<PAGE>
 
================================================================================
    
                                   FORM 10-K/A 
                         AMENDMENT NO. 1 TO FORM 10-K      
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                         ACT OF 1934 [NO FEE REQUIRED]

                  For the fiscal year ended December 31, 1996
                                      OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                         ACT OF 1934 [NO FEE REQUIRED]

                     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 CLAREDON STREET
          P.O. BOX 9130                                    02117-9130  
       BOSTON, MASSACHUSETTS                               (Zip Code)       
(Address of principal executive offices)                            

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (617) 330-6700

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                          COMMON STOCK, $.01 PAR VALUE
                      CLASS A COMMON STOCK, $.01 PAR VALUE
                SERIES A JUNIOR PREFERRED STOCK PURCHASE RIGHTS

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No_____
                                              -----         

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate market value of Common Stock held by non-affiliates of the
registrant was $189,006,707 based on the last reported sale price of $34.25 on
The Nasdaq National Market on February 18, 1997 as reported by Nasdaq.

     As of February 18, 1997, there were 6,101,636 shares of Common Stock
outstanding and 342,676 shares of Class A Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     The registrant intends to file a definitive proxy statement pursuant to
regulation 14A within 120 days of the end of the fiscal year ended December 31,
1996.  Portions  of such proxy statement are incorporated by reference into Part
III of this report.
 
================================================================================
<PAGE>
 
           
     
     The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K as set
forth on the pages attached hereto:      



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required under this item is incorporated herein by
reference to the information in the section entitled "Management and Principal
Holders of Voting Securities" contained in the Company's definitive proxy
statement pursuant to Regulation 14A, which proxy statement will be filed with
the Securities and Exchange Commission not later than 120 days after the close
of the Company's fiscal year ended December 31, 1996.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required under this item is incorporated herein by
reference to the information in the section entitled "Certain Relationships and
Related Transactions" contained in the Company's definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1996.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a)  1. CONSOLIDATED FINANCIAL STATEMENTS.

          For the following consolidated financial information included herein,
          see Index on Page F-1:

          Report of Independent Accountants.
          Consolidated Balance Sheets as of December 31, 1995 and December 31,
          1996.
          Consolidated Statements of Income for the Years Ended October 31, 1994
          and 1995, for the Two-Month Period Ended December 31, 1995, and for
          the year ended December 31, 1996.

                                       2
<PAGE>
 
          Statements of Stockholders' Equity for the Years Ended October 31,
           1994 and 1995, for the Two-Month Period Ended December 31, 1995, and
           for the Year Ended December 31, 1996.
          Consolidated Statements of Cash Flows for the Years Ended October 31,
           1994 and 1995, for the Two-Month Period Ended December 31, 1995, and
           for the year ended December 31, 1996.
          Notes to Consolidated Financial Statements.
          
          2. FINANCIAL STATEMENT SCHEDULES.

          None.

          3. LIST OF EXHIBITS.

<TABLE> 
<CAPTION> 
EXHIBIT NO.  DESCRIPTION
<S>          <C>  
2.1(1)       Plan of Exchange of Common and Class A Stock of the Company for all
             outstanding stock of the Bank
3.1(1)       Certificate of Incorporation of the Company
3.2(1)       By-laws of the Company
4.1(1)       Specimen certificate representing the Common Stock
4.2(1)       Stockholder Rights Plan
5.1(1)       Opinion of Testa, Hurwitz & Thibeault, LLP
10.1(1) *    1995 Stock Plan
10.2(1)      Custodian Agreement among and between the Company, Eaton Vance
             Corp. and each investment company advised by Eaton Vance Corp.
             which adopted the Agreement dated December 17, 1990
10.3(1)      Transfer and Assumption Agreement between the Company and Bank of
             New York dated January 27, 1995 regarding the assignment of Merrill
             Lynch Unit Investment Trust administration service
10.4(1)      Information Technology Services Contract between the Company and
             Electronic Data Systems, Inc. dated September 24, 1990
10.5(1)      Third Party Hub and Spoke Processing License Agreement between the
             Company and Signature Financial Group, Inc. dated May 21, 1993
10.6(1)      Hub and Spoke Facilities Management Agreement between the Company
             and Signature Financial Group, Inc. dated May 21, 1993
10.7(1)      Loan Agreements with Landon Clay dated May 10, 1993 and October 6,
             1994
10.8(1) *    Description of the executive bonus arrangement
10.9(1) *    Employment contract between the Company and Kevin Sheehan
10.10(1) *   Employment contract between the Company and Michael Rogers
10.11(1) *   Employment contract between the Company and Edmund Maroney
10.12(1) *   Employment contract between the Company and Robert Mancuso
10.13(1)     Sublease Agreement, as amended, between the Company and the Bank of
             New England, N.A. dated May 25, 1990, for premises located at 89
             South Street, Boston, Massachusetts
10.14 *      1995 Non-Employee Director Stock Option Plan
10.15(2)     Information Technology Services Contract between the Company and
             Electronic Data Systems, Inc. dated September 20,1995,
10.16(2)     Lease Agreement between the Company and John Hancock Mutual Life
             Insurance Company, dated November 13, 1995, for the premises
             located at 200 Clarendon Street, Boston, Massachusetts.
10.17 *      Employment contract between the Company and Karen C. Keenan
10.18 *      1995 Employee Stock Purchase Plan
10.19        Amended and Restated Declaration of Trust among the Company and the
             Trustees named therein, dated January 31, 1997
10.20        Purchase Agreement among the Company, Investors Capital Trust I and
             Keefe, Bruyette & Woods, Inc., dated January 30, 1997 (Included in
             Exhibit 10.19)
</TABLE>

                                       3
<PAGE>
 
<TABLE>
<CAPTION>
EXHIBIT NO.  DESCRIPTION
<C>          <S>
10.21        Indenture between the Company and The Bank of New York, dated
             January 31, 1997
10.22        Registration Rights Agreement, among the Company, Investors Capital
             Trust I and Keefe, Bruyette & Woods, Inc., dated January 31, 1997
10.23        Common Securities Guarantee Agreement by the Company as Guarantor,
             dated January 31, 1997
10.24        Capital Securities Guarantee Agreement between the Company as
             Guarantor and The Bank of New York as Capital Securities Guarantee
             Trustee, dated January 31, 1997
21.1         Subsidiaries of the Company
    
23.1         Consent of Deloitte & Touche LLP      
24.1 **      Power of Attorney (See Page 56 of this Report)
</TABLE>

(1)  Incorporated herein by reference to the exhibits to the Company's
     Registration Statement on Form S-1 (File No. 33-95980).
(2)  Previously filed as an exhibit to Form 10-K for the fiscal year ended
     October 31, 1995.

*    Indicates a management contract or any compensatory plan, contract or
     arrangement.

     (b) REPORTS ON FORM 8-K.

     On January 27, 1997, the Company filed a Current Report on Form 8-K
     reporting the Company's financial results for the quarter and year ended
     December 31, 1996 and reporting the sale of capital securities described in
     Item 5 of this Report.

     (c)  EXHIBITS.

     The Company hereby files as part of this Form 10-K the exhibits listed in
     Item 14(a)(3) above. Exhibits which are incorporated herein by reference
     can be inspected and copied at the public reference facilities maintained
     by the Securities and Exchange Commission, 450 Fifth Street, N.W., Room
     1024, Washington, D.C., and at the Securities and Exchange Commission's
     regional offices at CitiCorp Center, 500 West Madison Street, Suite 1400,
     Chicago, IL 60661-2511 and Seven World Trade Center, Suite 1300, New York,
     NY 10048. Copies of such material can also be obtained from the Public
     Reference Section of the Securities and Exchange Commission, 450 Fifth
     Street, N.W., Washington, D.C. 29549, at prescribed rates.

     (d)  FINANCIAL STATEMENT SCHEDULES

     None.

                                       4
<PAGE>
 
SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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, in Boston,
Massachusetts on the 16th day of July, 1997.

                         INVESTORS FINANCIAL SERVICES CORP.

                         By:  /s/ Kevin J. Sheehan
                             ----------------------------------
                             Kevin J. Sheehan
                             President, Chief Executive Officer and Chairman of
                             the Board

         

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated and
on the 16th day of July, 1997.

Signature                          Title(s)
---------                          --------
    
           *                       President, Chief Executive Officer and
---------------------------                                                   
Kevin J. Sheehan                   Chairman of the Board (Principal Executive 
                                   Officer); Director                         
 
           *                       Executive Vice President
---------------------------
Michael F. Rogers
 
           *                       Chief Financial Officer (Principal Financial
---------------------------                                                  
Karen C. Keenan                    Officer and Principal Accounting Officer) 
 
           *                       Director
---------------------------
Robert B. Fraser
 
           *                       Director
---------------------------
Donald G. Friedl
 
           *                       Director
---------------------------
James M. Oates
 
           *                       Director
---------------------------
Phyllis S. Swersky
 
           *                       Director
---------------------------
Thomas P. McDermott
 
           *                       Director 
--------------------------- 
Frank B. Condon, Jr.        

