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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

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COMMISSION FILE NUMBER 0-14018

BNH BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)

CONNECTICUT 06-1126899
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

209 CHURCH STREET, NEW HAVEN, CONNECTICUT 06510
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (203) 498-3500

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

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

COMMON STOCK, NO PAR VALUE PER SHARE
(Title of class)

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
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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. [ ]

AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT BASED ON THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK AS OF MARCH
13, 1996.

COMMON STOCK, NO PAR VALUE $27,866,603

* For purposes of this calculation, 1,007,007 shares held by the directors
and executive officers of BNH Bancshares, Inc. have been deemed to be held
by affiliates of BNH Bancshares, Inc.

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

Outstanding At
Class March 13, 1996
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Common Stock,
no par value per share 14,726,650

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Company's definitive proxy statement dated March
22, 1996 are incorporated by reference into Part III of this report.

The Exhibit Index is found at page 62.

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TABLE OF CONTENTS

Page
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PART I ................................................................................................ 2
Item 1--Business ............................................................................... 2

--Executive Officers of the Company ...................................................... 8
Item 2--Properties ............................................................................. 9
Item 3--Legal Proceedings ...................................................................... 10
Item 4--Submission of Matters to a Vote of Security Holders .................................... 10

PART II ............................................................................................... 10
Item 5--Market for the Registrant's Common Equity and Related Stockholder Matters .............. 10
Item 6--Selected Financial Data ................................................................ 11
Item 7--Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................. 12
Item 8--Financial Statements and Supplementary Data ............................................ 34
Item 9--Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures ............................................................................ 57

PART III .............................................................................................. 57
Item 10--Directors and Executive Officers of the Registrant ..................................... 57
Item 11--Executive Compensation ................................................................. 57
Item 12--Security Ownership of Certain Beneficial Owners and Management ......................... 57
Item 13--Certain Relationships and Related Transactions ......................................... 57

PART IV ............................................................................................... 58
Item 14--Exhibits, Financial Statement Schedules and Reports on Form 8-K ........................ 58

PART I

ITEM 1. BUSINESS

BNH Bancshares, Inc. (the "Company") is a bank holding company incorporated
in Connecticut in February 1985, the principal assets of which are the common
stock of its wholly-owned subsidiaries, The Bank of New Haven (the "Bank") and
Northeastern Capital Corporation ("Northeastern"). The principal business of the
Bank is to provide a full range of services, including checking and savings
accounts and loans primarily to small and medium-sized businesses, professional
organizations and individuals in the New Haven metropolitan area. As of December
31, 1995, the Company had total assets of $299 million, total deposits of $277
million, total loans, net of the allowance for loan losses, of $199 million, and
shareholders' equity of $16 million.

The Bank, a state-chartered bank and trust company, was organized under the
Connecticut banking laws on May 24, 1978 and began commercial banking operations
in New Haven, Connecticut on April 16, 1979. The Bank has concentrated its
marketing efforts in the greater New Haven area. The main office of the Bank and
its executive offices are located at 209 Church Street, New Haven, Connecticut.
As of December 31, 1995, the Bank operates seven additional branch offices, two
in New Haven, and one each in Orange, Woodbridge, Milford, North Haven and
Hamden, Connecticut. The Company also maintains an Operations Center in Orange,
Connecticut. The Bank employed 135 full-time equivalent employees at December
31, 1995.

REGULATION OF THE COMPANY

As a bank holding company, the Company is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System (the
"Board"). The Company's ability to acquire an interest in another bank is
limited by the Bank Holding Company Act of 1956, as amended (the "Act"), which
requires the Company to obtain the approval of the Board prior to the
acquisition of all or substantially all of the assets of any bank or ownership
or control of the voting shares of any bank if, after giving effect to such
acquisition, the Company would own or control, directly or indirectly, more than
five percent of the voting shares of such bank.

The Act was amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") to authorize a bank holding company to
acquire an interest in the voting securities or assets of a savings association,
subject to receiving approval of the Board.

The Act was further amended by the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 to generally permit a bank holding company that
is adequately capitalized to acquire control of or acquire all or substantially
all of the assets of, a bank located in a state other than the home state in
which the bank holding company is located. The same legislation permits
interstate mergers of banks after June 1, 1997, unless the state in which the
bank is located passes legislation to prohibit such mergers. Interstate mergers
may be permitted sooner in any state that passes legislation specifically
permitting such mergers to take place sooner. The establishment of "de novo"
branches by an out-of-state bank is permitted in any state that adopts
legislation to permit such interstate branching.

The Company may not engage in any business other than managing or
controlling banks or savings associations or furnishing services to its
subsidiaries, with the exception of certain activities which, in the opinion of
the Board, are so closely related to banking or to managing or controlling banks
or savings associations as to be a proper incident thereto. The Company is also
generally prohibited from acquiring direct or indirect ownership or control of
more than five percent of the voting shares of any company unless that company
is engaged in activities expressly authorized by the Act or the Board approves
the acquisition. In making such determination, the Board considers whether such
activities are so closely related to banking as to be a proper incident thereto.

Federal Reserve Board regulations require bank holding companies to meet
certain minimum capital requirements. Under the regulations, capital adequacy of
a bank holding company is evaluated in two ways. The Board has adopted a
leverage ratio requirement applicable to bank holding companies with $150
million or more in consolidated assets. The leverage ratio is a ratio of "Tier 1
capital" to total average assets as defined in the regulations. "Tier 1 capital"
for a bank holding company is generally defined as common equity, minority
interests in equity accounts of consolidated subsidiaries and qualifying
perpetual preferred stock. (Cumulative perpetual preferred stock is limited to
25% of Tier 1 capital). In addition, Tier 1 capital excludes goodwill and other
intangibles and investments in subsidiaries that the Board determines should be
deducted from capital. The regulations require a minimum ratio of 3% Tier 1
capital to total assets for the most highly rated bank holding companies that
are not anticipating or experiencing significant growth and do not have high
levels of risk. All other bank holding companies are required to meet a minimum
leverage ratio that is at least 100 to 200 basis points above this minimum.

The second measure of capital adequacy adopted by the Board is based on
international risk-based capital standards. The guidelines set forth (i) a
definition of "capital" for risk-based capital purposes; and (ii) a system for
calculating risk-weighted assets by assigning assets and certain off-balance
sheet items to broad risk categories. Basically, the higher percentage of
riskier assets an institution has, the more capital it must have to satisfy the
risk-based guidelines; the lower the risk, the lower the required capital. The
current regulations require a minimum risk-based ratio of 8%, with at least
one-half of that amount consisting of Tier 1 or core capital and up to one-half
of that amount consisting of Tier 2 or supplementary capital. As of December 31,
1995, the Company's Tier 2 capital was $18.1 million.

These guidelines do not address other bank "risk" areas, such as interest
rate exposure, liquidity, funding and market risks, the quality and level of
earnings, investment or loan portfolio and other concentrations of credit risks;
certain risks arising from nontraditional activities, the quality of loans and
investments, the effectiveness of loan and investment policies, or management's
ability to monitor and control financial and operating risks. The Board does,
however, take these factors into account in evaluating capital ratios. This may
cause the supervisory evaluation of capital adequacy to differ from the
conclusions that would be reached based solely on risk-based capital ratios.

Capital regulation of the Company is also affected by the Federal Deposit
Insurance Act (the "FDI Act") amended by Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") and the Riegle Community Development and
Regulatory Improvement Act of 1994 (the "Riegle Act"), which is discussed below.

The Board also regulates the payment of cash dividends by bank holding
companies as well as other banking practices of such companies. As a bank
holding company, the Company is required to file with the Board an annual report
and such additional information as the Board may require pursuant to the Act.
The Board may conduct examinations of the Company and each of its subsidiaries
pursuant to the Act and regulations thereunder. As the holding company of a
state-chartered bank, the Company is also subject to regulation by the
Connecticut Banking Commissioner and may be required to provide reports to and
be subject to examination by the Banking Commissioner.

Board regulations require the Bank to maintain reserves against its
transaction accounts. Effective December 19, 1995, reserves of 3% are required
to be maintained against transaction accounts totaling $52.0 million or less
(except that $4.3 million is exempt) and a reserve of 10% is required to be
maintained against that portion of total transaction accounts in excess of $52.0
million. These amounts and percentages are subject to further adjustment by the
Board.

REGULATION OF THE BANK

Federal and state banking laws and regulations applicable to the Bank
regulate, among other things, capital adequacy, the scope of a bank's business,
permitted investments, reserves against deposits, the nature and amount of
collateral for loans, loans to affiliates, the establishment of branches and
activities with respect to mergers and acquisitions. The Bank is subject to
Federal regulations promulgated pursuant to the FDI Act to prevent banks from
engaging in unsafe or unsound practices, as well as various other Federal and
State laws, including consumer protection laws.

The Federal Deposit Insurance Corporation ("FDIC") is an independent agency
of the United States Government and currently insures deposits of each insured
depositor of the Bank through its Bank Insurance Fund up to $100,000. Insurance
of deposits by the FDIC subjects the Bank to comprehensive regulation,
supervision and examination by the FDIC. The Bank is required, among other
things, to pay premium charges to the FDIC for such insurance. Under FDICIA, the
FDIC has adopted regulations establishing a risk-based assessment for insurance
premiums pursuant to which higher insurance rates are charged to institutions
that pose greater risks to the deposit insurance funds. Currently, under this
system, a depository institution's semi-annual assessment will fall within a
range of $0 to $0.37 per $100 of domestic deposits, based in part on the
probability that the deposit insurance fund will incur a loss with respect to
that institution. Each institution is notified of its risk classification based
on its capital ratios. For information on insurance premiums paid by the Bank,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Insurance Expense".

The Bank is also required to maintain reserve accounts and liquid assets at
levels fixed from time to time by the FDIC and must meet certain minimum capital
requirements.

The FDIC's capital regulations are similar to the Board's requirements
described above. Regulations adopted pursuant to FDICIA resulted in amendments
to these capital standards and in the additional regulation of undercapitalized
institutions (see the discussion of FDICIA below).

During the first quarter of 1991, the Bank was examined by the FDIC. On
September 19, 1991, the Bank entered into a Stipulation and Consent to the
issuance of an Order to Cease and Desist (the "Order") with the FDIC, which was
concurred in by the Banking Commissioner of the State of Connecticut. On
September 27, 1991, the FDIC issued an Order to Cease and Desist which became
effective on October 7, 1991. The Order required the Bank to take specific
action to correct certain deficiencies addressed as a result of the FDIC's
examination of the Bank as of February 19, 1991. In addition to requiring the
Bank to maintain a Tier 1 leverage capital ratio of 6% or more, the Order
required the Bank to take a series of actions designed to improve its financial
condition and operating results and to augment its capital position. These
requirements and the Bank's response thereto included, but were not limited to,
increasing the loan loss reserve; charging-off classified loans and improving
asset quality; and addressing concerns regarding liquidity and reliance on
volatile funds.

Following the issuance of the Order, the Bank took steps designed to meet
its requirements, including the submission of capital plans designed to achieve
the required capital levels. On July 28, 1993, the Company successfully
completed its rights offering of common stock to existing shareholders and
standby purchasers. The rights offering resulted in the issuance of 10,404,000
new shares of common stock at a subscription price of $1.25 per common share.
Net proceeds amounted to $11,992,000. The Company contributed the net proceeds
from the rights offering to the Bank in a manner that such proceeds constituted
Tier 1 leverage capital for regulatory purposes. The Bank, as of December 31,
1993, was in compliance with every provision of the Order.

During the second quarter of 1994, the Company incurred a net loss of
$6,500,000 which reduced both the Bank's and the Company's Tier 1 leverage
capital ratios below the Order's minimum Tier 1 leverage requirement of 6%. This
quarterly net loss was primarily related to an $18,000,000 bulk sale of problem
loans. Management believes that the bulk sale of problem assets significantly
improved the quality of the Company's loan portfolio and believes that its
actions to improve asset quality are responsive to the Order. As a result of the
decline in Tier 1 leverage capital, the Bank, as required by the Order, filed a
capital restoration plan with the FDIC during the third quarter of 1994. The
plan, which was accepted by the FDIC, calls for restoration of the Bank's
capital ratios through future earnings.

The FDIC, after completion of a joint examination of the Bank with the
Connecticut Banking Department as of February 6, 1995, removed the Order and,
based on the Bank's improved overall financial condition, issued on May 16, 1995
a less stringent Memorandum of Understanding (the "Memorandum"), which the Bank
voluntarily agreed to enter into. The Memorandum requires, among other things,
that the Bank achieve certain Tier 1 leverage and total risk-based capital
requirements. The Bank must have a Tier 1 leverage capital ratio of at least 5%
by June 30, 1996 and 6% by June 30, 1997. If these thresholds are not
maintained, the Bank will be required to submit a written capital plan to
increase its Tier 1 leverage capital to the required level. Also, the Bank must
maintain a total risk-based capital ratio of at least 8% throughout the
existence of the Memorandum. As of December 31, 1995, the Bank's Tier 1 leverage
capital and total risk-based capital ratios were 5.3% and 9.4%, respectively.
The Company anticipates that it will maintain the minimum Tier 1 leverage
capital ratio requirements through future earnings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Capital
Resources" for further discussion. The Memorandum also required the Bank to
charge-off certain loans and develop and implement a written problem loan
reduction program to continue to reduce its level of problem loans. In addition,
the Memorandum prohibits the payment of dividends without prior FDIC consent and
requires the Bank to review, monitor and update certain loan and liquidity
policies. As of December 31, 1995, the Bank was in compliance with every
provision of the Memorandum.

FDI ACT

The FDI Act was amended by the FDICIA which was signed into law by the
President on December 19, 1991. The FDICIA amendments increased the supervisory
and regulatory powers of the federal bank regulatory agencies applicable to the
Company and the Bank in a number of ways. The FDI Act was further amended by the
Riegle Act.

