THE FIRST CONNECTICUT CAPITAL CORPORATION




         Financial  Statements  for the Years  Ended March 31, 1997 and 1996 and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT


To the Stockholders and Board of Directors
   of The First Connecticut Capital Corporation:

We have audited the accompanying balance sheets of The First Connecticut Capital
Corporation  (the  "Corporation")  as of March 31, 1997 and 1996 and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the financial  position of the Corporation at March 31, 1997 and 1996
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.








June 4, 1997
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION

BALANCE SHEETS, MARCH 31, 1997 AND 1996 
(Dollars in thousands,  except per share data)
                                                               March 31,
                                                     ---------------------------
                                                      1997                1996
                                                     -------             -------
<S>                                                  <C>                 <C>
ASSETS
Investments:
Loans - net ....................................     $   481             $   863
Foreclosed asset ...............................           0                  84
                                                     -------             -------

      Investments-net (Note 4) .................         481                 947

Cash and cash equivalents ......................         211                 430
Restricted cash (Note 2) .......................          45                  45
Loans held for sale ............................         380
Accrued interest ...............................          41                  36
Servicing rights  (Note 2) .....................         347                 337
Fixed assets  (Note 2, 5) ......................          47                  78
Other assets ...................................         245                 259
                                                     -------             -------

TOTAL ASSETS ...................................     $ 1,797             $ 2,132
                                                     =======             =======


LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Warehouse line of credit   (Note 8) ............     $   317             $   226
Accounts payable and other accrued expenses ....         439                 559
Deferred income taxes   (Note 7) ...............           0                  76
                                                     -------             -------

TOTAL LIABILITIES ..............................         756                 861
                                                     -------             -------

Commitments and contingencies (Note 10)

STOCKHOLDERS' EQUITY:
Common stock, no par value, stated value $.50
   per share, authorized 3,000,000 shares,
   issued and outstanding 1,173,382 shares .....         587                 587
Paid-in surplus ................................       9,253               9,253
Accumulated deficit ............................      (8,799)             (8,569)
                                                     -------             -------

TOTAL STOCKHOLDERS' EQUITY .....................       1,041               1,271
                                                     -------             -------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....     $ 1,797             $ 2,132
                                                     =======             =======

                       See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share data)

                                                      Year Ended      Year Ended
                                                        March 31,      March 31,
                                                         1997            1996
                                                       ---------       --------
<S>                                                    <C>             <C>
INTEREST INCOME:
Interest and fees on loans .......................       $   103        $   129
                                                       ---------       --------

INTEREST EXPENSE:
Interest expense Warehouse Line ..................             9              0
                                                       ---------       --------

NET INTEREST INCOME ..............................            94            129
                                                       ---------       --------

PROVISION FOR INVESTMENT LOSSES ..................           215            101
                                                       ---------       --------

NET INTEREST  INCOME AFTER
   PROVISION FOR INVESTMENT LOSSES ...............          (121)            28
                                                       ---------       --------

OTHER OPERATING INCOME:
Servicing fees ...................................           166            210
Loan Origination fees ............................           198            141
Other fees .......................................           164             47
Legal Settlement .................................            24              0
Gain on sale of loans ............................            22              0
Other income .....................................           136              0
                                                       ---------       --------
    Total Other Operating Income .................           710            398
                                                       ---------       --------

TOTAL INCOME .....................................           589            426
                                                       ---------       --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share data)

                                                      Year Ended      Year Ended
                                                        March 31,      March 31,
                                                         1997            1996
                                                       ---------       --------
<S>                                                    <C>             <C>
OTHER OPERATING EXPENSES:
Amortization of servicing rights .................            17            215
Collection expenses ..............................           151             16
Officers' salaries ...............................           224            231
Other salaries ...................................            81            126
Directors' fees ..................................            18             18
Professional services ............................            16             58
Miscellaneous taxes ..............................            36             40
Employee and general insurance ...................            88             79
Rent .............................................            33             41
Communications ...................................            19             16
Advertising and promotions .......................             4             17
Stock record and other financial expenses ........             5              6
Depreciation expense .............................            15             23
Other operating expenses .........................           107            139
                                                       ---------       --------
    Total Other Operating Expenses ...............           814          1,025

LOSS BEFORE INCOME TAXES .........................          (225)          (599)
INCOME TAX EXPENSE ...............................             5              5
                                                       ---------       --------

NET LOSS .........................................         ($230)         ($604)
                                                       =========       =========

