<PAGE>

                                       
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                  FORM 10-Q

(Mark One)


/X/            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934
                For the Quarterly period ended June 30, 1998

                                       or

/ /            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the Transition period from _____ to _____

                         Commission File Number 0-26996

                       INVESTORS FINANCIAL SERVICES CORP.

             (Exact name of registrant as specified in its charter)


            Delaware                                     04-3279817

(State or other jurisdiction of               (IRS Employer Identification No.)
incorporation or organization)


                     200 Clarendon Street, Boston, MA 02116

          (Address of principal executive offices, including Zip Code)


                                 (617) 330-6700

               (Registrant's telephone number, including area code)

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


   Indicate by check mark whether the  registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  YES   X   NO
                                                   ------   ------

   As of July 31, 1998, there were 6,703,040 shares of Common Stock outstanding.

<PAGE>

                       INVESTORS FINANCIAL SERVICES CORP.

                                      INDEX
                                      -----

PART I   FINANCIAL INFORMATION                                            Page
                                                                          ----

 Item 1. Condensed Consolidated Financial Statements

   Condensed Consolidated Balance Sheets
      December 31, 1997 (audited) and
      June 30, 1998 (unaudited)                                             3

   Condensed Consolidated Income Statements  (unaudited)
      Six months ended June 30, 1997 and 1998                               4

   Condensed Consolidated Income Statements  (unaudited)
      Three months ended June 30, 1997 and 1998                             5

   Condensed Statement of Stockholder's Equity (unaudited)
      Six months ended June 30, 1998                                        6

   Condensed Consolidated Statements of Cash Flows (unaudited)
      Six months ended June 30, 1997 and 1998                               7

   Notes to Condensed Consolidated Financial Statements                     9

 Item 2.  Management's Discussion and Analysis of Financial Condition      22
      and Results of Operations

PART II   OTHER INFORMATION

 Item 4.  Submission of Matters to a Vote of Security Holders              41

 Item 6.  Exhibits and Reports on Form 8-K                                 41

SIGNATURES                                                                 42

                                       2
<PAGE>

                      INVESTORS FINANCIAL SERVICES CORP.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                     DECEMBER 31, 1997 AND  JUNE 30, 1998

<TABLE>
<CAPTION>
                                                                                       December 31,                June 30,
ASSETS                                                                                     1997                      1998

                                                                                                                (unaudited)
<S>                                                                                  <C>                       <C>
Cash and due from banks                                                              $   17,298,566            $   35,195,951
Federal funds sold and securities purchased under resale agreements                      75,000,000                35,000,000
Securities held to maturity (approximate market values of
  $809,708,389 and $963,295,155 at December 31, 1997
  and June 30, 1998, respectively)                                                       802,046,077              955,143,294
Securities available for sale                                                            462,850,089              489,749,346
Nonmarketable equity securities                                                            5,476,600                7,626,500
Loans, less allowance for loan losses of $100,000
  at December 31, 1997 and June 30, 1998                                                  55,944,957               69,789,107
Accrued interest and fees receivable                                                      22,874,836               26,508,190
Equipment and leasehold improvements, net                                                  8,556,231                9,541,039
Other assets                                                                              10,399,420               15,122,633
                                                                                     ----------------         ----------------
TOTAL ASSETS                                                                          $1,460,446,776           $1,643,676,060
                                                                                     ----------------         ----------------
                                                                                     ----------------         ----------------

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Deposits:
    Demand                                                                            $  354,616,945           $  348,225,784
    Savings                                                                              427,122,987              548,807,803
    Time                                                                                  65,000,000               65,000,000
                                                                                     ----------------         ----------------
        Total deposits                                                                   846,739,932              962,033,587

Short-term borrowings                                                                    499,932,628              561,845,785
Other liabilities                                                                         13,899,936               13,849,693
                                                                                     ----------------         ----------------
        Total liabilities                                                              1,360,572,496            1,537,729,065
                                                                                     ----------------         ----------------
Commitments and Contingencies (Note 12)
Company obligated mandatorily redeemable preferred securities of subsidiary
    holding solely junior subordinated deferrable interest debentures of
    the Company                                                                           24,161,104               24,175,256
                                                                                     ----------------         ----------------

STOCKHOLDERS' EQUITY:
  Common stock                                                                                66,643                   67,059
  Surplus                                                                                 55,903,286               57,143,765
  Deferred compensation                                                                  (1,248,775)              (1,453,617)
  Retained earnings                                                                       19,525,129               25,578,427
  Accumulated other comprehensive income                                                   1,466,893                  436,145
  Treasury stock (at par, 4,000 shares)                                                            -                     (40)
                                                                                     ----------------         ----------------
Total stockholders' equity                                                                75,713,176               81,771,739
                                                                                     ----------------         ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $ 1,460,446,776          $ 1,643,676,060
                                                                                     ----------------         ----------------
                                                                                     ----------------         ----------------
</TABLE>

See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                     INVESTORS FINANCIAL SERVICES CORP.
           CONDENSED CONSOLIDATED INCOME STATEMENTS  (unaudited)
                  SIX MONTHS ENDED JUNE 30, 1997 AND 1998


<TABLE>
<CAPTION>
                                                                                    June 30,       June 30,
                                                                                      1997           1998

<S>                                                                             <C>             <C>
OPERATING REVENUE:
Interest income:
   Federal funds sold and securities purchased
      under resale agreements                                                     $   843,520     $   718,741
   Investment securities held to maturity and available for sale                   29,839,706      39,715,701
   Loans                                                                            1,340,295       1,515,539
                                                                                --------------  --------------
      Total interest income                                                        32,023,521      41,949,981

Interest expense:
   Deposits                                                                         9,459,602      12,424,457
   Short-term borrowings                                                            9,518,221      16,609,154
                                                                                --------------  --------------
      Total interest expense                                                       18,977,823      29,033,611
                                                                                --------------  --------------
      Net interest income                                                          13,045,698      12,916,370

Noninterest income:
   Asset administration fees                                                       36,862,304      45,023,010
   Computer service fees                                                              338,549         272,778
   Other operating income                                                           1,315,582         467,697
   Gain on sale of securities available for sale                                        7,110         471,066
                                                                                --------------  --------------
      Net operating revenue                                                        51,569,243      59,150,921

OPERATING EXPENSES:
   Compensation and benefits                                                       24,845,379      29,346,643
   Technology and telecommunications                                                5,188,857       5,321,853
   Transaction processing services                                                  3,902,328       3,961,611
   Occupancy                                                                        2,314,039       3,417,779
   Depreciation and amortization                                                      921,959       1,269,811
   Travel and sales promotion                                                         798,764       1,002,791
   Professional fees                                                                1,146,060         788,258
   Insurance                                                                          373,636         392,419
   Other operating expenses                                                         1,738,254       1,740,738
                                                                                --------------  --------------
      Total operating expenses                                                     41,229,276      47,241,903
                                                                                --------------  --------------

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST                                   10,339,967      11,909,018

Provision for income taxes                                                          3,587,087       4,380,131
Minority interest expense, net of income taxes                                        651,333         781,600
                                                                                --------------  --------------
NET INCOME                                                                          6,101,547       6,747,287
                                                                                --------------  --------------

Other comprehensive income, net of tax: 
   Unrealized gain (loss) on securities:
      Unrealized holding gains (losses) arising during the period                   1,096,814      (1,030,748)
                                                                                --------------  --------------
   Other comprehensive income (loss)                                                1,096,814      (1,030,748)
                                                                                --------------  --------------
      Comprehensive income                                                        $ 7,198,361     $ 5,716,539
                                                                                --------------  --------------
                                                                                --------------  --------------
BASIC EARNINGS PER SHARE                                                          $      0.92     $      1.01
                                                                                --------------  --------------
                                                                                --------------  --------------
DILUTED EARNINGS PER SHARE                                                        $      0.90     $      0.98
                                                                                --------------  --------------
                                                                                --------------  --------------
</TABLE>

See notes to condensed consolidated financial statements 

                                       4
<PAGE>

                       INVESTORS FINANCIAL SERVICES CORP.
             CONDENSED CONSOLIDATED INCOME STATEMENTS  (unaudited)
                   THREE MONTHS ENDED JUNE 30, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                                     June 30,        June 30,
                                                                                       1997           1998

<S>                                                                             <C>              <C>
OPERATING REVENUE:
Interest income:
   Federal funds sold and securities purchased
      under resale agreements                                                     $   167,773     $   370,182
   Investment securities held to maturity and available for sale                   16,148,260      19,752,681
   Loans                                                                              675,886         846,834
                                                                                --------------   --------------
      Total interest income                                                        16,991,919      20,969,697

Interest expense:
   Deposits                                                                         5,014,000       6,773,104
   Short-term borrowings                                                            5,388,357       8,404,347
                                                                                --------------   --------------
      Total interest expense                                                       10,402,357      15,177,451
                                                                                --------------   --------------
      Net interest income                                                           6,589,562       5,792,246

Noninterest income:
   Asset administration fees                                                       18,843,662      23,335,416
   Computer service fees                                                              180,163         138,793
   Other operating income                                                             601,138         277,110
   Gain on sale of securities available for sale                                        7,110         270,639
                                                                                --------------   --------------
      Net operating revenue                                                        26,221,635      29,814,204

OPERATING EXPENSES:
   Compensation and benefits                                                       12,686,630      14,679,424
   Technology and telecommunications                                                2,703,919       2,715,514
   Transaction processing services                                                  1,864,617       1,930,634
   Occupancy                                                                        1,188,849       1,730,872
   Depreciation and amortization                                                      517,048         669,104
   Travel and sales promotion                                                         462,822         586,007
   Professional fees                                                                  538,733         521,622
   Insurance                                                                          188,239         199,000
   Other operating expenses                                                           826,120         532,618
                                                                                --------------   --------------
      Total operating expenses                                                     20,976,977      23,564,795
                                                                                --------------   --------------

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST                                    5,244,658       6,249,409

Provision for income taxes                                                          1,759,506       2,322,983
Minority interest expense, net of income taxes                                        392,835         390,800
                                                                                --------------   --------------
NET INCOME                                                                          3,092,317       3,535,626
                                                                                --------------   --------------

Other comprehensive income, net of tax: 
   Unrealized gain (loss) on securities:
      Unrealized holding gains (losses) arising during the period                   1,051,401        (809,672)
                                                                                --------------   --------------
   Other comprehensive income (loss)                                                1,051,401        (809,672)
                                                                                --------------   --------------
      Comprehensive income                                                        $ 4,143,718     $ 2,725,954
                                                                                --------------   --------------
                                                                                --------------   --------------
BASIC EARNINGS PER SHARE                                                          $      0.47     $      0.53
                                                                                --------------   --------------
                                                                                --------------   --------------
DILUTED EARNINGS PER SHARE                                                        $      0.46     $      0.51
                                                                                --------------   --------------
                                                                                --------------   --------------
</TABLE>

See notes to condensed consolidated financial statements.

                                       5
<PAGE>

                       INVESTORS FINANCIAL SERVICES CORP.
             CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
                         SIX MONTHS ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
                                                                                           Accumulated
                                                                                              Other
                                     Common                   Deferred        Retained    Comprehensive   Treasury 
                                     Stock      Surplus     Compensation      Earnings    Income (Loss)     Stock        Total

<S>                                 <C>       <C>           <C>             <C>            <C>            <C>         <C>
BALANCE, DECEMBER 31, 1997          $66,643   $55,903,286    $(1,248,775)   $19,525,129    $ 1,466,893     $  --      $75,713,176
Additions to deferred 
  compensation                          100       499,900       (500,000)            --             --        --
Amortization of deferred 
  compensation                           --            --        295,158             --             --        --          295,158
Exercise of stock options               316       817,539             --             --             --        --          817,855
Purchase of treasury stock               --       (76,960)            --             --             --       (40)         (77,000)
Net income                               --            --             --      6,747,287             --        --        6,747,287
Cash dividend to IFSC 
  shareholders                           --            --             --       (388,623)            --        --         (388,623)
Cash dividend to S Corp 
  shareholders                           --            --             --       (250,000)            --        --         (250,000)
Non-cash dividend to S Corp 
  shareholders                           --            --             --        (55,366)            --        --          (55,366)
Change in accumulated other 
  comprehensive income(loss)             --            --             --             --     (1,030,748)       --       (1,030,748)
                                    -------   -----------   ------------    -----------   -------------   ---------   -----------
BALANCE, JUNE 30, 1998              $67,059   $57,143,765    $(1,453,617)   $25,578,427    $   436,145      $(40)     $81,771,739
                                    -------   -----------   ------------    -----------   -------------   ---------   -----------
                                    -------   -----------   ------------    -----------   -------------   ---------   -----------
</TABLE>

See notes to condensed consolidated financial statements.