A. Capital Categories and Prompt Regulatory Action

FDICIA increases the supervisory powers of the FDIC and the other federal
regulatory agencies with regard to undercapitalized depository institutions, and
changes the capital rules applicable to the Bank. Under the regulations, banking
regulators defined five capital categories: institutions that are well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. The purpose of these
categories is to allow federal regulatory agencies to monitor undercapitalized
institutions more closely in order to take appropriate

and prompt regulatory action to minimize the potential for significant loss to
the deposit insurance fund. Institutions in the first two categories operate
with few restrictions. Institutions in the other three categories may be
required to raise additional capital, curtail growth, limit interest rates paid,
divest subsidiaries and limit executive compensation. Regulators are also
empowered to remove top management and call for new elections of directors.
FDICIA also allows for the appointment of a conservator or receiver of an
insured depository institution if the institution is undercapitalized and either
has no reasonable prospect of becoming adequately capitalized, fails to become
adequately capitalized as required, or fails to submit or materially implement a
capital plan. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Capital Resources" for a description of the five
capital categories.

Using the capital categories, FDICIA subjects an insured institution that
has a capital classification below the adequately capitalized level to several
mandatory provisions that apply without agency action. Under these mandatory
provisions, undercapitalized institutions (1) are subject to increased
monitoring by the appropriate federal banking agency and periodic review of the
institution's efforts to raise capital; (2) must submit and implement an
acceptable capital restoration plan; (3) are required to restrict asset growth;
and (4) must obtain prior approval by the agency or the FDIC for acquisitions
and new branches. The FDIC also has the authority to downgrade an institution by
one capital category, notwithstanding its capital ratios, if it determines that
other conditions exist at the institution which make that determination
appropriate. In addition, the FDIC may, through a "prompt corrective action
directive", impose discretionary supervisory actions applicable to
"significantly undercapitalized institutions". Such discretionary actions could
involve requiring the Bank to sell capital, restricting transactions with
affiliates, restricting interest rates on deposits, restricting asset growth,
requiring termination or alteration of any "excessive risk" activities,
requiring a new election of directors, requiring the dismissal of certain
directors or senior executive officers, prohibiting the acceptance of deposits
from correspondent institutions, requiring the Bank to accept an acquisition
offer, requiring liquidation or divestment of a subsidiary, or requiring any
other action the FDIC determines would better carry out the purposes of
Section 38 of the FDI Act. Any such prompt corrective action directive must be
initiated by written notice to the Bank. The Bank has the opportunity to object
to the proposed issuance of a directive, and to request a hearing and submit
written and oral evidence in support of its objection. No such prompt corrective
action directives have been initiated against the Bank nor is the Bank aware
that any are contemplated.

B. Safety and Soundness Standards

FDICIA requires the promulgation of "safety and soundness" standards
regarding (i) internal controls, information systems and internal audit systems;
(ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure;
(v) asset growth; and (vi) compensation, fees and benefits. The FDIC has issued
regulations and guidelines pursuant to that requirement.

The FDIC's regulations focus on the goals to be achieved by banks rather
than the specific means by which they are to achieve those goals. The goals are
general, although expanded upon in the guidelines, and leave to the individual
bank the ability to tailor its goals to its particular circumstances. For
example, the regulations require a bank to have internal controls, information
systems and an internal audit system appropriate to the size of the bank and the
scope and nature of its activities. Also, a bank must establish and maintain
loan documentation practices that enable the bank to make informed lending
decisions, assess repayment ability, ensure legal enforceability against the
borrower, enable administration and monitoring of the loans, and reflect the
size and complexity of different loans. Practices similar in scope are required
with respect to credit underwriting. Interest rate risk is to be managed in a
manner appropriate to the size of the bank and the complexity of its assets and
liabilities. Asset growth should be prudent and the Bank should consider
funding, risk and capital issues affected by growth.

The regulations require safeguards to prevent compensation, fees and
benefits from being excessive or leading to material financial loss. Payments
are excessive when the amounts paid are unreasonable or disproportionate to the
services performed, based upon an overall analysis of the total compensation to
the individual, the relevant history of the individual and peer group
comparisons, the Bank's financial condition, projected costs and benefits, any
connection between the individual and wrongdoing with regard to the Bank, and
any other factors the FDIC may deem relevant. The FDIC also proposed, but has
not yet adopted, regulations concerning asset quality and earnings.

C. Additional Restrictions

The FDI Act contains a number of other provisions which could potentially
impact the future operations of the Bank. Section 24 of the FDI Act, as amended
by FDICIA, generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks. Under the regulations which implement this provision, except for certain
"grandfathered" equity investment powers, an insured state bank generally may
not, directly or indirectly, acquire or retain any equity investment of a type,
or in an amount, that is not permissible for a national bank, which would
include most equity security investments. In order to acquire or retain any
restricted equity investment, the Bank was required to file a one-time notice
with the FDIC which sets forth the Bank's intention to acquire or retain such
investment. The Bank filed a notice with the FDIC on June 21, 1993. The Bank's
notice was approved on July 15, 1993 by the FDIC. As of December 31, 1995, the
Bank held $3,000 of restricted equity investments. Although the Bank has a
limited amount of equity investments, these restrictions may limit investment
opportunities in the future. However, the Company does not anticipate that such
restrictions will have a material adverse impact on its operations.

The FDIC has also issued regulations which require an insured state bank to
obtain FDIC approval before engaging "as principal" in any activity that is not
permissible for a national bank. The FDI Act also places restrictions on the
acceptance of brokered deposits. Unless an institution is adequately
capitalized, it will not be able to obtain FDIC approval to accept brokered
deposits. There are also restrictions on the interest rate that an institution
can pay on brokered deposits if that institution is not well capitalized and is
accepting deposits pursuant to FDIC approval. The FDIC has adopted regulations
to carry out the provisions relating to brokered deposits. The Company has
replaced all of its brokered deposits and does not anticipate the need for
brokered deposits in the foreseeable future. Accordingly, the Company does not
believe that the brokered deposit restrictions have had or will have a material
adverse impact on the Company or the Bank.

The Community Reinvestment Act of 1977 ("CRA") was enacted to encourage
every financial institution to help meet the credit needs of its entire
community, including low and moderate-income neighborhoods, consistent with the
institution's safe and sound operation. Under CRA, state and federal regulators
are required, when examining financial institutions and when considering
applications for approval of certain mergers, acquisitions or other
transactions, to take into account the institution's record in helping to meet
the credit needs of its entire community, including low and moderate-income
neighborhoods. The Board has the power to disapprove proposed merger or
acquisition transactions involving banking organizations that are deemed by the
Board to have unsatisfactory examination records of CRA compliance. Following
its most recent CRA examination as of March 1995, the Bank received a
"Satisfactory" rating regarding its compliance with CRA.

COMPETITION

The banking industry in Connecticut is highly competitive. The Bank faces
strong competition in attracting deposits and in making loans. Its most direct
competition for deposits comes from other commercial banks, thrift institutions,
credit unions and issuers of commercial paper and other securities, such as
shares in money market funds. Interest rates, convenience of office locations
and marketing are all significant factors in the Bank's competition for
deposits.

Competition for loans comes from other commercial banks, thrift
institutions, insurance companies, consumer finance companies, credit unions and
other institutional lenders. The Bank competes for loan originations through the
interest rates and loan fees it charges and the efficiency and quality of
services it provides. Competition is affected by the general availability of
lendable funds, general and local economic conditions, current interest rate
levels and other factors which are not readily predictable.

It is expected that competition will become more intense in the future due
to changes in State and Federal laws and regulations and the entry of additional
bank and non-bank competitors. Connecticut laws have gradually expanded the
powers of state-chartered thrift institutions and these institutions have
virtually the same powers as commercial banks. In addition, Connecticut law now
effectively provides for full interstate banking. Under this legislation,
subject to the approval of the Connecticut Banking Commissioner after
consideration of specified factors, business combinations are permitted among
commercial banks, bank holding companies and thrift institutions located in
Connecticut and other states with reciprocal interstate banking laws. Such
out-of-state institutions may also form their own banks in Connecticut. Several
acquisitions involving Connecticut banks and bank holding companies

and non-Connecticut financial institutions have occurred under Connecticut's
interstate banking law, further increasing competition in the state. Recent
federal legislation permits a bank holding company that is adequately
capitalized to acquire control of, or acquire all or substantially all of the
assets of, a bank located in another state without regard to whether the
acquisition is prohibited by the laws of the state in which the bank is located.
The same legislation permits interstate mergers of banks after June 1, 1997, or
sooner in any state that passes legislation specifically permitting such mergers
to take place sooner. The establishment of "de novo" branches by an out-of-state
bank is permitted in any state that adopts legislation to permit such interstate
branching. Legislation has been adopted in Connecticut which currently permits
interstate mergers and de novo interstate branching in Connecticut. The Company
cannot predict the long-range effect of this new legislation on the Company's
operations at this time.

Connecticut law allows statewide branching, which, while advantageous to
the Bank's branch planning, also allows increased branch activity by other
financial institutions.

It has become increasingly common for state and federal chartered banks to
be authorized to conduct non-traditional activities from their offices either
directly, through a third party, or through a subsidiary. Currently, a third
party provider offers insurance and non-deposit investment products (e.g. mutual
fund shares and other stocks) from locations on the Bank's premises. While the
third party is subject to the supervision of securities regulators, the Bank's
activities in this area are also subject to the supervision of the FDIC and the
State Banking Department. On February 15, 1994, the federal bank regulators
issued an interagency statement on sales of non-deposit investment products by
depository institutions. The policy statement sets forth procedures that
depository institutions must follow to lessen risks to the institution of
liability under applicable anti-fraud provisions of the securities laws. The
State Banking Department has issued similar guidance.

Certain legislative and regulatory proposals that could affect the Company
and the banking business in general are pending, or may be introduced, before
the United States Congress, the Connecticut General Assembly, and various
governmental agencies. These proposals include measures that may further alter
the structure, regulation, and competitive relationship of financial
institutions and that may subject the Company and the Bank to increased
regulation, disclosure, and reporting requirements. In addition, the various
banking regulatory agencies frequently propose rules and regulations to
implement and enforce existing legislation. It cannot be predicted whether or in
what form any legislation or regulations will be enacted or the extent to which
the business of the Company will be affected thereby.

The New Haven area banking market has undergone significant changes in
recent years. Three institutions which had been headquartered in the City of New
Haven have failed and their deposits and certain assets were assumed by
financial institutions headquartered in Waterbury, Connecticut. In addition,
there have been other bank failures as well as mergers by other institutions
which have banking offices in the Bank's market area. The recent merger of two
large regional banks, whose corporate headquarters will be located outside of
the State of Connecticut, has created a much larger institution with greater
financial resources. The banking landscape in New Haven now consists of several
financial institutions whose headquarters are located out of the State of
Connecticut. Although these changes have resulted in generally increased
competition from larger institutions with greater financial resources than the
Bank, the Bank believes that the loss of locally-based competitors provides
certain marketing opportunities. Currently the Bank is only one of two financial
institutions headquartered in New Haven. The Bank stresses its local identity
and community orientation in developing and marketing its products and services.
In addition, the Bank focuses on small- to medium-sized commercial customers,
where its emphasis on personal, responsive and efficient services is
particularly appropriate. The Bank supplements this market focus by emphasizing
that it has the capacity and willingness to understand these customers'
financial needs and objectives. The Bank believes this particular segment of the
market is underserved currently. The Bank's market strategy includes expanding
this focus to its retail banking efforts both within its current branch network
and adjacent communities.

EXECUTIVE OFFICERS OF THE COMPANY

Officers are elected to hold office until their respective successors are
duly elected or until their earlier resignation or removal. There is no family
relationship between any executive officer or director of the Company.

F. PATRICK MCFADDEN, JR., 58, has served as President and Chief
Executive Officer of the Company and the Bank since August 1989, and has
served on the Board of Directors of the Company and the Bank since August
1989. Mr. McFadden was Chairman and Chief Executive Officer of New Haven
Merchants' Bank ("Merchants"), which merged with the Bank in August 1989,
from May 1987 to August 1989.

THOMAS J. CAHILL, JR., 61, Executive Vice President of the Bank since
August 1989, has served on the Board of Directors of the Bank since
August 1989, and was Executive Vice President of Merchants from January
1989 to August 1989.

JOHN F. TRENTACOSTA, CPA, 43, Executive Vice President of the Company
and the Bank since December 1993, has been Chief Financial Officer
("CFO") of the Company since April 1988, Secretary of the Company from
1989 through 1994, Senior Vice President and CFO of the Bank since
December 1988, and has served on the Board of Directors of the Bank since
December 1988.

LORRAINE K. YOUNG, 60, Executive Vice President of the Bank since
December 1987, has served on the Board of Directors of the Bank since
December 1988, and was Senior Vice President of the Bank from 1984.

RICHARD R. BARREDO, 45, has served as Senior Vice President of the Bank
since December 1989 and was Vice President of the Bank since August 1989
and Vice President of Merchants from September 1988 to August 1989.

MARK A. CANDIDO, 49, has served as Senior Vice President of the Bank
since December 1989 and was Vice President of the Bank since August 1989
and Vice President of Merchants from 1987 to 1989.

SUPPLEMENTARY INFORMATION

The following supplementary information, some of which is required under
the Securities and Exchange Commission's Guide 3 (Statistical Disclosure by Bank
Holding Companies), is found in this report on the pages indicated below, and
should be read in conjunction with the related consolidated financial statements
and notes thereto.