By: /s/ Kevin J. Sheehan
   ------------------------
   Kevin J. Sheehan
   Attorney in Fact      


                                       5
<PAGE>
 
INVESTORS FINANCIAL SERVICES CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                  PAGE
                                                                                                  ----
<S>                                                                                               <C>
Report of Independent Accountants.............................................................    F-2 
                                                                                                      
Consolidated Balance Sheets as of December 31, 1995 and December 31,  1996....................    F-3 
                                                                                                  
Consolidated Statements of Income for the Years Ended October 31, 1994 and 1995, for the          
     Two-Month Period ended December 31, 1995 and for the Year Ended December 31, 1996........    F-4 
                                                                                                  
Consolidated Statements of Stockholders' Equity for the Year Ended October 31, 1995, for the      
     Two-Month Period ended December 31, 1995 and for the Year Ended December 31, 1996........    F-5 
                                                                                                  
Consolidated Statements of Cash Flows for the Years Ended October 31, 1994 and 1995, for the      
     Two-Month Period Ended December 31, 1995, and for the Year Ended December 31, 1996.......    F-6 
                                                                                                  
Notes to Consolidated Financial Statements....................................................    F-7 
</TABLE>

                                      F-1
<PAGE>
 
INDEPENDENT AUDITORS' REPORT


To the Stockholders and the Board of Directors of
 Investors Financial Services Corp.:

We have audited the accompanying consolidated balance sheets of Investors
Financial Services Corp., including its predecessor, Investors Bank & Trust
Company and its subsidiaries (collectively, the "Company"), as of December 31,
1995 and December 31, 1996 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the two years in the period
ended October 31, 1995, for the two-month period ended December 31, 1995 and for
the year ended December 31, 1996.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and December 31, 1996, and the results of their operations and their cash flows
for each of the two years in the period ended October 31, 1995, for the two-
month period ended December 31, 1995 and for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.

As described in Note 1 to the consolidated financial statements, in November
1995 Investors Bank & Trust Company became a wholly owned subsidiary of
Investors Financial Services Corp. as a result of the share exchange between
Investors Financial Services Corp. and shareholders of Investors Bank & Trust
Company.



Deloitte & Touche LLP

February 14, 1997
    
Boston, Massachusetts      
                                      F-2
<PAGE>
 
INVESTORS FINANCIAL SERVICES CORP.
 
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
ASSETS                                                           DECEMBER 31,    DECEMBER 31,
                                                                     1995            1996
<S>                                                              <C>             <C>
Cash and due from banks                                          $ 21,898,903    $ 19,226,453
Time deposits due from banks                                        1,000,000               -
Federal funds sold                                                 15,000,000     120,000,000
Securities held to maturity (approximate market values of
  $155,685,959 and $460,182,579 at December 31, 1995
  and December 31, 1996, respectively)                            154,123,901     460,009,923
Securities available for sale                                      90,819,293     271,120,964
Nonmarketable equity securities                                             -         967,400
Loans, less allowance for loan losses of $35,000 and $100,000
  at December 31, 1995 and December 31, 1996, respectively         22,864,216      66,236,889
Accrued interest and fees receivable                               10,440,758      16,366,171
Equipment and leasehold improvements, net                           3,525,581       5,243,974
Other assets                                                        2,763,661       5,289,873
                                                               --------------   -------------

TOTAL ASSETS                                                     $322,436,313    $964,461,647
                                                               ==============   =============
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
LIABILITIES:
Deposits:
  Demand                                                         $122,907,489    $264,914,614
  Savings                                                          21,085,503     276,602,295
  Time                                                             45,000,000      55,000,000
                                                               --------------   -------------
 
     Total deposits                                               188,992,992     596,516,909
 
 
Securities sold under repurchase agreements                        74,401,454     296,421,201
Other liabilities                                                   5,620,936       9,664,227
                                                               --------------   -------------
 
     Total liabilities                                            269,015,382     902,602,337
                                                               --------------   -------------
 
STOCKHOLDERS' EQUITY:
  Preferred stock                                                           -               -
  Class A common stock                                                  5,935           3,595
  Common stock                                                         58,505          60,848
  Surplus                                                          54,312,474      54,352,812
  Deferred compensation                                            (2,117,787)     (1,687,675)
  Retained earnings                                                   899,794       8,480,431
  Net unrealized gain on securities available for sale                262,010         649,299
                                                               --------------   -------------
 
     Total stockholders' equity                                    53,420,931      61,859,310
                                                               --------------   -------------
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                       $322,436,313    $964,461,647
                                                               ==============   =============
</TABLE> 
 
See notes to consolidated financial statements.

                                      F-3
<PAGE>
 
INVESTORS FINANCIAL SERVICES CORP.
 
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 31, 1994 AND 1995, THE TWO-MONTH PERIOD
ENDED DECEMBER 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1996 
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                                 TWO MONTHS ENDED                        
                                                                                    DECEMBER 31,            DECEMBER 31,  
                                           1994                      1995               1995                    1996      
<S>                               <C>                    <C>                    <C>                    <C>  
OPERATING REVENUE:                                                                                                       
Interest income:                                                                                                         
 Federal funds sold                     $      20,430            $    315,270          $     279,741        $   1,858,541
 Other short-term investments                  37,993                  58,114                 10,102                6,448
 Securities held to maturity                                                                                             
  and available for sale                    4,730,824               5,116,155              1,844,222           32,490,280
 Loans                                        859,005               1,202,029                229,690            2,322,158
                                  -------------------    --------------------   --------------------   ------------------ 
Total interest income                       5,648,252               6,691,568              2,363,755           36,677,427
                                  -------------------    --------------------   --------------------   ------------------ 
                                                                                                 
Interest expense:                                                                                                        
 Deposits                                     864,148                 720,395                286,945            9,271,675
 Securities sold under                                                                                                   
  repurchase agreements                             -                       -                 98,248            9,016,792 
 Federal funds purchased                            -                  81,957                  8,483              367,103
 Treasury, tax and loan                         
  account                                       6,143                  19,241                  4,423               12,464   
                                  -------------------    --------------------   --------------------   ------------------ 
     Total interest expense                   870,291                 821,593                398,099           18,668,034
                                  -------------------    --------------------   --------------------   ------------------ 
                                                                                                                         
Net interest income                         4,777,961               5,869,975              1,965,656           18,009,393
Provision for loan losses                           -                       -                      -               65,000
                                  -------------------    --------------------   --------------------   ------------------ 
Net interest income after                                                                                                
 provision for loan losses                  4,777,961               5,869,975              1,965,656           17,944,393 
                                                                                                                         
Noninterest income:                                                                                                      
 Asset administration fees                 42,422,555              48,412,551              7,988,056           56,075,625 
 Proceeds from assignment of UIT                                                                 
  servicing, net                                    -               2,572,298                      -                    -  
 Computer service fees                        552,407                 505,534                 83,424              482,275  
 Other operating income                        74,163                  72,029                 13,772               76,305  
 Net loss on securities                                                                                                    
  available for sale                                -                       -                      -               (2,488) 
                                  -------------------    --------------------   --------------------   ------------------  
                                                                                                                           
 Net operating revenue                     47,827,086              57,432,387             10,050,908           74,576,110  
                                                                                                                           
OPERATING EXPENSES                                                                                                         
 Compensation of officers                                                                                                  
  and employees                            23,162,729              27,213,593              4,957,575           32,148,445  
 Pension and other employee                                                                                                
  benefits                                  4,136,066               4,685,100                839,888            5,353,770  
 Occupancy                                  3,735,820               4,215,472                624,816            4,283,008  
 Equipment                                  4,292,523               4,828,811                807,931            5,585,704  
 Insurance                                  1,069,996               1,060,468                194,016              852,638  
 Subcustodian fees                          1,326,783               1,844,214                216,899            4,151,500  
 Depreciation and amortization              1,375,850               1,220,988                185,791            1,502,196  
 Professional fees                            955,341               1,516,720                202,006            2,362,909  
 Travel and sales promotion                   735,385                 837,136                122,682            1,157,718  
 Other operating expenses                   1,712,950               2,801,451                329,212            4,537,689  
                                  -------------------    --------------------   --------------------   ------------------  
                                                                                                                           
   Total operating expenses                42,503,443              50,223,953              8,480,816           61,935,577  
                                  -------------------    --------------------   --------------------   ------------------   
                                                                                                 
INCOME BEFORE INCOME TAXES                  5,323,643               7,208,434              1,570,092           12,640,533
                                                                                                                         
INCOME TAXES                                1,863,000               2,800,000                670,298            4,866,571
                                  -------------------    --------------------   --------------------   ------------------ 
                                                                                                                         
NET INCOME                             $    3,460,643            $  4,408,434         $     899,794         $   7,773,962
                                  ===================    ====================   ===================    ================== 
 
WEIGHTED AVERAGE SHARES OUTSTANDING                                                                             6,504,382
                                                                                                       ==================
 
EARNINGS PER SHARE                                                                                                  $1.20
                                                                                                       ==================
</TABLE> 
 
See notes to consolidated financial statements. 
 