                                       6
<PAGE>

                     INVESTORS FINANCIAL SERVICES CORP.
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (unaudited)
                    SIX MONTHS ENDED JUNE 30, 1997 AND 1998  

<TABLE>
<CAPTION>
                                                                            June 30,       June 30,
                                                                              1997           1998

<S>                                                                    <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                             $   6,101,547   $   6,747,287
                                                                       --------------  --------------

Adjustments to reconcile net income to net cash provided by
operating activities:
  Depreciation and amortization                                              921,959       1,269,811
  Amortization of deferred compensation                                      219,450         295,158
  Amortization of premiums on securities, net of accretion of 
    discounts                                                              1,618,885       4,327,659
  Deferred income taxes                                                       16,879            --
  Loss on sale of securities available for sale, net                          (7,110)       (471,066)
  Changes in assets and liabilities:
    Accrued interest and fees receivable                                  (3,793,996)     (3,633,354)
    Other assets                                                          (2,455,208)     (4,723,213)
    Other liabilities                                                      3,640,676         529,552
                                                                       --------------  --------------
      Total adjustments                                                      161,535      (2,405,453)
                                                                       --------------  --------------
      Net cash provided by operating activities                            6,263,082       4,341,834
                                                                       --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale                 42,026,107     102,805,446
Proceeds from maturities of securities held to maturity                   33,985,925     144,378,339
Proceeds from sales of securities available for sale                       5,002,734      81,269,837
Purchases of securities available for sale                               (99,507,745)   (214,530,372)
Purchases of securities held to maturity                                (291,570,831)   (299,386,861)
Purchase of nonmarketable equity securities                               (4,509,200)     (2,149,900)
Net decrease in federal funds sold and securities
 purchased under resale agreements                                        57,000,000      40,000,000
Net increase in loans                                                    (36,190,311)    (13,844,150)
Purchases of equipment and leasehold improvements                         (2,782,403)     (2,295,832)
                                                                       --------------  --------------
      Net cash used for investing activities                            (296,545,724)   (163,753,493)
                                                                       --------------  --------------
</TABLE>

See notes to condensed consolidated financial statements.

                                       7

<PAGE>

                      INVESTORS FINANCIAL SERVICES CORP.
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (unaudited) 
            SIX MONTHS ENDED JUNE 30, 1997 AND 1998    (CONTINUED)

<TABLE>
<CAPTION>
                                                         June 30,          June 30,
                                                           1997             1998
                                                      -------------   -------------
<S>                                                   <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease) in demand deposits             $  81,272,053   $  (6,391,161)
Net increase (decrease) in time and savings deposits     63,162,217     121,684,816
Net increase in short-term borrowings                   112,303,164      61,913,157
Cost of trust preferred issuance                           (783,668)           --
Contribution of capital to S corp                           360,000            --
Proceeds from issuance of trust preferred stock          25,000,000            --
Proceeds from issuance of common stock                       18,562         817,855
Purchase of treasury stock                                    --            (77,000)
Cash dividend to S corp shareholders                       (185,566)       (250,000)
Cash dividend to IFSC shareholders                         (257,793)       (388,623)
                                                       ------------    -------------
      Net cash provided by financing activities         280,888,969     177,309,044
                                                      -------------    -------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS       (9,393,673)      17,897,385

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD             19,094,514       17,298,566
                                                      -------------    -------------
CASH AND DUE FROM BANKS, END OF PERIOD                $   9,700,841    $  35,195,951
                                                      -------------    -------------
                                                      -------------    -------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

  Cash paid for interest                              $  18,876,000    $  27,658,000
                                                      -------------    -------------
                                                      -------------    -------------
  Cash paid for income taxes                          $   3,611,000    $   3,817,000
                                                      -------------    -------------
                                                      -------------    -------------
</TABLE>

See notes to condensed consolidated financial statements.


                                       8

<PAGE>


INVESTORS FINANCIAL SERVICES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION PERTAINING TO THE SIX MONTHS AND THE THREE MONTHS ENDED JUNE 30, 
1997 AND 1998 IS UNAUDITED)

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


1.    DESCRIPTION OF BUSINESS

      Investors Financial Services Corp. ("IFSC") provides asset administration
      services for the financial services industry through its wholly owned
      subsidiaries, Investors Bank & Trust Company (the "Bank") and Investors
      Capital Services, Inc. The Bank provides global custody, multicurrency
      accounting, institutional transfer agency, performance measurement,
      foreign exchange, securities lending, mutual fund administration and
      investment advisory services to a variety of financial asset managers,
      including mutual fund complexes, investment advisors, banks and insurance
      companies. IFSC and the Bank are subject to regulation by the Federal
      Reserve Board of Governors, the Office of the Commissioner of Banks of the
      Commonwealth of Massachusetts and the Federal Deposit Insurance
      Corporation.

      As used herein, the defined term "the Company" shall mean IFSC together
      with its subsidiaries.

      On September 19,1997, pursuant to the terms of the Certificate of
      Incorporation of the Company, all shares of the Company's Class A Common
      Stock automatically converted into shares of the Company's Common Stock.
      The terms of the Class A Common Stock were identical to the terms of the
      Common Stock, except that the Common Stock receives only one vote per
      share rather than the ten votes per share previously received by Class A
      Common Stock.

      On May 29, 1998, the Company acquired AMT Capital Services, Inc. and an
      affiliated company ("AMT Capital Services"), a New York based firm
      recognized for providing fund administration services to global and
      domestic institutional investment management firms. Under the terms of the
      agreement, the Company acquired all of the outstanding capital stock of
      AMT Capital Services in exchange for 194,006 shares of the Company's
      common stock. The acquisition was accounted for under the pooling of
      interests method of accounting. Upon completion of the acquisition, AMT
      Capital Services became a wholly owned subsidiary of the Company and was
      renamed Investors Capital Services, Inc.

2.    INTERIM FINANCIAL STATEMENTS

      The 1998 condensed consolidated interim financial statements of the
      Company and condensed consolidated subsidiaries as of June 30, and for the
      six month periods and three-month periods ended June 30, 1997 and 1998
      have been prepared by the Company, without audit, pursuant to the rules
      and regulations of the Securities and Exchange Commission. Certain
      information and footnote disclosures normally included in annual financial
      statements prepared in accordance with generally accepted accounting
      principles have been condensed or omitted as permitted by such rules and
      regulations. All adjustments, consisting of normal recurring adjustments,
      have been included. Management believes that the disclosures are adequate
      to present fairly the financial position, results of operations and cash
      flows at the dates and for the periods presented. It is suggested that
      these interim financial statements be read in conjunction with the
      financial statements and the notes thereto included in the Company's
      latest annual report on Form 10-K. Results for interim periods are not
      necessarily indicative of those to be expected for the full fiscal year.

      Certain amounts from the prior year have been reclassified to conform to
      current year presentation.

      As a result of the AMT Capital Services, Inc. acquistion, all of the
      current and prior period financial statements have been restated.


                                      9
<PAGE>

3.    SECURITIES

      Carrying amounts and approximate market values of securities are
      summarized as follows as of December 31, 1997:

<TABLE>
<CAPTION>
                                                    Carrying             Unrealized          Unrealized          Approximate
                 Held to Maturity                    Value                 Gains               Losses           Market Value

<S>                                            <C>                    <C>                  <C>                <C>
        State and political subdivisions           $   35,224,790         $  2,296,252        $         -           $  37,521,042
        Mortgage-backed securities                    590,364,940            5,649,718            514,023             595,500,635
        Federal agency securities                     168,687,478              545,863            491,229             168,742,112
        Foreign government securities                   7,768,869              175,731                  -               7,944,600
                                               -------------------    -----------------    ---------------     ------------------
        Total                                       $ 802,046,077         $  8,667,564        $ 1,005,252           $ 809,708,389
                                               ===================    =================    ===============     ==================
</TABLE>

<TABLE>
<CAPTION>
                                                   Amortized             Unrealized          Unrealized           Carrying
                Available for Sale                    Cost                 Gains               Losses               Value

<S>                                            <C>                    <C>                  <C>                <C>
        U.S. Treasury securities                   $   30,002,114          $    90,136          $       -         $  30,092,250
        State and political subdivisions                8,348,265               33,588                  -             8,381,853
        Mortgage-backed securities                    422,207,689            2,624,065            455,768           424,375,986
                                               -------------------    -----------------    ---------------    ------------------
        Total                                       $ 460,558,068          $ 2,747,789          $ 455,768         $ 462,850,089
                                               ===================    =================    ===============    ==================
</TABLE>

      Carrying amounts and approximate market values of securities are
      summarized as follows as of June 30, 1998:

<TABLE>
<CAPTION>
                                                    Carrying            Unrealized           Unrealized          Approximate
                 Held to Maturity                    Value                 Gains               Losses            Market Value

<S>                                            <C>                    <C>                  <C>                <C>
        State and political subdivisions           $   35,518,537        $  2,676,500          $         -        $  38,195,037
        Mortgage-backed securities                    733,120,607           4,895,446              739,748          737,276,305
        Federal agency securities                     178,766,287           1,425,820              305,144          179,886,963
        Foreign government securities                   7,737,863             198,987                    -            7,936,850
                                               -------------------    ----------------    -----------------    ----------------
        Total                                      $  955,143,294        $  9,196,753          $ 1,044,892        $ 963,295,155
                                               ===================    ================    =================    =================
</TABLE>

<TABLE>
<CAPTION>
                                                   Amortized            Unrealized           Unrealized            Carrying
                Available for Sale                    Cost                 Gains               Losses               Value

<S>                                            <C>                    <C>                  <C>                <C>
        U.S. Treasury securities                   $    9,989,313        $     56,037          $         -        $  10,045,350
        Municipal bonds                                39,227,056              73,224               83,135           39,217,145
        Mortgage-backed securities                    361,944,678           1,828,739              954,209          362,819,208
        Federal agency securities                      28,581,831              21,075                5,263           28,597,643
        Corporate debt                                 49,324,991                   -              254,991           49,070,000
                                               -------------------    ----------------    -----------------    -----------------
        Total                                      $  489,067,869        $  1,979,075          $ 1,297,598        $ 489,749,346
                                               ===================    ================    =================    =================

</TABLE>


                                                                10

<PAGE>

3.   SECURITIES (CONTINUED)

     Nonmarketable equity securities at June 30, 1998 consisted of stock of the
     Federal Home Loan Bank of Boston (the "FHLBB"). As a member of the FHLBB,
     the Company is required to invest in $100 par value stock of the FHLBB in
     an amount equal to the greater of (i) 1% of its outstanding residential
     mortgage loan principal (including mortgage pool securities), (ii) 0.3% of
     total assets, and (iii) total advances from the FHLBB, divided by a
     leverage factor of 20. If and when FHLBB stock is redeemed, the Company
     will receive an amount equal to the par value of the stock.

     The carrying amounts and approximate market values of securities by
     effective maturity are as follows:

<TABLE>
<CAPTION>

                                                      December 31, 1997                            June 30, 1998
                                                Carrying            Approximate            Carrying             Approximate
                 Held to Maturity                 Value             Market Value             Value             Market Value
  <S>                                                 <C>                 <C>                    <C>                 <C>
        Due from one to five years              $ 357,580,590        $ 360,361,877         $ 310,846,614        $  312,582,268
        Due five years up to ten years            183,840,479          184,373,997           189,393,188           190,621,514
        Due after ten years                       260,625,008          264,972,515           454,903,492           460,091,373
                                            ------------------    -----------------    ------------------      ---------------
        Total                                   $ 802,046,077        $ 809,708,389         $ 955,143,294        $  963,295,155
                                            ------------------    -----------------    ------------------      ---------------
                                            ------------------    -----------------    ------------------      ---------------



                                                      December 31, 1997                             June 30, 1998
                                                Amortized             Carrying             Amortized              Carrying
                Available for Sale                Cost                 Value                  Cost                  Value
        <S>                                     <C>                  <C>                   <C>                     <C>
        Due within one year                    $   20,020,094       $   20,039,100        $     9,989,313        $   10,045,350
        Due from one to five years                307,636,460          309,517,768            346,011,654           346,830,727
        Due five years up to ten years            132,367,416          132,756,384             66,726,758            66,785,851
        Due after ten years                           534,098              536,837             66,340,144            66,087,418
                                            ------------------    -----------------    -------------------    ------------------
        Total                                  $  460,558,068       $  462,850,089        $   489,067,869        $  489,749,346
                                            ------------------    -----------------    ------------------      ---------------
                                            ------------------    -----------------    ------------------      ---------------
</TABLE>

      The maturity distributions of mortgage-backed securities have been
      allocated over maturity groupings based upon actual pre-payments to date
      and anticipated pre-payments based upon historical experience.

      Twelve available for sale securities were sold during the six months ended
      June 30, 1998, resulting in gains totaling $471,066.

      The carrying value of securities pledged amounted to approximately
      $590,000,000 at December 31, 1997 and the market value of securities
      pledged amounted to approximately $614,000,000 at June 30, 1998.
      Securities are pledged primarily to secure public funds and clearings with
      other depository institutions.


