   +1.1  Form of Underwriting Agreement.
   *3.1  Amended and Restated Certificate of Incorporation of the Registrant.
   *3.2  Amended and Restated By-laws of the Registrant.
   *4.1  Specimen Common Stock Certificate.
   +5.1  Opinion of Bingham, Dana & Gould LLP with respect to the legality of
         the shares being registered.
  *10.1  Employment Agreement among Registrant, First National Bank of New
         England (the "Bank") and Brett N. Silvers; as amended by Letter
         Agreement, dated July 7, 1997.
  *10.2  Promissory Note of Brett N. Silvers, payable to the Registrant, dated
         June 30, 1994, as amended.
  *10.3  Stock Pledge Agreement, dated June 30, 1994, between the Registrant
         and Brett N. Silvers, as amended.
  *10.4  Amended and Restated 1996 Stock Option Plan.
  *10.5  1994 Incentive Stock Option Plan, as amended.
  *10.6  401(k) Plan.
   10.7  Lease between Cambridge One Commercial Plaza, LLC and the Bank.
   11.1  Computation of Income Per Share.
  *21.1  Subsidiaries of Registrant.
   23.1  Consent of Coopers & Lybrand L.L.P.
  +23.2  Consent of Bingham, Dana & Gould LLP, counsel to Registrant (included
         in Exhibit 5.1).
  *24.1  Power of Attorney (included in signature page to Registration
         Statement).
   27    Financial Data Schedule.
</TABLE>    
- --------
   
* Previously filed.     
   
+ To be filed by Amendment.     
       

<PAGE>
 



                                     LEASE

                                    between

                      CAMBRIDGE ONE COMMERCIAL PLAZA, LLC

                                      and

                       FIRST NATIONAL BANK OF NEW ENGLAND

                              One Commercial Plaza
                          Hartford, Connecticut  06103


Attorneys for Landlord:                              Attorney(s) for Tenant:
                                 
Levin, Ford & Paulekas, LLP                          Bingham, Dana & Gould LLP
One State Street                                     100 Pearl Street
Hartford, CT  06103                                  Hartford, CT 06103
Attention: Nancy DuBois Wright                       Attention: Bruce C. Silvers
<PAGE>
 
ONE COMMERCIAL PLAZA FORM LEASE
<TABLE>
<CAPTION>
<S>                                                           <C>
ARTICLE 1 - THE PREMISES.....................................  1
     Section 1.1   The Building and the Property.............  1
     -----------   -----------------------------
     Section 1.2   The Premises..............................  1
     -----------   ------------
 
ARTICLE 2 - TERM.............................................  2
     Section 2.1   Commencement Date.........................  2
     -----------   -----------------
     Section 2.2   Expansion Space...........................  2
     -----------   ---------------
 
ARTICLE 3 - BASE RENT........................................  3
     Section 3.1   Base Rent.................................  3
     -----------   ---------
     Section 3.2   Base Rent for Expansion Space.............  3
     -----------   -----------------------------
 
ARTICLE 4
ADDITIONAL RENT - OPERATING EXPENSES AND TAXES...............  4
     Section 4.1   Operating Expenses and Electrical Expenses  4
     -----------   ------------------------------------------
     Section 4.2   Taxes.....................................  6
     -----------   -----
     Section 4.3   Tenant's Share for Expansion Space........  7
     -----------   ----------------------------------
 
ARTICLE 5 - USE..............................................  7
     Section 5.1   Use of the Premises.......................  7
     -----------   -------------------
     Section 5.2   Proper Care...............................  7
     -----------   -----------
     Section 5.3   Interference..............................  7
     -----------   ------------
     Section 5.4   Permitted Loads...........................  8
     -----------   ---------------
     Section 5.5   Additional Electricity and Cost...........  8
     -----------   -------------------------------
 
ARTICLE 6
CONDITION OF THE PREMISES AND TENANT IMPROVEMENTS............  8
     Section 6.1   Condition of the Premises.................  8
     -----------   -------------------------
     Section 6.2   Tenant Plans..............................  8
     -----------   ------------
     Section 6.3   Modifications.............................  9
     -----------   -------------
     Section 6.4   Use of Landlord's Services and Equipment..  9
     -----------   ----------------------------------------
 
ARTICLE 7 - SUBORDINATION AND ATTORNMENT.....................  9
     Section 7.1   Subordination.............................  9
     -----------   -------------
     Section 7.2   Attornment................................ 10
     -----------   ----------
     Section 7.3   Notice to Mortgagee and Right to Cure..... 10
     -----------   -------------------------------------
     Section 7.4   Current Mortgagees........................ 10
     -----------   ------------------
 
ARTICLE 8
ASSIGNMENT, SUBLETTING, PLEDGING OR ENCUMBERING OF LEASE..... 11
     Section 8.1   Assignment, Subletting, Pledging 
     -----------   --------------------------------
                     or Encumbering.......................... 11
                     --------------
     Section 8.2   Landlord's Consent........................ 11
     -----------   ------------------
     Section 8.3   Recapture................................. 11
     -----------   ---------
 
ARTICLE 9 - INSURANCE........................................ 12
     Section 9.1   Casualty Insurance........................ 12
     -----------   ------------------
</TABLE> 

                                     - i -
<PAGE>
 
<TABLE> 
<S>                                                          <C> 
     Section 9.2   Use of Insurance Money to Repair.......... 12
     -----------   --------------------------------
     Section 9.3   Liability Insurance....................... 12 
     -----------   -------------------
     Section 9.4   Landlord's Right to Make Insurance 
     -----------   ----------------------------------
                     Payments................................ 12
                     --------
     Section 9.5   Compliance with Policies.................. 13
     -----------   ------------------------
     Section 9.6   Waiver of Subrogation..................... 13
     -----------   ---------------------
 
ARTICLE 10 - PERSONAL PROPERTY............................... 13
     Section 10.1  Landlord's Property....................... 13
     ------------  -------------------
     Section 10.2  Removal of Property....................... 13
     ------------  -------------------
     Section 10.3  Tenant's Property......................... 13
     ------------  -----------------
 
ARTICLE 11
HEATING, VENTILATION AND AIR CONDITIONING.................... 14
 
ARTICLE 12 - LANDLORD'S SERVICES............................. 14
     Section 12.1  Elevator Service.......................... 14
     ------------  ----------------
     Section 12.2  Cleaning Service.......................... 14
     ------------  ----------------
     Section 12.3  Directory Listing......................... 14
     ------------  -----------------
 
ARTICLE 13
ACCESS, ENTRY, CHANGES IN THE BUILDING FACILITIES............ 15
     Section 13.1  Access to the Building ................... 15
     ------------  ----------------------
     Section 13.2  Ducts..................................... 15
     ------------  -----
     Section 13.3  Right of Entry............................ 15
     ------------  --------------
     Section 13.4  Right to Show Premises.................... 15
     ------------  ----------------------
     Section 13.5  Changes to Building and Property.......... 15
     ------------  --------------------------------
 
ARTICLE 14 - NOTICE OF ACCIDENTS............................. 15
 
ARTICLE 15 - NON-LIABILITY AND INDEMNIFICATION............... 16
     Section 15.1  Non-Liability............................. 16
     ------------  -------------
     Section 15.2  Indemnification........................... 16
     ------------  ---------------
 
ARTICLE 16 - DAMAGE OR DESTRUCTION........................... 16
     Section 16.1  Repair of Damage.......................... 16
     ------------  ----------------
     Section 16.2  Rent Abatement............................ 16
     ------------  --------------
     Section 16.3  Substantial Destruction................... 17
     ------------  -----------------------
 
ARTICLE 17 - EMINENT DOMAIN.................................. 17
     Section 17.1  Entire Taking............................. 17
     ------------  -------------
     Section 17.2  Partial Taking............................ 17
     ------------  --------------
     Section 17.3  Award..................................... 17
     ------------  -----
 
ARTICLE 18 - SURRENDER....................................... 18
 
ARTICLE 19 - DEFAULT......................................... 18
     Section 19.1  Event of Default ......................... 18
     ------------  ----------------
</TABLE>

                                     - ii -
<PAGE>
 
<TABLE>
<S>                                                           <C>
     Section 19.2  Landlord's Remedies for Event of Default.. 19 
     ------------  ----------------------------------------
     Section 19.3  Notice.................................... 20
     ------------  ------
     Section 19.4  Interest.................................. 20 
     ------------  --------
     Section 19.5  Waiver of Jury Trial...................... 20 
     ------------  --------------------

 ARTICLE 20 - LIMITATION OF LIABILITY 20
     Section 20.1  Obligations, Losses and Damages........... 20
     ------------  -------------------------------
     Section 20.2  Repairs................................... 21
     ------------  -------
     Section 20.3  Waiver.................................... 21
     ------------  ------
 
ARTICLE 21
NO OTHER WAIVERS OR MODIFICATIONS............................ 21
 
ARTICLE 22
CURING TENANT'S DEFAULTS, ADDITIONAL RENT.................... 22
     Section 22.1  Curing Tenant's Defaults.................. 22
     ------------  ------------------------
     Section 22.2  Additional Rent........................... 22
     ------------  ---------------
 
ARTICLE 23 - BROKER.......................................... 22
 
ARTICLE 24 - NOTICES......................................... 22
 
ARTICLE 25
ESTOPPEL CERTIFICATE AND PROHIBITION OF RECORDING LEASE...... 23
     Section 25.1  Estoppel Certificate...................... 23
     ------------  --------------------
     Section 25.2  Lease Not to be Recorded.................. 24
     ------------  ------------------------
     Section 25.3  Lease Payment Address..................... 24
     ------------  ---------------------
 
ARTICLE 26 - REPRESENTATIONS AND AGREEMENTS.................. 24
 
ARTICLE 27
TRANSFER OF LANDLORD'S INTEREST AND LIMITATION OF LIABILITY.. 24
     Section 27.1  Transfer of Landlord's Interest........... 24
     ------------  -------------------------------
     Section 27.2  Limitation of Liability................... 24
     ------------  -----------------------
 
ARTICLE 28 - TENANT'S DISCHARGE OF MECHANIC'S LIENS.......... 25
     Section 28.1  Prevention of Liens....................... 25
     ------------  -------------------
     Section 28.2  Discharge of Liens........................ 25
     ------------  ------------------
 
ARTICLE 29 - INTENTIONALLY DELETED........................... 25
 
ARTICLE 30 - MISCELLANEOUS................................... 25
     Section 30.1  Definitions............................... 25
     ------------  -----------
     Section 30.2  Article Headings.......................... 26
     ------------  ----------------
     Section 30.3  Ejusdem Generis........................... 26
     ------------  ---------------
     Section 30.4  Entire Agreement.......................... 26
     ------------  ----------------
     Section 30.5  Governing Law............................. 26
     ------------  -------------
</TABLE> 

                                    - iii -
<PAGE>
 
<TABLE> 
<S>                                                          <C> 
     Section 30.6  Severability.............................. 26
     ------------  ------------
     Section 30.7  Submission of Lease....................... 26
     ------------  -------------------
 
ARTICLE 31 - INTENTIONALLY OMITTED........................... 26
 
ARTICLE 32 - HAZARDOUS SUBSTANCES............................ 26
     Section 32.1  Hazardous Waste........................... 26 
     ------------  ---------------
 
ARTICLE 33 - PARKING......................................... 27
     Section 33.1  Parking................................... 27
     ------------  -------
 
ARTICLE 34
RIGHT OF EXTENSION........................................... 27
     Section 34.1  First Right to Extend..................... 27
     ------------  ---------------------
     Section 34.2  Second Right to Extend.................... 28
     ------------  ----------------------
     Section 34.3  Market Rent Notice........................ 29
     ------------  ------------------
     Section 34.4  Dispute................................... 29
     ------------  -------
     Section 34.5  Appraisal................................. 29
     ------------  ---------
     Section 34.6  Amendment................................. 30
     ------------  ---------
 
ARTICLE 35
TENANT'S SIGNS............................................... 30
     Section 35.1  Ground Floor.............................. 30
     ------------  ------------
     Section 35.2  Lobby Renovation.......................... 30
     ------------  ----------------
 
ARTICLE 36
EXCLUSIVE USE................................................ 31
     Section 36.1  Retail Bank Branch........................ 31
     ------------  ------------------
     Section 36.2  Other Uses................................ 31
     ------------  ----------
 
ARTICLE 37
QUIET ENJOYMENT.............................................. 32
</TABLE>

                                     - iv -
<PAGE>
 
                                LEASE AGREEMENT

     This LEASE AGREEMENT (the "LEASE") dated as of June ____, 1997, between
CAMBRIDGE ONE COMMERCIAL PLAZA, LLC, a Connecticut limited liability company
with a place of business  in care of Cambridge Realty Partners, 750 Main Street,
Hartford, Connecticut 06103 (hereinafter referred to as "Landlord"), and FIRST
NATIONAL BANK OF NEW ENGLAND, a  national banking association with a place of
business at One Commercial Plaza, Hartford, Connecticut 06103 (hereinafter
referred to as "Tenant").

     For and in consideration of the rents herein reserved and the covenants and
agreements herein contained, Landlord and Tenant agree with each other as
follows:


                           ARTICLE 1 - THE PREMISES

     Section 1.1  The Building and the Property
     -----------  -----------------------------

     One Commercial Plaza is a building constructed on land owned by the City of
Hartford and located on the east side of Trumbull Street and the south side of
Church Street in Hartford, Connecticut. One Commercial Plaza is referred to as
the "BUILDING". The land and certain of the easements appurtenant to the land
are described on Exhibit A annexed to this Lease and made a part of it. The
                 ---------                                                 
land, its appurtenances, and the Building are collectively referred to as the
"PROPERTY".  This Lease is subject to the underlying ground lease (the "GROUND
LEASE") between the City of Hartford and Landlord's predecessors, Chase Family
Limited Partnership No. 3 and Olympia & York Hartford, Inc., dated as of October
1, 1981, a copy of which lease is at the Hartford City Hall, Hartford,
Connecticut, as the same has been and may be amended from time to time.

     Section 1.2  The Premises
     -----------  ------------

     Landlord hereby leases to Tenant, and Tenant hereby accepts from Landlord,
the following premises, each designated as set forth below (collectively, the
"PREMISES"):

<TABLE>
<S>                                 <C>       <C>
    Retail Space                     3,800    rentable square feet on the ground floor
    Fourth Floor Space              25,018    rentable square feet on the fourth floor
    Original Twelfth Floor Space     9,311    rentable square feet on the twelfth floor
    Expansion Space A                9,635    rentable square feet on the twelfth floor
    Expansion Space B                6,323    rentable square feet on the twelfth floor
    Storage Space                      224    rentable square feet on the twelfth floor
 
</TABLE>

The foregoing spaces correspond to the hatched areas shown on Exhibits B-1, B-2,
                                                              ------------------
B-3, B-4, B-5, and B-6, respectively, attached to this Lease and hereby made a
- ----------------------                                                        
part of it, and such spaces are hereinafter referred to as designated above.