                                      F-4
<PAGE>
 
INVESTORS FINANCIAL SERVICES CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED OCTOBER 31, 1995, THE TWO-MONTH PERIOD
ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31, 1996.
------------------------------------------------------------------------------- 

<TABLE> 
<CAPTION> 
                                                            CLASS A                                                             
                                                             COMMON           COMMON                                DEFERRED    
                                                             STOCK             STOCK             SURPLUS          COMPENSATION  
<S>                                                      <C>              <C>                <C>                  <C>           
BALANCE, NOVEMBER 1, 1994                                   $      -       $ 10,000,000       $           -       $         -   
                                                                                                                                
Net income                                                                                                                      
Cash dividend, $0.06 share                                                                                                      
                                                         ------------     -------------      ---------------      ------------- 
                                                                                                                                
BALANCE, OCTOBER 31, 1995                                   $      -       $ 10,000,000       $           -       $          -  
                                                         ============     =============      ===============      ============= 
                                                                                                                                
Effect of share exchange (Note 1)                           $  6,114       $     34,186       $  18,021,176       $          -  
Common stock issuance, net of costs of $3,829,062                  -             23,000          34,097,938                  -  
Issuance of restricted stock                                       -              1,140           2,193,360         (2,194,500) 
Conversion of Class A common stock                              (179)               179                   -                  -  
Amortization of deferred compensation                              -                  -                   -             76,713  
Net income                                                         -                  -                   -                  -  
Net unrealized gain on securities available for sale               -                  -                   -                  -  
                                                         ------------     -------------      ---------------      ------------- 
                                                                                                                                
BALANCE, DECEMBER 31, 1995                                     5,935            58,505           54,312,474         (2,117,787) 
                                                                                                                                
Adjustment to costs of stock issuance                              -                 -               35,193                  -  
Conversion of class A to common stock                         (2,340)            2,340                    -                  -  
Amortization of deferred compensation                              -                 -                    -            430,112  
Exercise of stock options                                          -                 3                5,145                  -  
Net income                                                         -                 -                    -                  -  
Cash dividend, $0.03 per share                                     -                 -                    -                  -  
Change in net unrealized gain on                                   -                 -                    -                  -  
  securities available for sale                                                                                                 
                                                         ------------     -------------      ---------------      ------------- 
                                                                                                                                
BALANCE, DECEMBER 31, 1996                                  $  3,595       $    60,848        $  54,352,812       $ (1,687,675) 
                                                         ============     =============      ===============      ============= 

<CAPTION>
                                                                                  NET                                 
                                                                               UNREALIZED                             
                                                                                GAIN ON                               
                                                                               INVESTMENT                             
                                                                               SECURITIES                             
                                                              RETAINED         AVAILABLE                              
                                                              EARNINGS         FOR SALE               TOTAL           
<S>                                                      <C>                <C>                 <C>                   
BALANCE, NOVEMBER 1, 1994                                 $ 3,713,042          $     -           $ 13,713,042         
                                                                                                                      
Net income                                                  4,408,434                               4,408,434         
Cash dividend, $0.06 share                                    (60,000)                                (60,000)        
                                                         -------------      --------------      --------------        
BALANCE, OCTOBER 31, 1995                                 $ 8,061,476          $     -           $ 18,061,476         
                                                         =============      ==============      ==============        
                                                                                                                      
Effect of share exchange (Note 1)                         $         -          $     -           $ 18,061,476         
Common stock issuance, net of costs of $3,829,062                   -                -             34,120,938         
Issuance of restricted stock                                        -                -                   -            
Conversion of Class A common stock                                  -                -                   -            
Amortization of deferred compensation                               -                -                 76,713         
Net income                                                    899,794                -                899,794         
Net unrealized gain on securities available for sale               -            262,010              262,010          
                                                         -------------      --------------      --------------        
                                                                                                                      
BALANCE, DECEMBER 31, 1995                                    899,794            262,010           53,420,931         
                                                                                                                      
Adjustment to costs of stock issuance                               -                -                 35,193         
Conversion of class A to common stock                               -                -                   -                 
Amortization of deferred compensation                               -                -                430,112         
Exercise of stock options                                           -                -                  5,148         
Net income                                                  7,773,962                -              7,773,962         
Cash dividend, $0.03 per share                               (193,325)               -               (193,325)        
Change in net unrealized gain on                                                                                      
  securities available for sale                                     -            387,289              387,289         
                                                         -------------      --------------      --------------        
BALANCE, DECEMBER 31, 1996                                $ 8,480,431        $   649,299         $ 61,859,310         
                                                         =============      ==============      ==============         
</TABLE> 
                     
See notes to consolidated financial statements

                                      F-5
<PAGE>
 
INVESTORS FINANCIAL SERVICES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS 
YEAR ENDED OCTOBER 31, 1994, AND 1995, THE TWO MONTH PERIOD ENDED DECEMBER 31, 
1995 AND THE YEAR ENDED DECEMBER 31, 1996.            
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
                                                    OCTOBER 31,        OCTOBER 31          DECEMBER 31         DECEMBER          
                                                      1994               1995                1995                1996          
<S>                                                 <C>                <C>                <C>                 <C>              
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                          
Net income                                            $ 3,460,643      $ 4,408,434        $    899,794        $  7,773,962     
Adjustments to reconcile net income to net cash                                                                                
  provided by operating activities:                                                                                            
Depreciation and amortization                           1,375,850        1,220,988             185,791           1,502,196     
Amortization of deferred compensation                     -                -                    76,713             430,112     
Provision for loan losses                                 -                -                   -                    65,000     
Amortization of premiums on securities, net of                                                                                 
  accretion of discounts                                1,300,037          792,574             205,071           2,521,119     
Loss on sale of securities available for sale             -                -                   -                     2,488     
Loss on disposal of fixed assets                          -                -                   -                    15,211      
Deferred income taxes                                    (127,000)        (469,000)             78,377           1,156,706     
Adjustment to carrying value of interest rate                                                                                   
 floor contracts                                          -              1,057,700             -                     -          
Changes in assets and liabilities:                                                                                               
     Accrued interest and fees receivable              (3,714,212)        (189,689)           (868,478)         (5,925,413)       
     Other assets                                       1,185,210         (639,592)            814,394          (3,568,354)       
     Other liabilities                                  1,589,835        1,074,563            (667,218)          3,670,535       
                                                    --------------    -------------    ----------------     ---------------     
          Total adjustments                             1,609,720        2,847,544            (175,350)           (130,400)      
                                                    --------------    -------------    ----------------     ---------------       
          Net cash provided by operating activities     5,070,363        7,255,978             724,444           7,643,562       
                                                    --------------    -------------    ----------------     ---------------       

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                          
Proceeds from maturities of securities                                                                                         
 available for sale                                       -                 -                  -                48,406,151          
Proceeds from maturities of securities held                                                                                    
 to maturity                                           16,264,293       18,404,529          12,865,343          39,691,309     
Proceeds from sale of securities available                                                                                     
 for sale                                                 -                -                   -                26,904,258         
Purchases of securities available for sale                -                -                   -              (243,550,740)       
Purchases of securities held to maturity              (25,636,094)     (40,936,504)       (147,559,658)       (359,516,797)         
Purchase of nonmarketable equity securities               -                -                   -                  (967,400)     
Net (increase) decrease in time deposits due                                                                                   
 from banks                                               -                (24,345)             24,345           1,000,000     
Net (increase) decrease in federal funds sold             -            (36,000,000)         21,000,000        (105,000,000)
Net (increase) decrease in loans                       (3,349,620)        (129,487)         (9,164,520)        (43,437,672)     
Purchases of equipment                                 (1,616,307)      (1,563,538)           (118,205)         (3,235,800)     
                                                    --------------    -------------    ----------------     ---------------       
          Net cash used for investing activities      (14,337,728)     (60,249,345)       (122,952,695)       (639,706,691)     
                                                    --------------    -------------    ----------------     ---------------      
                                                                                                                               
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                          
Net increase (decrease) in demand deposits            (32,657,559)      53,411,987         (39,453,616)        142,007,125     
Net increase in time and savings deposits              35,088,220          332,489          66,023,363         265,516,792     
Net increase in securities sold under                                                                                          
 repurchase agreements                                    -                -                74,401,454         222,019,746     
Proceeds from common stock                                -                -                37,950,000               -          
Costs of stock issuance                                   -                -                (3,829,062)             35,193     
Proceeds from exercise of stock options                   -                -                  -                      5,148       
Dividends paid                                            (60,000)         (60,000)           -                   (193,325)     
                                                    --------------    -------------    ----------------     ---------------       
          Net cash provided by financing activities     2,370,661       53,684,476         135,092,139         629,390,679     
                                                    --------------    -------------    ----------------     ---------------      

INCREASE (DECREASE) IN CASH AND DUE FROM BANKS         (6,896,704)         691,109          12,863,888          (2,672,450)         
                                                                                                     
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD           15,240,610        8,343,906           9,035,015          21,898,903         
                                                    --------------    -------------    ----------------     ---------------      
                                                                                                     
CASH AND DUE FROM BANKS, END OF PERIOD                $ 8,343,906      $ 9,035,015        $ 21,898,903        $ 19,226,453
                                                    ==============    =============    ================     ===============       
                                                                                                     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                    
Cash paid for interest                                $   807,000      $   898,000        $    197,750        $ 17,253,000          
                                                    ==============    =============    ================     ===============       
Cash paid for income taxes                            $ 2,136,000      $ 2,919,000        $    885,000        $  4,220,000          
                                                    ==============    =============    ================     ===============       
</TABLE> 

See notes to consolidated financial statements.

                                      F-6
<PAGE>
 
INVESTORS FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1994 AND 1995, THE TWO MONTH PERIOD ENDED DECEMBER 31,
1995 AND THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------

1.   DESCRIPTION OF BUSINESS

     Investors Financial Services Corp. ("IFSC") provides asset administration
     services for the financial services industry through its wholly owned
     subsidiary, Investors Bank & Trust Company (the "Bank"). The Bank provides
     domestic and global custody, multicurrency accounting, institutional
     transfer agency, performance measurement, foreign exchange, securities
     lending, and mutual fund administration 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 the Bank from the date of the share exchange discussed below and shall
     mean the Bank prior to that date.