LOSS PER COMMON SHARE (Note 2) ...................        ($0.20)        ($0.51)
                                                       =========       =========

Weighted average number of
  common shares outstanding ......................     1,173,382       1,173,382
                                                       =========       =========

See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands)

                                         Common Stock                                          Total
                                    Number Of                   Paid-In     Accumulated     Stockholders'
                                     Shares       Amount        Surplus       Deficit          Equity
                                  ------------   ---------    ----------   -------------    ---------
<S>                                 <C>          <C>            <C>           <C>               <C>

BALANCE, MARCH 31, 1995             1,173,382       $587        $9,253        ($7,965)          $1,875

Net Loss                                                                         (604)            (604)
                                    ---------       ----        ------        -------           ------  

BALANCE, MARCH 31, 1996             1,173,382       $587        $9,253        ($8,569)          $1,271

Net Loss                                                                        (230)             (230)
                                    ---------       ----        ------        -------           ------  

BALANCE, MARCH 31, 1997             1,173,382       $587        $9,253        ($8,799)          $1,041
                                    =========       ====        ======        =======           ====== 

                                  See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands)


                                                                  March 31,   March 31,  
                                                                    1997        1996
                                                                  -------     -------
<S>                                                               <C>         <C>
OPERATING ACTIVITIES
   Net loss ..................................................    ($  230)    ($  604)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Loss on disposal of furniture and equipment ...........         15        --
       Net gain on sale of loans .............................        (22)       --
       Provision for investment losses .......................        215         101
       Depreciation ..........................................         15          23
       Amortization of servicing rights ......................         17         215
       Origination of loans held for sale ....................     (3,256)     (2,206)
       Proceeds from sale of loans held for sale .............      2,876       2,241
       Increase in accrued interest receivable ...............         (6)         (5)
       Decrease in other assets ..............................         20         106
       Decrease in accounts payable and other accrued expenses       (130)       (102)
       Decrease in deferred income taxes .....................        (76)       --
       Increase in restricted cash ...........................          -          (1)
                                                                  -------     -------

            Net cash used in operating activities ............       (562)       (232)
                                                                  -------     -------

INVESTING ACTIVITIES
      Proceeds from sales of investments .....................        250        --
      Principal collected on investments .....................          2          21
                                                                  -------     -------

            Net cash provided by investing activities ........        252          21
                                                                  -------     -------

FINANCING ACTIVITIES
     Increase in warehouse line of credit ....................         91         226
                                                                  -------     -------

            Net cash provided by financing activities ........         91         226
                                                                  -------     -------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .............       (219)         15

CASH AND CASH EQUIVALENTS, BEGINNING .........................        430         415
                                                                  -------     -------

CASH AND CASH EQUIVALENTS, ENDING ............................    $   211     $   430
                                                                  =======     =======

                          See notes to financial statements.
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO  FINANCIAL  STATEMENTS  FOR THE YEARS  ENDED  MARCH  31,  1997 AND 1996
(Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
1.       MANAGEMENT'S PLAN

         On August 15, 1990,  the  Corporation,  formerly The First  Connecticut
Small Business Investment Company,  filed a petition for relief under Chapter 11
of the federal bankruptcy laws in the United States Bankruptcy Court.

         On October 18, 1991,  the  Corporation  filed a plan of  reorganization
(the "Plan") with the United States  Bankruptcy Court. The Plan was confirmed as
of January 9, 1992, and generally  provided for payment in full of all creditors
except the U.S. Small Business Administration (the "SBA").

         The Corporation filed an application to close the Chapter 11 bankruptcy
proceedings.  That  application  was approved and the  Corporation  emerged from
bankruptcy on December 24, 1994.

         During  1997,  the  Corporation  incurred  a  net  loss  of  $230.  The
Corporation  currently  anticipates  that during the year ending March 31, 1998,
its principal  financing  needs will consist of funding its mortgage  loans held
for sale  (see Note 8 -  Warehouse  Line of  Credit),  the  ongoing  net cost of
mortgage loan  originations  and cash flow used in operations.  Future cash flow
requirements will depend primarily on the level of the Corporation's  activities
in originating and selling  mortgage loans, as well as cash flow required by its
operations.   Although  the  Corporation  anticipates  increased  activities  in
originating  mortgage loans,  the difficulties  experienced  within the relevant
economic markets still exist and there are no assurances that increased activity
will  occur.  Consequently,  as a  means  to  provide  further  cash  flow,  the
Corporation  has expressed a willingness to liquidate  certain current assets in
its portfolio and that a market exists for those assets.