                                      11


<PAGE>


4.   LOANS

     Loans consist of demand loans with individuals and not-for-profit
     institutions located in the greater Boston, Massachusetts metropolitan
     area and loans to mutual fund clients. The loans to mutual funds include
     lines of credit and advances pursuant to the terms of the custody
     agreements between the Company and those mutual fund clients to facilitate
     securities transactions and redemptions. Generally, the loans are, or may
     be, in the event of default, collateralized with marketable securities
     held by the Company as custodian. There were no impaired or nonperforming
     loans at December 31, 1997 or June 30, 1998. In addition, there have been
     no loan charge-offs or recoveries during the six months ended June 30,
     1997 and 1998. Loans consisted of the following at December 31, 1997 and
     June 30, 1998:

<TABLE>
<CAPTION>
                                                                         December 31,          June 30,
                                                                           1997                  1998
 <S>                                                                    <C>                 <C>
          Loans to individuals                                          $ 26,857,933          $  20,086,324
          Loans to not-for-profit institutions                                12,500                 12,500
          Loans to mutual funds                                           29,174,524             49,790,283
                                                                     ----------------      -----------------
                                                                          56,044,957             69,889,107
          Less allowance for loan losses                                     100,000                100,000
                                                                     ----------------      -----------------
          Total                                                         $ 55,944,957          $  69,789,107
                                                                     ----------------      -----------------
                                                                     ----------------      -----------------

</TABLE>

     The Company had commitments to lend of approximately $62,845,000 and 
     $71,514,000 at December 31, 1997 and June 30, 1998, respectively. The terms
     of these commitments are similar to the terms of outstanding loans.

5.   EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     The major components of equipment and leasehold improvements are as
     follows at December 31, 1997 and June 30, 1998:


<TABLE>
<CAPTION>
                                                                         December 31,            June 30,
                                                                             1997                 1998
<S>                                                                     <C>                    <C>
          Furniture, fixtures and equipment                             $   11,660,572          $  13,336,897
          Leasehold improvements                                               977,336                969,230
                                                                     ------------------     ------------------
          Total                                                             12,637,908             14,306,127
          Less accumulated depreciation and amortization                    (4,081,677)            (4,765,088)
                                                                     ------------------     ------------------
          Equipment and leasehold improvements, net                     $    8,556,231         $    9,541,039
                                                                     ------------------     ------------------
                                                                     ------------------     ------------------

</TABLE>


6.   DEPOSITS

     Time deposits at December 31, 1997 and June 30, 1998 include
     noninterest-bearing amounts for both years of approximately $65,000,000.

     All time deposits had a minimum balance of $100,000 and a maturity of less
     than three months at December 31, 1997 and June 30, 1998.


                                      12



<PAGE>


7.   SHORT-TERM BORROWINGS

     The major components of short-term borrowings are as follows at 
     December 31, 1997 and June 30, 1998:

<TABLE>
<CAPTION>
                                                         December 31,         June 30,
                                                            1997                1998
      <S>                                                <C>                <C>
      Repurchase agreements                              $499,188,363       $440,345,407
      Federal funds purchased                                  --             45,000,000
      FHLBB advance                                            --             75,000,000
      Treasury, tax and loan account                          744,265          1,500,378
                                                         ------------       ------------
      Total                                              $499,932,628       $561,845,785
                                                         ------------       ------------
                                                         ------------       ------------

</TABLE>

     The Company enters into repurchase agreements whereby securities are 
     sold by the Company under agreements to repurchase. The interest rate on 
     the outstanding agreements at December 31, 1997 ranged from 4.95% to 
     5.90% and all agreements matured by March 3, 1998. The interest rates on 
     the outstanding agreements at June 30, 1998 ranged from 5.20% to 5.62% 
     and all agreements mature by July 31, 1998. The amount outstanding at 
     June 30, 1998 was the highest amount outstanding at any month end during 
     the period ended June 30, 1998. The average balance during the period 
     ended June 30, 1998 was $560,431,000.

     The Company purchases excess reserves in the form of federal funds from 
     other banks in order to meet the Federal Reserve Bank ("FRB") 
     requirements. The interest rate on the outstanding balance at June 30, 
     1998 was 6.25%.

     The Company has a borrowing arrangement with the FHLBB which is utilized 
     on an overnight basis to satisfy temporary funding requirements. The 
     interest rate on the outstanding balance at June 30, 1998 was 5.96%. The 
     Company has the option to put the advance back to FHLBB on the 22nd day 
     of each month, and the advance matures on March 27, 2000.

     The Company receives federal tax deposits from clients as agent for the 
     FRB and accumulates these deposits in the Treasury, tax and loan 
     account. The FRB charges the Company interest at the Federal funds rate 
     on such deposits. The interest rates on the outstanding balance at 
     December 31, 1997 and June 30, 1998 were 5.26% and 5.46%, respectively.

     The following securities were pledged under these agreements at December 
     31, 1997 and June 30, 1998:

<TABLE>
<CAPTION>
                                                 December 31, 1997                        June 30, 1998   
                                           Carrying         Approximate             Carrying        Approximate
                                             Value          Market Value             Value          Market Value
     <S>                                 <C>                <C>                     <C>            <C>
     U.S. Treasury securities            $   20,392,469     $ 20,392,469           $    --          $      --
     Federal agency securities                    --              --                 79,864,765       80,434,845
     Mortgage-backed securities             501,141,751      503,300,183            406,208,338      407,989,228
     Corporate debt                               --               --                49,070,000       49,070,000
                                         --------------     ------------           ------------     ------------
     Total                               $  521,534,220     $523,692,652           $535,143,103     $537,494,073
                                         --------------     ------------           ------------     ------------
                                         --------------     ------------           ------------     ------------


</TABLE>


                                      13

<PAGE>

8.   COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
     TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES OF 
     THE COMPANY

     On January 31, 1997, a trust sponsored and wholly owned by the Company
     issued $25,000,000 in 9.77% Trust Preferred Securities (the "Capital
     Securities"), the proceeds of which were invested by the trust in the same
     aggregate principal amount of the Company's newly issued 9.77% Junior
     Subordinated Deferrable Interest Debentures due February 1, 2027 (the
     "Junior Subordinated Debentures"). The $25,000,000 aggregate principal
     amount of the Junior Subordinated Debentures represents the sole asset of
     the Trust. The Company has guaranteed, on a subordinated basis,
     distributions and other payments due on the Capital Securities (the
     "Guarantee"). The Guarantee, when taken together with the Company's
     obligations under (i) the Debentures, (ii) the indenture pursuant to which
     the Junior Subordinated Debentures were issued, and (iii) the Amended and
     Restated Declaration of Trust governing the Trust constitutes a full and
     unconditional guarantee of the Trust's obligations under the Capital
     Securities.

9.   STOCKHOLDERS' EQUITY

     The Company has authorized 1,000,000 shares of Preferred Stock and
     20,000,000 shares of Common Stock, all with a par value of $.01 per share.
     At December 31, 1997 and June 30, 1998, there were no preferred shares
     issued or outstanding. There were 6,664,319 and 6,701,915 shares of Common
     Stock issued and outstanding at December 31, 1997 and June 30, 1998,
     respectively.

     The Company has three stock option plans, the Amended and Restated 1995
     Stock Plan, the 1995 Non-Employee Director Stock Option Plan, and the 1997
     Employee Stock Purchase Plan.

     Under the terms of the Amended and Restated 1995 Stock Plan, the Company
     may grant options to purchase up to a maximum of 1,160,000 shares of
     Common Stock to certain employees, consultants, directors and officers. Of
     the 1,160,000 shares of Common Stock authorized for issuance under the
     plan, 534,706 were available for grant at June 30, 1998. The options may
     be awarded as incentive stock options (employees only), nonqualified stock
     options, stock awards or opportunities to make direct purchases of stock.

     In November 1995, the Company granted 114,000 shares of Common Stock to
     certain officers of the Company under the 1995 Stock Plan. Of these
     grants, 105,000 shares vest in sixty equal monthly installments, and the
     remainder vest in five equal annual installments. Upon termination of
     employment, the Company has the right to repurchase all unvested shares at
     a price equal to the fair market value at the date of the grant. On 
     March 31, 1998 the Company repurchased 4,000 unvested shares for $77,000 
     under the terms of the 1995 Stock Plan. On May 29, 1998, the Company 
     granted 10,000 shares of Common Stock to certain officers of AMT Capital 
     Services, Inc. in connection with the acquisition of AMT Capital Serivices,
     Inc. The Company has recorded deferred compensation of $1,248,775 and 
     $1,453,617 at December 31, 1997 and June 30, 1998, respectively, pursuant 
     to these grants.

     Under the terms of the 1995 Non-Employee Director Stock Option Plan, as
     amended, the Company may grant options to non-employee directors to
     purchase up to a maximum of 100,000 shares of Common Stock. Options to
     purchase 2,500 shares of Common Stock were awarded on November 8, 1995 to
     each director. Any director elected or appointed after such date receives
     an automatic initial grant of options to purchase 2,500 shares upon
     becoming a director. Thereafter, each director receives an automatic grant
     of options to purchase 2,500 shares effective upon each one-year
     anniversary of the date of such director's original grant. Additionally,
     directors may elect to receive options to acquire shares of the Company's
     Common Stock in lieu of such director's cash retainer. Any election is
     subject to certain restrictions under the 1995 Non-Employee Director Stock
     Option Plan. The number of shares of stock underlying the option is equal
     to the quotient obtained by dividing the cash retainer by the value of an
     option on the date of grant as determined using the Black-Scholes model.

                                      14
<PAGE>


9.   STOCKHOLDERS' EQUITY (Continued)

     The exercise price of options under the 1995 Non-Employee Director Stock
     Option Plan and the incentive options under the Amended and Restated 1995
     Stock Plan may not be less than fair market value at the date of the
     grant. The exercise price of the nonqualified options from the Amended and
     Restated 1995 Stock Plan is determined by the compensation committee of
     the Board of Directors. All options become exercisable as specified at the
     date of the grant.

     Under the terms of the 1997 Employee Stock Purchase Plan the Company may
     issue up to 140,000 shares of Common Stock pursuant to the exercise of
     nontransferable options granted to participating employees. The 1997
     Purchase Plan permits eligible employees to purchase up to 1,000 shares of
     Common Stock per payment period, subject to limitations provided by
     Section 423(b) of the Internal Revenue Code, through accumulated payroll
     deductions. The purchases are made twice a year at a price equal to the
     lesser of (i) 90% of the average market value of the Common Stock on the
     first business day of the payment period, or (ii) 90% of the average
     market value of the Common Stock on the last business day of the payment
     period. Annual payment periods consist of two six-month periods, January 1
     through June 30 and July 1 through December 31.

     A summary of option activity under the 1995 Non-Employee Director Stock
     Option and the Amended and Restated 1995 Stock plans is as follows:

<TABLE>
<CAPTION>

                                                         Number of                    Weighted-Average
                                                          Shares                       Exercise Price
     <S>                                                 <C>                       <C>
     Outstanding at December 31, 1997                     517,284                      $     30
     Granted                                               55,628                            50
     Exercised                                            (21,230)                           47
     Canceled                                             (22,606)                           23
                                                          --------
     Outstanding at June 30, 1998                         529,076                            36
                                                          --------
                                                          --------
     Outstanding and exercisable at June 30, 1998         176,406
                                                          --------
                                                          --------
</TABLE>

     Under The Employee Stock Purchase Plan, adopted in fiscal year 1997, the
     Company sold 10,366 shares of Common Stock to employees at June 30, 1998.
     The exercise price of the stock was $43.25, or 90% of the average market
     value of the Common Stock on the last business day of the payment period.


                                      15


<PAGE>
9.   STOCKHOLDERS' EQUITY (Continued)

     Earnings Per Share -  Under SFAS 128, the Company is required to 
     disclose a reconciliation of Basic EPS and Diluted EPS for the periods 
     ended June 30, 1998 and 1997 as follows:
<TABLE>
<CAPTION>


                                                                                Per Share
                                                    Income         Shares         Amount
                                                   ---------     ---------      ---------
     <S>                                          <C>           <C>             <C>
     June 30, 1998
     Basic EPS
     Income available to common stockholders      $6,747,287     6,682,781       $   1.01
                                                                                 --------
                                                                                 --------
     Dilutive effect of common equivalent
        shares of stock options                                    202,053
                                                                  ---------
     Diluted EPS
     Income available to common stockholders      $6,747,287     6,884,834       $   0.98
                                                  ----------     ---------       --------
                                                  ----------     ---------       --------

     June 30, 1997
     Basic EPS
     Income available to common stockholders      $6,101,547     6,638,318       $   0.92
                                                                                 --------
                                                                                 --------
     Dilutive effect of common equivalent
        shares of stock options                                    137,321
                                                                 ---------
     Diluted EPS
     Income available to common stockholders      $6,101,547     6,775,639       $   0.90
                                                  ----------     ---------       --------
                                                  ----------     ---------       --------

</TABLE>


     Basic earnings per share were computed by dividing net income by the sum
     of the weighted average shares of Common Stock and Class A Common Stock
     outstanding during the periods. Diluted earnings per share included the
     effect of stock options using the treasury stock method to the extent that
     the average closing price exceeds the exercise price.

                                      16

<PAGE>
10.  COMPREHENSIVE INCOME

     During the period ended March 31, 1998, the Company adopted the 
     Statement of Financial Accounting Standards ("SFAS"), No. 130, 
     "Reporting Comprehensive Income". SFAS No. 130 establishes standards for 
     reporting and display of comprehensive income and its components in a 
     full set of general-purpose financial statements. SFAS No. 130 requires 
     that the Company classify items of other comprehensive income by their 
     nature in a financial statement and display the accumulated balance of 
     other comprehensive income separately from retained earnings and 
     additional paid-in capital in the equity section of the balance sheet.