     On November 8, 1995, the business operations of the Company were separated
     from its former parent, Eaton Vance Corp. ("EVC"), by means of a tax-free,
     pro rata distribution of EVC's ownership interest in the Company to the EVC
     stockholders (the "Spin-off Transaction"). Immediately prior to the Spin-
     off Transaction, all of the stockholders of the Bank exchanged their
     1,000,000 shares of the Bank's common stock for a combination of 3,418,573
     shares of Common Stock and 611,427 shares of Class A Common Stock ("Class A
     Stock") of a newly formed bank holding company formed for the purpose of
     facilitating the Spin-off Transaction. For financial reporting purposes,
     the exchange has been accounted for as if it occurred on November 1, 1995.
     Subsequent to the completion of the Spin-off Transaction, IFSC sold
     2,300,000 additional shares of its Common Stock in an initial public
     offering at an offering price of $16.50 per share. The net effect of this
     transaction was an increase in the Company's consolidated capital of
     approximately $34,000,000.

     In December 1995, the Company changed its fiscal year end from October 31
     to December 31.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION -  The consolidated financial statements include the
     accounts of the Company and its domestic and foreign subsidiaries.  All
     significant intercompany accounts and transactions have been eliminated.

     CUSTODY AND TRUST ASSETS -  Asset administration fees, including securities
     lending and foreign exchange services and computer services fees, are
     composed primarily of fee and fee-related income and are recorded on the
     accrual basis.

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

                                      F-7
<PAGE>
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     SECURITIES -  Effective November 1, 1994, the Company adopted Statement of
     Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
     Investments in Debt and Equity Securities." SFAS No. 115 requires
     investments in equity securities that have readily determinable fair values
     and all investments in debt securities to be classified into three
     categories as follows:

     .    Debt securities that the Company has the positive intent and ability
          to hold to maturity are classified as held to maturity and reported at
          amortized cost.

     .    Debt and equity securities that are bought and held principally for
          the purpose of selling them in the near term are classified as trading
          securities and reported at fair value, with unrealized gains and
          losses included in earnings.

     .    All other debt and equity securities are classified as available for
          sale and reported at fair value, with unrealized gains and losses
          excluded from earnings and reported in a separate component of
          stockholders' equity.

     At the adoption of SFAS No. 115, the Company classified its entire
     portfolio of securities as held-to-maturity based upon the Company's
     positive intent and ability to hold such securities to maturity. Factors
     considered in determining the Company's ability to hold such securities to
     maturity include the Company's historical experience, the maturity
     distribution of securities and the Company's access to additional deposits
     from custody and trust clients. The effect of adopting SFAS No. 115 was not
     significant.

     In connection with the initial adoption of the Financial Accounting
     Standards Board's ("FASB") Special Report, A Guide to Implementation of
     Statement 115 on Accounting for Certain Investments in Debt and Equity
     Securities, the Company reassessed the appropriateness of the
     classifications of all securities held as of December 31, 1995. As a result
     of this reassessment, the Company reclassified debt securities with a
     carrying value of $90,382,610 from Held to Maturity to Available for Sale
     on December 31, 1995. The net effect of this transfer was a $262,010
     increase to stockholders' equity, net of taxes.

     FAIR VALUE OF FINANCIAL INSTRUMENTS  - SFAS No. 107, "Disclosures About
     Fair Value of Financial Instruments," requires the disclosure of the
     estimated fair value of financial instruments, whether or not recognized in
     the Company's consolidated balance sheets, estimated using available market
     information or other appropriate valuation methodologies.

     The carrying amounts of cash and due from banks are a reasonable estimate
     of their fair value. The fair value of the Company's securities is
     estimated based on quoted market prices. Both loans (including commitments
     to lend) and deposits (including time deposits) bear interest at variable
     rates and are subject to periodic repricing. As such, the carrying amount
     of loans and deposits is a reasonable estimate of fair value. The fair
     value of the Company's interest rate contracts is estimated based on quoted
     market prices. The Company does not have any other significant financial
     instruments.

     LOANS - Interest income on loans is recorded on the accrual basis.  Losses
     on loans are provided for under the allowance method of accounting. The
     allowance is increased by provisions charged to operating expenses based on
     amounts management considers necessary to meet reasonably foreseeable
     losses on loans.

     EQUIPMENT AND LEASEHOLD IMPROVEMENTS  - Equipment and leasehold
     improvements are stated at cost, less accumulated depreciation and
     amortization. Depreciation and amortization are provided on the straight-
     line method over the estimated useful lives of the assets which range from
     three to seven years.

                                      F-8
<PAGE>
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     INCOME TAXES  - Income tax expense is based on estimated taxes payable or
     refundable on a tax return basis for the current year and the changes in
     deferred tax assets and liabilities during the year in accordance with SFAS
     No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities
     are established for temporary differences between the accounting basis and
     the tax basis of the Company's assets and liabilities at enacted tax rates
     expected to be in effect when the amounts related to such temporary
     differences are realized or settled.

     TRANSLATION OF FOREIGN CURRENCIES  - The functional currency of the
     Company's foreign subsidiaries is the U.S. dollar. Accordingly, gains and
     losses realized from the settlement of foreign currency transactions, which
     were not significant in the years ended October 31, 1994 and 1995, the two
     month period ended December 31, 1995, or the year ended December 31, 1996,
     are included in other operating expenses in the consolidated statements of
     income.

     DERIVATIVE FINANCIAL INSTRUMENTS  - Prior to the assignment of the unit
     investment trust servicing more fully described in Note 10, the Bank used
     derivative financial instruments in the form of interest rate floor
     contracts ("Floors"). These instruments were matched with fees on trust and
     custody assets that were based on current interest rates. Periodic cash
     payments were accrued on a settlement basis. The premiums associated with
     the instruments were amortized over their term until they were adjusted to
     market value in March 1995 in connection with the sale of the hedged assets
     as more fully described in Note 10.

     The Company also enters into interest rate swap agreements as discussed in
     Note 13 and foreign exchange contracts as discussed in Note 16. The Company
     implemented SFAS 119, "Disclosure About Derivative Financial Investments
     and Fair Value of Financial Instruments," in fiscal 1996. This standard
     requires expanded disclosure about amounts, nature and terms associated
     with the derivative financial instruments held. The adoption of SFAS 119
     did not have a significant impact on the Company's consolidated financial
     statements.

     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 enters into foreign exchange contracts with clients and
     simultaneously enters into a matched position with another bank. These
     contracts are subject to market value fluctuations in foreign currencies.
     Gains and losses from such fluctuations are netted and recorded as an
     adjustment of asset administration fees.

     STOCK-BASED COMPENSATION  - The Company accounts for stock-based
     compensation using the intrinsic value-based method of Accounting
     Principles Board Opinion No. 25, as allowed under SFAS No. 123, "Accounting
     for Stock-Based Compensation."

     EARNINGS PER SHARE  - Earnings per share are based on the weighted average
     number of shares outstanding during the period.

     NEW ACCOUNTING PRONOUNCEMENTS - "Extinguishments of Liabilities,"  SFAS No.
     125 establishes consistent accounting standards for transfers and servicing
     of financial assets and extinguishments of liabilities. SFAS No. 125
     provides consistent standards for distinguishing transfers of financial
     assets that are sales from transfers of financial assets that are secured
     borrowings based upon the existence of control. SFAS No. 125 is required to
     be adopted by the Company in 1997 and is not expected to have a material
     effect upon the Company's consolidated financial statements.

     RECLASSIFICATIONS  - Certain amounts in the prior periods' financial
     statements have been reclassified to conform to the current year's
     presentation.

                                      F-9
<PAGE>
 
3.   SECURITIES

     Carrying amounts and approximate market values of securities are summarized
     as follows as of December 31, 1995:

<TABLE>
<CAPTION>
                                CARRYING     UNREALIZED   UNREALIZED   APPROXIMATE
      HELD TO MATURITY            VALUE         GAINS       LOSSES    MARKET VALUE
<S>                           <C>            <C>          <C>         <C>
Mortgage-backed securities     $144,123,901   $1,562,732    $117,924   $145,568,709
Federal Agency securities        10,000,000      117,250           -     10,117,250
                               ------------   ----------    --------   ------------
 
Total                          $154,123,901   $1,679,982    $117,924   $155,685,959
                               ============   ==========    ========   ============
</TABLE> 


<TABLE> 
<CAPTION> 
                                 AMORTIZED    UNREALIZED   UNREALIZED    CARRYING
 AVAILABLE FOR SALE                COST          GAINS       LOSSES        VALUE

<S>                            <C>            <C>           <C>        <C>   
U.S. Treasury securities       $ 50,312,501   $  346,672    $  6,673   $ 50,652,500
Mortgage-backed securities       40,070,111      117,667      20,985     40,166,793
                               ------------   ----------    --------   ------------ 
 
Total                          $ 90,382,612   $  464,339    $ 27,658   $ 90,819,293
                               ============   ==========    ========   ============  
 </TABLE>

     Carrying amounts and approximate market values of securities are summarized
     as follows as of December 31, 1996:

<TABLE>
<CAPTION>
                                 CARRYING     UNREALIZED   UNREALIZED    APPROXIMATE                         
      HELD TO MATURITY             VALUE         GAINS       LOSSES     MARKET VALUE                         
<S>                            <C>            <C>          <C>          <C>                                   
Mortgage-backed securities      $414,664,590   $1,973,263   $1,750,168   $414,887,685                        
Federal Agency securities         37,517,495       49,546      224,972     37,342,069                        
Foreign government                 
 securities                        7,827,838      124,987            -      7,952,825 
                                ------------   ----------  ----------   ------------ 
                                                                                                             