         The  Corporation  continues to investigate  and pursue  alternative and
supplementary  methods of financing its  operations and to support the growth of
the Corporation.

         The  Corporation  believes that cash on hand and  internally  generated
funds will be  sufficient  to meet its  corporate,  general  and  administrative
working  capital and other cash  requirements  during the year ending  March 31,
1998. The Corporation  took certain action steps during the year ended March 31,
1996 to decrease its cash flow  requirements  for the years ended March 31, 1997
and 1996.  Those steps included a management  salary reduction and a restatement
and termination of the pension plan.  Management also believes  additional steps
can be taken if necessary.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Loans  -  Loans  are  generally   recorded  at  the  principal   amount
outstanding.  Interest  rates on loans are fixed at the time of issuance and are
based upon current  market rates at the time. As of March 31, 1997,  outstanding
loans are  payable in a variety  of methods  over a term of less than ten years,
all are collateralized by liens on real properties; a few of such properties are
subject to prior liens.  Interest  income on loans is recognized  based on rates
applied  to  principal  amounts  outstanding.  Loans  are  generally  placed  on
nonaccrual status when they become 180 days past due or earlier,  if the loan is
considered  impaired.  In connection  with most loans,  the borrower also pays a
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
nonrefundable fee to the Corporation.  Any unpaid amounts  previously accrued on
these loans are reversed  from income.  Subsequent  cash receipts are applied to
the outstanding  principal  balance or to interest income if, in the judgment of
management,  collection of the outstanding  principal is not in question.  Loans
are  removed  from  non-accrual  status  when  they  become  current  as to both
principal and interest and when subsequent performance reduces the concern as to
the collectibility of principal and interest.

         Loans held for sale - Mortgage  loans  originated and intended for sale
in the  secondary  market are  carried at the lower of cost or fair value in the
aggregate.  Net unrealized losses are recognized  through a valuation  allowance
charged to income.

         Allowance for Investment  Losses - The allowance for investment  losses
is determined by management on an investment by investment  basis. The allowance
is an amount that  management  believes  will be  adequate  to absorb  losses on
existing investments that may become uncollectible,  based on evaluations of the
collectibility of the investments.  The evaluations take into consideration such
factors as geographic location,  assessment of collateral quality, appraisals of
significant  collateral  and other  conditions  that may affect  the  borrower's
ability to repay.

         During the year ended  March 31,  1996,  the  Corporation  adopted  the
Statement  of  Financial   Accounting   Standards  No.  114  ("SFAS  No.  114"),
"Accounting by Creditors for Impairment of a Loan", which requires that impaired
loans  that are  within  its scope be  measured  based on the  present  value of
expected future cash flows discounted at the loan's effective  interest rate or,
as a practical  expedient,  at the loan's  observable  market  price or the fair
value of the  collateral if the loan is collateral  dependent.  SFAS No. 114 was
modified by SFAS No. 118,  "Accounting  by Creditors for  Impairment of a Loan -
Income  Recognition  and  Disclosures",  and  was  adopted  concurrently  by the
Corporation.  The  adoption  of these new  standards  did not have any  material
impact on the Corporation's financial statements.

         Concentration  of  Credit  Risks  - The  nature  of  the  Corporation's
business was to grant loans to qualifying  businesses  within the United States.
These loans were  predominantly  collateralized  by liens on real estate. As the
majority of the portfolio is composed of loans to businesses  located within the
Northeast,  the value of the collateral  may have been  impaired.  The estimated
effects,  if any, of such decline is addressed in the allowance  for  investment
losses.

         Pension Plan - The Corporation had a  non-contributory  defined benefit
pension plan covering all employees  meeting certain  eligibility  requirements.
The  Corporation's  policy  was to fund  accrued  pension  cost.  This  plan was
terminated on March 31, 1997 (See Note 12)

         Cash and Cash  Equivalents - For the purpose of the  statements of cash
flows,  the  Corporation  has defined cash as including cash on hand and cash in
interest bearing and noninterest bearing operating bank accounts.  Highly liquid
investments  such as time deposits with an original  maturity of three months or
less are considered to be cash equivalents.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
         Restricted  Cash -  Restricted  cash is  composed of a  certificate  of
deposit which is being  maintained as collateral for the  Corporation's  standby
letter of credit.

         Income Taxes - The Corporation  follows the asset and liability method,
whereby  deferred tax assets and  liabilities  are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
basis.  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.