<PAGE>
 
                               ARTICLE 2 - TERM

     Section 2.1  Commencement Date
     -----------  -----------------

     This Lease shall commence on June 1, 1997 (the "COMMENCEMENT DATE") except
with respect to Expansion Space A and Expansion Space B and except that Tenant
shall have access to the Original Twelfth Floor Space from and after execution
of this Lease for purposes of preparing the same for occupancy and this Lease
shall commence on Tenant's entry with respect only to such space.  The Lease
shall end on December 31, 2002 (the "EXPIRATION DATE").  The period from the
Commencement Date though the Expiration Date is referred to as the "TERM".  This
Lease shall replace and supersede the following earlier leases:

          1.   Lease dated August 21, 1984, between Chase Family Limited
Partnership No. 3 and Olympia & York Hartford, Inc., as landlord and First
National Bank - CT, as tenant, as amended.

          2.   Lease dated as of February 20, 1992, between Chase Family Limited
Partnership No. 3 and O&Y (U.S.) Development Company Limited Partnership, as
landlord, and First National Bank of Connecticut, as tenant, as amended.

     Section 2.2  Expansion Space
     -----------  ---------------

     Landlord hereby leases to Tenant, and Tenant accepts from Landlord,
Expansion Space A and Expansion Space B effective on the Expansion Space A
Commencement Date and Expansion Space B Commencement Date, respectively, as such
terms are hereinafter defined.

     With respect to Expansion Space A, Tenant may give Landlord written notice
at any time prior to December 16, 1998, that it has elected to add Expansion
Space A to the Premises effective on any date prior to December 31, 1998, but
not sooner than fifteen (15) days after such notice.  Effective on the date
specified in such notice, Expansion Space A shall be added to the Premises and
considered part thereof.  If Tenant does not give such notice specifying a date
prior to December 31, 1998, then automatically effective on December 31, 1998
(the earlier of the date so specified or December 31, 1998, the "EXPANSION SPACE
A COMMENCEMENT DATE"), without notice or writing of any kind, Expansion Space A
shall be added to the Premises and considered part thereof.  Upon the Expansion
Space A Commencement Date, the Base Rent shall increase by the amount specified
of Base Rent attributable to Expansion Space A specified in Article 3 hereof,
and additional rent shall increase to reflect the increase in Tenant's Share
attributable to Expansion Space A as specified in Article 4 hereof.

     With respect to Expansion Space B, Tenant may give Landlord written notice
at any time prior to September 15, 1999, that it has elected to add Expansion
Space A to the Premises effective on any date prior to September 30, 1999, but
not sooner than fifteen (15) days after such notice.  Effective on the date
specified in such notice, Expansion Space B shall be added to the Premises and
considered part thereof.  If Tenant does not give such notice specifying a date
prior to September 30, 1999, then automatically effective on September 30, 1999
(the earlier of the date so specified or September 30, 1999, the "EXPANSION
SPACE B COMMENCEMENT DATE"), without notice or writing of any kind, Expansion
Space B shall be added to the Premises and considered part thereof.  Upon the
Expansion Space B Commencement Date, the Base Rent shall increase by the amount
specified of Base Rent attributable to 

                                     - 2 -
<PAGE>
 
Expansion Space B specified in Article 3 hereof, and additional rent shall
increase to reflect the increase in Tenant's Share attributable to Expansion
Space B as specified in Article 4 hereof.


                             ARTICLE 3 - BASE RENT

     Section 3.1  Base Rent
     -----------  ---------

     Tenant shall pay Landlord as base rent (the "BASE RENT") for each year
during the Term the sum of Six Hundred Thousand Eight Hundred Thirty-nine and
50/100 Dollars ($600,839.50) payable in equal monthly installments of Fifty
Thousand Sixty-nine and 96/100 Dollars ($50,069.96) due in advance on the first
day of each month during the Term.

     The Base Rent is calculated based on the following rental rates per
rentable square foot per annum:

<TABLE>
<S>                                            <C>
               Retail Space                    $17.50
               Fourth Floor Space              $15.50
               Original Twelfth Floor Space    $15.50
               Storage Space                   $10.00
</TABLE>
          (a) If the Commencement Date is not the first day of a month, the
installment of Base Rent for the initial partial month shall be equitably
prorated and shall be due in advance.

          (b)  Tenant shall also pay all sales taxes and all other governmental
fees, charges, or taxes on the Base Rent (excluding any federal or state income
taxes owed by Landlord).  All payments required under this Lease, other than
Base Rent, shall be deemed to be additional rent.

     Section 3.2  Base Rent for Expansion Space
     -----------  -----------------------------

     Upon addition of Expansion Space A to the Premises, the annual Base Rent
shall increase by One Hundred Fifty-eight Thousand Nine Hundred Seventy-seven
and 50/100 Dollars ($158,977.50), and each monthly installment of Base Rent
shall increase by Thirteen Thousand Two Hundred Forty-eight and 13/100 Dollars
($13,248.13).

     Upon addition of Expansion Space B to the Premises, the annual Base Rent
shall increase by One Hundred Four Thousand Three Hundred Twenty-nine and 50/100
Dollars ($104,329.50), and each monthly installment of Base Rent shall increase
by Eight Thousand Six Hundred Ninety-four and 13/100 Dollars ($8,694.13).

                                     - 3 -
<PAGE>
 
                                   ARTICLE 4
                ADDITIONAL RENT - OPERATING EXPENSES AND TAXES

     Section 4.1  Operating Expenses and Electrical Expenses
     -----------  ------------------------------------------

          (a) Tenant shall pay Landlord as additional rent throughout the Term
5.695 percent ("TENANT'S SHARE") of the amount (the "INCREMENTAL OPERATING
EXPENSES") by which annual Operating Expenses (as defined below) incurred by
Landlord during each calendar year exceed Operating Expenses for calendar year
1997 (the "BASE OPERATING EXPENSES").  Tenant's Share is equal to the proportion
that the rentable square foot area of the Premises bears to the total rentable
square foot office area of the Building.

          (b) Tenant's Share of annual Incremental Operating Expenses shall be
paid in monthly installments on the first day of each month, in advance, in an
amount estimated by Landlord and subject to adjustment from time to time.
Subsequent to the end of each calendar year, Landlord shall furnish Tenant with
a statement of the actual Operating Expenses for the period and the amount of
Tenant's share of Incremental Operating Expenses for the period.  If the total
amount paid by Tenant for any year shall be less than the actual amount due from
Tenant as shown on the statement, Tenant shall pay Landlord the deficiency
within thirty (30) days after the furnishing of such statement.  If the total
amount paid by Tenant shall exceed the actual amount due from Tenant for such
year, the excess shall be credited against the next installment due of
additional rent from Tenant under this section, and balance of such excess over
the next installment shall be paid to Tenant within thirty (30) days after the
furnishing of such statement.  If it shall be for the last calendar year of the
term, then, the excess shall be returned with Landlord's statement for such
calendar year.

          Should the Term commence or end on a day other than the first day of a
calendar year, then the Operating Expense charge for the partial year shall be
equitably prorated.

          (c) "OPERATING EXPENSES" shall mean all expenses paid or incurred by
Landlord or on Landlord's behalf in respect of the repair, maintenance, and
operation of the Property and the curbs, sidewalks, and plazas adjoining the
same, adjusted as if the Building were Fully Occupied (as hereinafter defined),
including, but not limited to:

          (i) salaries, wages, medical, surgical, union, and general welfare
benefits (including group life insurance) and pension payments for employees of
Landlord and Landlord's management company engaged in the repair, operation, and
maintenance of the Property;

          (ii) payroll taxes, worker's compensation, uniforms and related
expenses for employees of Landlord and Landlord's management company;

          (iii)     the cost of all charges for gas, steam, any alternate source
of energy, heat, ventilation, air-conditioning, water, sewer, and other
utilities (except electricity, which shall be billed pursuant to Section 4.1(d)
hereof) furnished to the Property (including both common areas and leased
areas), together with any taxes on the utilities;

          (iv) the cost of painting or redecorating (other than in leased
areas);

                                     - 4 -
<PAGE>
 
          (v) the cost of all charges for insurance including rent, casualty,
liability, and fidelity insurance;

          (vi) the cost and/or rentals of all supplies (including cleaning
supplies), tools, materials, and equipment, and sales and other taxes thereon;

          (vii) cost or depreciation of hand tools and other movable equipment;

          (viii) the cost of all charges for window and other cleaning and
janitorial and security services;

          (ix) charges of independent contractors;

          (x) repairs and replacements made by Landlord;

          (xi) alterations and improvements to the Property, including any
capital improvements, made by reason of the laws and requirements of any public
authorities or the requirements of insurance bodies and if the same are capital
improvements, amortization over the useful life of the improvement thereon;

          (xii) management fees at a rate not greater than that prevailing in
the Hartford market or, if no managing agent is employed by Landlord, a like fee
for Landlord;

          (xiii) the cost of any capital improvements to the Property and/or of
any machinery or equipment installed on the Property which has the effect of
reducing the expenses which otherwise would be included in Operating Expenses to
the extent of the lesser of such costs amortized over the useful life of the
improvements;

          (xiv) reasonable legal, accounting, and other professional fees
incurred except legal fees incurred in writing leases for, or enforcing leases
against, other tenants; and

          (xv) all other charges properly allocable to the repair, operation
and/or maintenance of the Property in accordance with generally accepted
accounting principles consistently applied, but excluding rents and additional
rents under the ground lease;

     Operating Expenses shall not include the following:  (1) depreciation
(except as provided above in this subsection), (2) interest on and amortization
of debts, (3) leasehold improvements including redecorating made for tenants for
the Building, (4) brokerage commissions and advertising expenses for procuring
new tenants of the Building, (5) refinancing costs, (6) the cost of any work or
services performed for any tenant(s) of the Building (including Tenant), whether
at the expense of Landlord or such tenant(s), to the extent that such work or
services is in excess of the work or services which Landlord is required to
furnish to Tenant under this Lease at Landlord's expense, (7) the cost of any
repair or replacement, other than one described in clauses (x), (xi) and (xiii)
above, which would be required to be capitalized under generally accepted
accounting principles consistently applied except that if under such principles
such costs may be amortized over a period of not more than ten (10) years, then
a proportionate part of such costs may be included each year's in Operating
Expenses over the useful life 

                                     - 5 -
<PAGE>
 
(as reasonably estimated by Landlord) of such repair or replacement, and, (8)
the cost of any item included in Operating Expenses under clauses (i)-(xv) to
the extent that such cost is reimbursed by an insurance company, a condemning
authority, a tenant or any other party, but if at the time Operating Expenses
are determined for an Operating Year such reimbursement has not been made, such
cost may be included in Operating Expenses and an adjustment shall be made when
and if such reimbursement is actually received by Landlord.

     "FULLY OCCUPIED" shall mean occupancy of ninety percent (90%) of the
rentable square footage of office space in the Building.

          (d)  (i) Tenant shall pay Landlord as additional rent throughout the
Term 9.419 percent of the amount by which annual Electric Expenses (as defined
below) incurred by Landlord during each calendar year exceed Electric Expenses
for calendar year 1997 (the "BASE ELECTRIC EXPENSES").  Tenant's Electric Share
shall be equal to a fraction.  The numerator of the fraction is the rentable
square foot area of the Premises. The denominator of the fraction is of the net
rentable square foot office area of the Building excluding (1) those leasable
areas that the electric utility company services and bills the tenant of the
space directly; and (2) those leasable areas for which the tenant's electricity
usage is measured by a submeter and the periodic electricity charge for the area
is based on the usage for the period as indicated by the submeter.  The fraction
may change from time to time during the Term, and the Electric Share shall be
adjusted in the event the numerator or the denominator of the fraction changes.

               (ii) "ELECTRIC EXPENSES" shall mean all charges for electricity,
or any utility service substituted for electricity, attributable to the Property
(including, without limitation, both the common areas and leased areas of the
Building), adjusted as if the Building were Fully Occupied; except that Electric
Expenses shall exclude the cost of electricity and other utility services
substituted for electricity supplied directly to other tenants of the Building
by the utility company providing same or submetered and paid on the basis of the
submeter by a tenant.

     Section 4.2  Taxes
     -----------  -----

     Tenant shall pay Landlord as additional rent throughout the Term Tenant's
Share of the amount by which total Taxes (as defined below) levied for each tax
year exceed Base Taxes.  "BASE TAXES" shall mean Taxes payable by Landlord with
respect to the Property for the tax year in which the Commencement Date occurs.

     Landlord shall estimate the tax charge and bill the same to Tenant on a
monthly basis subject to revision from time to time.  If the total amount paid
by Tenant for any tax year shall be less than the actual amount due from Tenant
as shown on such statement, Tenant shall pay Landlord the deficiency within
thirty (30) days after the furnishing of such statement.  If the total amount
paid by Tenant shall exceed such actual amount due from Tenant the excess shall
be credited against the next installment due from Tenant under this section, and
any balance of such excess over the next installment shall be paid to Tenant
within thirty (30) days after the furnishing of such statement.

     Should the Term commence or end on a day other than the first day of a tax
year, then the Tax charge for the partial year shall be equitably prorated.

                                     - 6 -
<PAGE>
 
     "TAXES", as used herein, shall include real estate taxes payable on the
Property and any payment substituted in lieu of taxes or in addition thereto,
including any tax measured by rental income received by Landlord, but excluding
federal and state income taxes. Taxes shall not include any payments of ground
rent under the ground lease.

     The City of Hartford has granted a real estate tax abatement relating to
the Property pursuant to Section 7-498, Connecticut General Statutes.  The
Property's real estate tax abatement is effective for a period of twenty (20)
years commencing October 1, 1981. The Property will be subject to real estate
taxes or payments in lieu thereof imposed by the City of Hartford after the
expiration or revocation of the tax abatement.  The tax abatement only affects
real estate taxes and does not abate any tax substituted in lieu thereof or in
addition thereto.

     Section 4.3  Tenant's Share for Expansion Space
     -----------  ----------------------------------

     Effective on the Expansion Space A Commencement Date, Tenant's Share shall
increase by 1.431 percent, and each monthly installment of additional rent shall
increase accordingly.

     Effective on the Expansion Space B Commencement Date, Tenant's Share shall
increase by 0.939 percent, and each monthly installment of additional rent shall
increase accordingly.


                                ARTICLE 5 - USE

     Section 5.1  Use of the Premises
     -----------  -------------------

     Tenant shall use and occupy the Retail Space only for the purpose of
general banking and financial services and the balance of the Premises only for
general office purposes and for no other purpose.  Tenant shall abide by and not
violate any of the Rules set forth in Exhibit C, as they may be amended from
                                      ---------                             
time to time, provided such amendments do not materially affect Tenant's use and
occupancy of the Premises or the provisions of this Lease.  Landlord shall make
commercially reasonably reasonable efforts to enforce the Rules in a uniform and
non-discriminatory manner.

     Tenant shall comply with the requirements of, and obtain any necessary
permits and licenses required by, all laws or governmental authorities and
requirements of insurance carriers applicable to its business operations in the
Premises.