Return on Equity and Assets ............................................ 11
Average Balance Sheets ................................................. 14
Summary of Average Earning Assets and Paying Liabilities ............... 15
Rate-Volume Analysis ................................................... 16
Maturities and Weighted Average Yields of Investments .................. 17
Types of Investments ................................................... 18
Maturity Distribution of Time Deposits of $100,000 or more ............. 19
Types of Loans ......................................................... 19
Risk Elements in Loan Portfolio ........................................ 19
Summary of Loan Loss Experience ........................................ 24
Allocation of the Allowance for Loan Losses ............................ 25
Maturities and Sensitivities of Loans to Change In Interest Rates ...... 30

ITEM 2. PROPERTIES

The table below sets forth information concerning leases or ownership for
the Company's banking locations as of December 31, 1995.

Lease
Year Square Owned/ Expiration
Offices Opened Feet Leased Date
- ------- ------ ------ ------ -----------

Main Offices:
209 Church Street
New Haven, CT ........................................ 1979 10,000 Leased(1) 1999(2)

Branch and Operations Offices:
Whalley Norton Office
New Haven, CT ........................................ 1980 2,000 Leased 1997

Annex Office
New Haven, CT ........................................ 1982 2,600 Leased 2006(3)

Orange Office
Orange, CT ........................................... 1984 2,600 Leased 1998(4)

Milford Office
Milford, CT .......................................... 1986 2,200 Leased 1996(5)

Hamden Office
Hamden, CT ........................................... 1988 3,950 Owned

Woodbridge Office Owned/
Woodbridge, CT ....................................... 1989 4,200 Leased 2021(6)

Operations Center
273 Indian River Rd
Orange, CT ........................................... 1988 17,200 Leased 1997(7)

North Haven Office Owned/
North Haven, CT ...................................... 1990 1,200 Leased 1997(6)

- ------------
(1) On February 20, 1985, the Bank purchased a 25% interest in a partnership
which owns the Main Office building for a purchase price of $200,000.

(2) Renewable to 2009. Subject to the Lessor's right to sell and the Bank's
right of first refusal to buy the building during the renewal period.

(3) Renewable to 2016.

(4) Renewable to 2003.

(5) Renewable to 2011.

(6) The Company owns the building and leases the land.

(7) Renewable to 2009.

As of December 31, 1995, the Company provided traditional services from
each of its banking locations. All offices are free-standing buildings located
in commercial and retail business areas, and each has a drive-in teller and
parking facilities for customers. The majority of the Company's support and data
processing operations are located in its Operations Center in Orange,
Connecticut. The Bank purchased a 50% ownership interest in the Chapel Street
facility on September 30, 1991 for $900,000. This transaction will reduce the
Bank's annual lease payments to $123,300 until the lease expires on January 31,
2002. Automated teller machines are located at the Annex, Woodbridge, North
Haven, Orange and Milford offices, Tweed-New Haven Airport, and Southern
Connecticut State University.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than routine
litigation incidental to its business, to which the Bank or the Company is a
party or to which any of their property is the subject. For a description of the
Memorandum, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Regulatory Matters".

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

COMMON STOCK PRICE RANGE AND DIVIDENDS PAID

The Company's common stock is traded on the National Market tier of The
Nasdaq Stock Market under the symbol "BNHB". The table below presents high and
low sales prices for the Company's common stock on the Nasdaq National Market
tier of The Nasdaq Stock Market for 1995 and 1994.

1995 Price 1994 Price
--------------- ---------------
High Low High Low
---- --- ---- ---
First Quarter ........ $1.50 $ .88 $2.13 $1.38
Second Quarter ....... 1.63 1.25 1.75 1.25
Third Quarter ........ 2.00 1.25 1.50 1.00
Fourth Quarter ....... 2.00 1.75 1.50 .81

See Note 11 to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Capital Resources", for a description of restrictions on the Company's ability
to pay dividends. There were no dividends paid in 1995 or 1994. At February 28,
1996, the Company has approximately 2,000 shareholders of record.

ITEM 6. SELECTED FINANCIAL DATA

Year Ended December 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In Thousands Except Per Share Data)

FOR THE YEAR
Interest income .................................. $22,649 $20,693 $19,805 $22,742 $28,346
Interest expense ................................. 9,785 7,595 8,186 11,061 16,784
Net interest income .............................. 12,864 13,098 11,619 11,681 11,562
Provision for loan losses ........................ 3,663 9,199 4,890 10,601 10,320
Other income ..................................... 3,058 2,653 2,638 2,498 2,171
Net gain (loss) on investment securities ......... 5 (49) (8) 102 (683)
Operating expenses ............................... 11,487 12,669 12,029 14,039 15,475
Income (loss) before income taxes ................ 777 (6,166) (2,670) (10,359) (12,745)
Provision (benefit) for income taxes ............. (1,034) 22 (158) (1,271) 29
Net income (loss) ................................ 1,811 (6,188) (2,512) (9,088) (12,774)
Per common share data:
Net income (loss) .............................. 0.12 (0.42) (0.29) (2.10) (2.97)
Book value per share ............................ 1.06 0.84 1.37 2.49 4.60
Cash dividends declared ......................... -- -- -- -- --

AT YEAR END
Total assets ..................................... $298,911 $299,175 $287,616 $290,622 $312,317
Loans ............................................ 204,495 206,986 198,950 206,249 248,820
Deposits ......................................... 276,764 277,716 264,606 273,119 282,793
Shareholders' equity ............................. 15,593 12,356 20,206 10,739 19,784

SIGNIFICANT STATISTICAL DATA
Return on average assets ......................... 0.61% (2.13%) (0.88%) (3.04%) (3.96%)
Return on average equity ......................... 13.02% (37.78%) (17.66%) (59.02%) (45.27%)
Average equity to average assets ................. 4.70% 5.65% 5.00% 5.15% 8.74%
Average loans to average deposits ................ 75.43% 78.44% 75.06% 82.41% 91.21%
Net interest spread .............................. 3.94% 4.26% 3.95% 3.85% 3.24%
Net interest margin .............................. 4.62% 4.82% 4.42% 4.29% 4.02%
Efficiency ratio(1) .............................. 72.12% 80.42% 84.37% 99.01% 111.39%
Shareholders' equity to total assets ............. 5.22% 4.13% 7.03% 3.70% 6.33%
Tier 1 leverage capital ratio .................... 5.29% 4.68% 7.01% 3.74% 6.26%
Total risk-based capital ratio ................... 9.37% 8.09% 11.04% 6.34% 8.80%
Ratio of nonaccrual loans to total loans ......... 2.92% 3.40% 4.42% 4.51% 6.58%
Ratio of nonperforming assets to total assets .... 2.20% 2.97% 5.14% 6.19% 9.03%
Ratio of nonaccrual loans, restructured loans
and accruing loans past due 90 days or more to
total shareholders' equity and allowance for
loan losses ..................................... 35.71% 51.34% 84.27% 123.70% 103.70%
Ratio of nonperforming assets, restructured loans,
accruing loans past due 90 days or more to
total assets .................................... 2.77% 3.91% 10.79% 12.06% 13.26%
Ratio of net charge-offs to average loans ........ 2.24% 5.70% 3.02% 3.86% 3.09%
Ratio of allowance for loan losses to nonaccrual
loans, restructured loans and accruing loans
past due 90 days or more ........................ 76.80% 69.32% 37.94% 40.10% 29.50%
Weighted average number of shares
outstanding ..................................... 14,726 14,726 8,797 4,319 4,304

- -------------
(1) The efficiency ratio is the ratio of other non-interest expense to
tax-equivalent net interest income plus other income after adjustment to
exclude net gains (losses) on sales of investments.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following section presents management's discussion and analysis of the
financial condition and results of operations of the Company and its
subsidiaries for the last three fiscal years. It should be read in conjunction
with the Consolidated Financial Statements and related Notes found later in this
document. When necessary, reclassifications have been made to prior years' data
throughout the following discussion and analysis for purposes of comparability
with 1995 data.

SUMMARY

Net income for 1995 was $1,811,000, as compared to a net loss of $6,188,000
for 1994 and a net loss of $2,512,000 in 1993. Net income per share was $.12 in
1995, compared to a net loss per share of $.42 and $.29 in 1994 and 1993,
respectively. The financial condition of the Company has improved in 1995 and
consequently the Company reported net income in this year after having reported
significant losses for each year since 1990 due to significant loan loss
provisions and other real estate owned ("OREO") expenses resulting from high
levels of problem assets. The Connecticut economy from 1990 to 1993 experienced
recessionary conditions which negatively affected local real estate values.
Since many of the Company's loans were in part collateralized by real estate,
the decline in real estate values eroded the Company's collateral and resulted
in loans being charged-off, placed on nonaccrual status or foreclosed. During
1994 and 1995, the Company made significant progress in reducing its exposure to
such problem assets substantially through a bulk loan sale in 1994, ongoing
workout efforts and loan charge-offs. The ratio of nonaccrual loans, OREO,
restructured loans and loans past due 90 days or more to total assets declined
from 10.8% as of December 31, 1993 to 3.9% as of December 31, 1994 and 2.8% as
of December 31, 1995.

The Company's major source of revenue, net interest income, declined
moderately by 1.8% during 1995 to $12,864,000. Net interest income was
$13,098,000 in 1994 and $11,619,000 in 1993. The decline in net interest income
for the twelve month period ending December 31, 1995 is primarily related to an
increase in the Company's overall funding cost, particularly the rate that the
Company paid for its time deposits. During 1994, the Company paid an average of
4.32% for total time deposits as compared to 5.43% for 1995. Consequently, the
Company's net interest margin declined 24 basis points from 4.82% in 1994 to
4.62% in 1995. Although the Company's loan loss provision, necessitated by the
evaluation of the quality of the loan portfolio and net charge-offs of
$4,597,000 in 1995, $11,869,000 in 1994 and $5,967,000 in 1993, resulted in
significant net losses during 1994 and 1993, asset quality has improved in 1995
and the level of loan loss provisions has declined. The provision for loan
losses was $3,663,000 in 1995, $9,199,000 in 1994 and $4,890,000 in 1993.

The Company's operating expenses decreased 9% from 1994 to 1995 after
having increased 5% from 1993 to 1994. The decrease in operating expense in 1995
is primarily related to the reduction in costs associated with maintaining and
disposing of the Company's OREO properties which declined from $1,787,000 in
1993 to $1,397,000 in 1994 and $483,000 in 1995. In addition, the cost of the
Company's FDIC deposit insurance and other general insurances have declined as
the Company's financial condition has improved. Overall insurance expense has
declined from $1,112,000 in 1993 to $1,023,000 in 1994 and $793,000 in 1995. The
Company anticipates that the expenses related to problem assets as well as its
insurance expense will continue to decline during 1996, although not to the
extent experienced in prior years.

In order to reduce balance sheet risk, maintain adequate liquidity levels
and improve its regulatory capital levels, the Company focused on containing the
overall growth of total assets. Total assets were $298,911,000 as of December
31, 1995 as compared to $299,175,000 as of December 31, 1994 and $287,616,000 as
of December 31, 1993. The Company's loan portfolio remained stable with total
loans of $204,495,000 as of December 31, 1995 and $206,986,000 as of December
31, 1994. Although the overall level of the loan portfolio remained relatively
stable during the past two years, the composition of the portfolio has changed
moderately. The percentage of commercial and commercial mortgage loans to total
loans decreased from 60% as of December 31, 1994 to 56% as of December 31, 1995.
These higher risk loans were replaced during 1995 with residential mortgage
originations of $10,937,000. The investment portfolio, consisting primarily of
U.S. government securities, was $66,598,000 and $67,955,000 as of December 31,
1995 and 1994, respectively.

A more detailed discussion of the Company's operating results follows.

REGULATORY MATTERS

On September 19, 1991, the Bank voluntarily agreed to the issuance of an
Order to Cease and Desist ("the Order") with the Federal Deposit Insurance
Corporation ("FDIC"). The Order required the Bank to take specific action to
correct certain deficiencies addressed as a result of the FDIC's examination of
the Bank as of February 19, 1991. In addition to requiring the Bank to maintain
a Tier 1 leverage capital ratio of 6% or more, the Order required the Bank to
take a series of actions designed to improve its financial condition and
operating results and to augment its capital position. These requirements and
the Bank's response thereto included, but were not limited to, increasing the
loan loss reserve; charging-off classified loans and improving asset quality;
and addressing concerns regarding liquidity and reliance on volatile funds.

Since 1991, both the Company and the Bank have been examined several times
by each of its regulators. The Bank has always placed the highest priority in
complying with the provisions of the Order and the recommendations of the
examiners. However, since the Bank had experienced significant net operating
losses in the years 1991 through 1993, it found that it could not comply with
the capital requirements of the Order. Therefore, on February 1, 1993, the Bank
submitted to the FDIC a capital restoration plan outlining the steps the Company
and the Bank intended to take to achieve adequate capital levels. On July 28,
1993, the Company successfully completed its rights offering of common stock to
existing shareholders and standby purchasers. The rights offering resulted in
the issuance of 10,404,000 new shares of common stock at a subscription price of
$1.25 per common share. Net proceeds amounted to $11,992,000 and the Company
contributed that amount to the Bank in a manner qualifying as Tier 1 capital.
The Bank, as of December 31, 1993, was in compliance with every provision of the
Order.

During the second quarter of 1994, the Company incurred a net loss of
$6,500,000 which reduced both the Bank's and the Company's Tier 1 leverage
capital ratios below the Order's minimum Tier 1 leverage requirement of 6%. This
quarterly net loss was primarily related to an $18,000,000 bulk loan sale of
problem assets. Although the loan sale resulted in the Bank and the Company not
complying with the capital requirements of the Order, management believes that
the bulk sale of problem assets significantly improved the quality of the
Company's loan portfolio. Consequently, the Bank, as required by the Order,
filed a capital restoration plan with the FDIC during the third quarter of 1994.
The plan was accepted by the FDIC and called for restoration of the Bank's
capital ratios through future earnings. As of December 31, 1994, the Company and
the Bank were adequately capitalized as defined by normal regulatory standards
and management believed it was in compliance with every provision of the Order
except that its Tier 1 leverage capital ratio of 4.7% fell short of the
requirement.