         Servicing Rights - In connection with the sale of substantially  all of
the Corporation's  investments as discussed in Note 3, the Corporation  recorded
servicing  rights  of $800.  Servicing  rights  are  being  amortized  using the
interest method and $17 and $215 were amortized during the years ended March 31,
1997 and 1996, respectively.

         Net Loss Per Share - Net loss per share is  calculated  by dividing net
loss by the weighted average
number of  common  shares  outstanding  during  the  period.  The  Corporation's
outstanding  options are excluded from the computation due to their antidilutive
effect.

         Fixed Assets - Fixed assets are carried at original cost.  Depreciation
is provided for  primarily by using  accelerated  depreciation  methods over the
estimated service lives as follows:


                  Improvements                       31 years
                  Furniture and fixtures             3-5 years
                  Equipment                          3-5 years
                  Automobiles                        3 years

         Loan Servicing - As of April 1, 1996, the Corporation adopted Statement
of  Financial  Accounting  Standard  (SFAS) No. 122,  "Accounting  for  Mortgage
Servicing  Rights."  This  Statement  requires  allocation  of the total cost of
mortgage  loans to the  mortgage  servicing  rights and the loans  (without  the
mortgage  servicing  rights)  based on their  relative  fair  values.  Effective
January 1, 1997,  SFAS No. 122 was superseded by SFAS No. 125,  "Accounting  for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which was adopted by the Corporation as of the above  mentioned  effective date.
This statement  specifies  accounting and reporting  standards for transfers and
servicing  of  financial  asset  and  extinguishments  of  liabilities  and  for
distinguishing  whether a transfer of a financial  asset in exchange for cash or
other  consideration  should  be  accounted  for as a  sale  or as a  pledge  of
collateral in a secured borrowing. As a result of this adoption, the Corporation
recorded an asset of $27,  related to  servicing  of loans as of March 31, 1997.
This asset is affected by the predominant risk characteristics of the underlying
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
financial assets and,  accordingly,  the Corporation  periodically  assesses the
asset for impairment.  Since the underlying financial assets primarily represent
loans collateralized by first mortgages,  the servicing rights asset encompasses
risk commonly associated with mortgage loans Estimation of a valuation allowance
to reduce the  servicing  rights  asset to fair value  involves  evaluating  the
characteristics  of the underling  assets  including  interest rates,  estimated
remaining lives, dates of origination,  terms, and geographic  location.  Due to
the  recent  adoption  of SFAS  No.  125,  and  the  recent  origination  of the
underlying financial assets, the Corporation has not yet established a valuation
allowance for impairment.  However, as the underlying assets age to maturity and
historical   performance   information  becomes  available,   the  Corporation's
recurring assessment cold identify the necessity for such a valuation allowance.

         New  Accounting  Pronouncements  - In March  31,  1997,  the  Principal
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
No. 128 ("SFAS No. 128"),  "Earnings per Share," which establishes new standards
for the  computation  and  disclosure  of  earning  per share  ("EPS").  The new
statement requires dual presentation of "basic" EPS and "diluted" EPS. Basic EPS
is based on the weighted  average  number of common shares  outstanding  for the
period,  excluding any dilutive common shares equivalents.  Diluted EPS reflects
the potential  dilution  that could occur if  securities  or other  contracts to
issue common stock were exercised or converted.  This statement is effective for
periods  ending after December 15, 1997.  The  Corporation  does not expect this
statement  to have an impact on  reported  net  earnings  or loss per share when
adopted.

         Stock Options - During the year, the corporation  adopted SFAS No. 123,
"Accounting for Stock-Based  Compensation." This statement encourages,  but does
not require,  employers to adopt a fair value method of accounting  for employee
stock-based  compensation.  The Corporation continues to account for stock-based
compensation using the intrinsic value under Accounting Principles Board No. 25,
"Accounting  for Stock Issued to  Employees."  Regardless of the method used for
employee stock-based  arrangements,  SFAS No. 123 requires increased disclosures
of stock-based  compensation  arrangements  with employees.  The Corporation has
adopted SFAS No. 123 through a separate disclosure to the financial statements.

         Use  of  Estimates  -  The  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.