11.  OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

     Lines of Credit -- At June 30, 1998, the Company had commitments to
     individuals under collateralized open lines of credit totaling
     $100,271,000 with variable interest rates, against which $28,757,000 in
     loans were drawn. The credit risk involved in issuing lines of credit is
     essentially the same as that involved in extending loan facilities. The
     Company does not anticipate any loss as a result of these lines of credit.

     Interest-Rate Contracts -- Interest rate contracts involve an agreement
     with a counterparty to exchange cash flows based on an underlying interest
     rate index. Swap agreements involve the exchange of a series of interest
     payments, either at a fixed or variable rate, based upon the notional
     amount without the exchange of the underlying principal amount. The
     Company's exposure from these interest rate contracts results from the
     possibility that the other party may default on its contractual
     obligation, so-called counterparty risk. Credit risk is limited to the
     positive market value of the derivative financial instrument, which is
     significantly less than the notional value. The Company was party to swap
     agreements with aggregate notional amounts of $430,000,000 as of June 30,
     1998. The effect of these agreements was to lengthen short-term variable
     rate liabilities into longer-term fixed-rate liabilities. The positive
     market value of the interest rate contracts was $93,245 at June 30, 1998.

     The Company does not purchase derivative financial instruments for trading
     purposes. Interest rate swap agreements are matched with specific
     financial instruments reported on the balance sheet and periodic cash
     payments are accrued on a settlement basis.

     The Company also enters into foreign exchange contracts, as discussed in 
     Note 13, with clients and simultaneously enters into matched positions 
     with other banks. These contracts are subject to market value 
     fluctuations in foreign currencies.

                                      17
<PAGE>

12.  COMMITMENTS AND CONTINGENCIES

     Restrictions on Cash Balances -- The Company is required to maintain
     certain average cash reserve balances with the FRB. The reserve balance
     requirement as of June 30, 1998 was $32,570,000. In addition, other cash
     balances in the amount of $1,561,893 were pledged to secure clearings with
     a depository institution as of June 30, 1998.

     Lease Commitments -- Minimum future commitments on noncancelable
     operating leases at June 30, 1998 were as follows:
<TABLE>
<CAPTION>

                                         Bank
     Fiscal Year Ending                Premises       Equipment
     <S>                                <C>           <C>
     1998                             $ 3,155,000     $ 1,072,000
     1999                               6,310,000       1,867,000
     2000                               6,051,000         726,000
     2001                               5,932,000          54,000
     2002 and beyond                   30,915,000            --
</TABLE>

      Total rent expense was $3,235,000 and $4,443,000 for the six months ended
      June 30, 1997 and 1998, respectively.

      On February 1, 1996, the Company entered into a five year facility 
      management agreement with a third party provider of duplicating and 
      delivery services. Under the terms of the agreement, the Company agreed 
      to pay certain minimum annual charges, subject to increases due to certain
      usage thresholds. Service expense under this contract was $213,000 and 
      $305,000 for the six months ended June 30, 1997 and 1998, respectively.

      Contingencies -- The Company provides global custody, multicurrency
      accounting, institutional transfer agency, performance measurement,
      foreign exchange, securities lending, mutual fund administration and
      investment advisory services to a variety of financial asset managers,
      including mutual fund complexes, investment advisors, banks and insurance
      companies. Assets under custody and management, held by the Company in a
      fiduciary capacity, are not included in the consolidated balance sheets
      since such items are not assets of the Company. Management conducts
      regular reviews of its fiduciary responsibilities and considers the
      results in preparing its consolidated financial statements. In the opinion
      of management, there are no contingent liabilities at June 30, 1998 that
      are material to the consolidated financial position or results of
      operations of the Company.

                                      18

<PAGE>
13.   FOREIGN EXCHANGE CONTRACTS

      The Company enters into foreign exchange contracts with clients and
      simultaneously enters into matched positions with another bank. These
      contracts are subject to market value fluctuations in foreign currencies.
      A summary of foreign exchange contracts outstanding at December 31, 1997
      and June 30, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>

                                               December 31, 1997                                      June 30, 1998
                               --------------------------------------------------      --------------------------------------------
                                                                  Unrealized                                           Unrealized
Currency                          Purchases          Sales         Gain/Loss            Purchases          Sales        Gain/Loss
<S>                                <C>              <C>             <C>                  <C>              <C>            <C>
Netherlands (NLG)                 $     271         $    271            -               $  17,809        $  17,809           -
Italy (ITL)                             145              145            -                  16,791           16,791           -
Japan (JPY)                           5,000            5,000            -                  13,156           13,156           -
Hong Kong (HKD)                       5,011            5,011            -                   6,647            6,647           -
France (FRF)                          4,292            4,292            -                   6,538            6,538           -
Czechoslovakia (CZK)                      -                -            -                   5,456            5,456           -
Germany (DEM)                         1,016            1,016            -                   3,761            3,761           -
Singapore (SGD)                         368              368            -                   2,407            2,407           -
United Kingdom (GBP)                  3,440            3,440            -                   1,318            1,318           -
Sweden (SEK)                            317              317            -                   1,185            1,185           -
Poland (PLN)                              -                -            -                   1,042            1,042           -
Other currencies                      3,082            3,082            -                   2,452            2,452           -
                               -------------     ------------     --------------    --------------    -------------    ------------
                                  $  22,942        $  22,942            -               $  78,562        $  78,562           -
                               -------------     ------------     --------------    --------------    -------------    ------------
                               -------------     ------------     --------------    --------------    -------------    ------------
</TABLE>

     The maturity of contracts outstanding as of June 30, 1998 is as follows:
<TABLE>
<CAPTION>
        Maturity                                 Purchases          Sales
        <S>                                      <C>               <C>
        July 1998                                 $60,740          $60,740
        August 1998                                11,482           11,482
        November 1998                               6,340            6,340
</TABLE>



14.  REGULATORY MATTERS

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

     Quantitative measures established by regulation to ensure capital adequacy
     require the Company and the Bank to maintain minimum amounts and ratios
     (set forth in the table below) of total and Tier I capital (as defined in
     the regulations) to risk-weighted assets (as defined), and of Tier I
     capital (as defined) to average assets (as defined). Management believes,
     as of June 30, 1998, that the Company and the Bank meet all capital
     adequacy requirements to which it is subject.

                                      19

<PAGE>
14.  REGULATORY MATTERS (Continued)

     As of June 30, 1998, the most recent notification from the Federal Deposit
     Insurance Corporation categorized the Company and the Bank as well
     capitalized under the regulatory framework for prompt corrective action.
     To be categorized as well capitalized, the Company and the Bank must
     maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
     ratios as set forth in the following table. There are no conditions or
     events since that notification that management believes have changed the
     Company's or the Bank's category. The following table presents the capital
     ratios for the Bank and the Company for the quarter ended June 30, 1998
     and the year ended December 31, 1997.
<TABLE>
<CAPTION>
                                                                   Minimum                 To Be Well Capitalized
                                                                 For Capital                    Under Prompt
                                         Actual                Adequacy Purposes        Corrective Action Provisions
                                 -----------------------      ----------------------    ------------------------------
                                    Amount        Ratio          Amount        Ratio          Amount        Ratio
                                 ------------    -------      ------------    -------      ------------    -------
<S>                              <C>             <C>          <C>             <C>          <C>              <C>
As of June 30, 1998:
  Total Capital
   (to Risk Weighted Assets
   - the Company)                $105,610,851     22.89%      $ 36,908,841        8.00%         N/A          N/A
   (to Risk Weighted Assets  
   - the Bank)                   $102,788,461     22.35%      $ 36,794,153        8.00%    $ 45,992,691     10.00%
  Tier I Capital
   (to Risk Weighted Assets
   - the Company)                $105,510,851     22.87%      $ 18,454,421        4.00%         N/A          N/A
  Tier I Capital
   (to Risk Weighted Assets
   - the Bank)                   $102,688,461     22.33%      $ 18,397,076        4.00%    $ 27,595,614      6.00%
  Tier I Capital
   (to Average Assets
   - the Company)                $105,510,851      6.96%      $ 60,666,867        4.00%         N/A          N/A
  Tier I Capital
   (to Average Assets
   - the Bank)                   $102,688,461      6.78%      $ 60,578,187        4.00%    $ 75,722,733      5.00%

As of December  31, 1997:
  Total Capital
   (to Risk Weighted Assets
   - the Company)                $ 98,507,386     29.20%      $ 26,984,903        8.00%         N/A          N/A
  Total Capital
   (to Risk Weighted Assets
   - the Bank)                   $ 96,140,693     28.57%      $ 26,918,947        8.00%    $ 33,648,684     10.00%
  Tier I Capital
   (to Risk Weighted Assets
   - the Company)                $ 98,407,386     29.17%      $ 13,492,452        4.00%        N/A           N/A
  Tier I Capital
   (to Risk Weighted Assets
   - the Bank)                   $ 96,040,693     28.54%      $ 13,459,473        4.00%    $ 20,189,210      6.00%
  Tier I Capital
   (to Average Assets
   - the Company)                $ 98,407,386      6.44%      $ 61,105,815        4.00%        N/A           N/A
  Tier I Capital
   (to Average Assets
   - the Bank)                   $ 96,040,693      6.31%      $ 60,892,699        4.00%    $ 76,115,874      5.00%
</TABLE>

                                      20
<PAGE>

14.   REGULATORY MATTERS (Continued)

      Under Massachusetts law, trust companies such as the Bank may only pay
      dividends out of "net profits" and only to the extent such payments will
      not impair the capital stock and surplus account. If, prior to declaration
      of a dividend, the Bank's capital stock and surplus accounts equal less
      than 10% of its deposit liabilities, then prior to the payment of the
      dividend, the Bank must transfer from net profits to its surplus account
      the amount required to make its surplus account equal to either (i)
      together with capital stock, 10% of deposit liabilities, or (ii) subject
      to certain adjustments, 100% of capital stock.

                                     21

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Overview

      The following discussion and analysis of the financial condition and 
results of operations of the Company should be read in conjunction with the 
Company's Condensed Consolidated Financial Statements and related notes which 
are included elsewhere in this Report. The Company, through its wholly owned 
subsidiaries, Investors Bank & Trust Company and Investors Capital Services, 
Inc., provides global custody, multicurrency accounting, institutional 
transfer agency, performance measurement, foreign exchange, securities 
lending, mutual fund administration and investment advisory services to a 
variety of financial asset managers, including 59 mutual fund complexes, 
investment advisors, banks and insurance companies. Currently, the Company 
provides financial asset administration services for assets totaling 
approximately $164 billion, including approximately $12 billion of foreign 
assets. The Company also engages in private banking transactions, including 
secured lending and deposit accounts.

      The Company derives its revenues from financial asset administration 
services and private banking transactions. Although interest income and 
noninterest income are reported separately for financial statement 
presentation purposes, the Company's clients view the pricing of the 
Company's asset administration and banking service offerings on a bundled 
basis. In establishing a fee structure for a specific client, management 
analyzes the expected revenue and related expenses, as opposed to separately 
analyzing fee income and interest income and related expenses for each from 
such relationship. Accordingly, management believes net operating revenue 
(net interest income plus noninterest income) and net income are meaningful 
measures of financial results. Revenue generated from asset administration 
and other fees and interest income increased 15% from $51,569,000 in the 
first six months of 1997 to $59,151,000 in the first six months of 1998.

      Noninterest income consists primarily of fees for financial asset 
administration and is principally derived from custody, multicurrency 
accounting, transfer agency, mutual fund administration, and investment 
advisory services for financial asset managers and the assets they control. 
The Company's clients pay fees based on the volume of assets under custody, 
the number of securities held, the number of portfolio transactions, income 
collected and other value-added services such as foreign exchange, securities 
lending and performance measurement. Asset-based fees are usually charged on 
a sliding scale. As such, when the assets in a portfolio under custody grow 
as a result of changes in market values or cash inflows, the Company's fees 
may be a smaller percentage of those assets. Fees for individually managed 
accounts, such as custodial, trust and portfolio accounting services for 
individuals, investment advisors, private trustees, financial planners, other 
banks and fiduciaries and other institutions are also included in noninterest 
income.

      Net interest income represents the difference between income generated 
from interest-earning assets and expense on interest-bearing liabilities. 
Interest-bearing liabilities are generated by the Company's clients who, in 
the course of their financial asset management, generate cash balances which 
they deposit on a short-term basis with the Company. The Company invests 
these cash balances and remits a portion of the earnings on these investments 
to its clients. The Company's share of earnings from these investments is 
viewed as part of the total package of compensation paid to the Company from 
its clients for performing asset administration services.

Recent and Pending Acquisitions

BankBoston Institutional Trust and Custody Acquisition
------------------------------------------------------

      On July 17, 1998, Investors Bank & Trust Company ("Investors Bank"), a 
wholly-owned subsidiary of the Company, entered into a Purchase and Sale 
Agreement (the "Agreement") with Bank Boston, N.A. ("BankBoston") pursuant to 
which Investors Bank has agreed to purchase (the "Acquisition") from 
BankBoston substantially all of the assets of BankBoston solely relating to 
BankBoston's domestic institutional trust and custody business (the 
"Business").

                                      22

<PAGE>

      The Business currently provides master trust and custody services to 
endowments, pension funds, municipalities, mutual funds and other financial 
institutions, primarily in New England. As of June 30,1998, the Business 
serviced approximately $45 billion in assets held in over 3,000 accounts by 
almost 600 clients. The primary focus of the Business is small to midsize 
custody accounts ranging in size from $5 million to $500 million in assets.