Total                           $460,009,923   $2,147,796   $1,975,140   $460,182,579                        
                                ============   ==========   ==========   ============ 
</TABLE> 

<TABLE> 
<CAPTION>  
                                      AMORTIZED    UNREALIZED   UNREALIZED     CARRYING                     
 AVAILABLE FOR SALE                     COST          GAINS       LOSSES         VALUE                      
<S>                                  <C>            <C>          <C>          <C>    
U.S. Treasury securities             $ 40,107,999   $  151,304   $        3   $ 40,259,300                  
Mortgage-backed securities            229,930,801    1,086,092      155,229    230,861,664                  
                                  ---------------   ----------   ----------   ------------ 
                                                                                                            
Total                                $270,038,800   $1,237,396   $  155,232   $271,120,964                  
                                  ===============   ==========   ==========   ============
</TABLE> 

                                       F-10
<PAGE>
 
3.   SECURITIES (CONTINUED)

     Nonmarketable equity securities at December 31, 1996 consisted of $967,400
     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 1% of its outstanding residential mortgage
     loans or .3% of total assets, whichever is higher. If the Company borrows
     under this arrangement, the Company is required to hold FHLBB stock equal
     to 5% of such outstanding advances. If and when such 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, 1995             DECEMBER 31, 1996
                                CARRYING       APPROXIMATE     CARRYING         APPROXIMATE
      HELD TO MATURITY           VALUE         MARKET VALUE      VALUE          MARKET VALUE
<S>                           <C>              <C>            <C>                <C>
Due within one year           $          -     $          -   $ 19,052,213       $ 18,873,837
Due from one to five years      79,803,891       80,885,330    114,459,070        113,819,081
Due five years up to ten        
 years                          68,228,986       68,639,409    240,620,332        241,016,881
Due after ten years              6,091,024        6,161,220     85,878,308         86,472,780
                            --------------   --------------   ------------    ---------------
 
Total                         $154,123,901     $155,685,959   $460,009,923       $460,182,579
                            ==============   ==============   ============    ===============
</TABLE> 

<TABLE> 
<CAPTION> 
                                  DECEMBER 31,   1995               DECEMBER 31, 1996
                               AMORTIZED         CARRYING      AMORTIZED          CARRYING
AVAILABLE FOR SALE                COST            VALUE          COST               VALUE
<S>                           <C>              <C>            <C>                <C> 
Due within one year           $ 25,240,028     $ 25,263,000   $ 19,964,080       $ 20,046,800
Due from one to five years      58,395,211       58,791,503    213,758,992        214,525,641
Due five years up to ten         
 years                           6,747,373        6,764,790     36,315,728         36,548,523
                            --------------   --------------   ------------    ---------------
 
Total                         $ 90,382,612     $ 90,819,293   $270,038,800       $271,120,964
                            ==============   ==============   ============    ===============
</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.

Five securities available for sale were sold during the year ended December 31,
1996 resulting in losses totaling $19,178 and gains totaling $16,690.

The carrying value of securities pledged amounted to approximately $206,000,000
and $362,000,000 at December 31, 1995 and December 31, 1996, respectively.
Securities are pledged primarily to secure public funds and clearings with other
depository institutions.

                                     F-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
     advances pursuant to the terms of the custody agreements between the
     Company and those mutual fund clients to facilitate securities transactions
     and redemptions. The loans are generally collateralized with marketable
     securities. There were no impaired or nonperforming loans at December 31,
     1995 or December 31, 1996. In addition, there have been no loan charge-offs
     or recoveries during the years ended October 31, 1994 and 1995, the two
     months ended December 31, 1995 or the year ended December 31, 1996. Loans
     consisted of the following at December 31, 1995 and December 31, 1996:

<TABLE>
<CAPTION>
                                             DECEMBER 31,  DECEMBER 31,
                                                 1995          1996    
     <S>                                     <C>           <C>         
     Loans to individuals                     $12,610,018   $23,448,999
     Loans to not-for-profit institutions         289,198        12,500
     Loans to mutual funds                     10,000,000    42,875,390
                                              -----------   -----------
                                                                       
                                               22,899,216    66,336,889
                                                                       
     Less allowance for loan losses                35,000       100,000
                                              -----------   -----------
                                                                       
     Total                                    $22,864,216   $66,236,889
                                              ===========   =========== 
</TABLE>

     The Company had commitments to lend of approximately $1,708,000 and
     $37,127,518 at December 31, 1995 and December 31, 1996, respectively. The
     terms of these commitments are similar to the terms of outstanding loans.

     During 1996, the Company increased the allowance for loan losses by $65,000
     due to the overall increase in lending activities.

5.   EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     The major components of equipment and leasehold improvements are as follows
     at December 31, 1995 and December 31, 1996:

<TABLE> 
<CAPTION> 
                                                DECEMBER 31,       DECEMBER 31, 
                                                   1995               1996     
     <S>                                        <C>               <C>          
     Furniture, fixtures and equipment            $6,281,172        $8,516,450 
     Leasehold improvements                          761,929           744,395 
                                                ------------      ------------ 
                                                                               
     Total                                         7,043,101         9,260,845 
                                                                               
     Less accumulated depreciation and                                        
      amortization                                 3,517,520         4,016,871 
                                                ------------      ------------ 
                                                                               
     Equipment and leasehold improvements, net    $3,525,581        $5,243,974 
                                                ============      ============ 
</TABLE>

                                     F-12
<PAGE>
 
6.   DEPOSITS

     Time deposits at December 31, 1995 and December 31, 1996 include
     noninterest-bearing amounts of approximately $45,000,000 and $55,000,000,
     respectively.

     All time deposits had a minimum balance of $100,000 and a maturity of less
     than three months at December 31, 1995 and December 31, 1996.

7.   REPURCHASE AGREEMENTS

     The Company enters into repurchase agreements whereby securities are sold
     by the Company under agreements to repurchase. The Company had liabilities
     under these agreements of $74,401,454 and $ 296,421,201 at December 31,
     1995 and December 31, 1996 respectively. The interest rate on the
     outstanding agreements at December 31, 1995 ranged from 5.5% to 6.0% and
     all agreements matured on January 2, 1996. The interest rate on the
     outstanding agreements at December 31, 1996 was 5.91% and all agreements
     matured by January 2, 1997. The following securities were pledged under
     these agreements at December 31, 1995 and December 31, 1996:

<TABLE>
<CAPTION>
                                      DECEMBER 31, 1995              DECEMBER 31, 1996       
                                    CARRYING    APPROXIMATE        CARRYING      APPROXIMATE 
                                     VALUE      MARKET VALUE         VALUE      MARKET VALUE 
     <S>                          <C>           <C>              <C>            <C>          
     U.S. Treasury securities      $29,345,800   $29,345,800      $ 37,249,940   $ 37,249,940
     Federal Agency securities               -             -        25,000,000     24,803,950
     Mortgage-backed                                                                         
      securities                    47,211,518    47,254,137       245,689,672    246,777,873
                                  ------------   -----------      ------------   ------------
                                                                                             
     Total                         $76,557,318   $76,599,937      $307,939,612   $308,831,763
                                  ============   ===========      ============   ============ 
</TABLE>                                                        

     The amount outstanding at December 31, 1996 was the highest amount
     outstanding at any month end during the year ended December 31, 1996. The
     average balance during the year ended December 31, 1996 was $180,181,000.

8.   INCOME TAXES

     The components of income tax expenses are as follows for the years ended
     October 31, 1994 and 1995, the two-month period ended December 31, 1995,
     and the year ended December 31, 1996:

<TABLE>
<CAPTION>
                      OCTOBER 31,  OCTOBER 31,   DECEMBER 31,  DECEMBER 31,
                         1994        1995          1995          1996     
     <S>             <C>           <C>           <C>           <C>        
     Current:                                                             
       Federal       $1,829,000    $2,781,000       $445,480    $3,593,391 
       State            161,000       484,000        139,429       181,416 
       Foreign                -         4,000          7,012       193,251 
                     ----------    ----------       --------    ---------- 
                      1,990,000     3,269,000        591,921     3,968,058 
                     ==========    ==========       ========    ========== 
                                                                          
     Deferred:                                                            
       Federal           (7,000)     (391,000)        50,538       619,357 
       State             (3,000)     (154,000)        17,580       240,861 
       Foreign         (117,000)       76,000         10,259        38,295 
                     ----------    ----------       --------    ---------- 
                       (127,000)     (469,000)        78,377       898,513 
                     ==========    ==========       ========    ========== 
                                                                          
     Total income                                                         
      taxes          $1,863,000    $2,800,000       $670,298    $4,866,571
                     ==========    ==========       ========    ========== 
</TABLE> 

                                     F-13
<PAGE>
 

8.   INCOME TAXES (CONTINUED)

     Differences between the effective income tax rate and the federal statutory
     rates are as follows for the years ended October 31, 1994 and 1995, the 
     two-month period ended December 31, 1995, and the year ended December 31,
     1996:

<TABLE>
<CAPTION>
                                                        OCTOBER 31,   OCTOBER 31,   DECEMBER 31,   DECEMBER 31,  
                                                            1994          1995          1995           1996      
       <S>                                              <C>           <C>           <C>            <C>           
       Federal statutory rate                               34.0%         34.0%          34.0%          35.0%    
       State income tax rate, net of federal benefit         2.0           3.0            6.6            2.2     
       Foreign income taxes with different rates            (1.5)          0.7            1.1            1.2     
       Other                                                 0.5           1.1            1.0            0.1     
                                                        --------      --------      ---------      ----------    
       Effective tax rate                                   35.0%         38.8%          42.7%          38.5%    
       </TABLE>                                      