     Section 5.2  Proper Care
     -----------  -----------

     Tenant shall take good care of the Premises and shall not commit waste in
the Premises.  Tenant, at its expense, shall promptly make all non-structural
repairs in and about the Premises that are not the responsibility of Landlord by
the terms of this Lease.

     Section 5.3  Interference
     -----------  ------------

     Business machines and mechanical equipment belonging to Tenant shall be
placed and maintained, at Tenant's expense, in special settings to eliminate any
unreasonable noise or vibrations they may cause.  In the event Tenant's machines
or equipment cause any interference whatsoever with 

                                     - 7 -
<PAGE>
 
the normal operation of the Building or other occupants of the Building, they
shall be removed from the Premises.

     Section 5.4  Permitted Loads
     -----------  ---------------

     The maximum allowable load on any portion of the floor of the Premises is
100 pounds per square foot with an allowance of 20 pounds per square foot for
partitions.  No excess load will be allowed except with Landlord's prior written
consent, which consent may be withheld in Landlord's sole discretion.  If
Landlord gives consent to a greater load which requires modification to the
Building, Landlord shall perform the same, and Tenant shall pay Landlord all
costs for such modifications.

     Section 5.5  Additional Electricity and Cost
     -----------  -------------------------------

     Tenant's use of electricity in the Premises shall not exceed 5 watts of
total connected load, including lighting, per usable square foot of space in the
Premises.  Tenant shall not, without Landlord's prior written consent, connect
any appliance, apparatus, or device to the Building's electric system which will
in any way change or alter the capacity of the electric system serving the
Premises.  Landlord shall have the right to perform surveys of Tenant's
electrical use and adjust electrical charges to Tenant if Tenant exceeds the use
of 5 watts per usable square foot.  Tenant shall pay such charges within ten
(10) days after demand therefor.  Should Landlord grant such consent, all
appliances, apparatus, or devices required therefor and for the measurement
thereof shall be provided by Landlord, and the cost shall be paid by Tenant.  As
a condition to granting such consent, Landlord may require Tenant to agree to an
increase in Base Rent to an amount which will reflect the cost of the additional
service to be furnished by Landlord.

     The parties shall execute a supplementary agreement to reflect the
increase, which Agreement shall be effective from the date the additional
service is made available to Tenant.  The increase shall be effective whether or
not such supplementary agreement is executed.


                                   ARTICLE 6
               CONDITION OF THE PREMISES AND TENANT IMPROVEMENTS

     Section 6.1  Condition of the Premises
     -----------  -------------------------

     Tenant has inspected the Premises and accepts them in their "as is"
condition.   Landlord and Tenant shall sign a Work Letter Agreement in the form
attached hereto as Exhibit D (the "WORK LETTER").  Tenant shall perform Tenant's
                   ---------                                                    
Work, as defined in the Work Letter, in accordance with the terms of the Work
Letter and the terms of this Section 6.

     Section 6.2  Tenant Plans
     -----------  ------------

     Tenant may make only nonstructural improvements within the Premises.  If
Tenant desires to make any such improvements, Tenant, at Tenant's expense, shall
have plans and specifications necessary for the finishing of the Premises and
related improvements prepared by an architect or engineer licensed to practice
in Connecticut.  The plans and specifications shall be submitted to Landlord for
Landlord's approval, which approval shall not be unreasonably withheld.
Landlord's approval shall not constitute a

                                     - 8 -
<PAGE>
 
representation that the plans meet the requirements of law or governmental
authorities having jurisdiction over the Building. Within ten (10) days of a
demand therefor, Tenant shall pay Landlord's reasonable cost to review such
plans. Tenant, at Tenant's expense, shall file all plans as required by the City
of Hartford, shall secure all required permits, and shall provide copies of all
permits and contracts to Landlord. Prior to commencing any construction, Tenant
shall obtain builders risk insurance from a company and in an amount
satisfactory to Landlord and shall supply Landlord with a certificate of such
coverage naming Landlord as additional insured. All construction shall be done
by contractors approved by Landlord and in accordance with the approved plans
and specifications and Building rules. All such improvements are hereafter
referred to as "TENANT IMPROVEMENTS". If the cost of the Tenant Improvements
exceeds $100,000 and if any Superior Mortgagee, as defined below, so requires,
the contractor shall be bonded. Within ninety (90) days following completion of
Tenant Improvements, Tenant shall submit to Landlord "as built" plans of
Tenant's Improvements. Tenant shall file all statements required by the City of
Hartford relative to certified costs of any construction performed in the
Premises within the time periods required by applicable ordinances.

     Section 6.3  Modifications
     -----------  -------------

     Tenant shall not make any structural modifications to the Premises without
obtaining Landlord's prior written consent, which consent may be withheld in
Landlord's sole discretion.  Tenant may make non-structural modifications, such
moving interior partition walls, after giving Landlord notice of its intent to
do so.

     Section 6.4  Use of Landlord's Services and Equipment
     -----------  ----------------------------------------

     In the event Tenant, its servants, agents, and independent contractors
shall utilize any services of Landlord's personnel or shall utilize any
equipment, machinery, or other items which are the property of Landlord, Tenant
shall pay Landlord Landlord's standard charges for use of such services,
equipment, machinery, and other items within thirty (30) days of demand
therefor.


                   ARTICLE 7 - SUBORDINATION AND ATTORNMENT

     Section 7.1  Subordination
     -----------  -------------

     This Lease shall be subordinate to the lien of any present or future
mortgage (each, a "SUPERIOR MORTGAGE") or rights of any landlord under the
Ground Lease or any other master lease (each, a "SUPERIOR LEASE") irrespective
of the time of execution or recording of the Superior Mortgage or Superior
Lease.  Nevertheless, from time to time hereafter, Landlord may elect that this
Lease be paramount to the lien of a Superior Mortgage or Superior Lease and may
exercise its election by giving notice to Tenant.  Landlord may thereafter elect
that this Lease be again subordinate to the lien of a Superior Mortgage or
Superior Lease and may exercise its election by giving notice to Tenant.  The
exercise of any of the elections provided for in this Section shall not exhaust
Landlord's right to elect differently thereafter, from time to time, as Landlord
may determine.  At the election of Landlord, this clause shall be self-
operative, and no further instrument shall be required, but upon Landlord's
request, from time to time, Tenant shall:

                                     - 9 -
<PAGE>
 
          (a) confirm in writing and in recordable form that this Lease is
subordinate or paramount (as Landlord may elect) to the lien of any Superior
Mortgage or Master Lease; and/or

          (b) execute an instrument making this Lease subordinate or paramount
(as Landlord may elect) to the lien of any Superior Mortgage or Master Lease, in
such form as may be required by any applicable mortgagee or master landlord.

     Section 7.2  Attornment
     -----------  ----------

     At the direction of any foreclosing mortgagee, transferee, assignee, or
purchaser of Landlord's interest in the Property  (each, a "SUCCESSOR
LANDLORD"), Tenant shall attorn to and recognize any Successor Landlord as
landlord under this Lease.  Upon such attornment this Lease shall continue in
full force and effect as a direct lease between Successor Landlord and Tenant
upon all of the terms, conditions, and covenants as are set forth in this Lease,
except that, with respect to the holder of any Superior Mortgage or the landlord
under any Superior Lease which is a Successor Landlord, such Successor Landlord
shall not:

          (a) be liable for any previous act or omission of Landlord under this
Lease;

          (b) be subject to any offset not expressly provided for in this Lease
which shall have accrued to Tenant against Landlord; or

          (c) be bound by any previous modification of this Lease or by any
previous prepayment of more than one month's Base Rent, unless such modification
or prepayment shall have been expressly approved in writing by such Successor
Landlord.

     Section 7.3  Notice to Mortgagee and Right to Cure
     -----------  -------------------------------------

     If any act or omission of Landlord would give Tenant the right to cancel or
terminate this Lease or to claim a partial or total eviction, Tenant shall not
exercise such right until:

          (a) it has given written notice of such act or omission to Landlord
and the holder of any mortgage of the Building (each, a "SUPERIOR MORTGAGEE")
and the landlord under any master lease to which this Lease is subject (each, a
"SUPERIOR LANDLORD") provided the name and address of such party has been
furnished to Tenant; and

          (b) until a reasonable period for remedying such act or omission shall
have elapsed following the giving of such notice and following the time when
such Superior Mortgagee or Superior Landlord shall have become entitled to
remedy the same, provided such Superior Mortgagee or Superior Landlord shall
with due diligence give Tenant notice of intention to, and commence and continue
to, remedy such act or omission.

     Section 7.4  Current Mortgagees
     -----------  ------------------

     Tenant acknowledges that Landlord has disclosed that it has granted
mortgages to Credit Suisse First Boston Capital LLC and Harvard Private Capital
Realty, Inc.

                                     - 10 -
<PAGE>
 
                                   ARTICLE 8
           ASSIGNMENT, SUBLETTING, PLEDGING OR ENCUMBERING OF LEASE

     Section 8.1  Assignment, Subletting, Pledging or Encumbering
     -----------  -----------------------------------------------

     Tenant may sublet all or any portion of the Premises to one or more
entities controlled by, in control of, or under common control with Tenant (each
a "Controlled Entity").  Tenant may assign its interest in this Lease, in whole
but not in part, to any Controlled Entity or in part to a Controlled Entity
provided there shall be not more than two entities in occupancy of the Premises
following any such partial assignment.  Tenant shall give Landlord not less than
thirty (30) days prior written notice of such a proposed assignment and shall
provide to Landlord the name and address of the proposed assignee, reasonable
evidence of the basis for the assignee's qualification under the prior sentence,
and such other information concerning the proposed assignment as Landlord
reasonably requests.  Tenant shall not otherwise assign this Lease or sublet the
Premises in any manner without Landlord's consent, which consent shall not be
unreasonably withheld.  In determining whether to grant such consent, Landlord
may consider, inter alia, (i) the creditworthiness and liquidity of the proposed
assignee or subtenant; (ii) the character and business reputation of the
proposed assignee or subtenant; (iii) the proposed use of the Premises by the
proposed assignee or subtenant; (iv) the effect on other tenants of the
Building; (v) whether Landlord's mortgagees have consented to the transaction;
and such other criteria as Landlord deems necessary under the circumstances.
Any transfer of voting control of the board of directors of Tenant if Tenant is
a corporation or a change in legal or beneficial ownership of Tenant if such
change in ownership in the aggregate equals or exceeds fifty percent (50%) shall
constitute an assignment that is subject to the provisions of this Section 8.
In no event shall Tenant pledge or encumber its interest in this Lease.
Notwithstanding any assignment of Tenant's interest in this Lease or any
subletting of all or any portion of the Premises, Tenant shall continue liable
as the tenant hereunder.

     Section 8.2  Landlord's Consent
     -----------  ------------------

     Any consent by Landlord to assignment or subletting of Tenant's interest in
this Lease shall not relieve Tenant of its obligations under the Lease.  Any
consent by Landlord in a particular instance shall not be deemed to a waiver of
the obligation to obtain Landlord's approval in the case of any other assignment
or subletting.  Any attempted assignment or subletting of Tenant's interest in
this Lease without Landlord's prior written consent shall be null and void and
constitute a default under the Lease.

     Section 8.3  Recapture
     -----------  ---------

     If Tenant wishes to assign this Lease or to sublet all or part of the
Premises, Tenant shall give Landlord written notice of such intention, which
notice shall include all of the relevant terms and conditions of the
transaction, the identity of the assignee or subtenant, and the financial
background of the assignee or subtenant.  Except where the proposed assignee or
subtenant is a Controlled Entity, Landlord shall have the right upon receipt of
such notice to elect to sublet the Premises from Tenant upon the terms and
conditions set forth in Tenant's notice or to terminate this Lease within ninety
(90) days after Landlord's receipt of Tenant's notice.  Landlord shall give
notice to Tenant of Landlord's election to sublet or terminate this Lease.  If
Landlord elects to sublet the Premises, the parties shall execute a sublease
within sixty (60) days after Landlord's election on the terms and conditions set
forth in Tenant's notice.  If Landlord elects to terminate this Lease, the
termination shall become effective sixty (60) days after the date of the
termination notice to Tenant.  Upon such termination, all of the liabilities of
the parties each to the other shall cease and terminate except as to obligations
of Tenant that arose prior to the termination or covenants of Tenant which
survive the termination of this Lease.  Provided, however, that Tenant may
nullify such termination by withdrawing, in writing, its notice of intention to
assign or sublet by notice to Landlord given prior to the expiration of the
sixty (60) day period.

                                     - 11 -
<PAGE>
 
                             ARTICLE 9 - INSURANCE

     Section 9.1  Casualty Insurance
     -----------  ------------------

     Tenant shall at all times during the Term, at its own expense, keep all
Tenant's Improvements and Tenant's Property (as defined below) insured on an
"all risk" basis in an amount equal to not less than one hundred percent (100%)
of the full replacement cost of such Tenant Improvements and Tenant Property.
All policies shall be carried in companies licensed to do business in
Connecticut and otherwise reasonably satisfactory to Landlord.  Copies of all
policies of insurance or certificates therefor shall be delivered to Landlord
and shall contain a provision that the policy shall not be changed or cancelled
without thirty (30) days' prior written notice to Landlord.

     Section 9.2  Use of Insurance Money to Repair
     -----------  --------------------------------

     In the event of any damage or destruction to the Premises at any time
during the Term, if Landlord shall restore the Premises to a condition
comparable to the condition in which they were furnished to Tenant, Tenant shall
promptly repair or rebuild the Tenant Improvements to a condition comparable to
than required by this Lease, including, but not limited to, Section 6.2, without
contribution therefor from Landlord.

     Section 9.3  Liability Insurance
     -----------  -------------------

     Tenant shall also obtain and keep in force during the Term, with copies of
policies to be deposited with Landlord, public liability and property damage
insurance in a form acceptable to Landlord and providing coverage of not less
than Four Million Dollars ($4,000,000.00) single combined limit a portion of
which coverage may be provided by umbrella policy.  Landlord reserves the right
to require Tenant to increase such coverage if it becomes customary for tenants
of similar buildings located in the City of Hartford to maintain higher coverage
limits.  Such policies shall cover injury or death to persons or damage to
property of any person or persons in or about the Premises and shall be issued
by companies reasonably acceptable to Landlord.  Each policy shall name
Landlord, Landlord's mortgagees, any Superior Landlord, and the managing agent
of the Building as an additional insureds and shall contain a provision that the
policy shall not be changed or cancelled without thirty (30) days' prior written
notice to Landlord.

     Section 9.4  Landlord's Right to Make Insurance Payments
     -----------  -------------------------------------------

     If Tenant shall at any time neglect to maintain any insurance coverage,
Landlord may procure or renew such insurance. Any amount paid for such insurance
by Landlord, including reasonable expenses, shall be additional rent due from
Tenant and shall be payable within ten (10) days of demand therefor.