      The aggregate purchase price (the "Purchase Price") to be paid by 
Investors Bank for the Business is approximately $50 million. A deposit of $1 
million was made by Investors Bank upon the signing of the Agreement and may 
be retained by BankBoston if Investors Bank fails to close the Acquisition 
after receipt of necessary regulatory approvals. An additional $43 million 
plus the amount of accounts receivable of the Business at the time of the 
closing of the Acquisition (the "Closing") will be paid at Closing. Investors 
Bank will pay up to an additional $6 million to BankBoston based upon the 
level of client retention at the one year anniversary of the Closing.

      The Acquisition is expected to be accounted for as a purchase. While 
Investors Bank is able to fund the transaction from internal resources, the 
Company intends to use the proceeds of an equity offering to partially fund 
the transaction. The Company intends to complete the equity offering during 
the third quarter of 1998. The Company expects the Acquisition to be 
accretive to earnings per share after the successful integration of staff, 
systems and facilities in 1999.

      The Closing is subject to customary closing conditions, the expiration 
or early termination of the applicable waiting period under the Hart-Scott 
Rodino Act and certain regulatory approvals. Subject to the satisfaction of 
the foregoing conditions, Investors Bank expects the Closing to occur on or 
about September 30, 1998.

      The Company believes that its knowledge and experience in the custody 
business, as well as its core strategy of providing superior client service, 
will be an excellent fit for the clients of the Business. The Company 
currently provides to its customers all of the services that BankBoston 
provides to the clients of the Business. In addition, the Company's focus on 
custody and related services allows it to dedicate its resources to providing 
state-of-the-art technology solutions and highly trained and experienced 
professionals to the Business.

      The Company also believes that it will benefit from the added depth and 
diversity in its client base as a result of the Acquisition. The Company 
believes that the Acquisition will provide potential cross-selling 
opportunities for the provision of additional, value-added services such as 
securities lending, foreign exchange and cash management. In addition, the 
Company believes that it will eventually recognize some operating 
efficiencies from the complementary nature of the Business in relation to the 
Company's own services.

      In connection with the Acquisition, on July 17, 1998 Investors Bank and 
BankBoston also entered into an Outsourcing Agreement (the "Outsourcing 
Agreement"). Pursuant to the Outsourcing Agreement, effective upon the 
Closing, the Company will act as custodian for three BankBoston asset 
management related businesses comprising approximately $25 billion in assets: 
domestic private banking, institutional asset management and international 
private banking. The Company will provide transaction processing and asset 
safekeeping and servicing to the clients of those businesses.

AMT Capital Acquisition
-----------------------

      On May 29, 1998, the Company acquired (the "AMT Acquisition") all of 
the outstanding share capital of AMT Capital Services, Inc. and AMT Capital 
Advisers, Inc. (collectively, "AMT Capital"), pursuant to an Agreement and 
Plan of Merger dated as of May 12, 1998 (the "Merger Agreement"), by and 
among the Company, Investors Acquisition Sub I, Inc., Investors Acquisition 
Sub II, Inc., AMT Capital and certain stockholders of AMT Capital (the 
"Former AMT Capital Stockholders") in exchange for 194,006 shares of the 
Company's Common Stock. Of the 194,006 shares of Common Stock issued to the 
Former AMT Capital Stockholders, 18,938 shares are being held in escrow by 
First Chicago Trust Company of New York as escrow agent pursuant to an Escrow 
Agreement dated as of May 29, 1998 among the Company, the Former AMT Capital 
Stockholders and the escrow agent (the "Escrow Agreement") until the earlier 
of (i) February 28, 1999 and (ii) the Company's first public announcement of 
earnings following completion by the Company's independent public accountants 
of the first full-year audit of the Company's financial statements following 
May 29, 1998 to cover any reimbursable claims relating to the AMT 
Acquisition. The remaining 175,068 shares 

                                      23

<PAGE>

acquired by the Former AMT Capital Stockholders pursuant to the AMT 
Acquisition were registered on a Registration Statement on Form S-3 (File No. 
333-58031), declared effective on July 9, 1998, and may be sold to the public 
by the Former AMT Capital Stockholders. The AMT Acquisition has been 
accounted for under the "pooling-of-interests" method and was structured as a 
tax-free reorganization under the Internal Revenue Code.

      AMT Capital is a New York-based firm recognized for providing fund 
administration services to global and domestic institutional investment 
management firms. The AMT Acquisition is intended to enhance the Company's 
offerings to institutional investment managers who outsource the 
administration of pooled investment products. Additionally, the combination 
of the substantial expertise at both the Company and AMT Capital should 
further strengthen the Company's strategic product development capabilities 
in support of clients worldwide. Upon the consummation of the AMT 
Acquisition, the AMT Capital companies were renamed Investors Capital 
Services, Inc. and Investors Capital Advisors, Inc., respectively.

Certain Factors That May Affect Future Results

      From time to time, information provided by the Company, statements made 
by its employees or information included in its filings with the Securities 
and Exchange Commission (including this Form 10-Q) may contain statements 
which are not historical facts, so-called "forward-looking statements," and 
which involve risks and uncertainties. The Company's actual future results 
may differ significantly from those stated in any forward-looking statements. 
Factors that may cause such differences include, but are not limited to, the 
factors discussed below. Each of these factors, and others, are discussed 
from time to time in the Company's filings with the Securities and Exchange 
Commission.

      The Company's future results may be subject to substantial risks and 
uncertainties. Because certain fees charged by the Company for its services 
are based on the market values of assets processed, such fees and the 
Company's quarterly and annual operating results are sensitive to changes in 
interest rates, declines in stock market values, and investors seeking 
alternatives to the investment offerings of the Company's clients. Also, the 
Company's interest-related services, along with the market value of the 
Company's investments, may be adversely affected by rapid changes in interest 
rates. In addition, many of the Company's client engagements are, and in the 
future are likely to continue to be, terminable upon 60 days notice.

      The Company relies on certain intellectual property protections to 
preserve its intellectual property rights. Any invalidation of the Company's 
intellectual property rights or lengthy and expensive defense of those rights 
could have a material adverse affect on the Company. In addition, the Year 
2000 issue discussed below may affect the Company's operations. The segment 
of the financial services industry in which the Company is engaged is 
extremely competitive. Certain current and potential competitors of the 
Company are more established and benefit from greater market recognition and 
have substantially greater financial, development and marketing resources 
than the Company.

      The Company's quarterly and annual operating results are affected by a 
wide variety of factors that could materially adversely affect revenues and 
profitability, including: the timing of the commencement or termination of 
client engagements, the rate of net inflows and outflows of investor funds in 
the debt and equity-based investment vehicles offered by the Company's 
clients, the introduction and market acceptance of new services by the 
Company and changes or anticipated changes in economic conditions. Because 
the Company's operating expenses are relatively fixed, any unanticipated 
shortfall in revenues in a quarter may have an adverse impact on the 
Company's results of operations for that quarter. As a result of the 
foregoing and other factors, the Company may experience material fluctuations 
in future operating results on a quarterly or annual basis which could 
materially and adversely affect its business, financial condition, operating 
results and stock price.

Impact of the Year 2000 Issue

      The Year 2000 Issue is the result of computer programs being written 
using two digits rather than four to define the applicable year. Any of the 
Company's computer programs that have date-sensitive software may recognize a 
date using "00" as the year 1900 rather than the year 2000. This could result 
in a system failure or 

                                      24

<PAGE>

miscalculations causing disruptions of operations, including, among other 
things, a temporary inability to process transactions, send invoices, or 
engage in similar normal business activities.

      In late 1997 the Company, with the assistance of an outside consultant, 
completed a detailed assessment of the Company's Year 2000 compliance status. 
As part of the assessment process, the Company also developed project plans 
for application renovation and testing. Based on this assessment, the Company 
determined that it will be required to modify or upgrade portions of its 
software so that its computer systems will properly utilize dates beyond 
December 31, 1999. The Company presently believes that with modifications to, 
or upgrades of, existing software, the Year 2000 Issue can be mitigated. 
However, if such modifications and upgrades are not made, or are not 
completed in a timely manner, the Year 2000 Issue could have a material 
impact on the operations of the Company.

      The Company has initiated formal communications with all of its 
significant suppliers and large customers to determine the extent to which 
the Company is vulnerable to those third parties' failure to remediate their 
own Year 2000 Issue. The Company's total Year 2000 project cost and estimates 
to complete include the estimated costs and time associated with the impact 
of a third party's Year 2000 Issue, and are based on presently available 
information. However, there can be no guarantee that the systems of other 
companies on which the Company's systems rely will be timely converted, or 
that a failure to convert by another company, or a conversion that is 
incompatible with the company's systems, would not have a material adverse 
effect on the Company.

      The Company will utilize both internal and external resources to modify 
or upgrade existing software and to test such software for Year 2000 
compliance. The Company plans to complete the Year 2000 project, including 
all testing, by December 31, 1998. Currently, the Company is completing 
renovation of software code and has commenced the testing phase of the Year 
2000 project. The Company is currently developing contingency plans to 
address any failure by the Company or any third party with which the Company 
interacts to properly and/or completely renovate software code for Year 2000 
compliance. The Company expects to complete these contingency plans in the 
fourth quarter of 1998.

      The remaining 1998 cost of the Year 2000 project is estimated at 
$753,000, which will be expensed as incurred over the next six months, and is 
being funded through operating cash flows. In addition, the Company has 
budgeted up to an additional $400,000 for Year 2000 costs that may arise 
during 1999. These 1999 costs may include, but are not limited to, testing 
with third parties who are not Year 2000 compliant prior to December 31, 1998 
and software renovation necessitated by internal and/or third-party testing 
during 1998 and 1999. These amounts are not expected to have a material 
effect on the Company's results of operations. To date, the Company has 
incurred and expensed approximately $847,000 related to the assessment of, 
and remediation efforts in connection with, its Year 2000 project and the 
development of a remediation plan.

      The costs of the project and the date on which the Company plans to 
complete the Year 2000 modifications are based on management's best 
estimates, which were derived utilizing numerous assumptions of future events 
including the continued availability of certain resources, third party 
modification plans and other factors. However, there can be no guarantee that 
these estimates will be achieved and actual results could differ materially 
from those plans. Specific factors that might cause such material differences 
include, but are not limited to, the availability and cost of personnel 
trained in this area, the ability to locate and correct all relevant computer 
code, the compatibility of third-party interfaces, and similar uncertainties.

                                      25

<PAGE>

Statement of Operations

Comparison of Operating Results for the Six Months Ended June 30, 1997 and 
1998

Noninterest Income

      Noninterest income increased $7,711,000 to $46,235,000 for the six 
months ended June 30, 1998 from $38,524,000 for the six months ended June 30, 
1997.  Noninterest income consists of the following items:

<TABLE>
<CAPTION>

                                                                   For the Six Months Ended
                                                                           June 30,
                                                    -------------------------------------------------------
                                                         1997               1998               Change
                                                    ---------------     --------------    -----------------
<S>                                                 <C>                 <C>               <C>    
                                                         (Dollars in thousands)

               Asset administration fees                 $  36,862          $  45,023             22%
               Computer service fees                           339                273            (19)
               Other operating income                        1,316                468            (64)
               Gain on sale of securities                        7                471               -
                                                    ---------------     --------------
               Total Noninterest Income                  $  38,524          $  46,235              20
                                                    ---------------     --------------
                                                    ---------------     --------------

</TABLE>

      Asset administration fees increased $8,161,000 to $45,023,000 for the 
six months ended June 30, 1998 compared to $36,862,000 for the six months 
ended June 30, 1997. The Company earns these fees on assets processed by the 
Company on behalf of a variety of financial asset managers. Assets processed 
is the total dollar value of financial assets on the reported date for which 
the Company provides one or more of the following services: custody, 
multicurrency accounting, institutional transfer agency, performance 
measurement, foreign exchange, securities lending, mutual fund administration 
and investment advisory services. Total assets processed increased to $164 
billion at June 30, 1998 from $146 billion at June 30, 1997. Of this $18 
billion net increase in assets processed, approximately 29% of the increase 
reflects assets processed for new clients, and the remainder of the increase 
reflects growth of assets processed for existing clients. The largest 
component of asset administration fees is asset-based fees, which increased 
between periods due to the increase in assets processed. Another significant 
portion of the increase in asset administration fees resulted from the 
Company's success in marketing ancillary services such as securities lending 
and foreign exchange.

      Computer service fees consist of amounts charged by the Company for 
data processing services related to client accounts. The decrease in computer 
service fees is related to renegotiations of contracts performed by Investors 
Capital Services in 1998. Other operating income consists of dividends 
received relating to the FHLBB stock investment and miscellaneous 
transaction-oriented private banking fees. The decrease in other operating 
income was due to a decrease in services provided by Investors Capital 
Advisors, a wholly owed subsidiary of Investors Capital Services, Inc. Gain 
on sale of securities increased during the first six months of 1998 due to 
the Company's sale of certain mortgage-backed securities in anticipation of 
increased prepayment risk. 