On May 16, 1995, the FDIC, after completion of a joint examination of the
Bank with the Connecticut Banking Department, based on the Bank's improved
overall financial condition, removed the Order and issued the Memorandum, which
the Bank voluntarily agreed to enter into. The Memorandum requires, among other
things, that the Bank achieve certain Tier 1 leverage and total risk-based
capital requirements. The Bank must have a Tier 1 leverage capital ratio of at
least 5% by June 30, 1996 and 6% by June 30, 1997. Also the Bank must maintain a
total risk-based capital ratio of at least 8% throughout the existence of the
Memorandum. As of December 31, 1995, both the Company's and the Bank's Tier 1
leverage ratios were 5.3%. In addition, both the Bank's and the Company's total
risk-based capital ratios were 9.4% as of December 31, 1995. The Memorandum also
required the Bank to charge-off certain loans and develop and implement a
written problem loan reduction program to continue to reduce its level of
problem loans. In addition, the Memorandum prohibits the payment of dividends
without prior FDIC consent and requires the Bank to review, monitor and update
certain loan and liquidity policies. As of December 31, 1995, the Bank was in
compliance with every provision of the Memorandum.

NET INTEREST INCOME

Net interest income, which is the major source of income for the Company,
is the difference between the interest earned on loans and other investments and
the interest paid on deposits and other sources of funds.

Net interest income decreased $234,000, or 2%, to $12,864,000 in 1995 from
$13,098,000 in 1994. This compares to an increase of $1,479,000, or 13%, from
$11,619,000 in 1993 to $13,098,000 in 1994. The decrease in net interest income
during 1995 is primarily attributed to a slightly greater reliance on time
deposits for funding in 1995 and the higher cost associated with funding these
deposits as compared to 1994. The percentage of average time

deposits to total deposits and other borrowings increased from 42% in 1994 to
45% in 1995. The average rate paid on time deposits increased 111 basis points
from 4.32% in 1994 to 5.43% in 1995. Conversely, the average level of core
deposits which consist of money market, NOW, and savings accounts ("Core
Deposits"), a lower costing source of funds, as a percent of total average
deposits and other borrowings declined from 55% in 1994 to 52% in 1995. The
increase in net interest income during 1994 can in part be attributed to an
increase in average earning assets of $8,800,000, or 3.4%, a reduction of 24
basis points on interest rates paid on deposits and other borrowings and a
decrease in interest income foregone relating to nonperforming assets. Net
interest margin decreased 24 basis points from 4.82% in 1994 to 4.62% in 1995,
and increased 40 basis points, from 4.42% in 1993 to 4.82% in 1994.

Although national economic conditions have improved, the condition of the
Connecticut economy continues to lag behind national trends. Accordingly, if
local economic conditions continue to struggle, the competition for quality
lending opportunities and for core and time deposits will be strong. Therefore,
the Company believes that any improvement in its net interest margin during 1996
will be difficult to achieve.

AVERAGE BALANCE SHEETS:

The following table shows the Company's average balance of assets,
liabilities and shareholders' equity by major categories.

1995 1994 1993
--------------------- --------------------- ------------------------
(dollars in thousands)
% Of % Of % Of
ASSETS: $ Amount Total $ Amount Total $ Amount Total
---------- ------ -------- ------- -------- -------

Cash and due from banks ............... $ 16,084 5.43% $ 16,223 5.59% $ 15,965 5.62%
Investment securities:
Held to maturity, at amortized cost . 34,554 11.68 36,167 12.47 57,405 20.20
Available for sale, at fair value ... 33,118 11.19 25,625 8.84 0 0.00
-------- ------ -------- ------ -------- ------
Total investment securities ........... 67,672 22.87 61,792 21.35 57,405 20.20
Federal funds sold .................... 5,684 1.92 1,234 0.38 7,692 2.71
Total loans ........................... 205,249 69.35 208,105 71.75 197,902 69.63
Less allowance for loan losses ........ (6,896) (2.33) (8,251) (2.84) (9,819) (3.45)
-------- ------ -------- ------ -------- ------
Loans-net ............................. 198,353 67.02 199,854 68.91 188,083 66.18
-------- ------ -------- ------ -------- ------
Other real estate owned ............... 1,349 0.46 4,015 1.38 7,344 2.58
Other assets .......................... 6,811 2.30 6,904 2.38 7,718 2.71
-------- ------ -------- ------ -------- ------
Total Assets ........................ $295,953 100.00% $290,022 100.00% $284,207 100.00%
======== ====== ======== ====== ======== ======
LIABILITIES AND
SHAREHOLDERS' EQUITY:

DEPOSITS:
Demand deposits ..................... $ 47,974 16.21% $ 46,290 15.96% $ 41,032 14.44%
NOW accounts ........................ 38,649 13.06 41,048 14.15 43,990 15.48
Money market accounts ............... 27,870 9.42 27,955 9.64 33,783 11.89
Savings deposits .................... 31,573 10.67 34,512 11.90 28,287 9.95
Time deposits under $100,000 ........ 111,485 37.67 105,067 36.23 106,562 37.49
Time deposit of $100,000 or more .... 14,565 4.92 10,444 3.60 10,012 3.52
-------- ------ -------- ------ -------- ------
Total deposits ..................... 272,116 91.95 265,316 91.48 263,666 92.77
Other borrowings ...................... 9,317 3.15 7,362 2.54 5,204 1.83
Other liabilities ..................... 609 0.22 964 0.34 1,116 0.40
-------- ------ -------- ------ -------- ------
Total liabilities ..................... 282,042 95.30 273,642 94.35 269,986 95.00
Shareholders' equity .................. 13,911 4.70 16,380 5.65 14,221 5.00
-------- ------ -------- ------ -------- ------
Total Liabilities and Shareholders'
Equity ........................... $295,953 100.00% $290,022 100.00% $284,207 100.00%
======== ====== ======== ====== ======== ======

SUMMARY OF AVERAGE EARNING ASSETS AND PAYING LIABILITIES

The following table shows the average amount of the Company's interest
income or interest expense for each category of interest-earning assets and
interest-bearing liabilities, net interest spread and net interest margin.
Current period accrued interest income on loans placed on nonaccrual status,
which has not been collected, is reversed from current period interest income.

Year Ended December 31,
-----------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ---------- -------- -------- ----------
(dollars in thousands)

Earning Assets
Investment Securities:
Held to maturity, amortized cost ..... $ 34,554 $ 1,842 5.33% $ 36,167 $ 1,896 5.24% $ 57,405 $ 3,219 5.61%
Available for sale (1) ............... 33,118 2,045 6.17% 26,310 1,464 5.56%
Federal funds sold .................... 5,684 330 5.81% 1,234 46 3.73% 7,692 229 2.98%
Loans (2) ............................. 205,249 18,432 8.98% 208,105 17,287 8.31% 197,902 16,357 8.27%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total average earning assets (3) ...... $278,605 $22,649 8.13% $271,816 $20,693 7.61% $262,999 $19,805 7.53%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Interest Bearing Liabilities
Deposits:

NOW accounts ......................... $ 38,649 $ 636 1.65% $ 41,048 $ 727 1.77% $ 43,990 $ 1,037 2.36%
Money market accounts ................ 27,870 886 3.18% 27,955 628 2.25% 33,783 950 2.81%
Savings deposits ..................... 31,573 845 2.68% 34,512 879 2.55% 28,287 789 2.79%
Time deposits under $100,000 ......... 111,485 6,072 5.45% 105,067 4,579 4.36% 106,562 4,759 4.47%
Time deposits over $100,000 .......... 14,565 773 5.31% 10,444 416 3.98% 10,012 423 4.22%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing deposits ....... $224,142 $ 9,212 4.11% $219,026 $ 7,229 3.30% $222,634 $ 7,958 3.57%
Other borrowings ...................... 9,317 573 6.14% 7,362 366 4.97% 5,204 228 4.38%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest bearing deposits
and other borrowings ................. $233,459 $ 9,785 4.19% $226,368 $ 7,595 3.35% $227,838 $ 8,186 3.59%
-------- ------- ---- -------- ------- ---- -------- ------- ----
Net interest income ................... $12,864 $13,098 $11,619
======= ======= =======
Interest rate spread(3) ............... 3.94% 4.26% 3.94%
Net interest margin(3) ................ 4.62% 4.82% 4.42%

- --------------
(1) The average balance and related weighted average yield calculations are
based on average historical amortized cost for the period presented.

(2) The average balance includes average nonaccrual loans of $7,499,364,
$8,368,575, and $8,811,318, for the years ended December 31, 1995, 1994,
and 1993, respectively.

(3) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities (which do not include non-interest bearing
demand accounts), and net interest margin represents net interest income as
a percentage of average interest-earning assets, including the average
daily amount of non-performing loans.

RATE-VOLUME ANALYSIS

The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. The change
in interest attributable to both rate and volume has been allocated
proportionately based on the relative changes in the volume and rate components.

Year Ended December 31,
------------------------------------------------------------------------
1995 vs 1994 1994 vs 1993
Changes Due To Changes Due To
---------------------------------- ------------------------------------
Increase Rate/ Increase Rate/
(Decrease) Rate Volume Volume (Decrease) Rate Volume Volume
--------- ---- ------ ------ ---------- ---- ------ -------
(dollars in thousands)

INCREASE (DECREASE) IN:
Interest Income
Loans ............................. $1,145 $1,394 ($ 237) ($12) $ 930 $ 83 $ 843 $ 4
Investments ....................... 527 229 279 19 141 (95) 253 (9)
Federal Funds ..................... 284 26 166 92 (183) 58 (193) (51)
------ ------ ----- --- ------ ----- ----- ----
Total Earning Assets .............. 1,956 1,649 208 99 888 43 896 (56)
====== ====== ===== === ====== ===== ===== ====
Interest Expense
NOW ............................... (91) (52) (42) 3 (310) (258) (69) 17
Money Market ...................... 258 261 (2) (1) (322) (191) (164) 33
Savings ........................... (34) 45 (75) (4) 90 (69) 174 (15)
Time Deposits less than 100,000 ... 1,493 1,143 280 70 (180) (115) (67) 2
Time Deposits more than 100,000 ... 357 138 164 55 (7) (24) 18 (1)
Other Borrowings .................. 206 86 96 24 138 31 94 13
------ ------ ----- --- ------ ----- ----- ----
Total Paying Liabilities .......... 2,189 1,621 421 147 (591) (626) (14) 49
====== ====== ===== === ====== ===== ===== ====
Net Interest Income ............... ($ 233) $ 28 ($ 213) ($48) $1,479 $ 669 $ 910 ($105)
====== ====== ===== === ====== ===== ===== ====

INTEREST INCOME

Interest income increased $1,956,000, or 9.5%, to $22,649,000 in 1995 from
$20,693,000 in 1994. This compares to an increase of $888,000, or 4.5%, from
$19,805,000 in 1993 to $20,693,000 in 1994. The increase in interest income
during 1995 can be attributed to increased yields on the Company's loans,
investments, and federal funds sold. The Wall Street Prime rate of interest
increased from 8.5% as of December 31, 1994 to 9% in February 1995 before
eventually returning to 8.5% at the end of 1995. Most of the Company's
commercial loans are either directly tied to the Wall Street Prime rate of
interest or an internal Company index whose movement closely follows movements
in the Wall Street Prime. As a result of an increase in market rates, the
Company's average yield on commercial loans increased 131 basis points from
8.89% in 1994 to 10.20% in 1995. The average yield on total loans increased from
8.31% in 1994 to 8.98% in 1995.

The increase in interest income during 1994 can primarily be attributed to
an increase in the average loan portfolio of 5.2% and an increase in overall
interest rates during 1994. The total yield on average earning assets increased
slightly from 7.53% as of December 31, 1993 to 7.61% as of December 31, 1994.
Although the average loan portfolio increased $10,203,000, from $197,902,000 as
of December 31, 1993 to $208,105,000 as of December 31, 1994, the growth in the
Company's loan portfolio was primarily related to the residential mortgage and
consumer portfolios where interest rates are generally lower than the commercial
portfolio. The percentage of commercial and commercial mortgage loans to total
loans declined from 73% as of December 31, 1993 to 60% as of December 31, 1994.
Consequently, despite a rising interest rate environment during 1994, the
average loan yield increased only 4 basis points from 8.27% to 8.31% from
December 31, 1993 to December 31, 1994.

As a result of a softer loan demand, increased loan competition and the
Company's goal to reduce the risk in its balance sheet and to increase its
risk-based capital ratios, more funds were directed in 1995 to the Company's
investment portfolio. The average investment portfolio and federal funds sold
balance increased from $63,711,000 in 1994 to $73,356,000 in 1995. In addition,
the Company's average yield on total investments also increased from 5.39% in
1994 to 5.74% in 1995. The average investment portfolio and federal funds sold
balance decreased slightly to $63,711,000 in 1994 from $65,097,000 in 1993. The
yield on average investments and federal funds sold was 5.35% during 1994 as
compared to 5.30% during 1993. Total interest income earned on the Company's
total investment portfolio was $3,888,000, $3,360,000 and $3,219,000 in 1995,
1994 and 1993, respectively.