     The tax effects of temporary differences that give rise to significant
     portions of deferred tax assets and liabilities consist of the following at
     October 31, 1994, December 31, 1995, and December 31, 1996:

<TABLE> 
<CAPTION>
                                           OCTOBER 31,   DECEMBER 31,   DECEMBER 31,     
                                               1995          1995           1996         
       <S>                                   <C>           <C>            <C>                
       Deferred tax assets:                                                                  
         Employee benefit plans               $1,060,000     $1,012,922      $ 933,216       
         Foreign operating losses                 54,000         38,295              -       
         Other                                    18,000          9,810         37,562       
                                              ----------    -----------    -----------       
                                               1,132,000      1,061,027        970,778       
                                                                                                  
       Deferred tax liabilities:                                                             
         Prepaid insurance                             -              -       (620,979)      
         Securities available for sale                 -       (174,673)      (432,866)      
         Unearned compensation                         -              -       (183,175)      
         Depreciation and amortization           (95,000)      (102,404)      (106,514)      
                                              ----------    -----------    -----------       
       Net deferred tax asset (liability)     $1,037,000     $  783,950      $(372,756)      
                                              ==========    ===========    ===========       
</TABLE>

     Net deferred tax assets are reported as a component of other assets in the
     1995 consolidated balance sheets. Net deferred tax liabilities are reported
     as a component of other liabilities in the 1996 consolidated balance sheet.

                                      F-14
<PAGE>
 
9.   STOCKHOLDERS' EQUITY

     COMMON STOCK - On May 27, 1994, the Bank's Board of Directors approved a
     reduction in the par value of the Company's common stock from $100 per
     share to $10 per share, and a 100-for-1 stock split which caused the number
     of shares of common stock authorized, issued and outstanding to increase
     from 10,000 shares to 1,000,000 shares. The stock split resulted in a
     $9,000,000 increase in common stock, a $1,000,000 decrease in surplus and
     an $8,000,000 decrease in retained earnings. There were no other changes in
     authorized, issued or outstanding common stock for any period presented
     prior to the Spin-off Transaction.

     IFSC has authorized 1,000,000 shares of Preferred Stock, 650,000 shares of
     Class A Common Stock and 20,000,000 shares of Common Stock, all with a par
     value of $.01 per share. At December 31, 1995 and December 31, 1996, there
     were no preferred shares issued or outstanding. There were 593,500 and
     359,545 shares of Class A Common Stock and 5,850,500 and 6,084,767 Common
     Stock issued and outstanding at December 31, 1995 and December 31, 1996,
     respectively. The Common Stock and Class A Common Stock are identical
     except that the Class A Common Stock has ten votes per share and
     automatically converts into Common Stock upon transfer and under certain
     other circumstances.

     STOCK OPTIONS - The Company has two stock option plans, the 1995 Stock Plan
     and the 1995 Non-Employee Director Stock Option Plan.

     Under the terms of the 1995 Stock Plan, the Company may grant options to
     purchase up to a maximum of 560,000 shares of Common Stock to certain
     employees, consultants, directors and officers. The options may be awarded
     as incentive stock options (employees only), nonqualified stock options,
     stock awards or opportunities to make direct purchases of stock.

     Under the terms of the 1995 Non-Employee Director Stock Option Plan, the
     Company may grant options to non-employee directors to purchase up to a
     maximum of 40,000 shares of Common Stock. Options to purchase 2,500 shares
     of Common Stock were awarded at the date of initial public offering to each
     director. Subsequently, any director elected or appointed after such date
     will receive an automatic initial grant of options to purchase 2,500 shares
     upon becoming a director. Thereafter, each director will receive 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, in April 1996 the Company's stockholders approved an
     amendment to the 1995 Non-Employee Director Plan that will allow non-
     employee directors to 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.

     The exercise price of options under the 1995 Non-Employee Director Stock
     Option Plan and the incentive options under the 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 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.

     In November 1995, the Company granted 114,000 shares 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. The Company has recorded deferred
     compensation of $2,117,787 and $1,687,675 at December 31, 1995 and December
     31, 1996, respectively, pursuant to these grants.

                                      F-15
<PAGE>
 
9.   STOCKHOLDERS' EQUITY (CONTINUED)

     A summary of option activity under all plans is as follows:

<TABLE>
<CAPTION>
                                         NUMBER OF      EXERCISE PRICE    
                                           SHARES          PER SHARE      
                                                                          
     <S>                               <C>             <C>                
     Outstanding at December 31, 1995      211,500     $           16.50  
     Granted                               141,150     $22.375 - $26.125  
     Exercised                                (312)    $           16.50  
     Expired                                (7,188)    $           16.50  
                                       -----------                        
                                                                          
     Outstanding at December 31, 1996      345,150     $ 16.50 - $26.125  
                                       -----------                        
                                                                          
     Exercisable at December 31, 1996       60,489                        
                                       -----------                         
</TABLE>

     EMPLOYEE STOCK-BASED COMPENSATION - With respect to employee stock-based
     compensation, the Company has adopted the disclosure-only requirements of
     SFAS No. 123. Accordingly, no compensation cost has been recognized in the
     accompanying consolidated financial statements for employee stock-based
     compensation awarded under employee stock option plans. If compensation
     cost had been determined for awards granted commencing November 8, 1995
     under the Company's employee stock option plans based on the fair value of
     the awards at the date of grant in accordance with the provisions of SFAS
     No. 123, the Company's net income and earnings per share for the year ended
     December 31, 1996 would have decreased to the pro forma amounts indicated
     below:

<TABLE> 
          <S>                                         <C>            
          Net income - as reported                    $7,773,962     
          Net income - pro forma                       7,502,714     
          Earnings per share - as reported                  1.20     
          Earnings per share - pro forma                    1.16      
</TABLE>

     The pro forma amounts do not include any adjustment for compensation
     expense that would have been recorded in the current fiscal year for
     nonemployee stock-based awards made on or prior to December 15, 1995.
     Accordingly, the pro forma disclosures are not likely to be representative
     of the effects on reported net income for future years.

     The fair value of each option grant is estimated on the date of grant using
     the Black-Scholes option-pricing model with an assumed risk-free interest
     rate of 6.25%, an expected life of five years, an expected volatility of
     20%, and assumes nominal dividends will be paid.

                                      F-16
<PAGE>
 
10.  PROCEEDS FROM ASSIGNMENT OF UNIT INVESTMENT TRUST SERVICING, NET

     On March 1, 1995, the Company recognized a net gain of $2,572,298 of
     noninterest income resulting from the assignment to another company of the
     rights to service approximately $5.0 billion of unit investment trust
     assets. In connection with the assignment, the Company adjusted to market
     value interest rate floors with a notional amount of $80,000,000, and the
     resulting loss of $1,057,700 is reported net of the cash proceeds from the
     assignment of unit investment trust servicing. These interest rate floors
     had previously been designated as hedges of fees from the unit investment
     trusts (see Note 13).

11.  EMPLOYEE BENEFIT PLANS

     PENSION PLAN - The Company has a trusteed, noncontributory, qualified
     defined benefit pension plan covering substantially all of its employees
     who were hired before January 1, 1997. The benefits are based on years of
     service and the employee's compensation during employment. The Company's
     funding policy is to contribute annually the maximum amount which can be
     deducted for federal income tax purposes. Contributions are intended to
     provide not only for benefits attributed to service to date but also for
     benefits expected to be earned in the future.

     The Company established a supplemental retirement plan in 1994 that covers
     certain employees and pays benefits that supplements any benefits paid
     under the qualified plan. Benefits under the supplemental plan are
     generally based on compensation not includable in the calculation of
     benefits to be paid under the qualified plan. The total cost of this plan
     to the Company was $41,148, $86,563, $6,827 and $36,960 in the years ended
     October 31, 1994 and 1995, the two-month period ended December 31, 1995,
     and the year ended December 31, 1996, respectively.

     The following table sets forth the funded status and accrued pension cost
     for the Company's pension and supplemental retirement plans.