     Section 9.5  Compliance with Policies
     -----------  ------------------------

     Tenant shall not violate any condition imposed by any fire insurance,
casualty insurance, or liability insurance policy carried by Landlord or Tenant
with respect to the Premises or the Property.  If Tenant's use increases the
cost of Landlord's insurance beyond standard rates and Tenant continues such use
for more than thirty (30) days after notice thereof, Tenant shall pay the
increased cost to Landlord upon demand.

                                     - 12 -
<PAGE>
 
     Section 9.6  Waiver of Subrogation
     -----------  ---------------------

     All casualty insurance which is carried by either party with respect to the
Premises, whether or not required, shall include provisions which either
designate the other party as an insured or deny to the insurer any rights of
recovery by subrogation against the other party, to the extent such rights have
been waived by the insured party prior to occurrence of loss or injury, insofar
as, and to the extent that such provisions may be effective without making it
impossible to obtain insurance coverage from responsible companies qualified to
do business in Connecticut (even though an extra premium may result therefrom).
Each party shall be entitled to have duplicates or certificates of any policies
containing such provisions.  Each party hereby waives all rights of recovery
against the other for loss or injury against which the waiving party is or may
be protected by insurance containing said provisions.


                        ARTICLE 10 - PERSONAL PROPERTY

     Section 10.1  Landlord's Property
     ------------  -------------------

     All fixtures, equipment, improvements, and appurtenances attached in any
way to the Premises at the Commencement Date or during the Term, whether or not
by Tenant, shall be and remain a part of the Premises and shall be property of
Landlord not to be removed by Tenant, except as expressly provided in Section
10.2.

     Section 10.2  Removal of Property
     ------------  -------------------

     By the Expiration Date, Tenant shall remove such fixtures, equipment,
improvements, and appurtenances (other than interior walls and built-in
partitions) which are attached in any way to the Premises as requested by
Landlord.  Tenant shall repair any damage resulting from such removal.

     Section 10.3  Tenant's Property
     ------------  -----------------

     Trade fixtures and office equipment which are placed in the Premises by
Tenant without expense to Landlord, and which can be removed without damage to
the Property or Premises, and all furniture, furnishings, and other articles of
movable personal property owned by Tenant ("TENANT'S PROPERTY"), shall be and
shall remain the property of Tenant and may be removed by Tenant at any time
during the Term. Tenant shall repair any damage to the Premises or to the
Property resulting from such removal. Any of Tenant's Property remaining in the
Premises after the Expiration Date shall be and remain property of Landlord for
Landlord to dispose of as Landlord sees fit, or, at Landlord's option, to remove
and store at Tenant's expense.

                                     - 13 -
<PAGE>
 
                                  ARTICLE 11
                   HEATING, VENTILATION AND AIR CONDITIONING

     Landlord shall maintain and operate systems which shall supply heating,
ventilation, and air conditioning to the Premises.  Heating, ventilation, and
air conditioning shall be furnished between 8:00 a.m. and 6:00 p.m. on "BUSINESS
DAYS", defined as all days except Saturdays, Sundays, days observed by the
Federal or the State government as legal holidays, and union holidays and
between 8:00 a.m. and 1:00 p.m. on Saturdays.  If Tenant shall require heating,
ventilation, or air conditioning service at any other time ("AFTER HOURS"),
Landlord shall furnish such service upon reasonable notice from Tenant, and
Tenant shall pay Landlord's then established charges within thirty (30) days of
demand therefor.


                       ARTICLE 12 - LANDLORD'S SERVICES

     Section 12.1  Elevator Service
     ------------  ----------------

     Landlord shall provide elevator service to the floor on which the Premises
are situated between 8:00 a.m. and 6:00 p.m. on Business Days, and between 8:00
a.m. and 1:00 p.m. on Saturdays and an elevator on call at all other times.  If
Tenant shall require additional elevator service After Hours, Landlord shall
furnish such service upon reasonable notice from Tenant, and Tenant shall pay
Landlord's then established charges within ten (10) days of demand therefor.

     Section 12.2  Cleaning Service
     ------------  ----------------

     Landlord shall provide janitorial services to the Premises on Business
Days.  Janitorial services shall be the services included on Exhibit E attached
                                                             ---------         
hereto.  Landlord in no event shall be liable for any loss, theft, or damage to
the property of Tenant by reason of any activities of Landlord's cleaning
contractors or its employees.  Landlord shall not be responsible for the
cleaning of any carpeting in the Premises, other than by vacuum sweeping.  If
Tenant has an excessive amount of waste or requires cleaning in addition to that
described on Exhibit B, Tenant shall pay Landlord, as additional rent, the cost
of removal and disposal thereof or of such extra service.  Tenant shall comply
with all recycling programs initiated by Landlord, imposed by law, or the
requirements of governmental authorities.

     Section 12.3  Directory Listing
     ------------  -----------------

     Landlord, at Tenant's request, shall maintain a listing of Tenant's name in
the Building directory; the size of the name so listed and the location of the
directory shall be within the sole discretion of Landlord.  Any change from the
initial listing shall be made by Landlord promptly after Tenant's request
therefor, at Tenant's expense.

                                     - 14 -
<PAGE>
 
                                  ARTICLE 13
               ACCESS, ENTRY, CHANGES IN THE BUILDING FACILITIES

     Section 13.1  Access to the Building
     ------------  ----------------------

     Landlord reserves the right of entry through the Premises to permit access
to any other part of the Property for the purposes of maintenance, decoration,
or repair.

     Section 13.2  Ducts
     ------------  -----

     Tenant shall permit Landlord to install, use, and maintain, replace, or add
pipes, ducts, and conduits within walls, bearing columns, and ceilings located
in or adjacent to the Premises.

     Section 13.3  Right of Entry
     ------------  --------------

     Landlord shall have the right to enter the Premises at reasonable times
during "Business Hours" and at any time after Business Hours for any purpose
permitted under this Lease and to make any repairs or changes as may be required
by law or due to any emergency affecting the Premises or the Property.  Landlord
shall be allowed to take all materials into the Premises that may be required
for such repairs, changes, or maintenance without liability to Tenant, except
for Landlord's gross negligence.  Tenant shall provide Landlord with a key to
the Premises and shall not change its locks without Landlord's prior written
consent and without providing to Landlord a key therefor.

     Section 13.4  Right to Show Premises
     ------------  ----------------------

     At any time during the Term, Landlord may, with reasonable notice to
Tenant, enter the Premises with a prospective tenant, purchaser, mortgagee,
investor, or similarly interested party and exhibit the Premises to such party.

     Section 13.5  Changes to Building and Property
     ------------  --------------------------------

     Landlord reserves the right at any time, without incurring any liability to
Tenant, to make such changes in or to the Building and the Property, including
its and their integral parts, as Landlord may deem necessary or desirable so
long as such changes do not materially affect Tenant's ability to occupy the
Premises.


                       ARTICLE 14 - NOTICE OF ACCIDENTS

     Tenant shall promptly give notice to Landlord, of

           (i) any accident in or about the Premises,
      
           (ii)  any fires in the Premises,
      
           (iii)  any damage to or defects in the Premises, including the
             fixtures, equipment, and appurtenances thereto, and
      

                                     - 15 -
<PAGE>
 
           (iv) any damage to or defects in any parts of or appurtenances
             to the Building's sanitary, electrical, heating,
             ventilation, air conditioning, elevator, life-safety, and
             other systems located in or passing through the Premises.

                ARTICLE 15 - NON-LIABILITY AND INDEMNIFICATION

     Section 15.1  Non-Liability
     ------------  -------------

     Landlord shall not be liable to Tenant for any injury or damage to Tenant
or to any other person or for any damage to, or loss of any property of Tenant
or of any other person, irrespective of the cause of such injury, damage, or
loss, unless caused by or due to the grossly negligent act of Landlord, its
agents, servants, or employees.  Tenant's agreement to this clause is part of
the consideration for this Lease.

     Section 15.2  Indemnification
     ------------  ---------------

     Tenant agrees to indemnify and save harmless Landlord, Landlord's agents,
servants, employees, Superior Mortgagees, and any Superior Landlord from any
claims, loss, liability, or damage that results from a default under this Lease
or violation of any of its terms; failure to comply with any legal or insurance
requirement; any act or omission of Tenant or any subtenant, licensee, invitee,
employee, agent, or contractor of Tenant; and, except for any grossly negligent
act of Landlord, its agents, servants, or employees not covered by Tenant's
insurance, any occurrence or condition in, on, or about the Premises.  Tenant
shall defend any lawsuits in connection with the above and pay all costs,
expenses, and liabilities incurred in connection with each such claim or action
or proceeding brought thereon.  In case any law suit is brought against Landlord
by reason of any such claim, Tenant, at its expense, shall resist and defend
such lawsuit.  Law suit as used herein shall include arbitration proceedings,
administrative proceedings, and all other governmental or quasi-governmental
proceedings, including appellate proceedings.


                      ARTICLE 16 - DAMAGE OR DESTRUCTION

     Section 16.1  Repair of Damage
     ------------  ----------------

     If the Property is damaged or destroyed by fire or other casualty and this
Lease is not terminated in the manner set forth in Section 16.3 hereof, Landlord
shall repair or rebuild the Property at Landlord's expense with reasonable
dispatch, but shall not be required to repair or replace any of Tenant's
Property or any Tenant Improvements.  Landlord shall not be required to commence
repair or restoration until insurance proceeds are available and shall only be
required to rebuild or repair to the extent such proceeds (together with any
"deductibles") are sufficient to pay the cost thereof.  In the event this Lease
shall not be terminated as provided in this Article 16 and Landlord shall fail
to complete the repair or restoration work within twelve (12) months after
receipt of the insurance proceeds for such work, then in such event Tenant may
terminate this Lease upon thirty (30) days prior written notice to Landlord
after the expiration of the aforesaid twelve (12) month period.

                                     - 16 -
<PAGE>
 
     Section 16.2  Rent Abatement
     ------------  --------------

     If the Premises or any portion thereof are rendered untenantable and are
not used as a result of any damage or destruction by fire or other casualty, the
Rent shall abate on the portion of the Premises rendered untenantable and not
used from the date of such damage or destruction to the date of completion of
Landlord's repair of such damage plus thirty (30) days.  To the extent Tenant
reoccupies a portion of the Premises, Tenant's abatement shall cease on such
portion on the date of reoccupation.

     Section 16.3  Substantial Destruction
     ------------  -----------------------

     If the Property is substantially damaged or destroyed by fire or other
casualty, then Landlord may terminate this Lease by giving Tenant notice within
ninety (90) days after the casualty causing the damage.  If Landlord exercises
its option to terminate, the Term shall terminate and expire upon the thirtieth
(30th) day after the notice is given, and Tenant shall vacate the Premises and
surrender the same to Landlord on or before that date.  The Property (whether or
not the Premises are damaged) shall be deemed substantially damaged or destroyed
if the cost of repair and restoration after a casualty occurs is thirty percent
(30%) or more of the full replacement cost of the Property as it existed
immediately prior to the casualty.  If the Retail Space shall be materially
(i.e. thirty percent (30%) or more) damaged or destroyed by fire or other
casualty during the last two (2) years of the term of this Lease, Tenant may
terminate this Lease as to the Retail Space by giving Landlord notice to such
effect within sixty (60) days after the date of the casualty.


                          ARTICLE 17 - EMINENT DOMAIN

     Section 17.1  Entire Taking
     ------------  -------------

     If the Building, the Property, or any part of the Premises shall be
lawfully taken for any public or quasi-public purpose, this Lease shall
terminate as of the date of vesting of title in the condemning authority (the
"DATE OF TAKING"), and the Rent and additional rent shall be prorated and
adjusted as of that date.

     Section 17.2  Partial Taking
     ------------  --------------

     If any part of the Premises shall be taken for any public or quasi-public
purpose, then Landlord and Tenant shall have the option, within thirty (30) days
after the Date of Taking, to terminate this Lease as of the Date of Taking.  If
any other part of the Building or the Property which materially affects Tenant's
use and occupancy of the Premises shall be taken for any public or quasi-public
purpose and Landlord does not restore or provide a suitable alternative, then
Landlord and Tenant shall have the option, within thirty (30) days after the
Date of Taking, to terminate this Lease as of the Date of Taking.

     Section 17.3  Award
     ------------  -----

     In the event of any taking, partial or whole, provided for in this Lease,
all of the proceeds of any award, judgment, or settlement payable by the
condemning authority shall be the exclusive property of Landlord. Tenant,
however, may pursue its own claim against the condemning authority, for moving

                                     - 17 -
<PAGE>
 
expenses and trade fixtures as permitted under the laws of the State of
Connecticut, so long as its claim does not diminish or reduce the award,
judgment, or settlement receivable by Landlord.

     Section 17.04  Temporary Taking
     -------------  ----------------

     If the temporary use or occupancy of all or any part of the Premises shall
be taken by condemnation or in any other manner for any public or quasi-public
use or purpose during the Term, Tenant shall be entitled, except as hereinafter
set forth, to receive that portion of the award or payment for such taking which
represents compensation for the use and occupancy of the Premises, for the
taking of Tenant's Property and for moving expenses, and Landlord shall be
entitled to receive that portion which represents reimbursement for the cost of
restoration of the Premises.  The Lease shall be and remain unaffected by such
taking, and Tenant shall continue to be responsible for all of its obligations
hereunder insofar as such obligations are not affected by such taking and shall
continue to pay in full the Base Rent and Additional Rent when due.  If the
period of temporary use or occupancy shall extend beyond the expiration date of
this Lease, that part of the award which represents compensation for the use and
occupancy of the Premises (or a part thereof) shall be divided between Landlord
and Tenant so that Tenant shall receive so much thereof as represents the period
up to and including such expiration date, and Landlord shall receive so much
thereof as represents the period after such expiration date.  All monies paid
as, or as part of, an award for temporary use and occupancy for a period beyond
the date to which the Base Rent and Additional Rent has been paid shall be
received, held, and applied by Landlord as a trust fund for payment of the Base
Rent and Additional Rent becoming due hereunder.  In the event the temporary use
or occupancy of all or any part of the Premises shall be taken as aforesaid
during the last two (2) years of the Term, and the period of such taking shall
be twelve (12) months or more, then in such event, Tenant may terminate this
Lease upon thirty (30) days prior written notice to Landlord after the
expiration of said twelve (12) month period.


                            ARTICLE 18 - SURRENDER

     On the earlier of the Expiration Date or earlier termination of this Lease,
Tenant shall surrender the Premises to Landlord power swept and in the condition
it was in on the Commencement Date, reasonable wear and tear, Tenant's Work, and
Tenant's Improvements excepted.  Landlord may require Tenant to remove, at
Tenant's expense, any Tenant's Improvements and all Tenant's Property.


                             ARTICLE 19 - DEFAULT

     Section 19.1  Event of Default
     ------------  ----------------

     Each of the following shall be an Event of Default under this Lease:

          (a) If Tenant does not pay the Base Rent or additional rent within
five (5) days of the date when due.