Nonaccrual loans and OREO decreased from $14,796,000 as of December 31,
1993 to $8,895,000 as of December 31, 1994 and to $6,578,000 as of December 31,
1995. If nonaccrual loans and OREO earned interest in accordance with their
original terms, the Company would have earned additional interest income of
approximately $766,000 in 1995 as compared to $1,128,000 in 1994 and $1,384,000
in 1993. In addition, restructured loans totaled $1,570,000, $2,448,000 and
$15,139,000 at December 31, 1995, 1994 and 1993, respectively. Interest income
recorded on these loans in 1995, 1994 and 1993 was $119,000, $709,000 and
$1,159,000, respectively. Interest income would have been $51,000, $268,000 and
$316,000 higher during 1995, 1994 and 1993, respectively, had these loans earned
interest in accordance with their original terms.

MATURITIES AND WEIGHTED AVERAGE YIELDS OF INVESTMENTS:

The following table shows the maturities for held to maturity and available
for sale investment portfolios as of December 31, 1995. As of December 31, 1995,
the Company did not have any tax-exempt obligations in its investment portfolio.

December 31, 1995
------------------------------------------------------------------
Held To Maturity Available For Sale
----------------------------- --------------------------------
Weighted Weighted
Amortized Average Fair Amortized Average Fair
Cost Yield Value Cost Yield Value
--------- -------- -------- ----------- --------- --------
(dollars in thousands)

U.S. Treasury securities
Within 1 year ........................... $ 3,010 5.34% $ 3,013 $ 8,957 6.08% $ 8,986
After 1 but within 5 years .............. 10,950 5.58% 11,024 3,024 5.96% 3,058
------- ---- ------- ------- ---- -------
Total U.S. Treasury securities ......... 13,960 5.53% 14,037 11,981 6.05% 12,044
------- ---- ------- ------- ---- -------
U.S. Government agencies
Within 1 year ........................... 7,499 5.19% 7,418 13,997 6.13% 13,992
------- ---- ------- ------- ---- -------
After 1 but within 5 years .............. 1,997 5.37% 1,995 8,760 5.44% 8,669
------- ---- ------- ------- ---- -------
Total U.S. Government agencies ........... 9,496 5.23% 9,413 22,757 5.87% 22,661
------- ---- ------- ------- ---- -------
Other securities--bond
Within 1 year ........................... 250 8.00% 250
After 1 but within 5 years .............. 10 5.00% 10 1,046 5.67% 1,020
After 5 but within 10 years ............. 115 7.74% 115
Other securities--Government Fund ....... 2,235 5.52% 2,236
------- ---- ------- ------- ---- -------
Total other ............................ 375 7.84% 375 3,281 5.57% 3,256
------- ---- ------- ------- ---- -------
Other securities--with no fixed maturity.. 4,997 N/A 4,806
------- ---- ------- ------- ---- -------
Total .................................. $23,831 5.45% $23,825 $43,016 5.92% $42,767
======= ==== ======= ======= ==== =======

TYPES OF INVESTMENTS:

The following table shows the carrying value of the Company's investment
portfolio as of December 31, 1995, 1994 and 1993. As of December 31, 1995, the
Company had investments in mutual funds issued by Overland Express Variable Rate
Government Fund having an aggregate carrying value of $2,996,000 and an
aggregate market value of $2,798,000.

Carrying Value
December 31,
-------------------------------------
1995 1994 1993
------- -------- ------
(dollars in thousands)

Investments held to maturity:
U.S. Treasury securities ............. $13,960 $18,976 $25,249
U.S. Government agencies ............. 9,496 12,993 22,690
Corporate and other securities ....... 375 6,830 12,130
Mutual funds and other equities ...... 0 0 6,095
------- ------- -------
Total held to maturity .............. $23,831 $38,799 $66,164

Investments available for sale:
U.S. Treasury securities ............. $12,044 $12,612
U.S. Government agencies ............. 22,661 10,272
Corporate and other securities ....... 3,256 1,863
Equity securities .................... 2,008 1,659
Mutual funds ......................... 2,798 2,750
------- ------- -------
Total available for sale ............ 42,767 29,156
------- ------- -------
Grand Total ......................... $66,598 $67,955 $66,164
======= ======= =======

INTEREST EXPENSE

During 1995, the Company's cost of funds, measured by its interest expense,
significantly increased from $7,595,000 in 1994 to $9,785,000 in 1995. The
average rate paid on the Company's interest bearing deposits and other
liabilities increased 84 basis points from 3.35% in 1994 to 4.19% in 1995. The
rates paid for time deposits under $100,000 had the highest negative impact on
the Company's overall cost of funds. The average rate paid on time deposits
under $100,000 increased from 4.36% in 1994 to 5.45% in 1995, an increase of 109
basis points. Due to the increased competition for Core Deposits and business
accounts and relationships, which often generate a stable base of Core Deposits,
the Company had to rely more heavily on time deposits as a source of funds.
Total average time deposits increased from $115,511,000 in 1994 to $126,050,000
in 1995. Although less significant with regard to its impact on the Company's
overall cost of funds, the rates paid on Core Deposits also increased due to
competitive market conditions. The Company's average level of Core Deposits
decreased $3,739,000 from $149,805,000 in 1994 to $146,066,000 in 1995.

Unlike 1995, interest expense decreased to $7,595,000 in 1994 from
$8,187,000 in 1993. The decline in interest expense is attributed to the lower
level of average interest bearing liabilities, the stable cost of the Bank's
Core Deposit base and the effects of a lower interest rate environment. Average
interest bearing liabilities decreased from $227,838,000 as of December 31, 1993
and to $226,368,000 as of December 31, 1994. The Company's average interest rate
on interest bearing liabilities decreased to 3.35% in 1994 from 3.59% in 1993.
Average interest bearing Core Deposits as a percentage of total average interest
bearing deposits and other borrowings remained stable at 46% in 1994, as
compared to 47% in 1993. The stable base of lower cost Core Deposits allowed the
Company to control its overall interest expense. The average rate on time
deposits was 4.32% as compared to 2.16% on interest bearing Core Deposits during
1994. For 1993, these yields were 4.45% and 2.62%, respectively. The Company's
average cost of funds, including non-interest bearing demand deposits, was 2.79%
in 1994 as compared to 3.04% in 1993.

The Company anticipates that the upward pressure on market interest rates
for Core and time deposits during 1995 may continue in 1996 and may increase the
Company's overall cost of funds during 1996.

MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE:

The following table shows the amount outstanding of time deposits of
$100,000 or more by time remaining until maturity as of December 31, 1995.

(dollars in thousands)

Time remaining until maturity:

3 months or less ....................................... $ 5,657
Over 3 through 6 months ................................ 2,766
Over 6 through 12 months ............................... 3,165
Over 12 months ......................................... 3,215
-------
Total ................................................. $14,803
=======

SUMMARY OF AVERAGE INTEREST BEARING LIABILITIES AND DEMAND DEPOSITS

1995 1994 1993
---------------------- --------------------- ----------------------
(dollars in thousands)

Demand deposits ........................ $ 47,974 17.05% $ 46,290 17.0% $ 41,032 15.3%
NOW accounts ........................... 38,649 13.73 41,048 15.1 43,990 16.4
Money market accounts .................. 27,870 9.90 27,955 10.3 33,783 12.6
Savings deposits ....................... 31,573 11.22 34,512 12.6 28,287 10.5
Time deposits under $100,000 ........... 111,485 39.61 105,067 38.5 106,562 39.6
Time deposits $100,000 or more ......... 14,565 5.18 10,444 3.8 10,012 3.7
-------- ----- -------- ----- -------- -----
Total deposits ....................... 272,116 96.69 265,316 97.3 263,666 98.1
Other borrowings ....................... 9,317 3.31 7,362 2.7 5,204 1.9
-------- ----- -------- ----- -------- -----
Average deposits and other borrowings .. $281,433 100.0% $272,678 100.0% $268,870 100.0%
======== ===== ======== ===== ======== =====

PROVISION FOR LOAN LOSSES AND RISK ELEMENTS IN THE LOAN PORTFOLIO

The provision for loan losses charged to operations reflects management's
analysis of the loan portfolio and determination of an adequate allowance for
loan losses to provide for probable losses in the loan portfolio. The potential
for loss in the portfolio reflects the risks and uncertainties inherent in the
extension of credit.

TYPES OF LOANS:

The following table sets forth the composition of the Company's loan
portfolio as of the end of the last five fiscal years.

December 31,
------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ------- -------- ------- -------
(dollars in thousands)

Loans:
Commercial ........................... $ 58,746 $ 67,418 $ 75,230 $ 89,024 $111,378
Real Estate:
Construction ........................ 400 0 0 1,145 4,331
Commercial Mortgage ................. 54,518 57,097 70,212 78,381 76,095
Residential Mortgage ................ 45,399 36,605 26,625 17,418 16,956
Consumer ............................. 45,433 45,866 26,883 20,281 40,060
-------- -------- -------- -------- --------
Total Loans ........................... 204,496 206,986 198,950 206,249 248,820
Allowance for loan losses ............. (5,893) (6,827) (9,497) (10,574) (8,740)
-------- -------- -------- -------- --------
Net Loans ............................. $198,603 $200,159 $189,453 $195,675 $240,080
======== ======== ======== ======== ========

The determination of the adequacy of the allowance for loan loss is based
upon management's assessment of risk elements in the portfolio, factors
affecting loan quality and assumptions about the economic environment in which
the Company operates. The Company utilizes a loan grading system, based upon
FDIC parameters, and utilizes that assessment of the overall quality of the loan
portfolio in the process of determining an adequate allowance for loan loss
level. This system involves an ongoing review of the commercial and real estate
loan portfolios, with added emphasis on the Company's larger commercial credits
and nonperforming loans. Various factors are involved in determining the loan
grade, including the cash flow and financial status of the borrower, the
existence and nature of collateral, and general economic conditions and their
impact on the borrower's industry. These reviews are dependent upon estimates,
appraisals and judgments, which can change quickly due to economic conditions
and the Company's perceptions as to how these conditions affect the collateral
securing its current and past due loans as well as the borrower's economic
prospects. In each reporting period, the allowance for loan losses is reviewed
based on the most recent loan grading data and is adjusted to the amount
necessary, in the Company's judgment, to maintain adequate allowance for loan
loss levels. In 1995, the Company retained an independent management consultant
to review the Company's overall loan grading process and to perform individual
loan reviews. The results of the evaluation generally agreed with management's
assessments of the quality of its loan portfolio.

Although the real estate market and general economic conditions in
Connecticut have improved from their depressed 1991 levels, the Connecticut
economy continues to underperform when compared to the national economic
recovery. The Connecticut economy has had limited job creation over the past
twelve months which has slowed its overall economic recovery compared to other
New England states and the nation. These conditions have negatively impacted the
Company's borrowers with respect to debt service and have contributed to the
Company's need to charge-off certain loans and place additional loans on
nonaccrual status during 1995, 1994, and 1993.

The loan loss allowance decreased $934,000, or 14%, from $6,827,000 at
December 31, 1994 to $5,893,000 at December 31, 1995 and decreased $2,670,000,
or 28%, from $9,497,000 at December 31, 1993 to $6,827,000 at December 31, 1994.
However, the ratio of the allowance for loan losses to nonaccrual loans,
restructured loans and accruing loans past due 90 days or more increased to
76.8% at December 31, 1995 from 69.3% at December 31, 1994 and 37.9% at December
31, 1993. The ratio of the loan loss allowance to total loans was 2.9% at
December 31, 1995, as compared to 3.3% and 4.8% at December 31, 1994 and 1993,
respectively.

In 1995, the provision for loan losses was $3,663,000, as compared to
$9,199,000 in 1994 and $4,890,000 in 1993. Net loan charge-offs were $4,598,000,
or 2.24% of average total loans during 1995, as compared to $11,869,000, or
5.70%, in 1994 and $5,967,000, or 3.02%, in 1993. During the third quarter of
1994, the Company completed a bulk sale of problem loans consisting of
performing, nonaccrual and restructured loans having a gross book value of
$18,000,000. Charge-offs related to this loan sale were approximately
$6,500,000. Management believes that this loan sale was necessary in order to
improve the quality of its loan portfolio. The Company anticipates that the
level of 1996 net loan charge-offs will not be as great as the level of
charge-offs experienced by the Company in 1995.

As of December 31, 1995, nonaccrual loans were $5,964,000 as compared with
$7,043,000 as of December 31, 1994, and $8,803,000 as of December 31, 1993. As
of December 31, 1995, approximately $4,737,000 of the nonaccrual portfolio were
collateralized partially by commercial or residential real estate or business
assets and approximately $1,226,000 of nonaccrual loans were unsecured. The
Company is actively pursuing a workout plan for the orderly disposition of these
loans. The Company believes that its allowance for loan losses is adequate to
absorb any potential reduction of the net carrying value in the nonaccrual
portfolio. The ratio of nonaccrual loans to total loans declined from 3.40% at
December 31, 1994 to 2.92% at December 31, 1995.

CHANGE IN NONACCRUAL LOANS

The change in the Company's nonaccrual loan portfolio for the years ended
December 31, 1995 and 1994, respectively, are summarized below:

Year Ended December 31,
-----------------------
1995 1994
--------- --------
(dollars in thousands)

Balance at beginning of year ................ $7,043 $8,803
New nonaccrual loans ........................ 6,272 7,293
Decreases in nonaccrual loans:
Payments ................................... 1,373 2,043
Sales 1,312
Transfer to accruing status ................ 1,034 339
Transfer to restructured loans ............. 150 339
Transfer to OREO ........................... 452 247
Charge-offs ................................ 4,342 4,773
------ ------
Total .................................... $5,964 $7,043
====== ======

Accruing loans past due 90 days or more have decreased to $139,000 as of
December 31, 1995 from $357,000 as of December 31, 1994 and from $1,088,000 as
of December 31, 1993. The Company's nonaccrual policy states that any commercial
or mortgage loan attaining a 90-day past due status is placed on nonaccrual
unless such loan is well secured and in the process of collection. Exceptions to
placement on nonaccrual status that extend beyond 120 days must be approved by
the Board of Directors' Loan Committee. Any installment or consumer loan that
attains a 180-day past due status will be placed on nonaccrual regardless of
collateral value or collection proceedings. Previously accrued interest income
on loans placed on nonaccrual, which has not been collected, is reversed from
current period interest income. Nonaccruing loans are returned to accrual status
when principal and interest become current and collectibility is reasonably
assured. At December 31, 1995, loans totaling $83,000 were accruing past due
120-180 days. The amount of accrued but uncollected interest associated with
accruing loans past due 90 days or more was $6,000 in 1995, $7,000 in 1994 and
$44,000 in 1993.