                                      26

<PAGE>

Operating Expenses

      Total operating expenses increased by $6,013,000 to $47,242,000 for the 
six months ended June 30, 1998 compared to $41,229,000 for the six months 
ended June 30, 1997. The components of operating expenses were as follows:

<TABLE>
<CAPTION>

                                    For the Six Months 
                                          Ended
                                         June 30,
                                    -------------------
                                      1997       1998       Change
                                    --------    -------     ------
<S>                                 <C>         <C>         <C>
                                  (Dollars in thousands)

Compensation and benefits            $24,845    $29,347         18%
Technology and telecommunications      5,189      5,322          3
Transaction processing services        3,902      3,962          2
Occupancy                              2,314      3,418         48
Depreciation and amortization            922      1,270         38
Travel and sales promotion               799      1,003         26
Professional fees                      1,146        788        (31)
Insurance                                374        392          5
Other operating expenses               1,738      1,740       --
                                    --------    -------
Total Operating Expenses             $41,229    $47,242         15 %
                                    --------    -------
                                    --------    -------

</TABLE>

      Compensation and benefits expense increased by $4,502,000 or 18% from 
period to period due to several factors. The average number of employees 
increased 20% to 1,068 during the six months ended June 30, 1998 from 890 
during the same period in 1997. This increase relates primarily to the 
increase in client relationships and to the expansion of existing client 
relationships during the period. Effective January 1, 1998 the Company 
adopted the accounting method promulgated by Statement of Position 98-1, 
"Accounting for the Costs of Computer Software Developed or Obtained for 
Internal Use," ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the 
costs of computer software developed or obtained for internal use. 
Accordingly, the Company capitalized $318,000 of compensation and 
compensation-related expenses for employees who were directly associated with 
internal use computer software projects during the six months ended June 30, 
1998.

      Occupancy expense increased $1,104,000 to $3,418,000 for the six months 
ended June 30, 1998 from $2,314,000 for the six months ended June 30, 1997. 
The increase resulted from the expansion into additional office space in the 
Company's Boston, Toronto and Dublin offices.

      Depreciation and amortization expense increased $348,000 between 
periods due to purchases of furniture, equipment, and capitalized software 
throughout 1997 and the first six months of 1998.

      Travel and sales promotion expense increased $204,000 to $1,003,000 for 
the six months ended June 30, 1998 from $799,000 for the six months ended 
June 30, 1997 due to increased travel by the sales and marketing 
professionals.

      Professional fees decreased $358,000 to $788,000 for the six months 
ended June 30, 1998 from $1,146,000 for the six months ended June 30, 1997. 
The decrease in professional fees relates to non-recurring consulting and 
legal fees incurred in the first six months of 1997.

                                      27

<PAGE>

Net Interest Income

      Net interest income is affected by the volume and mix of assets and 
liabilities, and the movement and level of interest rates. The table below 
presents the changes in net interest income resulting from changes in the 
volume of interest-earning assets or interest-bearing liabilities or changes 
in interest rates for the six months ended June 30, 1998 compared to the same 
period in 1997.

<TABLE>
<CAPTION>


                                                  Change           Change
                                                  Due to           Due to
                                                  Volume            Rate            Net
                                              ----------------  --------------  ------------
<S>                                           <C>               <C>             <C>
                                                         (Dollars in thousands)

       Interest-earning assets
       Fed funds sold and
          interest-earning deposits            $     (199)     $       74      $    (125)
       Investment securities                       11,932          (2,056)         9,876
       Loans                                           38             137            175
                                              ----------------  --------------  ------------
       Total interest-earning assets               11,771          (1,845)         9,926
                                              ----------------  --------------  ------------

       Interest-bearing liabilities
       Deposits                                      3,210           (245)         2,965
       Borrowings                                    6,608            483          7,091
                                              ----------------  --------------  ------------
       Total interest-bearing liabilities            9,818            238         10,056
                                              ----------------  -------------  ------------
       Change in net interest income            $    1,953       $ (2,083)      $   (130)
                                              ----------------  -------------  ------------
                                              ----------------  -------------  ------------

</TABLE>

      Net interest income decreased $130,000 or 1% to $12,916,000 for the six 
months ended June 30, 1998 from $13,046,000 for the same period in 1997. This 
net decrease resulted from an increase in interest income of $9,926,000 
offset by an increase in interest expense of $10,056,000. The net impact of 
the above changes was a 76 basis point decrease in net interest margin.

      Interest expense increased due primarily to a $385,000,000 increase in 
average deposits and short term borrowings for the six months ended June 30, 
1998 compared to the same period in 1997. Also, to a lesser extent, interest 
expense increased due to an increase in the average interest rate paid by the 
Company from 4.93% to 5.03% during the period.

Income Taxes

      The Company's earnings were taxed on the federal level at 35% for the 
1998 and 1997 periods. State taxes on the gross earnings from the Company's 
portfolio of investment securities, held by a wholly-owned subsidiary, were 
assessed at the tax rate for Massachusetts securities corporations of 1.32%. 
State taxes on the remainder of the Company's taxable income were assessed at 
the tax rate for Massachusetts banks of 11.32% in 1997 and 10.91% in 1998. 
The provision for income taxes for the six months ended June 30, 1998 
increased by $793,000 compared to the same period in 1997. The overall 
effective tax rate increased to 36.78% for the six months ended June 30, 
1998, from 34.69% for the same period in 1997. The increse in the effective 
tax rate is due to the change in tax status of Investors Capital Services, 
Inc., AMT Capital Services, Inc. was a Subchapter S corporation which 
incurred no federal or state tax on net income through May 29, 1997.

                                      28

<PAGE>

Statement of Operations

Comparison of Operating Results for the Quarters  Ended June 30, 1997 and 1998

Noninterest Income

      Noninterest income increased $4,390,000 to $24,022,000 for the quarter 
ended June 30, 1998 from $19,632,000 for the quarter ended June 30, 1997.  
Noninterest income consists of the following items:

<TABLE>
<CAPTION>

                                                                    For the Quarters Ended
                                                                           June 30,

                                                    -------------------------------------------------------
                                                         1997               1998               Change
                                                    ---------------     --------------    -----------------
<S>                                                 <C>                 <C>               <C>
                                                         (Dollars in thousands)

               Asset administration fees                 $  18,844          $  23,335             24%
               Computer service fees                           180                139            (23)
               Other operating income                          601                277            (54)
               Gain on sale of securities                        7                271               -
                                                    ---------------     --------------
               Total Noninterest Income                  $  19,632          $  24,022              22%
                                                    ---------------     --------------
                                                    ---------------     --------------


</TABLE>

      Asset administration fees increased $4,491,000 to $23,335,000 for the 
quarter ended June 30, 1998 compared to $18,844,000 for the quarter ended 
June 30, 1997. The Company earns these fees on assets processed by the 
Company on behalf of a variety of financial asset managers. Assets processed 
is the total dollar value of financial assets on the reported date for which 
the Company provides one or more of the following services: custody, 
multicurrency accounting, institutional transfer agency, performance 
measurement, foreign exchange, securities lending, mutual fund administration 
and investment advisory services. Total assets processed increased to $164 
billion at June 30, 1998 from $146 billion at June 30, 1997. Of this $18 
billion net increase in assets processed, approximately 29% of the increase 
reflects assets processed for new clients, and the remainder of the increase 
reflects growth of assets processed for existing clients. The largest 
component of asset administration fees is asset-based fees, which increased 
between periods due to the increased between periods due to the increase in 
assets processed.

      The decrease in computer service fees between periods relates to 
renegotiations of contracts performed by Investors Capital Services in 1998. 
The overall decrease in other operating income was due to a decrease in 
services provided by Investors Capital Advisors, Inc. a wholly owned 
subsidiary of Investors Capital Services. Gain on sale of securities 
increased during the first three months of 1998 due to the Company's sale of 
certain mortgage-backed securities in anticipation of increased prepayment 
risk.

                                      29

<PAGE>

Operating Expenses

      Total operating expenses increased by $2,588,000 to $23,565,000 for the 
quarter ended June 30, 1998 compared to $20,977,000 for the quarter ended 
June 30, 1997. The components of operating expenses were as follows:

<TABLE>
<CAPTION>

                                    For the Quarter Ended
                                           June 30,
                                     --------------------   ------
                                       1997       1998      Change
                                     -------    -------     ------
<S>                                  <C>        <C>          <C> 
                                   (Dollars in thousands)

Compensation and benefits            $12,686    $14,679         16%
Technology and telecommunications      2,704      2,715       --
Transaction processing services        1,865      1,931          4
Occupancy                              1,189      1,731         46
Depreciation and amortization            517        669         29
Travel and sales promotion               463        586         27
Professional fees                        539        522         (3)
Insurance                                188        199          6
Other operating expenses                 826        533        (35)
                                     -------    -------
Total Operating Expenses             $20,977    $23,565         12%
                                     -------    -------
                                     -------    -------

</TABLE>

      Compensation and benefits expense increased by $1,993,000 or 16% from 
period to period due to several factors. The average number of employees 
increased 17% to 1,078 during the quarter ended June 30, 1998 from 920 during 
the same period in 1997. This increase relates primarily to the increase in 
client relationships and to the expansion of existing client relationships 
during the period. Effective January 1, 1998 the Company adopted SOP 98-1 
which provides guidance on accounting for the costs of computer software 
developed or obtained for internal use. Accordingly, the Company capitalized 
$170,000 of compensation and compensation-related expenses for employees who 
were directly associated with internal use computer software projects during 
the quarter ended June 30, 1998.

      Occupancy expense increased $542,000 to $1,731,000 for the quarter 
ended June 30, 1998 from $1,189,000 for the quarter ended June 30, 1997. The 
increase resulted from the expansion into additional office space in the 
Company's Boston, Toronto and Dublin offices.

      Depreciation and amortization expense increased $152,000 between 
periods due to purchases of furniture, equipment, and capitalized software 
throughout 1997 and the first six months of 1998.

      Travel and sales promotion expense increased $123,000 to $586,000 for 
the quarter ended June 30, 1998 from $463,000 for the quarter ended June 30, 
1997 due to increased travel of the sales and marketing professionals.

      Other operating expenses include fees for office supplies expense, 
recruiting costs, and temporary help. These expenses decreased $293,000 to 
$533,000 for the quarter ended June 30, 1998 from $826,000 for the quarter 
ended June 30, 1997. Recruiting costs and costs of temporary help decreased 
as a result of a change in strategy of using interns instead of hiring 
outside manpower. The majority of the decrease related to efficiencies 
experienced in general operating expenses.

                                      30
<PAGE>

Net Interest Income

   Net interest income is affected by the volume and mix of assets and 
liabilities, and the movement and level of interest rates. The table below 
presents the changes in net interest income resulting from changes in the 
volume of interest-earning assets or interest-bearing liabilities or changes 
in interest rates for the quarter ended June 30, 1998 compared to the same 
period in 1997.

<TABLE>
<CAPTION>
                                                    Change           Change
                                                    Due to           Due to
                                                    Volume            Rate            Net
                                                ----------------  --------------  ------------
           <S>                                  <C>               <C>             <C> 
                                                           (Dollars in thousands)

           Interest-earning assets
           Fed funds sold and
              interest-earning deposits              $      202   $           -       $   202
           Investment securities                          4,983         (1,379)         3,604
           Loans                                            123              48           171
                                                ----------------  --------------  ------------
           Total interest-earning assets                  5,308         (1,331)         3,977
                                                ----------------  --------------  ------------

           Interest-bearing liabilities
           Deposits                                       1,882           (122)         1,760
           Borrowings                                     2,862             153         3,015
                                                ----------------  --------------  ------------
           Total interest-bearing liabilities             4,744              31         4,775
                                                ----------------  --------------  ------------

           Change in net interest income              $     564       $ (1,362)       $ (798)
                                                ----------------  --------------  ------------
                                                ----------------  --------------  ------------

</TABLE>


   Net interest income decreased $798,000 or 12% to $5,792,000 for the 
quarter ended June 30, 1998 from $6,590,000 for the same period in 1997. This 
net decrease resulted from an increase in interest income of $3,977,000 
offset by an increase in interest expense of $4,775,000. The net impact of 
the above changes was a 88 basis point decrease in net interest margin.

   Interest expense increased due primarily to a $371,000,000 increase in 
average deposits and short term borrowings for the quarter ended June 30, 
1998 compared to the same period in 1997. Also, to a lesser extent, interest 
expense increased due to an increase in the average interest rate paid by the 
Company from 5.05% to 5.08% during the period.

Income Taxes

   The Company's earnings were taxed on the federal level at 35% for the 1998 
and 1997 periods. State taxes on the gross earnings from the Company's 
portfolio of investment securities, held by a wholly-owned subsidiary, were 
assessed at the tax rate for Massachusetts securities corporations of 1.32%. 
State taxes on the remainder of the Company's taxable income were assessed at 
the tax rate for Massachusetts banks of 11.32% in 1997 and 10.91% in 1998. 
The provision for income taxes for the quarter ended June 30, 1998 increased 
by $563,000 compared to the same period in 1997. The overall effective tax 
rate increased to 37.17% for the quarter ended June 30, 1998, from 33.55% for 
the same period in 1997. The increase in the effective tax rate is due to the 
Company's acquisition of AMT Capital Services, Inc. Prior to the acquisition, 
AMT Capital Services, Inc. was taxed as a Subchapter S corporation and did 
not incur federal or state tax on its net income.