3.       SALE OF INVESTMENTS

         On December 15, 1993,  the  Corporation  sold  outstanding  investments
including  accrued  interest with a net book value of $30,025 pursuant to a Loan
and Real Property Purchase Agreement (the "Purchase Agreement") dated as of June
29,  1993 (and as amended on October 29,  1993).  The  portfolio  was sold to GF
Mortgage  Corporation,  an unrelated  purchaser which is a subsidiary of Gruntal
Financial  Corporation,  a subsidiary of The Home Insurance Company, in exchange
for satisfaction of outstanding  liabilities to the Participants'  Trust and the
SBA  with  carrying   values  at  December  15,  1993  of  $17,359  and  $5,275,
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
respectively,  and options to purchase 60,000 shares of the Corporation's common
stock (see Note 13). The  Corporation  recognized a loss of $6,412 in connection
with the sale.  The  Corporation  also  received a  participation  under certain
conditions in the recovery of non-accrued interest or principal in excess of the
book value of the loans and entered into an Asset  Management and Loan Servicing
Agreement with GF Mortgage  Corporation whereby the Corporation will continue to
service  the  portfolio  for an amount  equal to 1/12th  of one  percent  of the
principal balance  outstanding each month and will receive 2.5% of the principal
outstanding  or the sales  price as  defined  in the Asset  Management  and Loan
Servicing  Agreement  upon  subsequent  sale of these  investments to an outside
party. During the years ended March 31, 1997 and 1996, the Corporation  realized
$126 and $187, respectively, in accordance with this agreement.

4.       INVESTMENTS AND ALLOWANCE FOR INVESTMENT LOSSES

         Investments by type at March 31, are as follows:
<TABLE>
<CAPTION>
                                                       1997              1996
                                                       ----              ----
<S>                                                   <C>               <C>
         Loans                                        $1,176            $1,499
         Allowance for investment losses                (695)             (636)
                                                      ------            ------
                                                         481               863
         Foreclosed asset                                 -                 84
                                                      ------            ------ 

         Total                                        $  481            $  947
                                                      ======            ======
</TABLE>
         Changes  in the  allowance  for  investment  losses are  summarized  as
follows for the years ended March 31: 1997 1996
<TABLE>
<CAPTION>
<S>                                                   <C>               <C>
         Beginning balance                            $   636           $  551
         Provision for losses                             215              101
         Investment write-offs                           (156)             (16)
                                                      -------           ------ 

         Ending balance                               $   695           $  636
                                                      =======           ====== 
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
--------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)

         As  described  in  Note  2,  the  Corporation  adopted  SFAS  No.  114,
"Accounting  by  Creditors  for  Impairment  of a  Loan",  as well as SFAS  118,
"Accounting  by  Creditors  for  Impairment  of a  Loan-Income  Recognition  and
Disclosures".  Under this guidance,  a loan is impaired  when,  based on current
circumstances   and  events,  a  creditor  is  unable  to  collect  all  amounts
contractually due under a loan agreement. At March 31, 1997, the Corporation has
a recorded  investment in impaired  loans of $1,176 and a related  allowance for
investment losses of $695, as compared to $1,499 of impaired loans and a related
allowance for investment  losses of $636 at March 31, 1996. The average recorded
investment  in  impaired  loans for the year ended  March 31,  1997 and 1996 was
$1,120  and  $1,535,  respectively  and  the  income  recorded  on  these  loans
identified as impaired totaled $103 and $129, respectively.

         Loans on which the accrual of interest has been  discontinued  amounted
to approximately  $491 and $1,071 at March 31, 1997 and 1996,  respectively.  If
those loans had been current throughout their terms,  interest income would have
increased   $95  and  $153  for  the  years  ended  March  31,  1997  and  1996,
respectively.

5.       FIXED ASSETS

         As of the years ended  March 31,  1997 and 1996,  the costs and related
accumulated depreciation of the Corporation's fixed assets are as follows:
<TABLE>
<CAPTION>

                                                      1997              1996
                                                      ----              ----
<S>                                                  <C>               <C>
                  Improvements                       $    7            $   14
                  Equipment                             237               268
                                                     ------            ------
                  Fixed assets at cost                  244               282
                  Less accumulated depreciation        (197)             (204)
                                                       ----            ------
                  Fixed assets-net                   $   47            $   78
                                                      =====            ======

</TABLE>

6.       PARI PASU LOAN PARTICIPATIONS

         Certain  participation  agreements  provide for the participant and the
Corporation  to share,  pari pasu in the  rights and risks of payment in certain
loan accounts.  Investments are shown net of the pari pasu participation amount.
The outstanding  participant  balance under these agreements is $253 and $410 as
of March 31, 1997 and 1996, respectively.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
--------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)