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,         DECEMBER 31,   
                                                                           1995                 1996       
     <S>                                                             <C>                  <C>              
     Actuarial present value of benefit obligations:                                                       
       Accumulated benefit obligations, including vested benefits                                          
        of $4,600,000 and $3,746,000 for December 31, 1995 and                                             
        1996, respectively                                              $ 4,918,000          $ 4,109,000   
                                                                     ===============      ==============   
                                                                                                           
     Projected benefit obligations for services rendered to date        $ 7,995,000          $ 6,885,000   
     Plan assets at fair value, primarily listed stocks and U.S.                                           
        government obligations                                            5,625,000            6,213,000   
                                                                     ---------------      --------------   
                                                                                                           
     Projected benefit obligations in excess of assets                   (2,370,000)            (672,000)  
     Unrecognized net gain from past experience different from                                             
        that assumed and effects of changes in assumptions                 (358,000)          (1,075,000)  
     Prior service cost not yet recognized in periodic pension cost         267,000              238,000   
     Unrecognized net (asset) liability                                     562,000             (378,000)  
                                                                     ---------------      --------------   
                                                                                                           
     Accrued pension cost                                               $(1,899,000)         $(1,887,000)  
                                                                     ===============      ==============    
</TABLE> 

                                      F-17
<PAGE>
 
11.  EMPLOYEE BENEFIT PLANS (CONTINUED)

     Net pension cost included the following components for the years ended
     October 31, 1994 and 1995, the two-month period ended December 31, 1995 and
     the year ended December 31, 1996:

<TABLE>
<CAPTION>
                                                       OCTOBER 31,   OCTOBER 31,   DECEMBER 31,      DECEMBER 31,
                                                           1994          1995          1995             1996     
                                                                                                                 
     <S>                                             <C>            <C>             <C>              <C>         
     Service cost - benefits earned during the           $ 559,000      $ 618,000       $123,000     $   848,000 
      period                                                                                                     
     Interest cost on projected benefit obligations        400,000        425,000         86,000         520,000 
     Return on plan assets                                (389,000)      (420,000)       (73,000)     (1,013,000)
     Net amortization and deferral                          (5,000)        (5,000)         1,000         508,000 
                                                     -------------  -------------   ------------     ----------- 
                                                                                                                 
     Net periodic pension cost                           $ 565,000      $ 618,000       $137,000     $   863,000 
                                                     =============  =============   ============     ===========  
</TABLE> 
 

     The weighted average discount rate and the rate of increase in future
     compensation levels used in determining the actuarial present value of the
     projected benefit obligations were as follows:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,             DECEMBER 31,   
                                                           1995                     1996       
                                                                                               
     <S>                                               <C>                      <C>            
     Weighted average discount rate                             7.5%                     7.5%  
     Rate of increase in future compensation levels             5.0                      5.0   
     Long-term rate of return on plan assets                    8.5                      8.5    
</TABLE> 
 
     EMPLOYEE SAVINGS PLAN - The Company sponsors a qualified defined
     contribution employee savings plan covering substantially all employees who
     elect to participate. The Company matches employee contributions to the
     plan up to specified amounts. The total cost of this plan to the Company
     was $164,000, $222,000, $36,000 and $208,000 in the years ended October 31,
     1994 and 1995, the two-month period ended December 31, 1995, and the year
     ended December 31, 1996, respectively.

12.  RELATED-PARTY TRANSACTIONS

     As a result of the Spin-off Transaction described in Note 1, transactions
     between the Company and EVC are no longer considered related-party
     transactions. However, prior to the Spin-off Transaction, the Company
     entered into various transactions with EVC and a group of mutual funds
     sponsored by EVC. The following is a summary of such related-party
     transactions for the years ended October 31, 1994 and 1995:

<TABLE>
<CAPTION>
                                                                                            OCTOBER 31,        OCTOBER 31,   
                                                                                               1994               1995       
                                                                                                                             
     <S>                                                                                    <C>                <C>           
     Asset administration fee income                                                         $8,565,000         $8,355,000   
     Computer service fee income                                                                552,000            506,000   
     Occupancy expense                                                                          344,000            260,000    
</TABLE> 
 
     The aggregate of the above fees exceeds 10% of interest income and non-
     interest income.

                                      F-18
<PAGE>
 
12.  RELATED-PARTY TRANSACTIONS (CONTINUED)

     In addition, EVC and its group of mutual funds had the following amounts
     outstanding with the Company at October 31, 1995:

<TABLE>
     <S>                           <C>          
     Fees receivable               $    308,000 
     Deposits                       102,869,000  
</TABLE> 
 
     The Company also makes loans to officers of EVC and other related parties.
     Such loans are made in the ordinary course of business and on the same
     terms and conditions prevailing at the time for comparable transactions.
     The following is a summary of loans to related parties during the years
     ended October 31, 1994 and 1995.

<TABLE>
<CAPTION>
     <S>                                                    <C>           
     Balance at October 31, 1993                             $1,261,000   
       Loans made/advanced                                      507,000   
       Repayments                                              (135,000)  
                                                            -----------   
                                                                          
     Balance at October 31, 1994                              1,633,000   
       Loans made/advanced                                       55,000   
       Repayments                                               (55,000)  
                                                            -----------   
                                                                          
     Balance at October 31, 1995                             $1,633,000   
                                                            ===========    
</TABLE> 

13.  OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

     LINES OF CREDIT - At December 31, 1996, the Company had commitments to
     individuals under collateralized open lines of credit totaling $74,743,700,
     against which $37,616,182 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 - The following table summarizes the contractual or
     notional amounts of derivative financial instruments held by the Company at
     December 31, 1996:

<TABLE>
<CAPTION>
                               DECEMBER 31,                 DECEMBER 31,   
                                  1996                         1995       
     <S>                       <C>                          <C>            
     Interest Rate Contracts:  
       Swap agreements           $180,000,000                     -   
       Floor contracts             30,000,000                 80,000,000     
</TABLE>

     Interest rate contracts involve an agreement with a counterparty to
     exchange cash flows based on an underlying interest rate index. An interest
     rate floor is a contract purchased from a counterparty which specifies a
     minimum interest rate for the specified period of time. A swap agreement
     involves 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 one party may default on
     its contractual obligation. Credit risk is limited to the posititve market
     value of the derivative financial instrument, which is significantly less
     than the notional value. During 1996, the Company entered into agreements
     to assume fixed-rate interest payments in exchange for variable market-
     indexed interest payments. The original terms range from 12 to 18 months.
     The weighted-average fixed-payment rates were 5.74 percent at December 31,
     1996. Variable-interest payments received are indexed to 1 month LIBOR. At
     December 31, 1996, the weighted-average rate of variable market-indexed
     interest payment obligations to the Bank was 5.61 percent. The effect of
     these agreements was to lengthen short-term variable-rate liabilities into
     longer-term fixed-rate liabilities. These contracts had no carrying value
     and the market value was approximately ($112,000) at December 31, 1996.

                                      F-19
<PAGE>
 
14.  COMMITMENTS AND CONTINGENCIES

     RESTRICTIONS ON CASH BALANCES - The Company is required to maintain certain
     average cash reserve balances with the Federal Reserve Bank. The reserve
     balance requirement as of December 31, 1996 was $22,170,000. In addition,
     other cash balances in the amount of $1,391,679 were pledged to secure
     clearings with a depository institution as of December 31, 1996.

     LEASE COMMITMENTS  -  Minimum future commitments on noncancelable operating
     leases at December 31, 1996 were as follows:

<TABLE>
<CAPTION>
                                                         Bank                   
          Fiscal Year Ending                            Premises     Equipment  

          <S>                                          <C>           <C>
             1997                                      $ 4,014,746   $1,043,538 
             1998                                        4,252,481      751,090 
             1999                                        4,252,481      416,208 
             2000                                        4,252,481            - 
             2001 and beyond                            26,963,921            -
</TABLE>

     Total rent expense was $4,604,000, $5,511,000, $843,000 and $4,129,000 for
     the years ended October 31, 1994 and 1995, the two months ended December
     31, 1995, and the year ended December 31, 1996, 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 agrees to
     pay minimum annual charges of $368,970, $387,214, $406,788, $427,119, and
     $35,735 in the years ended December 31, 1997, 1998, 1999, 2000, and 2001,
     respectively. These minimum charges can increase due to certain usage
     thresholds. Service expense under this contract was $239,597 for the year
     ended December 31, 1996.

     CONTINGENCIES - The Company provides domestic and global custody,
     multicurrency accounting, institutional transfer agency, performance
     measurement, foreign exchange, securities lending and mutual fund
     administration 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 December 31, 1996 that are material to the
     consolidated financial position or results of operations of the Company.

                                      F-20
<PAGE>
 
15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying value and estimated fair value of financial instruments are as
     follows at December 31, 1995  and 1996 (in thousands):

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 1995          DECEMBER 31, 1996  
                                                      CARRYING    FAIR          CARRYING     FAIR   
                                                       AMOUNT    VALUE           AMOUNT     VALUE   

     <S>                                              <C>       <C>             <C>       <C> 
     On-balance sheet amounts:                                                                      
       Cash and due from banks                        $ 21,899  $ 21,899        $ 19,226  $  19,226 
       Time deposits due from banks                      1,000     1,000               -          - 
       Federal funds sold                               15,000    15,000         120,000    120,000 
       Securities held to maturity                     154,124   155,686         460,010    460,183 
       Securities available for sale                    90,819    90,819         271,121    271,121 
       Loans                                            22,864    22,864          66,237     66,237 
       Deposits                                        188,993   188,993         596,517    596,517 
                                                                                                    
     Off-balance sheet amounts:                                                                     
       Commitments to lend ($1,708 and                                                              
          $37,127 at December 31, 1995 and 1996)             -     1,708               -     37,127 
       Interest rate floor contracts                                                                
          (notional amounts of $80,000 and                                                          
          $30,000 at December 31, 1995 and 1996)             -         -               -          - 
       Interest rate swap agreements                                                                
          (notional amounts of $0 and $180,000                                                      
           at December 31, 1995 and 1996)                    -         -               -   (112,160)
     Foreign exchange contracts                                                                     
          (notional amounts of $108,372 and                                                         
           $114,302 at December 31, 1995 and 1996)           -         -               -          -  
</TABLE>

     The fair value estimates presented herein are based on pertinent
     information available to management as of December 31, 1995 and 1996.
     Although management is not aware of any factors that would significantly
     affect the estimated fair value amounts, such amounts have not been
     significantly revalued for purposes of these consolidated financial
     statements since those dates and therefore, current estimates of fair value
     may differ significantly from the amounts presented herein.