          (b) If Tenant fails to perform any of the other terms of this Lease,
and such failure shall continue for fifteen (15) days following notice of such
failure or, in the case of a default which cannot with due diligence be cured
within a period of fifteen (15) days and the continuance of which for 

                                     - 18 -
<PAGE>
 
the period required for cure will not subject Landlord or any Superior
Lessor to prosecution for a crime or termination of any Superior Lease or
foreclosure of any Superior Mortgage, if Tenant shall not (i) within said 15-day
period advise Landlord of Tenant's intention to take all steps necessary to
remedy such default, (ii) duly commence within said 15-day period, and
thereafter diligently prosecute to completion all steps necessary to remedy the
default, and (iii) complete such remedy within a reasonable time after the date
of the said notice to Landlord.

          (c) If Tenant abandons the Premises or leaves the Premises vacant for
a period of ten (10) days, notwithstanding that Tenant continues to pay Base
Rent or additional rent.

          (d) If Tenant shall commit an act of bankruptcy, receivership,
insolvency, reorganization, dissolution, or liquidation or if other similar
proceedings shall be instituted by Tenant under the federal Bankruptcy Code or
other law of the United States or other jurisdiction; or if any act of
bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation
or other similar proceedings shall be instituted against Tenant under the
federal Bankruptcy Code or other similar law of the United States or any other
jurisdiction or there is a material adverse change in Tenant's financial
condition.

     Notwithstanding the provisions of subparagraph (a) above, upon Tenant's
failure to pay Base Rent or additional rent when due, Landlord shall give notice
to Tenant thereof, and there shall be no Event of Default until Tenant has
failed to pay Base Rent and additional rent within five (5) days of such notice,
but such notice shall not be required more than three (3) times per calendar
year.  Any further failure to pay Base Rent or additional rent when due within
such calendar year subsequent to Landlord's having given three (3) such notices
shall constitute an Event of Default without notice or grace period of any kind.

     Section 19.2  Landlord's Remedies for Event of Default
     ------------  ----------------------------------------

     Following an Event of a Default by Tenant, Landlord shall be entitled to
take such action as it deems advisable, including any one or more of the
following:

          (a) Landlord may proceed, at law or in equity, to enforce the
provisions of this Lease.

          (b) Landlord may reenter the Premises, with or without termination of
this Lease and may repossess the Premises.  The re-entry and/or repossession may
be effected by summary proceedings, ejectment, or otherwise.  Landlord may
dispossess Tenant and may remove Tenant from the Premises without notice.
Tenant waives any right to re-enter the Premises or to the service of any notice
of Landlord's intention to re-enter the Premises as may be provided for by any
present or future law.  No such re-entry or taking possession of the Premises by
Landlord shall be construed as an election to terminate this Lease unless a
written notice of termination is given to Tenant.  Notwithstanding any re-entry
without termination, Landlord may at any time elect to terminate this Lease.

          (c) Landlord may notify Tenant that this Lease shall terminate on a
specified date, and this Lease, including Tenant's rights hereunder, shall
terminate on the date so specified.  Should Landlord so terminate this Lease,
Landlord may, in addition to any other remedies, recover from Tenant all damages
incurred by reason of Tenant's breach, including the cost of recovering the
Premises, 

                                     - 19 -
<PAGE>
 
attorneys' fees, and the amount of Base Rent, and additional rent reserved in
this Lease for the remainder of the Term over the then reasonable rental value
of the Premises for the remainder of the Term, which sum shall be immediately
due and payable from Tenant to Landlord.

          (d) Landlord may, without termination of this Lease, relet the
Premises, in whole or in part, for a term that may be as long as Landlord may
specify.  A lease executed by Landlord in accordance with this subsection may
provide for extensions or renewals of the term.  The term of any lease and the
period by which the term may be extended may be greater or less than the period
which would have constituted the balance of the Term had Tenant not defaulted.
Landlord shall be under no duty, however, to relet the Premises or to collect
any rent in connection with a reletting.

          (e) Should Landlord elect to relet the Premises without termination of
this Lease, such rental or rentals shall be upon such terms and conditions as
Landlord may deem advisable.  Upon such reletting, all rentals received by the
Landlord shall be applied first, to the payment of any indebtedness other than
Base Rent or additional rent due hereunder from Tenant to Landlord including the
cost of reletting, brokerage fees, attorney's fees, and the cost of any
alterations and repairs; second, to the payment of Base Rent and additional rent
due and unpaid hereunder; and the remainder, if any, shall be held by Landlord
and applied in payment of future Base Rent and additional rent as the same may
become due and payable.  If any rentals received from such reletting during any
month be less than that to be paid during that month by Tenant, Tenant shall pay
any deficiency to Landlord.  If such rentals are greater than the Base Rent and
additional rent due under this Lease, Tenant shall have no claim upon the
excess.  Any such deficiency shall be calculated and paid monthly.  No such
reletting of the Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of termination be given to
Tenant.  Notwithstanding any reletting without termination, Landlord may at any
time elect to terminate this Lease.

     Section 19.3  Notice
     ------------  ------

     Tenant expressly waives any demand for possession of the Premises or any
notice of intention of Landlord to terminate this Lease or to reenter the
Premises, and Tenant expressly waives any other notice or demand prescribed by
the statutes of the State of Connecticut or any other law.

     Section 19.4  Interest
     ------------  --------

     All costs incurred by Landlord because of a Event of Default shall bear
interest from the date when the same should have been paid by Tenant until paid
at the rate of fourteen percent (14%) per annum.

     Section 19.5  Waiver of Jury Trial
     ------------  --------------------

     Landlord and Tenant waive trial by jury in any action brought in connection
with this Lease.

                                     - 20 -
<PAGE>
 
                     ARTICLE 20 - LIMITATION OF LIABILITY

     Section 20.1  Obligations, Losses and Damages
     ------------  -------------------------------

     Landlord shall have no liability to Tenant for its failure to carry out its
obligations under this Lease where the failure arises by causes beyond
Landlord's control, including Acts of God, emergencies, strikes, labor
difficulties, accidents, civil commotion, fire, catastrophe, war, governmental
requirements, or the actions of Tenant or any other tenant of the Building.  In
any such event Landlord shall have additional time at least equal to the period
of delay arising from any such cause to remedy such failure.

     Notwithstanding the foregoing, in the event said inability to furnish
services or utilities shall render the Retail Space or any part thereof (but not
the remainder of the Building) untenantable for a period of five (5) consecutive
business days after Tenant has given Landlord written notice of such
untenantability, and if such untenantability continues after the end of said
five (5) business day period, then, provided that Tenant shall not have
continued to use that portion of the Retail Space which is untenantable for the
active conduct of its business during said period, the Base Rent and Additional
Rent payable hereunder with respect to that portion of the Retail Space which is
untenantable shall be abated for the period commencing on the sixth (6th)
consecutive business day of such untenantability and shall continue only until
the date the services or utilities are restored, regardless of any delay by
Tenant in resuming the operation of its business.  Further, in the event said
inability to furnish services or utilities shall render the entire Building
untenantable (including, the Retail Space) for a period of ten (10) consecutive
business days after Tenant has given Landlord written notice of such
untenantability, and if such untenantability continues after the end of said ten
(10) business day period, then, provided that Tenant shall not have continued to
use the Retail Space for the active conduct of its business during said period,
the Base Rent and Additional Rent payable hereunder with respect to the Retail
Space shall be abated for the period commencing on the eleventh (11th)
consecutive business day of such untenantability and shall continue only until
the date the services or utilities are restored, regardless of any delay by
Tenant in resuming the operation of its business.  In the event said inability
to furnish services or utilities shall continue for 12 continuous months, Tenant
may terminate this Lease at any time during which said inability shall continue
after said twelve (12) consecutive month period, upon thirty (30) days prior
written notice to Landlord.

     Section 20.2  Repairs
     ------------  -------

     Landlord shall have no liability to Tenant by reason of any inconvenience,
interruption, or injury to business arising from Landlord's making any repairs
or changes to the Property, the Premises, and any fixtures, equipment, or
appurtenances of the Property or the Premises.  If Landlord elects to make any
such repairs or changes, Landlord agrees to do so with due diligence.

                                     - 21 -
<PAGE>
 
     Section 20.3  Waiver
     ------------  ------

     Tenant waives all claims against Landlord, including claims for
consequential damages, arising out of the failure of Landlord from time to time
to furnish any of the services required to be furnished by Landlord under this
Lease. Landlord shall not be liable to Tenant for damage as a result of the
bursting of pipes, leakage of water, and other similar occurrences. Tenant
waives all claims against Landlord, including claims for consequential damages,
arising out of the failure of Landlord from time to time to give any consent
required under this Lease. Tenant's sole remedy for any act or omission of
Landlord shall be to seek injunctive relief.


                                  ARTICLE 21
                       NO OTHER WAIVERS OR MODIFICATIONS

     The failure of Landlord to (a) exercise any right or remedies, (b) insist
upon the strict performance of any obligation under this Lease, or (c) exercise
any election herein shall not be a waiver of such right or remedy.  Such rights,
remedies, and elections shall continue in full force, and Landlord may exercise
them together or in any order Landlord may elect.


                                  ARTICLE 22
                   CURING TENANT'S DEFAULTS, ADDITIONAL RENT

     Section 22.1  Curing Tenant's Defaults
     ------------  ------------------------

     If Tenant defaults in the performance of any of Tenant's obligations under
this Lease, Landlord, without thereby waiving such default, may (but shall not
be obligated to) perform the same for the account and at the expense of Tenant,
without notice in a case of emergency and in any other case only if such default
continues after the expiration of (i) ten (10) days from the date Landlord gives
Tenant notice of intention so to do, or (ii) the applicable grace period
provided in Article 19 or elsewhere in this Lease for the cure of such default,
whichever occurs later.

     Section 22.2  Additional Rent
     ------------  ---------------

     Any expenses incurred by Landlord in the performance by Landlord of any
Tenant's obligations under this Lease, in collection of Base Rent or additional
rent, or in enforcing any rights of Landlord against Tenant under this Lease
shall be paid by Tenant, monthly or immediately at Landlord's option, as
additional rent.  Such costs may include reasonable attorneys' fees, whether or
not suit is brought, and if suit is brought and an appeal is taken, fees for
such appellate proceedings, and all costs involved in instituting and
prosecuting any summary proceedings or other enforcement action.


                              ARTICLE 23 - BROKER

     Tenant covenants, warrants and represents to Landlord that Tenant has not
dealt with any real estate broker or salesman in the finding, negotiation, or
execution of this Lease other than Cushman & 

                                     - 22 -
<PAGE>
 
Wakefield, and Tenant shall indemnify Landlord against any claims, costs, or
damages arising from any breach of this provision. Landlord agrees to pay any
broker's fee or commission due Cushman & Wakefield under its agreement with
Cushman & Wakefield.

                             ARTICLE 24 - NOTICES

     All notices or other communications made pursuant to this Lease shall be in
writing and shall be delivered by United States certified mail, return receipt
requested, postage prepaid, or via nationally recognized overnight courier
service, with receipt confirmation required and with delivery charges paid by
sender, addressed as follows:

          To Landlord:
          ----------- 

          Cambridge One Commercial Plaza, LLC
          c/o Cambridge Realty Partners
          750 Main Street
          Hartford, CT 06103
          Attention:  Mark R. Stone


          With Copy to Landlord's Attorney:
          -------------------------------- 

          Levin, Ford & Paulekas, LLP
          One State Street
          Hartford, CT 06103
          Attention:   Nancy DuBois Wright

          To Tenant:
          --------- 

          First National Bank of New England
          One Commercial Plaza
          Hartford, Connecticut 06103
          Attention:   Leslie A. Galbraith
                       Executive Vice President

          With Copy to Tenant's Attorney:
          ------------------------------ 

          Bingham, Dana & Gould LLP
          100 Pearl Street
          Hartford, CT 06103
          Attention:   Bruce C. Silvers


     Such notice shall be deemed to have been duly given upon the delivery,
refusal to accept, or inability to deliver at the addresses given here.  Either
party may designate to the other a different address from time to time by giving
notice thereof in accordance with this Section.

                                     - 23 -
<PAGE>
 
                                  ARTICLE 25
            ESTOPPEL CERTIFICATE AND PROHIBITION OF RECORDING LEASE

     Section 25.1  Estoppel Certificate
     ------------  --------------------

     Tenant shall at any time, and from time to time, upon not less than ten
(10) days prior written notice from Landlord execute, acknowledge, and deliver
to Landlord, to any prospective purchaser or lender, or to any mortgagee a
written certificate of Tenant stating:  (a) whether Tenant has accepted the
Premises and indicating the commencement date and termination date of this
Lease; (b) that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications) and has not been assigned; (c) that
there are not, to Tenant's best knowledge, any uncured defaults on the part of
Landlord or Tenant hereunder, or specifying any defaults that may exist; (d)
whether or not there are then existing any defenses against the enforcement by
Landlord of any of the obligations of Tenant under this Lease (and, if so,
specifying same); (e) whether Tenant has received all required contributions
from Landlord on account of Tenant's improvements; (f) the dates, if any, to
which the annual Base Rent and additional rent and other charges under this
Lease have been paid and the amounts of said annual Base Rent and additional
rent, and that no annual Base Rent, additional rent, or security deposit has
been paid in advance of its due date, and (g) any other factual information
known to Tenant concerning this Lease or tenancy that may reasonably be required
by any of such persons.  It is intended that any such certificate of Tenant
delivered pursuant to this Section may be relied upon by such persons. Tenant's
failure to deliver such Certificate within said ten (10) day period shall be
conclusive upon Tenant that this Lease is in full force and effect and
unmodified and that there are no uncured defaults in Landlord's performance
hereunder.

     Section 25.2  Lease Not to be Recorded
     ------------  ------------------------

     In no event shall this Lease be recorded.  If the Tenant records this
Lease, Landlord shall have the option of terminating the Lease on notice to
Tenant, in which event Landlord may hold Tenant liable for all sums due
hereunder.  In such event, Tenant grants Landlord a power of attorney, coupled
with an interest, to execute and record a notice clearing title of the existence
of this Lease.  At the request of either party, Landlord and Tenant shall
promptly execute, acknowledge and deliver a memorandum with respect to this
Lease sufficient for recording in accordance with the statutes of the State of
Connecticut.

     Section 25.3  Lease Payment Address
     ------------  ---------------------

     Tenant agrees that upon Tenant's receipt of a tenant payment direction
letter, all Lease payments are to be delivered directly to Landlord's then
current mortgage lender at the address specified in the tenant payment direction
letter.

                                     - 24 -
<PAGE>
 
                  ARTICLE 26 - REPRESENTATIONS AND AGREEMENTS

     Tenant expressly acknowledges that Landlord has not made and is not making,
and Tenant is not relying upon, any warranties, representations, promises, or
statements, except to the extent that the same are expressly set forth in this
Lease (including its Exhibits).