At December 31, 1995, 1994 and 1993, the Company had restructured loans in
its loan portfolio of $1,570,000, $2,448,000 and $15,139,000, respectively.
These were accounted for in accordance with Statement of Financial Accounting
Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings." The Company recognizes interest income on restructured loans at
reduced, renegotiated rates. The Company earned an average yield of 7.56%, 6.33%
and 6.80% on restructured loans in 1995, 1994 and 1993, respectively. The
decline in restructured loans from 1993 to 1994 was primarily due to the
Company's bulk loan sale. Troubled debt restructured loans entered into after
January 1, 1995 are accounted for in accordance with Statement of Financial
Accounting Standards No. 114 ("SFAS 114").

The Company has adopted SFAS 114, "Accounting by Creditors For Impairment
of a Loan", effective January 1, 1995. The new accounting standard requires that
impaired loans, which are defined as loans where it is probable that a creditor
will not be able to collect both the contractual interest and principal
payments, be measured at the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral, if
the loan is collateral dependent, when assessing the need for a loss accrual.
The adoption of the standard resulted in an additional loan loss provision of
$500,000 which was recorded in the first quarter of 1995. As of December 31,
1995, the Company's recorded investment in loans that are considered to be
impaired under SFAS 114 was $5,590,000 of which $4,703,000 were on a nonaccrual
status and $509,000 were classified as troubled debt restructured loans. The
remaining $378,000 of loans classified as impaired, which are also classified as
potential problem loans, have either experienced slight delinquency problems or
collateral deterioration but continue to meet the contractual terms of the loan.
The Company has also identified several additional potential problem loans in
the amount of $2,015,000 as of December 31, 1995. Potential problem loans are
defined as loans where known information about possible credit problems of
borrowers causes management to have serious doubts as to the ability of such
borrowers to comply with the present loan repayment terms. These accruing loans
have generally experienced delinquency problems during the last several
quarterly periods or management believes that the borrowers potentially may
avail themselves of bankruptcy protection. However, they continue to be

less than 90 days delinquent as of December 31, 1995. If these credits continue
to have financial difficulties, they could be classified as nonaccrual loans and
become potential loan charge-offs in future quarterly periods.

IMPAIRED LOAN TABLE BY TYPE

The following table summarizes the Company's impaired loans by type as of
December 31, 1995.

Non- Troubled Debt Potential Total
Loan Type Accrual Restructured Problem Impaired
--------- ------- -------------- --------- --------
(dollars in thousands)

Commercial .......................................... $3,479 $470 $378 $4,327
Commercial Real Estate .............................. 1,224 39 0 1,263
Residential ......................................... 0 0 0 0
Consumer(1) ......................................... 0 0 0 0
------ ---- ---- ------
Total ............................................. $4,703 $509 $378 $5,590(2)
====== ==== ==== ======

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

(1) Smaller balance homogeneous loans, such as those found within the Company's
consumer loan portfolio, have been collectively evaluated and are not
considered impaired.

(2) Impaired loans of $3,038,000 and $2,552,000 were evaluated based on
collateral and discounted cash flows, respectively.

The following table sets forth information on nonaccrual, restructured and
past due ninety days or more (other than nonaccrual) loans and OREO as of
December 31, 1995, 1994, 1993, 1992, and 1991 determined in accordance with the
Company's policy in effect for the respective years. Interest income was not
recognized on nonaccrual loans for the years ending December 31, 1995, 1994 and
1993. If such loans had been accruing the entire year under their original
terms, approximately $649,000 of interest income would have been earned during
1995. At December 31, 1995, the Company had restructured loans in its loan
portfolio of $1,570,000. The amount of interest income on such restructured
loans included in net income during 1995 was $119,000. If such loans had been
accruing the entire year under their original terms, approximately $51,000 of
additional interest income would have been earned during 1995.

NONACCRUAL LOANS, OTHER REAL ESTATE OWNED, RESTRUCTURED LOANS AND
LOANS PAST DUE 90 DAYS OR MORE
(IN THOUSANDS)

December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------- ------ ------ ------ -------

Nonaccrual loans:
Commercial ...................................... $1,806 $3,712 $ 4,007 $ 5,647 $ 9,901
Real Estate:
Construction .................................... 0 0 0 0 344
Commercial ...................................... 3,628 3,129 4,578 3,533 4,878
Residential ..................................... 292 190 219 0 509
Consumer ......................................... 238 12 0 116 736
------ ------ ------- ------- -------
Total nonaccrual loans ........................... 5,964 7,043 8,804 9,296 16,368
Other real estate owned .......................... 614 1,852 5,993 8,687 11,832
------ ------ ------- ------- -------
Total nonperforming assets ....................... $6,578 $8,895 $14,797 $17,983 $28,200
====== ====== ======= ======= =======
Restructured loans ............................... $1,570 $2,448 $15,139 $15,280 $11,510
Accruing loans past due 90 days or more .......... $ 139 $ 357 $ 1,088 $ 1,783 $ 1,710
Allowance for loan losses ........................ $5,893 $6,827 $ 9,497 $10,575 $ 8,740
Ratio of nonperforming assets to total assets .... 2.2% 3.0% 5.1% 6.2% 9.0%
Ratio of nonperforming assets, restructured
loans and accruing loans past due 90 days
or more to total assets ......................... 2.8% 3.9% 10.8% 12.1% 13.3%
Ratio of nonperforming assets to total loans
and OREO ........................................ 3.2% 4.3% 7.2% 8.4% 10.9%
Ratio of nonperforming assets, restructured
loans, and accruing loans past due 90
days or more to total loans and OREO ............ 4.0% 5.6% 15.2% 16.3% 15.9%
Ratio of allowance for loan losses to
nonaccrual loans, restructured loans, and
loans past due 90 days or more .................. 76.8% 69.3% 37.9% 40.1% 29.5%
Ratio of nonaccrual loans, restructured loans,
and loans accruing past due 90 days or
more to shareholders' equity and allowance
or loan losses ................................... 35.7% 51.3% 84.3% 123.7% 103.7%

During the mid-1980's, the Bank, like a number of other Connecticut
institutions, grew rapidly by accumulating deposits and aggressively lending
into a healthy economy. The emphasis on lending did not include, however, a
similar commitment to loan underwriting policies, documentation and credit
administration. These lending practices, coupled with the subsequent dramatic
downturn in the local economy beginning in the late 1980's led to an excessive
level of nonperforming loans and the need to make successive, substantial
provisions to the allowance for loan losses.

In late 1989 and continuing into 1990, a substantially new management team
made a thorough analysis of the then current procedures, policies and resources
relating to the Bank's lending, credit standards, documentation and risk
assessment, and determined that all of these areas required significant
improvement. This process was accelerated in 1991 as a result of the Order.

Throughout this time period, the Company's management responded to the
changing economic situation. For example, during 1991 and 1992, aggregate loans
charged off were $9.2 million and $8.2 million, respectively, which amounts were
greater than the balances of the allowance for loan losses at the beginning of
each of those years. Significantly declining real estate values in the Company's
market area during these periods, among other things, caused the financial
deterioration of borrowers whose businesses are linked to the real estate market
and led to deterioration in real estate collateral values that caused additional
unanticipated charge-offs. This deterioration continued for a longer period than
originally anticipated. Unforeseen bankruptcies of certain borrowers due
primarily to the impact of the worsening economy additionally contributed to the
significant charge-offs.

During 1994, the Company made significant progress in reducing its exposure
to such problem assets substantially through a bulk loan sale, ongoing workout
efforts and loan chargeoffs. Continued progress was made in 1995 in improving
the Company's overall asset quality. Therefore, the ratio of nonperforming
assets, restructured loans and accruing loans past due 90 days or more to total
assets decreased to 2.8% at December 31, 1995 from 3.9% at December 31, 1994 and
10.8% at December 31, 1993.

The Company has not made loans to borrowers outside the United States. At
December 31, 1995, there were no concentrations exceeding 10% of total loans. A
concentration is defined as amounts loaned to multiple borrowers engaged in
similar activities which would cause them to be similarly affected by changes in
economic or other conditions. Although the Company makes loans on an unsecured
basis, it should be noted that the Company prefers not to lend to even its most
creditworthy borrowers on an unsecured basis. Accordingly, the Company accepts
residential and commercial real estate as collateral for a commercial loan. The
source of collateral does not always correlate with the borrower's use of the
loan proceeds. To this extent, serious declines in real estate values in the
Company's market area would negatively affect the collateral securing its
commercial and real estate loans but not necessarily impact the borrower's
ability to meet the terms of the loan.

SUMMARY OF LOAN LOSS EXPERIENCE:

For the periods indicated, the following table summarizes changes in the
allowance for loan losses as a result of loans charged off and recoveries on
loans previously charged off, and additions to the allowance for loan losses
which have been expensed.

December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------- ------ ------ ------ -------
(Dollars In Thousands)

BALANCES:
Loans
(Net of unearned discount)
Average ........................................ $205,249 $208,105 $197,902 $226,882 $260,758
End of Period .................................. 204,496 206,986 198,950 206,249 248,820
ALLOWANCE FOR LOAN LOSSES:
Balance, January 1 ............................. $ 6,827 $ 9,497 $ 10,575 $ 8,740 $ 6,491
Loans charged off:
Commercial .................................... 4,200 5,564 4,567 8,345 5,382
Real Estate:
Construction ................................. 0 0 0 70 113
Commercial mortgage .......................... 229 6,165 1,341 95 1,989
Residential mortgage ......................... 90 574 93 49 35
Consumer ...................................... 367 187 301 605 691
------- ------- -------- -------- --------
Total ....................................... 4,886 12,490 6,302 9,164 8,210
------- ------- -------- -------- --------
Loan recoveries:
Commercial .................................... 192 334 175 263 72
Real Estate:
Construction ................................. 0 0 0 0 0
Commercial mortgage .......................... 3 173 46 36 0
Residential mortgage ......................... 5 24 7 13 0
Consumer ...................................... 89 90 107 86 68
------- ------- -------- -------- --------
Total ....................................... 289 621 335 398 140
------- ------- -------- -------- --------
Net loans charged off .......................... 4,597 11,869 5,967 8,766 8,070
------- ------- -------- -------- --------
Provision for loan losses charged to
operations .................................... 3,663 9,199 4,889 10,601 10,319
------- ------- -------- -------- --------
Balance, December 31 ........................... $ 5,893 $ 6,827 $ 9,497 $ 10,575 $ 8,740
======= ======= ======== ======== ========
Net loans charged off to average loans ......... 2.24% 5.70% 3.02% 3.86% 3.09%

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES:

The Company's loan grading system serves as the basis for the Company's
loan loss allowance methodology. The loan loss allowance is determined by
assigning reserve coverages commensurate with the risk characteristics of the
loan portfolio, as established by the loan grading process. Provisions are
charged to income in an amount sufficient to maintain the allowance at a level
consistent with management's assessment of the risks inherent in the loan
portfolio. The allocation of the allowance for loan losses reflects management's
estimate of possible credit losses based on the loss potential associated with
specific loans, subjective assessment of risk characteristics in the portfolio
and historical loss experience. This allocation should not be regarded as an
indication of future losses or that losses will occur in these proportions.
Prior to 1994, the Company had not attempted to allocate specific portions of
the allowance to specific loan categories. The allowance should be considered in
its entirety and is available for credit losses across the entire portfolio. The
following table summarizes the allocation of the Company's allowance for losses
by loan type for the years ended December 31, 1995 and 1994.

December 31, 1995 December 31, 1994
---------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars In Thousands)

Commercial ......................................... $2,266 38.6% $4,066 59.6%
Real Estate:
Construction ...................................... 4 -- -- --
Commercial ........................................ 2,198 37.3% 1,878 27.5%
Residential ....................................... 509 8.6% 443 6.5%
Consumer ........................................... 307 5.2% 241 3.5%
Unallocated ........................................ 608 10.3% 199 2.9%
------ ------ ------ ------
Total ............................................ $5,893 100.00% $6,827 100.00%
====== ====== ====== ======

Management, after careful consideration of the above factors, is of the
opinion that the allowance for loan losses as of December 31, 1995 is adequate.
However, due to the slow recovery of the Connecticut economy, it is difficult to
predict how the future economy may impact the Company's loan customers. If
economic conditions continue to slowly improve during 1996, management believes
that the level of its nonaccrual loans could continue to decline throughout
1996. Nevertheless, nonaccrual loans will continue to impact the level of the
Company's profitability in future quarterly periods. The nature of the
Connecticut economy will continue to influence the levels of loan charge-offs,
nonaccrual loans and the allowance for loan losses, and management will
appropriately adjust the allowance as considered necessary to reflect future
changes in risk. The Bank was most recently examined jointly by the FDIC and
State Banking Department as of December 31, 1994. The Company's financial
statements reflect the results of these examinations as communicated to the Bank
by the regulators.

OTHER INCOME

The Company's core business operations generate various types of
non-interest income, such as service charges on deposit accounts, commissions
and fees, and other service charges. In addition, non-interest income is derived
from other sources, such as the gain or loss on the sale of assets, which may
vary in type from period to period. The Company consistently evaluates its
service charges to insure competitiveness as well as collection efficiency.
Other income significantly increased by $458,000 to $3,062,000 in 1995, from
$2,604,000 in 1994. Comparing 1994 to 1993, other income decreased $27,000 in
1994 to $2,604,000 from $2,631,000 in 1993.