                                 31

<PAGE>

Financial Condition

Investment Portfolio

The following table summarizes the Company's investment portfolio as of the
dates indicated:

<TABLE>
<CAPTION>
                                                              December 31,           June 30,
                                                                  1997                 1998
                                                             ----------------      --------------
                                                                   (Dollars in thousands)
              <S>                                          <C>                  <C>

              Securities held to maturity:

              State and political subdivisions             $          35,225     $        35,518
              Mortgage-backed securities                             590,365             733,121
              Federal agency securities                              168,687             178,766
              Foreign government securities                            7,769               7,738
                                                           ------------------    ----------------

              Total securities held to maturity            $         802,046     $       955,143
                                                           ------------------    ----------------
                                                           ------------------    ----------------

              Securities available for sale:

              Municipal bonds                              $           8,382     $        39,217
              U.S. Treasury securities                                30,092              10,045
              Mortgage-backed securities                             424,376             362,819
              Federal agency securities                                    -              28,598
              Corporate debt                                               -              49,070
                                                           ------------------    ----------------

              Total securities available for sale          $         462,850     $       489,749
                                                           ------------------    ----------------
                                                           ------------------    ----------------
</TABLE>


   The investment portfolio is used to invest depositors' funds and provide a 
secondary source of earnings for the Company. In addition, the Company uses 
the investment portfolio to secure open positions at securities clearing 
institutions in connection with its custody services. The portfolio is 
comprised of U.S. Treasury securities, mortgage-backed securities issued by 
the Federal National Mortgage Association ("FNMA" or "Fannie Mae") and the 
Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"), Federal 
agency callable bonds issued by FHLMC and the FHLBB, municipal securities, 
corporate debt securities and foreign government bonds issued by the Canadian 
provinces of Ontario and Manitoba.

   The Company invests in mortgage-backed securities and Federal agency 
callable bonds to supplement its portfolio of U.S. Treasury securities and 
increase the total return of the investment portfolio. Mortgage-backed 
securities generally have a higher yield than U.S. Treasury securities due to 
credit risk and prepayment risk. Credit risk results from the possibility 
that a loss may occur if a counterparty is unable to meet the terms of a 
contract. Prepayment risk results from the possibility that changes in 
interest rates may cause mortgage securities to be paid off prior to their 
maturity dates. Federal agency callable bonds generally have a higher yield 
than U.S. Treasury securities due to credit risk and call risk. Credit risk 
results from the possibility that the Federal agency issuing the bonds may be 
unable to meet the terms of the bond. Call risk results from the possibility 
that fluctuating interest rates and other factors may result in the exercise 
of the call option by the Federal agency. Credit risk related to 
mortgage-backed securities and Federal agency callable bonds is substantially 
reduced by payment guarantees and credit enhancements.

   The Company invests in municipal securities to generate stable, tax 
advantaged income. Municipal securities generally have lower stated yields 
than Federal agency and U.S. Treasury securities, but the after-tax yields 
are comparable. Municipal securities are subject to credit risk.

   The Company invests in foreign government bonds in order to generate 
foreign source income to maximize the use of the foreign tax credit. The 
foreign government bonds are denominated in U.S. dollars to avoid foreign 
currency risk. These bonds are subject to credit risk.


                                     32

<PAGE>

   The Company invests in corporate debt in order to increase the total 
return of the investment portfolio. Corporate debt has credit risk resulting 
from the possibility that the underlying holding company may be unable to meet 
the terms of the security.

   The book value and weighted average yield of the Company's securities held 
to maturity at June 30, 1998, by effective maturity, are reflected in the 
following table:

<TABLE>
<CAPTION>                                                                              Weighted
                                                                      Book              Average
                                                                      Value              Yield
                                                                 ----------------    ---------------
            <S>                                                  <C>                 <C>
                                                                         (Dollars in thousands)

            Due from one to five years                         $         310,847              6.55%
            Due from five years up to ten years                          189,393              6.51%
            Due after ten years                                          454,903              6.30%
                                                               ------------------

            Total securities held to maturity                  $         955,143
                                                               ------------------
                                                               ------------------

</TABLE>

The book value and weighted average yield of the Company's securities 
available for sale at June 30, 1998, by effective maturity, are reflected in 
the following table:

<TABLE>
<CAPTION>

                                                                                              Weighted
                                                                        Book                   Average
                                                                       Value                    Yield
                                                                 -----------------         ---------------
            <S>                                                  <C>                       <C>
                                                                           (Dollars in thousands)

            Due within one year                                  $          10,045                   6.20%
            Due from one to five years                                     346,831                   6.32%
            Due from five years up to ten years                             66,786                   5.67%
            Due after ten years                                             66,087                   6.38%
                                                                -------------------

            Total securities available for sale                  $         489,749
                                                                -------------------
                                                                -------------------
</TABLE>

The maturities of mortgage backed securities have been allocated in the above
tables as described in Note 3 of the Notes to Condensed Consolidated Financial
Statements.


                                     33

<PAGE>


Loan Portfolio

   The following table summarizes the Company's loan portfolio as of the dates
indicated:

<TABLE>
<CAPTION>

                                                                    December 31,          June 30,
                                                                       1997                 1998
                                                                 ------------------   ------------------
            <S>                                                  <C>                  <C>
                                                                           (Dollars in thousands)

            Loans to individuals                                 $            26,858   $          20,086
            Loans to not-for-profit organizations                                 13                  13
            Loans to mutual funds                                             29,174              49,790
                                                                 ------------------   ------------------
                                                                              56,045              69,889
            Less:  allowance for loan losses                                   (100)               (100)
                                                                 ------------------   ------------------
            Net loans                                            $            55,945  $           69,789
                                                                 ------------------   ------------------
                                                                 ------------------   ------------------

            Floating rate                                        $            55,932  $           69,776
            Fixed rate                                                            13                  13
                                                                 ------------------   ------------------
                                                                 $            55,945  $           69,789
                                                                 ------------------   ------------------
                                                                 ------------------   ------------------
</TABLE>

   Virtually all loans to individually managed account customers are written 
on a demand basis, bear variable interest rates tied to the prime rate and 
are fully secured by liquid collateral, primarily freely tradable securities 
held in custody by the Company for the borrower. At June 30, 1998, the 
Company has entered into agreements to provide up to an aggregate of $40 
million under lines of credit to mutual fund clients. These unsecured lines 
of credit may, in the event of a default, be collateralized at the Company's 
option by securities held in custody by the Company for those mutual funds. 
Loans to mutual funds also include advances by the Company to certain mutual 
fund clients pursuant to the terms of the custody agreements between the 
Company and those clients. The advances facilitate securities transactions 
and redemptions involving those mutual funds and are fully collateralized by 
liquid collateral, primarily freely tradable securities held in custody by 
the Company for those mutual funds.

   At June 30, 1998, the Company's only lending concentrations which exceeded 
10% of total loans were revolving lines of credit to mutual fund clients as 
discussed above. These loans were made in the ordinary course of business on 
the same terms and conditions prevailing at the time for comparable 
transactions.

   The Company's credit loss experience has been excellent. There have been 
no loan chargeoffs in the history of the Company. It is the Company's policy 
to place a loan on non-accrual status when either principal or interest 
becomes 60 days past due and the loan's collateral is not sufficient to cover 
both principal and accrued interest. As of June 30, 1998, there were no past 
due loans, troubled debt restructurings, or any loans on non-accrual status. 
Although virtually all of the Company's loans are fully collateralized with 
freely tradable securities, management recognizes some credit risk inherent 
in the loan portfolio, and has recorded an allowance for loan losses of 
approximately $100,000 at June 30, 1998. This amount is not allocated to any 
particular loan, but is intended to absorb any risk of loss inherent in the 
loan portfolio. Management actively monitors the loan portfolio and the 
underlying collateral and regularly assesses the adequacy of the allowance 
for loan losses.

Interest Rate Sensitivity

   Interest rate risk arises when an interest-earning asset matures or when 
its rate of interest changes in a time frame different from that of the 
supporting interest-bearing liability. By seeking to minimize the difference 
between the amount of interest-earning assets and the amount of 
interest-bearing liabilities that could change interest rates in the same 
time frame, the Company attempts to reduce the risk of significant adverse 
effects on net interest income caused by interest rate changes. The Company 
does not attempt to match each interest-earning asset with a specific 
interest-bearing liability. Instead, as shown in the table below, it 
aggregates all of its interest-earning assets and interest-bearing 
liabilities to determine the difference between these in specific time 


                               34

<PAGE>

frames. This difference is known as the rate-sensitivity gap. A positive gap 
indicates that more interest-earning assets than interest-bearing liabilities 
reprice in a time frame, and a negative gap indicates the opposite. 
Maintaining a balanced position will reduce risk associated with interest 
rate changes, but it will not guarantee a stable interest rate spread because 
the various rates within a time frame may change by differing amounts and 
change in different directions.

   The Company seeks to manage interest rate risk by investment portfolio 
actions designed to address the interest rate sensitivity of asset cash flows 
in relation to liability cash flows. Portfolio actions used to manage 
interest rate risk include managing the effective duration of the portfolio 
securities and utilizing interest rate floors and interest rate swaps. 
Interest rate swaps involve elements of credit and market risk which are not 
reflected in the Company's consolidated financial statements. Such 
instruments are entered into for hedging (as opposed to investment or 
speculative) purposes. There can be no assurance that such portfolio actions 
will adequately limit interest rate risk.




                                      35

<PAGE>

    The following table presents the repricing schedule for the Company's
interest-earning assets and interest-bearing liabilities at June 30, 1998:
 
<TABLE>
<CAPTION>
                                                                                         Over
                                                                             Over        One
                                                                 Over        Six         Year
                                                    Within      Three         to          to         Over
                                                    Three       to Six      Twelve       Five        Five
                                                    Months      Months      Months      Years       Years       Total
                                                  ----------  ----------  ----------  ----------  ----------  ----------
<S>                                               <C>         <C>         <C>         <C>         <C>         <C>
                                                                                (Dollars in thousands)
Interest earning assets (1):

  Federal funds sold                             $   35,000  $   --      $   --      $   --      $   --      $   35,000
  Investment securities (2)                         603,903     178,132     205,170     351,447     106,241   1,444,893
  Loans--fixed rate                                  69,776      --          --          --          --          69,776
  Loans--variable rate                               --          --          --              13      --              13
                                                  ----------  ----------  ----------  ----------  ----------  ----------
     Total interest earning assets                  708,679     178,132     205,170     351,460     106,241   1,549,682

Interest bearing liabilities:
  Demand deposit accounts                           152,370      --          --          --          --         152,370
  Savings accounts                                  548,808      --          --          --          --         548,808
  Interest rate contracts                          (370,000)     50,000     110,000     210,000      --          --
  Short term borrowings                             561,846      --          --          --          --         561,846
                                                  ----------  ----------  ----------  ----------  ----------  ----------
     Total interest bearing liabilities             893,024      50,000     110,000     210,000               1,263,024
                                                  ----------  ----------  ----------  ----------  ----------  ----------
     Net interest sensitivity gap during 
       the period                                $ (184,345) $  128,132  $   95,170  $  141,460  $  106,241  $  286,658
                                                  ----------  ----------  ----------  ----------  ----------  ----------
                                                  ----------  ----------  ----------  ----------  ----------  ----------
     Cumulative gap                              $ (184,345) $  (56,213) $   38,957  $  180,417  $  286,658
                                                  ----------  ----------  ----------  ----------  ----------  
                                                  ----------  ----------  ----------  ----------  ----------  
Interest sensitive assets as a percent of
  interest sensitive liabilities (cumulative)        79.36%       94.04%     103.70%     114.28%     122.70%

Interest sensitive assets as a percent of total
  assets (cumulative)                                43.12%       53.95%      66.44%      87.82%      94.28%

Net interest sensitivity gap as a percent of
  total assets                                      (11.22%)       7.80%       5.79%       8.61%       6.46%

Cumulative gap as a percent of total assets         (11.22%)      (3.42%)      2.37%      10.98%      17.44%
</TABLE>
 
 
(1) Adjustable rate assets are included in the period in which interest rates
    are next scheduled to adjust rather than in the period in which they are
    due. Fixed rate loans are included in the period in which they are scheduled
    to be repaid.
 
(2) Mortgage-backed securities are included in the pricing category that
    corresponds with their effective maturity.


                                 36

<PAGE>


Liquidity

   Liquidity represents the ability of an institution to meet present and 
future financial obligations through either the sale or maturity of existing 
assets or the acquisition of additional funds through liability management. 
For a financial institution such as the Company, these obligations arise from 
the withdrawals of deposits and the payment of operating expenses.

   The Company's primary sources of liquidity include cash and cash 
equivalents, federal funds sold, new deposits, short term borrowings, 
interest payments on securities held to maturity and available for sale, fees 
collected from asset administration clients. Asset liquidity is also provided 
by managing the duration of the investment portfolio. As a result of the 
Company's management of liquid assets and the ability to generate liquidity 
through liability funds, management believes that the Company maintains 
overall liquidity sufficient to meet its depositors' needs, to satisfy its 
operating requirements and to fund the payment of an anticipated annual cash 
dividend of approximately $.12 per share.