7.       INCOME TAXES

         The  components  of the income tax  provision for the years ended March
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
                                              1997                   1996
                                              ----                   ----
<S>                                           <C>                   <C>
         Current:
           State                              $  5*                 $   5*
         Deferred:
           Federal                            $  0                      0
                                               ---                  -----

         Total                                $  5                  $   5
                                              ====                  =====

*Net of $1 Connecticut  Electronic Data  Processing  Property Tax Credit in 1997
and 1996.
</TABLE>

         A  reconciliation  of the income tax  provision  (benefit)  computed by
applying the Federal  statutory  rate to loss before  income taxes to the actual
benefit  for  income  taxes for the years  ended  March 31,  1997 and 1996 is as
follows:
<TABLE>
<CAPTION>

                                                       1997              1996
                                                       ----              ----
<S>                                                  <C>               <C>
         Income tax benefit
           at statutory rate                         $  (79)           $ (201)
         Primarily loss for which no benefit
           can be realized                               84               206
                                                     ------            ------ 
         Total                                       $    5            $    5
                                                     ======            ======= 
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
--------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)


         The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>

                                               1997              1996
                                             -------            -------
<S>                                          <C>              <C>
         Deferred tax liabilities:
           Other ........................    $     0          $     69
           Capital gains ................          0                 7
                                             -------            -------
           Gross deferred tax liabilities    $     0          $     76
                                             -------            -------

         Deferred tax asset:
           Operating loss carryforward ..    $ 3,746             3,737
           Valuation allowance ..........     (3,746)           (3,737)
                                             -------            -------
           Gross deferred tax asset .....          0                -0-
                                             -------            -------

         Net deferred tax liability .....    $     0            $    76
                                             =======            =======
</TABLE>

         The Corporation has elected, for income tax purposes, to report certain
capital gains on an installment basis, whereas the total amount of such gains is
reported for financial  statement purposes as of the transaction date.  Deferred
income taxes are provided for the difference between the gains reported for book
and tax purposes,  and becomes  currently  payable as the gains are realized for
tax purposes.

         In  addition,  deferred  tax  assets  result  from net  operating  loss
carryforwards  (NOLS). Due to the uncertainty of realizing the benefits of these
NOLS a valuation  allowance  has been  established.  The change in the valuation
allowance  was $ 9 and  $85 for the  years  ending  March  31,  1997  and  1996,
respectively.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------

         At March 31, 1997, the Corporation had available  federal and state net
operating loss carryforwards of $9,258 and $9,226, respectively,  for income tax
purposes which expire as follows:
<TABLE>
<CAPTION>

                                            Federal                    State
                                            -------                    -----
<S>                                         <C>                        <C>
                  1998                           -                     $3,909
                  1999                           -                      4,087
                  2000                           -                        678
                  2001                           -                        483
                  2002                           -                         69
                  2008                      $3,914                          -
                  2009                       4,087                          -
                  2010                         679                          -
                  2011                         497                          -
                  2012                          81                          -
                                            ------                     ------

                                            $9,258                     $9,226
                                            ======                     ======
</TABLE>

8.       WAREHOUSE LINE OF CREDIT

         The  Corporation  has a $1 million  warehouse line of credit with Walsh
Securities  to fund  mortgages  before  they are  sold.  This  line of credit is
collateralized  by mortgage loans originated with the proceeds.  As of March 31,
1997 and  1996,  $317 and $226 was  outstanding, respectively.  This  commitment
expires December 31, 1997 unless otherwise extended.

9.       TRANSACTIONS WITH AFFILIATES

         Affiliates  include  directors  and  officers  of the  Corporation  and
members  of their  immediate  families  and  companies  which  have a 5% or more
ownership in the Corporation..

         Legal  services,  including  representation  of the  Corporation on the
closing  of all new  loans,  foreclosure  proceedings  on  delinquent  loans and
general corporate and security matters, are provided by a firm in which a former
director is a principal.  Fees for these  services were $31 and $8 for the years
ended  March 31,  1997 and 1996,  respectively,  of which $15 of legal  expenses
accrued at March 31, 1996 had been  negotiated  and  forgiven by the law firm in
the current period.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
         Certain  officers  and  directors  of the  Corporation  also  serve  as
directors of a bank with which the Corporation  maintains disbursing and savings
accounts of $8 as of March 31, 1997 and 1996. The  Corporation is a guarantor on
loans extended by this bank. (See Note 10.)