                                  ARTICLE 27
          TRANSFER OF LANDLORD'S INTEREST AND LIMITATION OF LIABILITY

     Section 27.1  Transfer of Landlord's Interest
     ------------  -------------------------------

          This Lease shall be binding upon Tenant and its successors and assigns
(but this provision shall not permit assignment of Tenant's interest except as
expressly provided herein).  The obligations of Landlord hereunder shall be
binding upon Landlord only during the period Landlord has an interest in the
Property.  Thereafter this Lease shall be binding only upon the transferee of
said interest in the Property.  Any transferee or assignee of the interest of
Landlord, or any successor thereto, shall be liable for the obligations of
Landlord under this Lease only during the period it has an interest in the
Property.

     Section 27.2  Limitation of Liability
     ------------  -----------------------

     Tenant shall look only to Landlord's interest in the Property for the
satisfaction of any of Tenant's rights or remedies hereunder, and no other
property or assets of Landlord shall be subject to levy, execution, or other
enforcement procedure for the satisfaction of Tenant's rights or remedies under
this Lease, the relationship of Landlord and Tenant, or Tenant's use or
occupancy of the Premises.


              ARTICLE 28 - TENANT'S DISCHARGE OF MECHANIC'S LIENS

     Section 28.1  Prevention of Liens
     ------------  -------------------

     Tenant shall pay all debts incurred, and shall satisfy all liens of
contractors, subcontractors, mechanics, laborers, and materialmen in respect to
construction, alteration, and repair in and on the Premises.  Tenant hereby
indemnifies Landlord against all costs and charges, including legal fees in any
"lawsuit" involving any liens, judgments, or encumbrances caused or suffered by
Tenant with respect to the Premises.  Tenant shall have no authority to create
any liens for labor or material on or against Landlord's interest in the
Property, and all persons contracting with Tenant for work shall be notified by
Tenant that they must look only to Tenant and Tenant's interest under this Lease
to secure the payment of any bill or account for work done or material
furnished.

     Section 28.2  Discharge of Liens
     ------------  ------------------

     If any mechanic's, laborer's, or materialmen's lien shall at any time be
filed against the Property by reason of any act or omission of Tenant, Tenant,
within sixty (60) days after notice of the filing 

                                     - 25 -
<PAGE>
 
thereof, shall cause the same to be discharged by payment, deposit, bond, or
order of a court of competent jurisdiction. If Tenant shall fail to discharge
the same, Tenant shall be in immediate default of this Lease, and Landlord may
discharge the lien either by paying the amount claimed due or by procuring the
discharge of such lien by deposit or by bonding proceedings. Landlord shall be
entitled, if Landlord so elects, to compel the prosecution of an action for the
foreclosure of such lien by the lienor and to pay the amount of the judgment in
favor of the lienor with interest, costs, and allowances. Any amount paid by
Landlord and all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon from the date incurred at the rate of
fifteen percent (15%) per annum, shall constitute additional rent payable by
Tenant under this Lease and shall be paid by Tenant to Landlord on demand.


                      ARTICLE 29 - INTENTIONALLY DELETED


                          ARTICLE 30 - MISCELLANEOUS

     Section 30.1  Definitions
     ------------  -----------

     The various terms which are defined in other Articles of this Lease or are
defined in Exhibits annexed hereto shall have the meanings specified for all
purposes of this Lease and all supplemental agreements, unless the context shall
otherwise require.

     The term "including" as used in this Lease means "including but not limited
to".  The term "includes" means "includes but not limited to".  The term "any"
means "any and all".  Singular terms include the plural and plural terms include
the singular.

     Section 30.2  Article Headings
     ------------  ----------------

     The Article headings in this Lease are inserted only as a matter of
convenience in reference and are not to be given any effect in construing this
Lease.

     Section 30.3  Ejusdem Generis
     ------------  ---------------

     The rule of "ejusdem generis" shall not be applicable to limit a general
statement followed by or referable to an enumeration of specific matters to
matters similar to the matters specifically mentioned.

     Section 30.4  Entire Agreement
     ------------  ----------------

     This Lease together with all Exhibits and Riders, if any, sets forth the
entire agreement between the Landlord and Tenant concerning the Premises.  There
are no Agreements between the Landlord and Tenant regarding the Premises except
as contained in this Lease, its Exhibits, and Riders and in a letter agreement
dated June 20, 1997, with respect to design of an "ATM machine".  No amendment
or modification of this Lease shall be effective unless it is signed by the
party against whom enforcement of such change is sought.

                                     - 26 -
<PAGE>
 
     Section 30.5  Governing Law
     ------------  -------------

     This Lease shall be governed by and construed in accordance with the laws
of the State of Connecticut.

     Section 30.6  Severability
     ------------  ------------

     If any provision  of this Lease is invalid or unenforceable, the remainder
of this Lease shall not be affected by the invalid or unenforceable provision
and shall be enforceable.

     Section 30.7  Submission of Lease
     ------------  -------------------

     This Lease is submitted to Tenant solely for Tenant's consideration and
does not constitute an option for leasing the Premises.  It shall have no
binding force or effect unless and until Landlord has executed this Lease and
delivered a fully executed copy to Tenant.


                      ARTICLE 31 - INTENTIONALLY OMITTED


                       ARTICLE 32 - HAZARDOUS SUBSTANCES

     Section 32.1  Hazardous Waste
     ------------  ---------------

     Tenant shall not cause or permit any hazardous material (as hereinafter
defined) other than office or cleaning supplies handled as required by law to be
used, stored, transported, released, handled, produced or installed in, on or
from the Premises.  "HAZARDOUS MATERIAL" as used herein shall mean any
flammable, explosive, or radioactive material, hazardous waste, hazardous or
toxic substances or related materials, asbestos or any material containing
asbestos, or any other substance or material so defined in any federal, state,
or local environmental law, ordinance, rule, or regulation, including, without
limitation, the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, the Hazardous Material Transportation Act, as amended,
the Resource Conservation and Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, and the regulations adopted
promulgated pursuant to each of the foregoing.  In the event of a breach of the
provisions of this Section, Landlord shall have the right, in addition to all
other rights and remedies of Landlord under this Lease or at law, to require
Tenant to remove such Hazardous Material from the Premises in the manner
prescribed for such removal by law and requirements of any public authorities.
The provisions of this Section shall survive the expiration or any other
termination of this Lease.

                                     - 27 -
<PAGE>
 
                             ARTICLE 33 - PARKING

     Section 33.1  Parking
     ------------  -------

     Landlord shall provide to Tenant during the Term five (5) parking spaces in
the Building.  At any time during the Term, however, Landlord may terminate
Tenant's right to use one of such five parking spaces in the Building provided
Landlord makes available to Tenant a surface parking space on the Property
behind the Building at the same charge per month as for the spaces in the
Building.  Landlord shall provide, or cause to be provided, to Tenant during the
Term up to eighteen (18) unreserved automobile parking spaces in the MAT Parking
Garage, Church Street, Hartford, Connecticut, as the same become available
following the request Tenant therefor.  If Tenant releases, or does not pay for,
any parking space, Landlord may assign such space to a third party, and when
Tenant next requests an additional parking space, Landlord shall provide it as
it becomes available, up to the maximum required hereunder.  Tenant shall pay to
Landlord, as of the first day of each month, in advance, the parking charge for
such spaces at the rate then being charged in each such garage, which is
currently $175.00 per space per month for spaces in the Building and $160.00 per
space per month in the MAT Parking Garage, in each case plus tax due thereon.
Additional parking spaces in the MAT Parking Garage may be available to Tenant
at similar cost. Tenant shall notify Landlord in the event Tenant wishes to
obtain such additional parking spaces, and upon receipt of such inquiry,
Landlord shall inquire as to the availability thereof. The parking spaces in the
MAT Garage shall be made available to Tenant on Business Days from 7:00 a.m. to
6:00 p.m. Monday through Friday and 7:00 a.m. to 1:00 p.m. on Saturday
(hereinafter "GARAGE HOURS"), or for such longer hours as may be permitted by
the operator of the MAT Garage. In the event that Tenant and its employees,
invitees, and guests shall occupy such spaces after Garage Hours of the MAT
Garage, the users of said spaces shall pay the customary charges for said spaces
for their use after Garage Hours until such spaces are vacated.


                                  ARTICLE 34
                              RIGHT OF EXTENSION

     Section 34.1  First Right to Extend.  Provided that an Event of Default
     ------------  ---------------------                                    
does not exist at the time the option described in this Section may be
exercised, Landlord grants Tenant the option to extend this Lease with respect
to the entire Premises for one (1) period of sixty (60) months (the "FIRST
EXTENSION PERIOD") subject to each and all of the following terms and conditions
(the "FIRST EXTENSION OPTION"):

          (a) The First Extension Option may not be exercised or assigned,
voluntarily or involuntarily, by or to any person or entity other than the
tenant named in this Lease, and any permitted assignee approved by Landlord
pursuant to Article 8 hereof.

          (b) The annual Base Rent for the First Extension Period shall be equal
to the lesser of:  (i) $19.50 per rentable square foot (except that the Base
Rent for the Storage Space shall be $12.00 per rentable square foot), or (ii)
95% of the then prevailing fair market rental rate (such prevailing fair market
rental rate, the "MARKET RENT") for Tenant's space; during the First Extension
Period, additional rent shall continue to be payable in the amount and manner as
provided in the Lease with the same base year as established in Article 4, and
all of the terms, conditions and covenants of this Lease shall apply.

                                     - 28 -
<PAGE>
 
          (c) Tenant shall have delivered to Landlord written notice (the "FIRST
EXTENSION NOTICE") of the exercise of the First Extension Option not later than
six (6) months prior to the expiration of the current term of this Lease, time
being of the essence.  If a First Extension Notice is not so delivered, Tenant's
First Extension Option shall automatically expire.

          (d) Tenant's right to exercise the First Extension Option shall be
suspended at the election of Landlord during any period in which Tenant is in
default of its obligations under this Lease, but the period of time within which
the First Extension Option may be exercised shall not be extended.
Notwithstanding Tenant's due and timely exercise of the First Extension Option,
if, after such exercise and prior to the effective date of the First Extension
Option an Event of Default occurs under this Lease that is not cured within the
applicable grace period, if any, the First Extension Option shall terminate and
be of no force or effect, at the election of Landlord.

          Section 34.2   Second Right to Extend.  Provided that Tenant has
          ------------   ----------------------                           
exercised the First Extension Option and that an Event of Default does not exist
at the time the option described in this Section may be exercised, Landlord
grants Tenant the option to extend this Lease with respect to the entire
Premises for one (1) additional period of sixty (60) months (the "SECOND
EXTENSION PERIOD") subject to each and all of the following terms and conditions
(the "SECOND EXTENSION OPTION"):

          (a) The Second Extension Option may not be exercised or assigned,
voluntarily or involuntarily, by or to any person or entity other than the
tenant named in this Lease, and any permitted assignee approved by Landlord
pursuant to Article 8 hereof.

          (b) The annual Base Rent for the Second Extension Period shall be
equal to 95% of the then prevailing Market Rent for Tenant's space; during the
Second Extension Period, additional rent shall continue to be payable in the
amount and manner as provided in the Lease with the same base year being the
first year of such Second Extension Period, and all of the terms, conditions and
covenants of this Lease shall apply.

          (c) Tenant shall have delivered to Landlord written notice (the
"SECOND EXTENSION NOTICE") of the exercise of the Second Extension Option not
later than six (6) months prior to the expiration of the First Extension Period,
time being of the essence.  If a Second Extension Notice is not so delivered,
Tenant's Second Extension Option shall automatically expire.

          (d) Tenant's right to exercise the Second Extension Option shall be
suspended at the election of Landlord during any period in which Tenant is in
default of its obligations under this Lease, but the period of time within which
the Second Extension Option may be exercised shall not be extended.
Notwithstanding Tenant's due and timely exercise of the Second Extension Option,
if, after such exercise and prior to the effective date of the Second Extension
Option an Event of Default occurs under this Lease that is not cured within the
applicable grace period, if any, the Second Extension Option shall terminate and
be of no force or effect, at the election of Landlord.

     Section 34.3  Market Rent Notice.  If Tenant properly exercises the First
     ------------  ------------------                                         
Extension Option or the Second Extension Option (either of the foregoing, an
"EXTENSION OPTION"), Landlord shall, if Tenant so requests in writing, provide
Tenant with written notice (the "MARKET RENT NOTICE") of the rate of the Market
Rent, as determined by Landlord for a term equal to the First Extension Period
or the Second Extension Period, as the case may be (either of the foregoing, an
"EXTENSION PERIOD") and the Base Rent 

                                     - 29 -
<PAGE>
 
for the Extension Period not less than sixty (60) days prior to the expiration
of the Term. Tenant shall respond in writing to Landlord within twenty (20) days
following Landlord's delivery of its Market Rent Notice (the "TENANT RESPONSE
PERIOD") stating whether Tenant agrees or disagrees with the Base Rent
determined by Landlord. If the parties agree on the Base Rent for the Extension
Period during the Tenant Response Period, they shall execute an amendment to
this Lease within ten (10) days stating the Extension Period, the Base Rent, and
monthly rental and any related terms and conditions.

     Section 34.4  Dispute.  If the parties are unable to agree on the Base Rent
     ------------  -------                                                      
for an Extension Period within the Tenant Response Period, then the Market Rent
shall be determined by appraisal as set forth below in order to establish the
Market Rent, and Landlord and Tenant agree to be bound by the results of the
appraisal.  Notwithstanding the submission of the issue of Market Rent to
appraisal, Base Rent for the next ensuing Lease Year of the Term of this Lease
shall be paid at the Base Rent established by Landlord in its Market Rent Notice
until the appraisal is completed.  If, upon completion of the appraisal, it is
determined that Market Rent is less or more than that set by Landlord, then an
adjustment based upon such lower or greater rent shall be made based on the
number of months therefor paid by Tenant but in no event shall rent be lower
than that paid for the prior Lease Year. In no event shall the extension of the
term of this Lease be affected by the determination of the Base Rent, such
exercise of the Extension Option being fixed at the time at which the Extension
Notice is given.

     Section 34.5  Appraisal.  In the event Landlord and Tenant shall be unable
     ------------  ---------                                                   
to agree on the then Market Rent for the purposes of determining the Base Rent
during the Extension Period, then Market Rent shall be established in the
following appraisal process:

          (a) Within five (5) business days following the end of the Tenant
Response Period, each of Tenant and Landlord shall choose a real estate
appraiser who is a member of the American Institute of Appraisers and has at
least five (5) years' full time commercial appraisal experience in Hartford
County.

          (b) Within five (5) business days following the selection of the
appraisers in accordance with subsection (a) above, the appraisers selected
shall select a third appraiser who must fulfill the same qualifications as set
forth in subsection (a) above.