The major components of other income are service charges and penalty fees
on checking accounts, which increased $512,000, or 31%, to $2,168,000 in 1995,
from $1,656,000 in 1994, and increased $30,000, or 2%, from $1,626,000 in 1993.
During 1995, the Company reevaluated and changed its methodology in assessing
and collecting penalty fees on overdrawn checking accounts.

The miscellaneous or other component of other income was $890,000 in 1995,
$997,000 in 1994 and $1,013,000 in 1993. A major component of miscellaneous
other income is mortgage placement fees earned for originating residential first
mortgage loans which were $200,000 in 1995, $234,000 in 1994 and $219,000 in
1993. Realized net gain (loss) on investment securities transactions were $5,000
in 1995, ($49,000) in 1994, and ($8,000) in 1993.

OPERATING EXPENSES

Operating expenses decreased $1,182,000, or 9%, to $11,487,000 in 1995 from
$12,669,000 in 1994. Comparing 1994 with 1993, operating expenses increased
$640,000, or 5%, to $12,669,000 in 1994 from $12,029,000 in 1993.

The reduction in operating expense during 1995 primarily resulted from a
significant decline in OREO expense which decreased $914,000, or 65%. This
decline can be attributed to a substantial reduction in OREO properties held and
more stabilized real estate values. Insurance expense also decreased $230,000,
or 22%, which was primarily attributed to lower FDIC deposit insurance expense.

The increase in operating expenses during 1994 can be primarily attributed
to higher salary and benefits expense which increased 12% due to merit salary
increases for the Bank's staff and additional full-time equivalent positions
primarily related to its loan origination functions. During 1994, certain
operating expenses associated with the management of the Bank's nonperforming
assets (i.e., insurance, legal and other professional fees) remained high.

Operating expenses, exclusive of OREO expense, decreased $268,000, or 2%,
during 1995 as compared to an increase of $1,030,000, or 10%, in 1994 and a
decrease of $719,000, or 7%, during 1993.

The following discussion highlights the larger operating expenses and those
with large year to year variances:

Salaries and Employee Benefits

Salaries and employee benefits of $5,472,000 in 1995 were stable when
compared with $5,483,000 in 1994. The Company's average full-time equivalent
positions held was 137 which was reduced from 142 in 1994. Compensation related
to the Company's mortgage program (loans sold or retained), which is paid on a
per loan closed basis, decreased to $130,000 as of December 31, 1995 as compared
to $195,000 for the same 1994 period due to a decline in mortgage origination
volume.

Salary and benefit costs increased 12% from $4,877,000 in 1993 to
$5,483,000 in 1994. The increase during 1994 is partially attributed to an
increase in the Company's average full-time equivalent positions which increased
from 136 in 1993 as compared to 142 in 1994. The increase in full-time
equivalent positions during 1994 is primarily related to increased loan volume
in its origination functions. In addition, mortgage origination compensation
increased to $195,000 as of December 31, 1994 as compared to $95,000 for the
same 1993 period due to an increase in volume.

Other than any additional employees associated with a potential expansion
of its branch network, the Company does not expect full-time equivalent
positions to increase during 1996, but will remain sensitive to continuing its
high level of service to its customers.

OREO Expense

OREO expense totaled $483,000 in 1995, $1,397,000 in 1994 and $1,787,000 in
1993. These amounts reflect losses on sales and writedowns of OREO properties,
as well as costs related to general property maintenance such as property taxes,
insurance and utilities. The Company incurred losses on the disposition of OREO
of $126,000 in 1995, as compared to $76,000 in 1994 and $25,000 in 1993. In
addition, the carrying values of OREO properties were written down $282,000 in
1995, $884,000 in 1994, and $1,543,000 in 1993. Maintenance costs for OREO
properties amounted to $74,000, $436,000 and $219,000 in 1995, 1994 and 1993,
respectively. The decrease in holding costs in 1995 as compared to 1994 is
primarily due to a decrease in the number of properties held in 1995 and the
change in the nature of these properties. The increase in holding costs in 1994
as compared to 1993 is primarily due to an increase in expenses related to the
subdivision of two parcels of land.

OREO properties are carried at the lower of 1) carrying value of the
related loan, or 2) fair value of OREO properties at date acquired through
foreclosure less the cost to dispose. Fair value is determined using the
Company's most recent appraisal or a more recent broker's valuation. In order to
facilitate the sale and ultimate disposition of OREO, the Bank may finance the
sale of a property at market rates to qualified, creditworthy borrowers. The
Bank adheres to the standards as set forth in Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate," relating to OREO
property sales. The Company values its OREO properties based on an asset by
asset review and on the assumption that an active market exists for those
properties. The Company's primary valuation technique is to derive values from
available comparable sales data and not from other evaluation criteria such as

discounted cash flows. In making the assumption that an active market exists for
OREO properties, the Company has made the determination that the properties are
salable in approximately one year and has valued each property at an amount
which the Company anticipates will permit the sale of such property in
approximately one year. Although the Company actively markets all OREO
properties for sale, no assurance can be given that properties will actually
sell in approximately one year, such sales being dependent upon relevant market
conditions which will vary from property to property, including the number of
comparable properties available for purchase at the time, the availability of
financing, and the stability or trends of real estate values in the area.

The Company anticipates an increase in the number of OREO properties held
during the early part of 1996 with the completion of foreclosure proceedings on
several problem loans currently on a nonaccrual status. However, the Company
anticipates its OREO expense should continue to decline during 1996, although
not to the same extent as in prior years. See Note 6, of Notes to Consolidated
Financial Statements.

Professional Fees

Professional fees, which include legal, accounting and consulting fees,
were $705,000 in 1995, a decrease from $776,000 in 1994 and $839,000 in 1993.
The high level of professional fees during the past three years is primarily
related to legal fees associated with the workout of nonperforming assets. With
the decline in nonperforming assets during 1995, it is anticipated that loan
workout-related expenses should continue to decline in the future. However, the
Company has outsourced its internal audit and loan review functions in 1995, the
cost of which will offset any savings incurred due to a declining level of
problem loans.

Insurance Expense

Insurance expense decreased significantly during 1995 to $793,000 from
$1,023,000 in 1994 and decreased from $1,112,000 in 1993. During 1995 and 1994,
insurance expense declined $230,000 (22%) and $89,000 (8%) over the prior years,
respectively. The decreases during 1995 and 1994 can be attributed to lower
premiums paid for FDIC insurance as well as a decrease in the Company's general
insurance premiums. During 1995, the Bank paid net FDIC insurance premiums of
$594,000 and premiums for other insurance of $199,000 as compared to 1994 levels
of $769,000 and $254,000, respectively, and 1993 levels of $818,000 and
$294,000, respectively.

The Bank was assessed FDIC insurance premiums of $0.31 per $100 of deposits
during 1993. Under the FDICIA, the FDIC has adopted regulations establishing a
risk-based assessment for insurance premiums pursuant to which higher insurance
rates are charged to institutions that pose greater risks to the deposit
insurance funds. In setting assessments, the FDIC is required to take into
account the revenue needs of the insurance fund and to set the assessments in a
manner that will be sufficient to maintain the fund's designated reserve ratio.
These provisions of FDICIA have affected the Company's January, 1994 and July,
1994 insurance premiums. Although the Company's rights offering during the third
quarter of 1993 increased its capital level to well-capitalized as defined by
its regulator, the Bank did not benefit from a decrease in risk-based premiums
until the Bank's risk assessment category was determined as of June 30, 1994.
Therefore, the Bank paid FDIC premiums of $0.31 per $100 of deposits in January
1994, $0.29 per $100 of deposits in July 1994 and $0.31 per $100 of deposits in
January 1995. During 1995, the FDIC's Bank Insurance Fund was over-reserved and,
consequently, deposit premiums were lowered and premium rebates were given to
banks in the third quarter of 1995 based on deposits reported in the first
quarter of 1995. The Company was given a rebate of $97,000 in the third quarter
of 1995. Because of the Bank's improved risk classification and generally lower
deposit premiums assessed for all banks, the Bank's premiums were reduced from
$.31 per $100 of deposits in January 1995 to $.29 per $100 of deposits in July
1995 to $.14 per $100 of deposits in October 1995. In January 1996, the Bank was
as assessed a rate of $.10 per $100 of deposits but the Company cannot predict
if this rate will change throughout 1996.

INCOME TAXES

Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109") which requires the asset/liability method of accounting for income taxes.
The adoption of SFAS 109 had no effect on the Company's accumulated deficit as
of January 1, 1993 as the deferred tax asset arising from net operating loss
carryforwards was fully reserved. At December 31, 1993 and 1994, the Company's
deferred tax asset was reduced by a 100% valuation allowance due to uncertainty
of future profitability. The Company's current income tax expense of $39,050,
$22,480, and $25,800 for the years ended December 31, 1995, 1994, and 1993
represents provisions for state minimum taxes. Due to operating losses for each
respective year, minimum taxes were payable primarily at the state level.

The Company recorded an income tax benefit of $1,034,000 in 1995 consisting
of a $1,073,000 tax benefit from the reduction of the deferred tax asset
valuation reserve, offset by a $39,050 provision for minimum federal and state
taxes currently payable. Due to the utilization of net operating loss
carryforwards, only minimum taxes are currently payable for federal and state
purposes. During 1995, as a result of increased earnings that are expected to
continue in the future, the Company reduced the valuation allowance by
$2,472,377 to approximately 91% of the deferred tax asset. This reduction of the
valuation allowance is based on estimated future taxable income for 1996. The
Company feels that its projections provide adequate support for reducing the
valuation allowance in 1995. As of December 31, 1995, the Company still had a
valuation reserve of $11,962,360 that can be reduced to some extent in future
periods if profitable operations continue. Due to net operating loss
carryforwards of approximately $21.6 million (expiring in 2010) and $30.6
million (expiring in 2000) for federal and state purposes respectively, the
Company expects to pay only minimum taxes again in 1996. For further information
on income taxes, see Note 9 of Notes to Consolidated Financial Statements.

The Company's rights offering in 1993 had the potential for limiting the
Company's ability to take advantage of certain tax loss carryforwards. Section
382 of the Internal Revenue Code of 1986 imposes an annual limitation on a
company's ability to utilize tax loss carryforwards if an "ownership change"
within the meaning of Section 382 occurs. The Company did not experience an
"ownership change" as a result of the rights offering. Future changes in the
ownership of the Company's stock could subject the Company to the annual
limitation on the use of the tax loss carryforwards. Notwithstanding that the
Company has not experienced an "ownership change" as a result of the rights
offering, utilization of the tax loss carryforward is limited to the extent that
the Company generates sufficient taxable income in the carryforward period.

LIQUIDITY

The primary focus of the Company's liquidity management is to match cash
inflows and outflows with funds provided by the Company's market for deposits
and loans. The Company's objective is to maintain adequate cash which is
invested in federal funds. During 1995, the average balance of federal funds
sold was $5,684,000. In the event that the Company needs to borrow cash to
manage its overnight or short-term position, the Company can borrow up to 2% of
its assets ($5,990,000 as of December 31, 1995) on an overnight basis from the
Federal Home Loan Bank of Boston ("FHLB") and has access to a $1,000,000 federal
funds line of credit with a commercial correspondent bank. As of December 31,
1995, the Company had no outstanding overnight borrowings at the FHLB. In
addition, the Company has access to $2,000,000 in short-term funds via reverse
repurchase agreements with a brokerage firm. The Bank also has the ability to
borrow term advances (from one week to twenty years) from the FHLB. Its total
term advance line is $15,043,000 of which $5,547,000 was outstanding as of
December 31, 1995. In order to utilize the additional borrowing capacity of
$9,459,000, approximately $5,000,000 of additional collateral would need to be
pledged. The Company's investment portfolio also provides a secondary source of
liquidity.

The liquidity process is monitored by the Company's Asset Liability
Committee ("ALCO"), which meets regularly to implement its asset/liability and
funds management policy. ALCO's role is to evaluate liquidity and interest rate
risk and their impact on earnings. The Committee developed a reporting system
that integrates the current interest rate environment of the national and local
economy with the maturities and the repricing schedules of both the assets and
liabilities of the Company. The objective of ALCO is to manage the Company's
assets and liabilities to provide an optimum and stable net interest margin and
to facilitate a constant level of net interest income.

As of December 31, 1995, the Company's liquidity ratio, as defined by the
FDIC's criteria, was 29.3% compared to 25.9% as of December 31, 1994 and 30.4%
as of December 31, 1993. The liquidity ratio is defined as the total of cash,
short-term investments and other marketable assets, divided by total deposits
and short-term liabilities. Management believes that its liquidity position is
adequate as of December 31, 1995.

Effective January 1, 1994, the Company adopted the provisions of the
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115, debt
securities classified as held to maturity are reported at amortized cost. Debt
and equity securities (not held for trading activities or to maturity) are
reported at fair value with unrealized gains or losses excluded from income and
reported as a separate component of shareholders' equity. In order to classify
securities as held to maturity, management must have the positive intent and
ability to hold the securities to maturity. During 1995, the Financial
Accounting Standards Board ("FASB") issued a pronouncement allowing companies to
make a one-time repositioning of their portfolios, offering the ability to
transfer securities from the held to maturity portfolio to the

available for sale portfolio. The Company availed itself of this opportunity and
transferred $5,100,000 (par value) of corporate bonds from its held to maturity
portfolio to its available for sale portfolio. As of December 31, 1995 and 1994,
64% and 42%, respectively, of the Company's total investment portfolio is
classified as available for sale. The adoption on January 1, 1994 and ongoing
compliance with SFAS 115 has not had an adverse effect on the Company's net
interest margin, regulatory capital ratios or ability to meet its liquidity
obligations.