         Certain  officers and directors of the  Corporation are principals of a
mortgage company. The Corporation extended second mortgages to borrowers secured
by  collateral  which had also been  pledged  to the  mortgage  company on first
mortgages.  The mortgage  company is in the process of liquidation  and does not
compete with the Corporation.

10.      COMMITMENTS AND CONTINGENCIES

         The Corporation has made certain guarantees with a contractual  balance
of $388 at March  31,  1997 and 1996.  The  guarantees  are for  small  business
concerns from whom  collateralized  loans were  outstanding  and were previously
sold  (see  Note 3).  During  the  year  ended  March  31,  1995,  $368 of these
guarantees  had been called by the bank. The  Corporation  has fully accrued for
the guarantee amounts called at March 31, 1997 and 1996.

         Additionally, the Corporation made payments of approximately $11 during
the year ended March 31, 1996 on prior mortgages to other financial institutions
in order to secure the Corporation's position. No such payments were made during
the year ended March 31, 1997.

         As of March 31, 1997 and 1996, the  Corporation  had  outstanding  loan
commitments of $854 and $226, respectively.

         The   Corporation   is  involved  in  litigation   and   administrative
proceedings  primarily  arising in the  normal  course of its  business.  In the
opinion of management,  the Corporation's  liability,  if any, under any pending
litigation  or  administrative   proceeding  would  not  materially  affect  its
financial condition or results of operations.

11.      LETTER OF CREDIT

         The Corporation has a $40 letter of credit  outstanding as of March 31,
1997 at a stated  interest  rate of 4.9% per  annum  related  to  obtaining  its
license as a First  Mortgage  Loan-Lender  Broker.  The letter of credit expires
February 9, 1998. At March 31, 1997,  restricted cash includes a $45 certificate
of deposit which is being maintained as collateral for the letter of credit.

12.      EMPLOYEE BENEFITS

         The  Corporation  had a  non-contributory  defined benefit pension plan
covering substantially all of its employees. The benefits were based on years of
service and the average of the highest consecutive five years compensation. Plan
assets consisted primarily of cash equivalents and debt securities.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
         The Plan, as restated on March 31, 1995, froze benefits for the "Highly
Compensated  Employees" at the March 31, 1989 level and provided the "Non-Highly
Compensated  Employees"  with  pre-1986  level  of  benefits.   Furthermore,  an
amendment  adopted March 31, 1995 ceased benefits  accruals for all participants
effective  April 14, 1995.  Finally on March 31, 1997, the Plan was  terminated.
Accordingly,  the  projected  benefit  obligation  became  fully vested and Plan
assets of $293 will be distributed to participants.

         Net  periodic  pension  cost for the year ended March 31,  included the
following components:
<TABLE>
<CAPTION>

                                                            1997      1996
                                                            ----      ----
<S>                                                         <C>      <C>
      Service cost-benefits earned
       during the year .................................    $ 11     $ 12
      Interest cost on projected
       benefit obligation ..............................      20       17
      Actual return on assets ..........................       0        8
      Net amortization of transition obligation              (21)     (30)
                                                            ----     ----

      Net periodic pension cost ........................    $ 10     $  7
                                                            ====     ====
</TABLE>
         The following  table sets forth the benefit  obligations and net assets
of the plan at March 31:
<TABLE>
<CAPTION>
                                                     1997              1996
                                                     ----              ----
<S>                                                  <C>               <C>

         Vested benefit obligation                   $293              $277
                                                     ====              ====

         Accumulated benefit obligation              $293              $277
                                                     ====              ====

         Projected benefit obligation                $293              $289
         Plan assets at fair value                    293               292
                                                     ----              ----

         Excess of plan asset
          over projected benefit obligation             0                (3)
         Unrecognized net gain                          0                 5
                                                    -----             -----
         Accrued pension costs included in
          accrued expenses                          $   0             $   2
                                                    =====             ===== 
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
         The  following  are  rates  and  assumptions  used in  determining  the
actuarial present value of the projected benefit obligations for fiscal 1997 and
1996:
<TABLE>
<CAPTION>
                                                         1997              1996
                                                         ----              ----
<S>                                                      <C>               <C>
         Weighted average discount rate                  7.25%             7.00%
         Future compensation increase
          assumption                                     0.00%             3.00%
         Expected long-term rate of
          return on assets                               7.50%             7.50%
</TABLE>

13.      STOCK OPTIONS

         The Corporation has a compensatory  stock option plan which enables the
granting of options to officers to purchase shares of the  Corporation's  common
stock at prices  equal to fair market  value at the date of grant.  As the grant
date coincides with the  measurement  date, and the option price is equal to the
quoted market price at the measurement  date,  there is no related  compensation
expense.  At March 31,  1997,  no options were  outstanding  under this plan and
options for 40,000 shares were  available for future grants.  Options  generally
become executable two years after grant and expire within five years of grant.