          (c) Within fifteen (15) business days after their appointment, the
appraisers shall determine the Market Rent for the Premises for the Extension
Period, and shall notify Tenant and Landlord of such determination within three
(3) days thereafter, which determination shall be final and binding upon Tenant
and Landlord.  If the appraisers are unable to agree upon the Market Rent, the
Market Rent will be deemed to be the average of the Market Rents proposed by the
appraisers, except that (i) if the lowest proposed fair market rent is less than
90% of the second to lowest proposed Market Rent, the lowest proposed Market
Rent will automatically be deemed to be 90% of the second to lowest proposed
Market Rent and (ii) if the highest proposed Market Rent is greater than 110% of
the second to highest proposed Market Rent, the highest proposed Market Rent
will automatically be deemed to be 110% of the second to highest proposed Market
Rent;

          (d) Landlord and Tenant shall each pay one-half (1/2) of the expense
of the appraisers' fees.

                                     - 30 -
<PAGE>
 
     For the purpose of determining Market Rent, the parties shall use as a
guideline the average rental rates for comparable office space in the Building,
except that with respect to the Retail Space, the guideline shall be comparable
retail banking space in the Building, over the previous 12-month period, or if
no comparable lease transactions have taken place during the past 12 months, the
guideline shall be the then market rent for similar space available in similar
buildings in Hartford's central business district.

     Section 34.6  Amendment.  Within ten (10) days following the establishment
     ------------  ---------                                                   
of the Market Rent and the resulting Base Rent with respect to an Extension
Period pursuant to the appraisal procedure set forth above, Landlord and Tenant
shall execute an amendment to this Lease confirming the Base Rent payable with
respect to the Extension Period.  Each such amendment shall set forth the
Extension Period, the applicable Base Rent, and the monthly rental and any
related terms and conditions.

                                  ARTICLE 35
                                TENANT'S SIGNS

     Section 35.1  Ground Floor.  Landlord does hereby agree that, subject to
     ------------  ------------                                              
Landlord's right to relocate, redesign, and replace signs under Section 35.2
hereof, Tenant may maintain, repair, and, with Landlord's approval (which
approval will not be unreasonably withheld), replace (a) the existing sign
identifying Tenant's Premises in the lobby of the Building, located on the
elevator wall abutting the main entrance to the Retail Space, and (b) the
existing illuminated exterior sign on the Church Street side of the Building.

     Section 35.2  Lobby Renovation.  Tenant acknowledges that it has been
     ------------  ----------------                                       
informed that the lobby of the Building is to be renovated.   Tenant agrees
that, as part of such renovation, Landlord may require relocation, redesign, and
replacement of any sign that Tenant maintains in the lobby of the Building so
long as the benefits enjoyed by Tenant with respect to such signs are not
materially affected.  Landlord and Tenant shall cooperate in planning and
executing any such replacement.  Landlord shall obtain all governmental permits,
approvals, and consents as may be required for such replacement.  All work in
connection with such signs shall be subject to, and performed in accordance
with, the provisions of Article 6 of this Lease.  Landlord shall reimburse
Tenant for the reasonable cost of any such replacement, to be agreed upon before
the sign is replaced.


                                  ARTICLE 36
                                 EXCLUSIVE USE
                                 -------------

     Section 36.1  Retail Bank Branch
     ------------  ------------------

     Provided Tenant shall not be in default of this Lease beyond any applicable
grace period for the cure thereof, and provided further that the restriction
hereafter set forth or other similar restrictions in other similar commercial
leasing situations are not held to be in violation of so-called antitrust laws
(whether federal, state or local), Landlord does hereby agree that it shall not
lease space in the main lobby area at the main entry level of the Building to
any person or entity other then Tenant, for the purpose of operating an
automated bank teller machine ("ATM"), during the term of this Lease, provided
that in the event the area surrounding such ATM in the lobby area of the
Building shall become congested and overcrowded so as to interfere with the
orderly flow of traffic through such lobby area as 

                                     - 31 -
<PAGE>
 
Landlord shall determine in its reasonable discretion, Tenant agrees that it
shall fully cooperate with Landlord to alleviate such congestion and
overcrowding through measures mutually acceptable to Landlord and Tenant,
including, but not limited to, restricting the people in line for the ATM to a
designated area as mutually agreed upon between Landlord and Tenant, and
restricting the number of people in line to a level as mutually agreed upon by
Landlord and Tenant. Tenant shall, at its cost and expense, take such actions as
are necessary or reasonably required to carry out such crowd-control measures,
and Tenant shall make available its personnel to assist in crowd-control
procedures. Tenant does hereby acknowledge that this Article 36 has been
included in this Lease at the request of Tenant, and Tenant does hereby agree to
save, defend, indemnify and hold Landlord harmless from and against any and all
claims, demands, damages (including treble damages and special and consequential
damages), actions (civil or criminal), causes of action, costs and expenses,
including attorneys' fees, of any nature whatsoever, arising out of or in
connection with the restriction set forth above. Further, Tenant does hereby
agree that in the event of the breach or threatened breach of the foregoing
restriction by Landlord, Tenant's sole and exclusive remedy shall be to seek an
injunction against Landlord; Tenant shall not be entitled to terminate this
Lease, nor shall Tenant be entitled to any rent abatement whatsoever, in the
event of the breach or threatened breach of the provisions of this Article 36 by
Landlord. Nothing herein shall be construed as prohibiting Landlord from leasing
space to any other person or entity on any other floors, or in any other areas,
of the Building, except the main lobby area at the main entry level, for the
purpose of operating an ATM or for the purpose of conducting any other banking
business.

     Section 36.2  Other Uses
     ------------  ----------

     Tenant acknowledges that there is currently no violation of Section 36.1
and that use of any space on the first floor of the Building for the rendering
and/or sale of insurance and/or financial services and/or services and/or
products incidental thereto, as permitted by Landlord's Lease with Connecticut
General Life Insurance Company, will not constitute a violation of Section 36.1.
Landlord agrees not to lease space on the ground floor of the Building to any
new tenant that is a financial institution originating loans and accepting
deposits.


                                  ARTICLE 37
                                QUIET ENJOYMENT
                                ---------------
                                        
     So long as Tenant pays all of the Base Rent and Additional Rent and
performs all of Tenant's other obligations hereunder, Tenant shall peaceably and
quietly have, hold and enjoy the Premises without hindrance, ejection or
molestation by Landlord or any person lawfully claiming through or under
Landlord, subject, nevertheless, to the provisions of this Lease and to Superior
Leases and Superior Mortgages.  This covenant shall be construed as a covenant
running with the land, and is not, nor shall it be construed as, a personal
covenant of Landlord, except to the extent of Landlord's interest in this Lease
and only so long as such interest shall continue, and thereafter this covenant
shall be binding only upon subsequent successors in interest of Landlord's
interest in this Lease, to the extent of their respective interests, as and when
they shall acquire the same, and so long as they shall retain such interest.

                                     - 32 -
<PAGE>
 
     IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease for
the purpose herein expressed on the days set forth below.

Witnessed by:                 LANDLORD:

                              CAMBRIDGE ONE COMMERCIAL PLAZA, LLC

_______________________       By: One Commercial Management, LLC
                                  Its Managing Member

_______________________           By:  Levstone Commercial Management Corp.
                                         Its Manager

                                          By:___________________________________

                                             Its


                              TENANT:

_______________________       FIRST NATIONAL BANK OF NEW ENGLAND


_______________________       By:_______________________________________________

                                  Its



STATE OF CONNECTICUT  )
                      ) ss. Hartford
COUNTY OF HARTFORD    )

     On this the _____ day of July, 1997, before me, _________________, the
undersigned officer, personally appeared __________________________________,
known to me (or satisfactorily proven) to be the person whose name is subscribed
to the within instrument, and acknowledged himself to be _________________ of
Levstone Commercial Management Corp., the Manager of Cambridge One Commercial
Plaza, LLC, a limited liability company, and that he, as such
___________________, being authorized so to do, executed the foregoing
instrument as the free act and deed of the company for the purposes contained
therein by signing the name of the company by himself as such __________________
of the manager.

     In witness whereof, I hereunto set my hand.


                              _____________________________________________
                              Commissioner of the Superior Court
                              Notary Public
                              My Commission Expires:

                                     - 33 -
<PAGE>
 
STATE OF CONNECTICUT  )
                      )  ss. Hartford
COUNTY OF HARTFORD    )

     On this the _____ day of July, 1997, before me, _________________, the
undersigned officer, personally appeared _____________________________________,
known to me (or satisfactorily proven) to be the person whose name is subscribed
to the within instrument, and acknowledged himself/herself to be the
____________________ of First National Bank of New England, a national banking
association, and that he/she, as such officer, being authorized so to do,
executed the foregoing instrument as the free act and deed of the association
for the purposes contained therein by signing the name of the association by
himself/herself as such officer.

     In witness whereof, I hereunto set my hand.


 

                              _____________________________________________
                              Commissioner of the Superior Court
                              Notary Public
[Affix Notarial Seal]         My Commission Expires:

                                     - 34 -
<PAGE>
 
                                   EXHIBIT A
                                   ---------

                               LEGAL DESCRIPTION
                                 THE PROPERTY
<PAGE>
 
                                   EXHIBIT B
                                   ---------

                                  THE PREMISES

<TABLE>

<S>                             <C>
Retail Space                    Exhibit B-1
Fourth Floor Space              Exhibit B-2
Original Twelfth Floor Space    Exhibit B-3
Expansion Space A               Exhibit B-4
Expansion Space B               Exhibit B-5
Storage Space                   Exhibit B-6
</TABLE>
<PAGE>
 
                                   EXHIBIT C
                                   ---------

                                     RULES


     1.   Tenant will refer all contractors, contractor's representatives and
installation technicians rendering any service for Tenant that affects the
physical condition of the Building to Landlord for Landlord's approval before
performance of any such contractual services.  This shall apply to all work
performed in the Building including, installation of telephones, telegraph
equipment, electrical services and attachments, and installations of any and
every nature affecting floors, walls, woodwork, trim, windows, ceilings,
equipment or any other physical portion of the Building.  None of this work will
be done by Tenant without Landlord's prior written approval.

     2.   The work of the cleaning personnel shall not be hindered by Tenant
after 5:30 p.m., and such work may be done at any time during non-Business Hours
when the offices are vacant.  The windows, doors and fixtures may be cleaned at
any time.  Tenant shall provide adequate waste and rubbish receptacles,
cabinets, bookcases, map cases, etc. necessary to prevent unreasonable hardship
to Landlord in discharging its obligation regarding cleaning service.

     3.   Movement in and out of the Building of furniture or office equipment,
or dispatch or receipt by Tenant of any merchandise or material which requires
the use of elevators or stairways, or movement through the building entrances or
lobby, shall be restricted to the hours reasonably designated by Landlord from
time to time.  All such movement shall be as approved by Landlord in a
prearranged manner to be agreed upon between Tenant and Landlord.  Such
prearrangement, shall include the time, method, and routing of movement.  Tenant
expressly assumes all risk or damage to any and all articles moved, as well as
injury to any person or persons and equipment, property and personnel of
Landlord.  Tenant shall have the non-exclusive right to use the freight elevator
at reasonable times established by the building manager after notice to the
building manager.

     4.   No sign or signs will be allowed in any form on the exterior of the
Building or on any window or windows inside or outside of the Building.  No sign
or signs, except in uniform location and uniform style, fixed by Landlord, will
be permitted in the public corridors or on corridor doors or entrance to
Tenant's space.  All signs shall be constructed by Landlord at the rate fixed by
Landlord from time to time.  Tenant will be billed and pay for such service upon
demand.  Prior written consent from Landlord for any such sign or signs of
Tenant is required.  This paragraph 4 is subject to Article 35 of the Lease.

     5.   Tenant shall not place, install or operate in the Premises or in any
part of the Building, any engine, stove or machinery.  Tenant shall not conduct
mechanical operations, cook or place or use in or about the Premises any
explosives, gasoline, kerosene, oil, acids, caustics, or any other flammable,
explosive, or hazardous material without the prior written consent of Landlord.
Use of a microwave oven for Tenant's employees is not prohibited by this rule.

     6.   Landlord will not be responsible for any lost or stolen property,
equipment, money or jewelry from the Premises or public rooms regardless of
whether such loss occurs when the item is locked against entry or not.
<PAGE>
 
     7.   No birds, animals, bicycles or vehicles shall be brought into or kept
in or about the Building except where required to comply with State and Federal
regulations.

     8.   No additional locks shall be placed upon any doors of the Premises.
Tenant shall provide a key to the Premises to Landlord.  Each Tenant shall
surrender all keys to the office on the Expiration Date.  Landlord may permit
entrance to Tenant's offices by use of pass keys controlled by Landlord or
employees, contractors, or service personnel, supervised or employed by
Landlord.  Landlord shall not have access to Tenant's vault or the secured area
associated with operation of Tenant's ATM Machine, except with Tenant's consent
and in the presence of a representative of Tenant.

     9.   None of the entries, passages, doors, elevators, elevator doors,
hallways, or stairways shall be blocked or obstructed, or any rubbish, litter,
trash or material of any nature placed, emptied or thrown into these areas, nor
shall such areas be used at any time except for access or egress by Tenant,
Tenant's agents, employees or invitees.  Nothing shall be placed on the outside
of the Building, or the windows, exterior window-sills or projections.

     10.  Landlord shall have the right to determine and prescribe the weight
and proper position of any unusually heavy furniture including safes, large
files, etc., that are to be placed in the Building.  Only those which in the
reasonable opinion of Landlord would not do damage to the floors, structure
and/or elevators may be moved into the Building.

     11.  No portion of Tenant's area or any other part of the Building shall at
any time be used or occupied as sleeping or lodging quarters.

     12.  The sashes, sash doors, windows, glass doors and any lights or sky
lights that reflect or admit light into the halls or other places of the
Building, shall not be covered or obstructed by Tenant nor shall anything be
placed upon or hung from the window-sills.  The water and wash closets and
urinals shall not be used for any other purpose than the purpose for which they
were respectively constructed, and the expense of any breakage, stoppage or
damage resulting from a violation of this rule shall be borne by the Tenant
whose clerks, agents, servants or licensees shall have caused it.  Except for
wall decoration and pictures, Tenant shall mark, paint, drill into or in any way
deface the walls, ceilings, partitions, floors, wood, stone or iron work, or
make or permit any improper noises in the Building.

     13.  No Tenant shall employ any person or persons, other than the cleaning
personnel of the Landlord for the purpose of cleaning the Premises.  Tenant
shall close the windows and lock the doors before leaving the Building each day.

     14.  No window shades, blinds or drapes will be placed on any of the
windows except with the prior written approval of the Landlord.  No awnings will
be allowed on any of the windows.

     15.  The Landlord shall have the right to prohibit any advertising by any
Tenant, which, in its opinion, tends to impair the reputation of the Building or
its desirability as a building for offices for financial, insurance and other
institutions and businesses of like nature, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.

                                     - 2 -
<PAGE>
 
     16.  Access may be had by the Tenant to the halls, corridors, elevators and
stairways, in the Building, and to the offices leased by them at any time or
times during business hours on business days.  During other hours access to the
Building may be refused unless the person seeking admission is known to the
watchman in charge, or has a pass or is properly identified.  The Landlord shall
in no case be liable in damages for the admission or exclusion of any person
from the Building.  In case of invasion, mob riot, public excitement or other
commotion, the Landlord reserves the right to prevent access to the Building
during the continuance of same by closing the doors or otherwise for the safety
of the tenants and protection of property in the Building.