   The Company's ability to pay dividends on the Common Stock depends on the 
receipt of dividends from the Bank. In addition, the Company may not pay 
dividends on its Common Stock if it is in default under certain agreements 
entered into in connection with the sale of the Capital Securities. Any 
dividend payments by the Bank are subject to certain restrictions imposed by 
the Massachusetts Commissioner of Banks. Subject to regulatory requirements, 
the Bank expects to pay an annual dividend to the Company, which the Company 
expects to pay to its stockholders, currently estimated to be in an amount 
equal to $.12 per share of the Company's outstanding Common Stock 
(approximately $804,230 based upon 6,701,915 shares outstanding as of June 
30, 1998).

     At June 30, 1998, cash and cash equivalents were 2% of total assets. At 
June 30, 1998, approximately $10 million or 1% of total interest-earning 
assets mature within a one year period.

   The Company has informal borrowing arrangements with various 
counterparties whereby each counterparty has agreed to make funds available 
to the Company at the Federal funds overnight rate. The aggregate amount of 
these borrowing arrangements as of June 30, 1998 was $176 million. Each bank 
may terminate its arrangement at any time and is under no contractual 
obligation to provide requested funding to the Company. The Company's 
borrowings under these arrangements are typically on an overnight basis. The 
Company believes that if these banks were unable to provide funding as 
described above, a satisfactory alternative source of funding would be 
available to the Company.

   The Company also has Master Repurchase Agreements in place with various 
counterparties whereby each broker has agreed to make funds available to the 
Company at various rates in exchange for collateral consisting of marketable 
securities. The aggregate amount of these borrowing arrangements at June 30, 
1998 was $1.3 billion.

   The Company also has a borrowing arrangement with the FHLBB whereby the 
Company may borrow amounts determined by prescribed collateral levels and the 
amount of FHLBB stock held by the Company. The minimum amount of FHLBB stock 
held by the Company is required to be the greater of (i) 1% of its 
outstanding residential mortgage loan principal (including mortgage pool 
securities), (ii) 0.3% of total assets, and (iii) total advances from the 
FHLBB, divided by a leverage factor of 20. If the Company borrows under this 
arrangement, the Company is required to hold FHLBB stock equal to 5% of such 
outstanding advances. The aggregate amount of borrowing available to the 
Company under this arrangement at June 30, 1998 was $752 million.



                                       37

<PAGE>

Capital Resources

   Historically, the Company has financed its operations primarily through 
internally generated cash flows. The Company incurs capital expenditures for 
furniture, fixtures and miscellaneous equipment needs. The Company leases 
microcomputers through operating leases. The Company's capital expenditures 
have been incurred and its microcomputer leases entered into on an 
as-required basis. As a result, the Company's capital expenditures were 
$2,782,403 and $2,295,832 for the six months ended June 30, 1997 and 1998, 
respectively.

   Stockholders' equity at June 30, 1998 was $81,772,000, an increase of 
$6,059,000 or 8%, from $75,713,000 at December 31, 1997. The ratio of 
stockholders' equity to assets decreased to 4.97% at June 30, 1998 from 5.18% 
at December 31, 1997 due to the significant increase in assets.

   As described under "Recent and Pending Acquisitions", the Company intends 
to complete an equity offering of its Common Stock during the third quarter 
of 1998. The Company expects to generate gross proceeds of approximately 
$25-$30 million in the offering.

   The Federal Reserve Board has adopted a system using internationally 
consistent risk-based capital adequacy guidelines to evaluate the capital 
adequacy of banks and bank holding companies. Under the risk-based capital 
guidelines, different categories of assets are assigned different risk 
weights, based generally upon the perceived credit risk of the asset. These 
risk weights are multiplied by corresponding asset balances to determine a 
"risk-weighted" asset base. Certain off-balance sheet items, which previously 
were not expressly considered in capital adequacy computations, are added to 
the risk-weighted asset base by converting them to a balance sheet equivalent 
and assigning them the appropriate risk weight.

   Federal Reserve Board and FDIC guidelines require that banking 
organizations have a minimum ratio of total capital to risk-adjusted assets 
and off balance sheet items of 8.0%. Total capital is defined as the sum of 
"Tier I" and "Tier II" capital elements, with at least half of the total 
capital required to be Tier I. Tier I capital includes, with certain 
restrictions, the sum of common stockholders' equity, noncumulative perpetual 
preferred stock, a limited amount of cumulative perpetual preferred stock, 
and minority interests in consolidated subsidiaries, less certain intangible 
assets. Tier II capital includes, with certain limitations, subordinated debt 
meeting certain requirements, intermediate-term preferred stock, certain 
hybrid capital instruments, certain forms of perpetual preferred stock, as 
well as maturing capital instruments and general allowances for loan losses.

   The following table summarizes the Company's Tier I and total capital 
ratios at June 30, 1998:

<TABLE>
<CAPTION>
                                                                              June 30, 1998
                                                                      -------------------------------
                                                                         Amount           Ratio
                                                                      --------------  ---------------
                 <S>                                                   <C>            <C>
                                                                           (Dollars in thousands)

                 Tier I capital                                        $    105,511           22.87%
                 Tier I capital minimum requirement                          18,454            4.00%
                                                                      --------------  ---------------
                 Excess Tier I capital                                 $     87,057           18.87%
                                                                      --------------  ---------------
                                                                      --------------  ---------------
                 Total capital                                         $    105,611           22.89%
                 Total capital minimum requirement                           36,909            8.00%
                                                                      --------------  ---------------
                 Excess Total capital                                  $     68,702           14.89%
                                                                      --------------  ---------------
                                                                      --------------  ---------------

                 Risk adjusted assets, net of intangible assets        $    461,361
                                                                      --------------
                                                                      --------------
</TABLE>


                                     38

<PAGE>

The following table summarizes the Bank's Tier I and total capital ratios at
June 30, 1998:


<TABLE>
<CAPTION>

                                                                 June 30, 1998
                                                           ------------------------
                                                            Amount          Ratio
                                                           ---------       -------
<S>                                                        <C>             <C>
                                                            (Dollars in thousands)

Tier I capital                                              $102,688         22.33%
Tier I capital minimum requirement                            18,397          4.00%
                                                            --------         ------
Excess Tier I capital                                       $ 84,291         18.33%
                                                            --------         ------
                                                            --------         ------
Total capital                                               $102,788         22.35%
Total capital minimum requirement                             36,794          8.00%
                                                            --------         ------
Excess Total capital                                        $ 65,994         14.35%
                                                            --------         ------
                                                            --------         ------
Risk adjusted assets, net of intangible assets              $459,927
                                                            --------
                                                            --------
</TABLE>

   In addition to the risk-based capital guidelines, the Federal Reserve Board
and the FDIC use a "Leverage Ratio" as an additional tool to evaluate capital
adequacy. The Leverage Ratio is defined to be a company's Tier I capital divided
by its adjusted total assets. The Leverage Ratio adopted by the federal banking
agencies requires a ratio of 3.0% Tier I capital to adjusted average total
assets for top rated banking institutions. All other banking institutions will
be expected to maintain a Leverage Ratio of 4.0% to 5.0%. The computation of the
risk-based capital ratios and the Leverage Ratio requires that the capital of
the Company be reduced by most intangible assets. The Company's Leverage Ratio
at June 30, 1998 was 6.96%, which is in excess of regulatory requirements. The
Bank's Leverage Ratio at June 30, 1998 was 6.78%, which is also in excess of
regulatory requirements.



                                    39

<PAGE>

   The following tables present average balances, interest income and 
expense, and yields earned or paid on the major categories of assets and 
liabilities for the periods indicated:

<TABLE>
<CAPTION>

                                              Six Months Ended June 30, 1997                 Six Months Ended June 30, 1998
                                         ------------------------------------------    --------------------------------------------
                                            Average                      Average          Average                       Average
                                            Balance        Interest    Yield/Cost         Balance       Interest       Yield/Cost
                                         --------------  ------------- ------------    -------------- --------------  -------------
<S>                                      <C>             <C>           <C>             <C>             <C>            <C>
                                                          (Dollars in thousands)                         (Dollars in thousands)

Interest earning assets

    Federal funds sold and securities
       purchased under resale agreements   $    31,586   $        844        5.34%     $      24,961   $        719          5.76%

    Investment securities                      914,752         29,840        6.52%         1,317,464         39,716          6.03%
    Loans                                       57,915          1,340        4.63%            59,506          1,515          5.09%
                                         --------------  ------------- ------------    -------------- --------------  -------------

    Total interest earning assets            1,004,253         32,024        6.38%         1,401,931         41,950          5.98%
                                                         ------------- ------------                   --------------  -------------
    Allowance for loan losses                    (100)                                         (100)
    Noninterest-earning assets                  62,266                                        84,121
                                         --------------                                --------------

    Total assets                         $   1,066,419                                 $   1,485,952
                                         --------------                                --------------
                                         --------------                                --------------

Interest bearing liabilities

    Deposits:
       Demand                            $     121,003   $      2,965        4.90%    $      192,611   $      4,830          5.02%
       Savings                                 269,880          6,484        4.81%           331,432          7,572          4.57%
       Time                                        472             11        4.66%               870             23          5.29%
    Short term borrowings                      378,790          9,518        5.03%           630,376         16,609          5.27%
                                         --------------  ------------- ------------    -------------- --------------  -------------
    Total interest bearing liabilities         770,145         18,978        4.93%         1,155,289         29,034          5.03%
                                                         ------------- ------------                   --------------  -------------

    Noninterest bearing liabilities
       Demand deposits                         147,708                                       148,683
       Noninterest bearing time
          deposits                              51,298                                        65,000
       Other liabilities                        11,870                                        14,784
                                         --------------                                --------------
    Total liabilities                          981,021                                     1,383,756
    Trust preferred stock                       20,331                                        24,167
    Equity                                      65,067                                        78,029
                                         --------------                                --------------
    Total liabilities and equity         $   1,066,419                                 $   1,485,952
                                         --------------                                --------------
                                         --------------                                --------------

    Net interest income                                    $   13,046                                    $   12,916
                                                         -------------                                   ------------
                                                         -------------                                   ------------

    Net interest margin  (1)                                                 2.60%                                           1.84%
                                                                      ------------                                      ----------
                                                                      ------------                                      ----------
    Average interest rate spread  (2)                                        1.45%                                           0.95%
                                                                      ------------                                      ----------
                                                                      ------------                                      ----------

    Ratio of interest-earning assets to
       interest-bearing liabilities                                        130.40%                                         121.35%
                                                                      ------------                                      ----------
                                                                      ------------                                      ----------


</TABLE>

       1) Net interest income divided by total interest-earning assets.

       2) Yield on interest-earning assets less rate paid on interest-bearing
          liabilities.



                                       40

<PAGE>
PART II - OTHER INFORMATION

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

a.        The Annual Meeting of Stockholders was held on April 14, 1998.

b.        No information provided due to inapplicability of item.

c.        A vote was proposed to (1) elect Kevin J. Sheehan, James M. Oates
          and Thomas P. McDermott, current directors of the Company, as
          Class III Directors of the Company to serve for a three year term;
          (2) to consider and act upon a proposal to approve the Company's
          Amended and Restated 1995 Stock Plan; and (3) ratify the selection
          of Deloitte & Touche LLP as independent accountants for the Company
          for the fiscal year ending December 31, 1998.

The voting results are as follows:

<TABLE>
<CAPTION>

                                                      Votes           Votes         Broker
                   Matter             Votes For      Against        Withheld       Abstained
                  ------              ---------     --------        --------       ---------
     <S>                              <C>           <C>             <C>            <C>

     (1)    Kevin J. Sheehan          5,098,147         N/A           14,165          N/A
            James M. Oates            5,103,133         N/A            9,179          N/A
            Thomas P. McDermott       5,106,326         N/A            5,986          N/A

     (2)    Amended and Restated      2,245,849       1,831,939        N/A            154,186
            1995 Stock Plan

     (3)    Deloitte & Touche         5,101,833           2,179        N/A              8,300

</TABLE>

d.        No information provided due to inapplicability of item.

Item 6.   Exhibits and Reports on Form 8-K

   (a)    List of Exhibits.

                   Exhibit No.     Description

                   4.1             Amendment No. 1 to Rights Agreement by and 
                                   between the Company and First Chicago Trust 
                                   Company of New York, as Rights Agent, dated 
                                   June 17, 1998

                   11              Statement of Computation of Earnings per 
                                   Share (included herein on page 16)

                   27              Financial Data Schedules

   (b)    On July 20, 1998, the Company made a voluntary filing of a Current
          Report on Form 8-K with respect to the acquisition by Investors
          Bank & Trust Company of the domestic institutional trust and custody
          business of BankBoston, N.A.


                                      41

<PAGE>

                                   SIGNATURES

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

                                     INVESTORS FINANCIAL SERVICES CORP.

Date:  August 14, 1998               By:  /s/ Kevin J. Sheehan
                                          ---------------------------------
                                          Kevin J. Sheehan
                                          Chairman, President and Chief
                                          Executive Officer

                                     By:  /s/ Karen C. Keenan
                                          ----------------------------------
                                          Karen C. Keenan
                                          Chief Financial Officer
                                          (Principal Financial 
                                             and Accounting Officer)



                                    42