         In connection with the Purchase  Agreement (see Note 3) and pursuant to
a stock option  agreement  dated December 15, 1993, the  Corporation  granted GF
Mortgage  Corporation  the right and  option to  purchase  60,000  shares of the
Corporation's  common  stock at an  exercise  price of $1.50 per share which was
less than market value at the date of grant.  The difference  between the quoted
market  value of the  shares at the date of grant and the  option  price for the
grant was charged to the loss on sale of investments at the date of grant. As of
March 31, 1997,  60,000 options are  excercisable  and no such options have been
exercised.

14.      DIVIDEND REINVESTMENT PLAN

         Previously,  the Corporation  had  established a Dividend  Reinvestment
Plan whereby holders of the Corporation's  common stock may automatically invest
cash dividend  payments in additional shares of common stock at a price equal to
90% of the then market  value,  as  defined,  without  payment of any  brokerage
commissions or service charge.  No shares of common stock were issued under this
plan during 1997 or 1996.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
15.      LEASES

         The   Corporation   leases  office  space  and  equipment  for  use  in
operations.  The  leases  generally  provide  that the  Corporation  pay  taxes,
insurance and maintenance  expenses.  Some leases contain renewal  options,  and
rent  payments  change in accordance  with changes in the Consumer  Price Index.
Rental  expense  relating  to  cancelable  and  noncancelable  operating  leases
amounted  to $41  and  $47  for  the  years  ended  March  31,  1997  and  1996,
respectively.

         As of March 31, 1997,  future  minimum rental  payments  required under
noncancelable operating leases were as follows:
<TABLE>
<CAPTION>
                Year Ending                                          Minimum
                 March 31,                                       Rental Payments
                -----------                                      ---------------
<S>                                                                  <C>
                  1998                                               $   36
                  1999                                                   36
                  2000                                                   35
                  2001                                                   32
                  2002                                                   23
                                                                     ------

                  TOTAL                                              $  162
                                                                     ======
</TABLE>

16.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         Methods and  assumptions for estimating the fair value of the Company's
financial  instruments are set forth below.  Fair values are calculated based on
the value  without  regard to any  premium  or  discount  that may  result  from
concentrations   of   ownership   of  a  financial   instrument,   possible  tax
ramifications or estimated transaction costs.

         Loans - As all of the Corporation's  loans fall under the scope of SFAS
No. 114, the  estimated  fair value for such loans is based on the present value
of expected future cash flows discounted at the loan's  effective  interest rate
or on recent external  appraisals or other available  market  information if the
loan is collateral dependent.

         Servicing  Rights  - The  Corporation  estimates  fair  value  for  its
servicing  rights by discounting  expected net cash flows through  maturity from
servicing  activities  at market  discount  rates  that  reflect  the credit and
interest rate risk inherent in the servicing rights.

         Other On-Balance  Sheet Financial  Instruments - Other on-balance sheet
financial  instruments  include  cash and  cash  equivalents,  restricted  cash,
accrued  interest and a warehouse line of credit.  The carrying value of each of
these financial instruments is a reasonable estimation of fair value.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION


NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
--------------------------------------------------------------------------------
         Loans held for sale - For loans  held for sale fair value is  estimated
by discounting  contractual  cash flows adjusted for prepayment  estimates using
discount rates based on secondary market sources adjusted to reflect differences
in servicing and credit costs.

         The carrying values were equal to the estimated fair values of cash and
cash  equivalents,  restricted  cash,  net  investments,  loans held for resale,
accrued interest,  warehouse line of credit and net servicing rights as of March
31, 1997 and 1996.

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

17.      SUBSEQUENT EVENTS

         The  Corporation  has  recently  proposed  the  formation  of a limited
partnership  known as the First  Connecticut  Capital  Mortgage  Fund A, Limited
Partnership.  The  Corporation  will act as  General  Partner  with the  limited
partners  to consist of  "Accredited  Investors"  as  defined in  Regulation  D,
promulgated  under the  Securities Act of 1933. The intent of this new entity is
to sell $50,000 units, up to a maximum of $5 million, for the purpose of funding
its  short-term  Portfolio  Loan Program.  Currently,  the  Partnership  has one
investor on record.




                                    * * * * *