     Landlord desires to maintain high standards of environment comfort and
     convenience for its tenants.  It will be appreciated if any undesirable
     conditions or lack of courtesy or attention by its employees is reported
     directly to Landlord.

                                     - 3 -
<PAGE>
 
                                   EXHIBIT D
                                   ---------
                             WORK LETTER AGREEMENT

     This Work Letter Agreement (the "WORK LETTER") is entered into by CAMBRIDGE
ONE COMMERCIAL PLAZA, LLC, a Connecticut limited liability company with a place
of business  in care of Cambridge Realty Partners, 750 Main Street, Hartford,
Connecticut 06103 (hereinafter referred to as "Landlord"), and FIRST NATIONAL
BANK OF NEW ENGLAND, a  national banking association with a place of business at
One Commercial Plaza, Hartford, Connecticut 06103 (hereinafter referred to as
"Tenant") in connection with a certain Lease Agreement dated as of June ___ ,
1997, with respect to space at One Commercial Plaza, Hartford Connecticut (the
"LEASE").

     Landlord and Tenant agree as follows:

        1.  Plans.   All design and architectural services and mechanical plans
            -----                                                              
required for work in the Premises shall be prepared by Tenant at Tenant's sole
cost and expense and shall be subject to Landlord's prior review and approval,
which approval shall not be unreasonably withheld or delayed.  Tenant
acknowledges that approvals withheld or delayed because of action or inaction of
any mortgagee are reasonably withheld or delayed.

        2.  Tenant's Work.   Tenant accepts the Premises other than Expansion
            -------------                                                    
Space A and Expansion Space B "as is" on the date hereof and shall accept
possession of Expansion Space A and Expansion Space B in similar condition.

          2.01 Tenant shall, within 60 days after signing this Lease or adding
space to the Premises, as the case may be, submit to Landlord for Landlord's
review and approval final and complete dimensional and detailed plans and
drawings of partition layouts, including openings, ceiling and lighting layouts,
colors, and any and all other information as may be necessary to complete the
Premises, with a completion schedule for the same (all such plans are
hereinafter referred to as "TENANT'S PLANS"), which Tenant's Plans shall be
prepared at Tenant's sole cost and expense.  Tenant shall provide to Landlord
and any Superior Mortgagee, as defined in the Lease, a certificate that the work
contemplated by Tenant's Plans complies with all laws, permits, and governmental
approvals.

          2.02 Following Landlord's approval of Tenant's Plans, Tenant shall
proceed to improve and equip the Premises in accordance with Tenant's Plans
("TENANT'S WORK").

          2.03 As a contribution toward the cost of improving and equipping the
Premises in accordance with Tenant's Plans, Landlord agrees, subject to the
conditions set forth in this Section 2.03, to pay Tenant, at the time and in the
manner hereinafter specified, an amount equal to the lesser the amount of the
total actual costs incurred by Tenant for the labor and materials furnished or
supplied by or on behalf of Tenant in completing Tenant's Work as shown on the
final version of Tenant's Plans or the following:
<TABLE>
 
<S>                        <C>        <C>            <C>
       For the Twelfth Floor Space    $125,698.50    ($13.50 per rentable square foot)
       For Expansion Space A          $ 86,715.00    ($9.00 per rentable square foot)
       For Expansion Space B          $ 50,584.00    ($8.00 per rentable square foot)
</TABLE>
<PAGE>
 
If Tenant does not use all of the amount specified for a given space, Tenant may
use the balance remaining for leased space subsequently added to the Premises,
but Landlord shall have no obligation under any circumstances to pay more than a
total of $262,997.50 for improving or equipping the Premises.  Landlord's
obligation to pay such amount for a given space is subject to the requirement
that each of the following conditions, circumstances, or events shall first
exist or occur (as the case may be) with respect to the Premises including such
space:

            (i)    Tenant shall have completed, or caused the completion of, all
                   of Tenant's Work;

            (ii)   a certificate of occupancy for the Premises shall have been
                   issued by the appropriate governmental official and a copy
                   thereof shall be delivered to Landlord by Tenant;

            (iii)  the Lease shall be in full force and effect;

            (iv)   Tenant shall be occupying the Premises under the Lease,
                   without default thereunder;

            (v)    Tenant shall have delivered to Landlord "as built" plans of
                   the Premises, certified by a registered architect or engineer
                   to be substantially correct;

            (vi)   Tenant shall have delivered to Landlord full and complete
                   lien waivers of all persons or entities having lien rights
                   with respect to the Premises by reason of all labor and
                   materials furnished or supplied in connection with Tenant's
                   Work; and

            (vii)  Tenant shall have delivered to Landlord and the City of
                   Hartford, Department of Licenses and Inspections ("L&I"), a
                   certified statement of actual costs as required by the
                   Municipal Code of the City of Hartford then in effect,
                   indicating that Tenant's Work has been duly performed and
                   completed, setting forth the total actual costs for all labor
                   and materials furnished or supplied to Tenant in connection
                   with Tenant's Work, which statement shall be accompanied by
                   evidence of all expenditures for labor and materials
                   furnished or supplied to Tenant, including, but not limited
                   to, receipted bills, cancelled checks, and any other items
                   Landlord may request, together with a statement from L&I that
                   it has accepted and approved the statement of actual costs
                   submitted to it.

To the extent feasible under the terms of Landlord's financing facility,
Landlord shall make reasonable efforts to pay the aforesaid amount to Tenant in
cash promptly, but in no event later than ninety (90) days after Tenant shall
have satisfied all of the above conditions.  To the extent not so feasible,
Landlord may issue to Tenant a credit against Base Rent during the two (2)
months of the Lease term which immediately follow the month in which Tenant has
satisfied all of the conditions set forth above, with any balance paid in cash
within such 90-day period.

                                     - 2 -
<PAGE>
 
       3.   Tenant's Expense.   Any materials or work described in the final
            ----------------                                                
version of Tenant's Plans is included in Tenant's Work.  Tenant's Work shall be
performed and completed at Tenant's sole cost and expense, subject only to the
contribution provided for in Section 3.03.

        4.  Special Work.
            ------------ 

          (a) If upon receiving the final version of Tenant's Plans or any
changes of final version of Tenant's Plans, it is Landlord's reasonable opinion
that the work called for in Tenant's Plans includes Special Work (as such term
is hereinafter defined), Landlord shall promptly notify Tenant thereof.  Tenant
shall revise Tenant's Plans to eliminate the need for such Special Work.

          (b) The term "SPECIAL WORK" shall mean (i) work that would require
changes to the Building or (ii) work that would require Landlord to expend funds
to prepare the Premises for the performance of Tenant's Work.

        5.  Investment Tax Credit.  Landlord shall be entitled to any and all
            ---------------------                                            
investment tax credits available to Section 38 of the Internal Revenue Code or
any law subsequently enacted in lieu thereof, relative to the property of
Landlord in and about the Premises.  Tenant does hereby agree that the sums
reimbursed to Tenant by Landlord pursuant to paragraph 3 of this Exhibit C shall
be, and deemed to be, first applied to the reimbursement of Tenant's costs and
expenses incurred in connection with such fixtures, equipment improvements and
appurtenances attached to or built into the Premises as are "SECTION 38
PROPERTY", "NEW SECTION 38 PROPERTY", or "USED SECTION 38 PROPERTY" as those
terms are defined in Section 48 of the Internal Revenue Code, or any law,
ordinance, rule or regulation enacted in concert or in lieu thereof.

       6.   Use of Landlord's Services and Equipment.  In the event Tenant, its
            ----------------------------------------                           
servants, agents and independent contractors shall utilize any services of
Landlord's personnel or shall utilize any equipment, machinery or other items
which are the property of Landlord, in connection with Tenant's improvements to,
or alterations of the Premises, Tenant shall pay Landlord for such services or
equipment and machinery use, an amount equal to the market value of such
services of equipment and machinery use.

       7.   Right of Set-Off.  In the event Tenant shall be or become indebted
            ----------------                                                  
to Landlord pursuant to the provisions of this Exhibit C, Landlord may deduct
and set-off the amount of such indebtedness against the sum due Tenant pursuant
to Section 2.03 of this Exhibit C.  Any sum due Landlord from Tenant under the
provisions of this Exhibit C in excess of the sum due Tenant from Landlord
pursuant to Section 2.03 of this Exhibit C, shall be deemed additional rent and
shall be due and payable by Tenant with the first monthly installment of Base
Rent due under the Lease.

                                     - 3 -
<PAGE>
 
       In witness whereof the parties have executed this Work Letter Agreement
as of _________ ___, 1997.

Witnessed by:                 LANDLORD:

                                  CAMBRIDGE ONE COMMERCIAL PLAZA, LLC

                              By: One Commercial Management, LLC
                                  Its Managing Member

__________________________    By:  Levstone Commercial Management Corp.
                                   Its Manager

__________________________         By:________________________________
                                      Its



                              TENANT:

__________________________    FIRST NATIONAL BANK OF NEW ENGLAND


__________________________    By:______________________________________
                                 Its

                                     - 4 -
<PAGE>
 
                                   EXHIBIT E

          CLEANING SERVICES TO BE PERFORMED AT THE LANDLORD'S EXPENSE

<PAGE>
 
                                                                   EXHIBIT 11.1
 
               STATEMENT REGARDING THE COMPUTATION OF NET INCOME
                    PER COMMON AND COMMON EQUIVALENT SHARES
 
<TABLE>   
<CAPTION>
                                                               FOR THE SIX
                         FOR THE YEARS ENDED DECEMBER 31, MONTHS ENDED JUNE 30,
                         -------------------------------- ---------------------
                            1996       1995       1994       1997       1996
                         ---------- ---------- ---------- ---------- ----------
<S>                      <C>        <C>        <C>        <C>        <C>
Historical--primary
 (1):
  Weighted average
   issued common stock
   outstanding.........   5,764,082  5,776,916  5,534,926  5,772,648  5,758,520
  Weighted average
   common stock
   equivalents (2).....     250,427    250,427    250,427    250,427    250,427
                         ---------- ---------- ---------- ---------- ----------
Weighted average number
 of common and common
 equivalent shares
 outstanding...........   6,014,509  6,027,343  5,785,353  6,023,075  6,008,947
                         ========== ========== ========== ========== ==========
Net income.............  $3,244,336 $2,026,229 $1,059,940 $2,053,043 $1,625,398
                         ========== ========== ========== ========== ==========
Net income per
 share(3)..............  $     0.54 $     0.34 $     0.18 $     0.34 $     0.27
                         ========== ========== ========== ========== ==========
</TABLE>    
- --------
(1) All common and common equivalent share amounts have been restated to
    reflect a 3.5-for-1 split approved by the Company on June 26, 1997 and
    effected on August 7, 1997.
   
(2) Includes common stock equivalents associated with any Company stock
    options issued one year prior to the expected public offering date of
    September 1997. In accordance with Staff Accounting Bulletin Topic 4-D,
    for all periods presented, the effect of such equivalents was computed
    under the treasury stock method, assuming the repurchase of such options
    by the Company at an assumed offering price of $11.00 per share.     
   
(3) Fully diluted net income per common and common equivalent share is not
    presented as it was the same for all periods presented.     

<PAGE>
 
                                                                   EXHIBIT 23.1
 
                      CONSENT OF INDEPENDENT ACCOUNTANTS
   
  We consent to the inclusion in this Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 (file number 333-31339) of our report dated
January 29, 1997, except for Note 1 (as it relates to "Earnings Per Share" and
"Common Stock Split") and Note 13 as to which the date is July 21, 1997, on
our audits of the consolidated financial statements of First International
Bancorp, Inc. and Subsidiary. We also consent to the references to our Firm
under the captions "Selected Consolidated Financial Information" and
"Experts."     
 
                                              /s/ Coopers & Lybrand L.L.P.
                                          _____________________________________
                                                COOPERS & LYBRAND L.L.P.
 
Hartford, Connecticut
   
August 22, 1997     

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   6-MOS                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1997             DEC-31-1996
<PERIOD-START>                             JAN-01-1997             JAN-01-1996
<PERIOD-END>                               JUN-30-1997             DEC-31-1996
<CASH>                                       8,319,033               5,643,026
<INT-BEARING-DEPOSITS>                         121,325                 223,627
<FED-FUNDS-SOLD>                             8,000,000              13,000,000
<TRADING-ASSETS>                                     0                       0
<INVESTMENTS-HELD-FOR-SALE>                  5,091,170              11,523,795
<INVESTMENTS-CARRYING>                      10,676,049               4,349,828
<INVESTMENTS-MARKET>                        10,727,196               4,343,347
<LOANS>                                    115,886,399             112,452,484
<ALLOWANCE>                                  3,000,000               3,000,000
<TOTAL-ASSETS>                             177,471,345             161,641,773
<DEPOSITS>                                 158,647,451             144,316,149
<SHORT-TERM>                                    58,314               1,061,449
<LIABILITIES-OTHER>                          2,770,109               2,048,600
<LONG-TERM>                                          0                       0
                                0                       0
                                          0                       0
<COMMON>                                       577,353                 576,635
<OTHER-SE>                                  15,418,118              13,638,940
<TOTAL-LIABILITIES-AND-EQUITY>             177,471,345             161,641,773
<INTEREST-LOAN>                              5,830,044              12,027,413
<INTEREST-INVEST>                              479,221               1,278,026
<INTEREST-OTHER>                               313,201                       0
<INTEREST-TOTAL>                             6,622,466              13,305,439
<INTEREST-DEPOSIT>                           2,991,607               5,714,156
<INTEREST-EXPENSE>                              19,562                  27,229
<INTEREST-INCOME-NET>                        3,011,169               7,564,054
<LOAN-LOSSES>                                  959,074               3,486,974
<SECURITIES-GAINS>                                   0                       0
<EXPENSE-OTHER>                              5,909,497               8,425,221
<INCOME-PRETAX>                              3,545,021               5,597,117
<INCOME-PRE-EXTRAORDINARY>                   3,545,021               5,597,117
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                 2,053,045               3,244,336
<EPS-PRIMARY>                                     0.34                    0.54
<EPS-DILUTED>                                     0.34                    0.54
<YIELD-ACTUAL>                                    5.04                    5.48
<LOANS-NON>                                  2,594,210               2,251,710
<LOANS-PAST>                                         0                       0
<LOANS-TROUBLED>                                     0                       0
<LOANS-PROBLEM>                                      0                       0
<ALLOWANCE-OPEN>                             3,000,000               2,000,000
<CHARGE-OFFS>                                  971,092               2,526,801
<RECOVERIES>                                    12,018                  39,827
<ALLOWANCE-CLOSE>                            3,000,000               3,000,000
<ALLOWANCE-DOMESTIC>                         2,381,595               2,455,972
<ALLOWANCE-FOREIGN>                                  0                       0
<ALLOWANCE-UNALLOCATED>                        618,405                 544,028
        

</TABLE>


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