                                      F-21
<PAGE>
 
16.  FOREIGN EXCHANGE CONTRACTS

     A summary of foreign exchange contracts outstanding at December 31, 1995
     and December 31, 1996 is as follows (in thousands):

<TABLE>
<CAPTION>
                                 DECEMBER 31, 1995                         DECEMBER 31, 1996    
                        ---------------------------------         -------------------------------
                                               UNREALIZED                              UNREALIZED  
CURRENCY                  PURCHASES   SALES    GAIN/LOSS          PURCHASES   SALES    GAIN/LOSS   
                                                                                                   
<S>                       <C>        <C>       <C>                <C>        <C>       <C>         
Japan (Yen)                 $46,211   $46,211           -           $40,828   $40,828           -  
Malaysia (Ringgit)              505       505           -             6,009     6,009           -  
Germany (Mark)                  955       955           -             2,118     2,118           -  
United Kingdom (Pound)          111       111           -             1,873     1,873           -  
Hong Kong (Dollar)            1,991     1,991           -             1,807     1,807           -  
France (Franc)                  859       859           -             1,093     1,093           -  
Netherlands (Guilder)         1,797     1,797           -               918       918           -  
Belgium (Franc)                 715       715           -               450       450           -  
Thailand (Baht)                   -         -           -               382       382           -  
Singapore (Dollar)                -         -           -               331       331           -  
Other currencies              1,042     1,042           -             1,337     1,337           -  
                        ----------------------------------       --------------------------------  
                                                                                                   
                            $54,186   $54,186           -           $57,146   $57,146           -  
                        ==================================       ================================   
</TABLE>

     The maturity of contracts outstanding as of December 31, 1996 is as
follows:

<TABLE>
<CAPTION>
          Maturity                      Purchases                 Sales    
          <S>                           <C>                      <C>       
                                                                           
          January 1997                    $51,246                $51,246  
          February 1997                     5,770                  5,770  
          March 1997                          130                    130   
</TABLE>

17.  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 consolidated 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 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 Bank to maintain minimum amounts and ratios (set forth in the
     table below) of total and Tier 1 capital (as defined in the regulations) to
     risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
     average assets (as defined). Management believes, as of December 31, 1996,
     that the Bank meets all capital adequacy requirements to which it is
     subject.

                                      F-22
<PAGE>
 
     As of December 21, 1996, the most recent notification from the Federal
     Deposit Insurance Corporation categorized the Bank as well capitalized
     under the regulatory framework for prompt corrective action. To be
     categorized as well capitalized the Bank must maintain minimum total risk-
     based, Tier I risk based, and Tier I leverage ratios as set forth in the
     table. There are no conditions or events since that notification that
     management believes have changed the institution's category. The following
     table presents the capital ratios for the Bank. The capital ratios for the
     Company are the same as the capital ratios for the Bank.

<TABLE>
<CAPTION>
                                                                                                  To Be Well
                                                                     Minimum                  Capitalized Under
                                                                   For Capital                  Prompt Corrective
                                   Actual                        Adequacy Purposes:             Action Provisions:
                           ------------------------         -------------------------      --------------------------
                               Amount        Ratio           Amount          Ratio            Amount         Ratio
                           -------------   ---------        ----------      ---------      ------------   -----------
<S>                        <C>             <C>              <C>             <C>            <C>            <C> 
As of December 31, 1996:
 Total Capital
  (to Risk Weighted Assets)  $60,818,485     24.71%         $19,691,528      8.00%         $24,614,410        10.00%
 Tier I Capital                                                                                               
  (to Risk Weighted Assets)  $60,718,485     24.67%         $ 9,845,764      4.00%         $14,768,646         6.00%
 Tier I Capital                                                                                               
  (to Average Assets)        $60,718,485      9.65%         $25,155,710      4.00%         $31,444,637         5.00%
As of December 31, 1995                                                                                      
 Total Capital                                                                                                
  (to Risk Weighted Assets)  $53,422,219     44.58%         $ 9,587,613      8.00%         $11,984,516        10.00%
 Tier 1 Capital                                                                                               
  (to Risk Weighted Assets)  $53,387,219     44.55%         $ 4,793,806      4.00%         $ 7,190,710         6.00%
 Tier I Capital                                                                                               
  (to Average Assets)        $53,387,219     36.59%         $ 5,836,684      4.00%         $ 7,295,855         5.00% 
</TABLE>

     Under Massachusetts law, trust companies such as the Bank may only pay
     dividends out of "net profits" and only to the extent that such payments
     will not impair the Bank's capital stock and surplus account. If, prior to
     declaration of a dividend, the Bank's capital stock and surplus accounts do
     not equal at least 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.



18.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
     YEAR ENDED DECEMBER 31, 1996       FIRST       SECOND        THIRD         FOURTH   
                                       QUARTER      QUARTER      QUARTER       QUARTER   
                                                                                         
     <S>                             <C>          <C>           <C>           <C>         
     Interest income                 $ 5,964,713  $ 7,966,327   $10,360,380   $12,386,007
     Interest expense                  2,022,877    3,904,330     5,662,451     7,078,376
     Noninterest income               12,944,198   14,097,339    14,034,278    15,555,902
     Operating expenses               14,517,448   14,912,163    15,377,305    17,128,661
     Income before income taxes        2,347,539    3,219,106     3,354,903     3,718,985
     Income taxes                        927,277    1,215,814     1,289,905     1,433,575
     Net income                        1,420,262    2,003,292     2,064,998     2,285,410
     Earnings Per Share                     0.22         0.31          0.32          0.35 
</TABLE>

                                      F-23
<PAGE>
 
19.  FINANCIAL STATEMENTS OF INVESTORS FINANCIAL SECURITIES CORP. (PARENT ONLY)

     The following represents the separate condensed financial statements of
     IFSC as of December 31, 1995 and 1996, and for the two-month period ended
     December 31, 1995 and the year ended December 31, 1996.

<TABLE>
<CAPTION>
STATEMENT OF INCOME                                          TWO MONTHS ENDED       YEAR ENDED
                                                            DECEMBER 31, 1995   DECEMBER 31, 1996
 
<S>                                                         <C>                 <C>
Equity in undistributed income of subsidiary                      $   899,794         $ 7,601,082
Dividend income from subsidiary                                             -             478,546
Operating expenses                                                          -            (305,666)
                                                          ----------------------  ---------------
 
Net income                                                        $   899,794         $ 7,773,962
                                                          ======================  ===============
 
BALANCE SHEET
                                                            DECEMBER 31, 1995   DECEMBER 31, 1996
Assets:
 
Investments in subsidiary                                         $53,344,218         $61,367,783
Receivable due from subsidiary                                         76,713             493,089
Other assets                                                                -               3,438
                                                          ----------------------  ---------------
 
Total Assets                                                      $53,420,931         $61,864,310
                                                          ======================  ===============
 
Liabilities and Stockholders' Equity
 
   Total Liabilities                                              $         -         $     5,000
                                                          ----------------------  ---------------
 
Stockholders' Equity
   Common stock                                                        64,440              64,443
   Surplus                                                         54,312,474          54,352,812
   Deferred compensation                                           (2,117,787)         (1,687,675)
   Retained earnings                                                  899,794           8,480,431
   Net unrealized gains on available for sale securities              262,010             649,299
                                                          ----------------------  ---------------
 
   Total Stockholders' Equity                                      53,420,931          61,859,310
                                                          ----------------------  ---------------
 
Total Liabilities and Stockholders' Equity                        $53,420,931         $61,864,310
                                                          ======================  ===============
</TABLE>

                                      F-24
<PAGE>
 
19. FINANCIAL STATEMENTS OF INVESTORS FINANCIAL SECURITIES CORP. (PARENT ONLY)
    (CONTINUED)

<TABLE>
<CAPTION>
 
                                                                          TWO MONTHS ENDED       YEAR ENDED
STATEMENT OF CASH FLOWS                                                  DECEMBER 31, 1995   DECEMBER 31, 1996

<S>                                                                      <C>                 <C> 
Cash flows from operating activities:
   Net income                                                                 $    899,794         $ 7,773,962
                                                                       --------------------- -----------------
 
Adjustments to reconcile net income to net cash provided by operating
 activities:
   Amortization of deferred compensation                                            76,713             430,112
   Change in assets and liabilities:
       Receivable due from subsidiary                                                                 (416,376)
       Other Assets                                                                                     (3,438)
       Other Liabilities                                                                                 5,000
                                                                        
   Equity in undistributed earnings of subsidiary                                 (976,507)         (7,601,082)
                                                                       --------------------    ----------------
Total adjustments                                                                 (899,794)         (7,585,784)
                                                                       --------------------    ----------------
 
Net cash provided by operating activities                                                -             188,178
                                                                       ---------------------- ----------------
 
Cash flows from investing activities:
   Payments for investments in and advances to subsidiary                      (34,120,938)            (35,193)
                                                                       ---------------------- ----------------
Net cash used by investing activities                                          (34,120,938)            (35,193)
                                                                       ---------------------- ----------------
 
Cash flows from financing activities:
   Proceeds from common stock                                                   37,950,000                   -
   Costs of stock issuance                                                      (3,829,062)             35,193
   Proceeds from exercise of stock options                                               -               5,148
   Dividends paid                                                                                     (193,326)
                                                                       ---------------------- ----------------
Net cash provided by financing activities                                       34,120,938            (152,985)
                                                                       ---------------------- ----------------
 
Net increase in cash and due from banks                                       $          -         $         -
 
Cash and Due from Banks, beginning of period                                  $          -         $         -
                                                                       ----------------------  ---------------
 
Cash and Due from Banks, end of period                                        $          -         $         -
                                                                       ======================  ===============
</TABLE>

                                      F-25