INTEREST RATE SENSITIVITY

The Company concentrates its efforts on evaluating interest rate risk and
appropriately adjusts for changes in rates and maturities of its assets and
liabilities. The Company's objective is to provide stable net interest income.
The following table illustrates the ratio of rate sensitive assets to rate
sensitive liabilities as they mature and/or reprice within the indicated
periods. As of December 31, 1995, the Company's rate sensitive assets repricing
or maturing approximately equalled its rate sensitive liabilities during the
first ninety days. This results from having approximately 38% of the Company's
loan portfolio available to reprice within thirty days. In an increasing rate
environment, asset sensitivity enhances earnings potential, whereas liability
sensitivity would negatively impact earnings. In contrast, in a declining rate
environment, asset sensitivity would negatively impact earnings, whereas
liability sensitivity enhances earnings potential. The Company's rate sensitive
assets closely approximate, within 1%, its rate sensitive liabilities between
the periods of one month to twelve months. The Company is "liability sensitive"
beyond one year which is primarily due to its Core Deposits, which are
considered stable and not easily influenced by changes in interest rates. At
December 31, 1995, the amount of the Company's cumulative gap with respect to
assets and liabilities maturing or repricing within one year was $3,765,000 more
assets than liabilities repricing (a positive gap position), representing a
positive 1% cumulative gap to total rate sensitive assets. The Company's ALCO
manages the gap position on an ongoing basis to assure an interest rate risk not
to exceed more than a 3% change in net interest income for a one year period. If
interest rates were to immediately increase by 200 basis points, the negative
impact on the Company would be within ALCO's tolerance level.

The following table sets forth the distribution of the repricing of the
Company's earning assets and interest bearing liabilities at a single point in
time, as of December 31, 1995. The table shows the interest rate sensitivity gap
(i.e., interest rate sensitive assets less interest rate sensitive liabilities),
the cumulative interest rate sensitivity gap, the interest rate sensitivity gap
ratio (i.e., gap divided by total rate sensitive assets) and the cumulative
interest rate sensitivity gap ratio. The table also sets forth the time periods
in which interest earning assets and interest bearing liabilities will mature or
may reprice in accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate movements on the
net interest margin since the Company's repricing of various categories of
assets and liabilities is subject to competitive pressures and the needs of the
Company's customers. The Company's interest rate sensitivity position is
adjusted as ALCO's assessment of the interest rate outlook and other factors are
modified. As the Company increases its total assets, the overall business plan
provides for matching its assets and liabilities to reduce interest rate risk
and liquidity risk.

INTEREST RATE SENSITIVITY TABLE
(DOLLARS IN THOUSANDS)

December 31, 1995
--------------------------------------------------------------------
Month Month Month Months Months Over 1
1 2 3 4-6 7-12 Year Total
--------- -------- -------- ------- ------- --------- ---------

Rate Sensitive Assets:
Loans (1) .......................... $77,914 $ 4,931 $ 2,994 $11,832 $22,643 $ 77,418 $197,732
Investments ........................ 19,325 5,475 6,256 11,480 9,009 21,045 72,590
------- ------- ------- -------- ------- -------- --------
Total Rate Sensitive Assets ......... 97,239 10,406 9,250 23,312 31,652 98,463 270,322
------- ------- ------- -------- ------- -------- --------
Rate Sensitive Liabilities:
Time Deposits ...................... 12,130 7,892 10,926 28,694 22,331 36,145 118,118
Other Deposits ..................... 82,621(2) 696 1,304 1,500 0 78,814(3) 164,935
------- ------- ------- -------- ------- -------- --------
Total Rate Sensitive Liabilities .... 94,751 8,588 12,230 30,194 22,331 114,959 283,053
------- ------- ------- -------- ------- -------- --------
Net Gap ............................. 2,488 1,818 (2,980) (6,882) 9,321 (16,496) (12,731)
------- ------- ------- -------- ------- -------- --------
Cumulative Gap ...................... $ 2,488 $ 4,306 $ 1,326 $ (5,556) $ 3,765 $(12,731) $(12,731)
======= ======= ======= ======== ======= ======== ========
Net Gap as % of total rate
sensitive assets ................... 1% 1% -1% -2% 1% -4% -4%

Cumulative Gap as % of total rate
sensitive assets ................... 1% 2% 0% -2% 1% -5% -5%

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

(1) Excludes nonaccrual loans.

(2) The Company has assumed that 100% of money market and NOW accounts will
reprice within 30 days based on local market conditions.

(3) The Company has assumed that 90% of demand and savings deposits will not be
withdrawn in less than one year based on its analysis of industry
experiences and the rate of runoff of such deposits.

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES:

The Company's loan portfolio, as of December 31, 1995, is comprised of
variable and fixed interest rate obligations. Commercial loans, which comprise
approximately 29% of the portfolio, are demand or time obligations with rates
tied to the prime rate of interest. Commercial real estate loans, which
constitute approximately 27% of the total loan portfolio, are made for fixed
terms and generally reprice within one to three years. Consumer loans, which
constitute 22% of the loan portfolio, consist primarily of fixed rate automobile
loans with an average contractual life of approximately four years and home
equity loans that are tied to the prime rate of interest. Residential real
estate loans, which constitute 22% of the loan portfolio, are comprised of
variable rate loans which reprice within one year (61% of the residential
portfolio) and fixed rate loans.

The following tables present the maturity distribution and interest
sensitivity of total loans by category at December 31, 1995 based on the
original contractual terms. (Demand loans are included in the "due in one year
or less" category.) Renewal requests by business entities are granted if the
customer is deemed creditworthy. This determination is made in substantially the
same manner as new applications for extension of credit. Both maturity date and
interest rate terms of renewals are based on review of the customer's credit
needs, and current and future economic conditions.

Due After
One Year
Due in Through
One Year Five Due After
or Less (1) Years Five Years Total
--------- -------- ----------- --------
(Dollars In Thousands)

Commercial ............................................... $51,210 $ 7,294 $ 215 $ 58,719
Construction ............................................. 400 400
Real Estate:
Commercial Mortgage ..................................... 27,422 6,054 21,043 54,519
Residential Mortgage .................................... 895 511 43,992 45,398
Consumer ................................................. 6,966 35,745 2,749 45,460
------- -------- ------- --------
Total Loans ............................................ $86,893 $ 49,604 $67,999 $204,496
======= ======== ======= ========
Interest sensitivity:
Interest rates fixed or predetermined:
Due within one year ..................................... $ 5,888
Due after one year ...................................... 62,386

Interest rates floating or adjustable:
Within one year ......................................... 121,668
After one year .......................................... 14,554
--------
Total .................................................. $204,496
========

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

(1) This amount represents all amounts due in one year. It includes the
principal amount of commercial lines of credit due within one year on which
the principal balance may or may not be reduced during the year and which
lines may, based on the Bank's credit evaluation, be extended for
additional periods. At this time, the Company is unable to predict how much
of the disclosed amount will actually be paid during the year. Based on
experience, the Company assumes that an insubstantial amount of such
principal will be paid down during the year and, as such, will not serve as
a principal source of liquidity for the Company's operations.

CASH FLOWS

The Company generated a negative aggregate cash flow of $2,193,000 as of
December 31, 1995 as compared to a positive aggregate cash flow of $9,663,000 as
of December 31, 1994 and a negative aggregate cash flow of $9,472,000 as of
December 31, 1993.

The Company had net income of $1,811,000 in 1995 as compared to net losses
of $6,188,000 and $2,512,000 for 1994 and 1993, respectively, and cash flows
provided by operating activities were $5,831,000, $4,459,000 and $6,213,000 for
the respective periods. This was due in part to the fact that reported earnings
were affected by significant non-cash charges, including provisions for loan
losses and writedowns on OREO.

Net cash used by financing activities in 1995 was $3,658,000, primarily due
to a decrease in federal funds purchased and securities sold under repurchase
agreements. A net decrease in time deposits when comparing year-end 1995 to
1994, was offset by an increase in proceeds from FHLB advances for the same
period. Net cash provided by financing activities in 1994 was $19,274,000
primarily due to an increase in core deposits, time deposits and net borrowed
funds of $8,085,000, $5,025,000 and $6,164,000, respectively. Net cash used by
financing activities in 1993 was $120,000 primarily due to a decrease of core
deposits, time deposits and Federal Home Loan Bank Advances of $5,521,000,
$2,992,000 and $3,000,000, respectively, and offset by the Company's common
stock rights offering that generated net proceeds of $11,992,000.

Net cash used by investing activities was $4,366,000 for 1995, caused
primarily by investment security purchases and funds used for net loans
originated and matured, partially offset by the sales and maturities of
investment securities. Net cash used by investing activities was $14,071,000 in
1994, of which the major factors were the purchase of investment securities of
$16,231,000, net loans originated and matured of $35,650,000 and offset by
investment securities maturities and sales of $8,005,000 and $3,955,000 as well
as proceeds from the sales of loans of

$15,744,000. Net cash used by investing activities was $15,565,000 in 1993 of
which the primary components were purchase of investment securities of
$42,506,000 and offset by the sale and maturity of investment securities of
$8,004,000 and $21,751,000, respectively.

CAPITAL RESOURCES

The Company and the Bank are subject to the capital adequacy rules of
several regulators. Effective December 19, 1992, each federal banking agency
issued final rules to carry out the "prompt corrective action" provisions of
FDICIA. The regulations adopted, among other things, defined capital measures
and the capital thresholds for each of the five capital categories established
in the statute and established a uniform schedule for filing of capital
restoration plans by undercapitalized institutions. The following table
identifies generally the capital measures and thresholds defined under the FDIC
and Federal Reserve Board rules:

Total Risk- Tier 1 Risk-
Based Ratio Based Ratio Tier 1 Leverage Ratio
----------- ------------ ---------------------

Well Capitalized ............................. 10% or above & 6% or above & 5% or above
Adequately Capitalized ....................... 8% or above & 4% or above & 4% or above
Undercapitalized ............................. Under 8% or Under 4% or Under 4%
Significantly Undercapitalized ............... Under 6% or Under 3% or Under 3%
Critically Undercapitalized .................. A ratio of tangible
equity to total assets
equal to or under 2%

To qualify as well capitalized or adequately capitalized, the financial
institution must meet the requirements of all three capital measurements.
Undercapitalized and significantly undercapitalized institutions will be
categorized as such if the institution fails to meet any of the three capital
measurements. The risk-based capital guidelines establish a measurement of
capital adequacy by relating a banking organization's capital to its financial
risks, both on and off-balance sheet. As of December 31, 1995, 1994 and 1993,
the Company's total risk-based capital ratio was 9.37%, 8.09% and 11.04%,
respectively. The second capital measure is the Tier 1 risk-based ratio, which
includes only core capital as it measures the relationship to risk-weighted
assets. As of December 31, 1995, 1994 and 1993, the Company's Tier 1 risk-based
ratio was 8.10%, 6.80% and 9.75%, respectively. The third capital adequacy
measure is the ratio of Tier 1 (or core) leverage capital (using the same
definition of capital as used in the risk-based guidelines) to average total
assets. The Company's Tier 1 leverage ratio was 5.29%, 4.68% and 7.01% as of
December 31, 1995, 1994 and 1993, respectively. As of December 31, 1995, based
on the above criteria, the Company falls within the adequately capitalized
category.

As of December 31, 1995, 1994 and 1993, the Bank's total risk-based capital
ratio was 9.35%, 8.03% and 10.72%, respectively, while its Tier 1 risk-based
capital ratio was 8.08%, 6.75% and 9.43%, respectively, and its Tier 1 leverage
ratio was 5.29%, 4.66% and 6.81%, respectively. As of December 31, 1995, based
on the above criteria, the Bank falls within the adequately capitalized
category.

The reporting of debt and equity securities (not held for trading
activities or to maturity) for the purposes of calculating Tier 1 capital for
the Company and the Bank differs from reporting under SFAS 115. Under final FDIC
regulations, net unrealized losses for equity securities that are available for
sale are included in the calculation of Tier 1 capital. All other net unrealized
gains or losses on available for sale securities are excluded from the
definition of Tier 1 capital. As of December 31, 1995 and 1994, Tier 1 capital
was reduced $191,000 and $255,000 to reflect the unrealized depreciation on the
Company's equity securities held as available for sale.

The Company's undivided profits (losses) component of shareholders' equity
has decreased from ($27,217,000) as of December31, 1993 to ($33,393,000) as of
December 31, 1994 and has increased to ($31,582,000) as of December 31, 1995.
Under Connecticut law, the Company may declare and pay cash dividends only out
of unreserved and unrestricted undivided profits. The Company suspended payment
of its quarterly cash dividends during 1990. The Company's ability to pay cash
dividends in future quarters is restricted until such funds are available
therefor.

FDICIA requires each federal banking agency to revise its risk-based
capital standards for insured institutions to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and risks
of non-traditional activities, and reflect the actual performance and expected
risk of loss on multi-family residential loans. Regulations adopted by the
Federal Reserve Board, the FDIC and other bank regulatory agencies to implement

this provision require the regulators to take account of, among other factors,
interest rate risk, concentration of credit risks and risks of nontraditional
activities, in setting individual minimum capital requirements for institutions.
Such regulations may, however, further increase the regulatory capital
requirements which are applicable to the Company and the Bank.

IMPACT OF INFLATION AND CHANGING PRICES

The Company's financial statements have been prepared in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effect of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services. Notwithstanding this,
inflation can directly affect the value of loan collateral, in particular real
estate. Sharp decreases in real estate prices, as discussed previously, have
resulted in significant loan losses and losses on OREO. Inflation, or
disinflation, could continue to significantly affect the Company's earnings in
future periods.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 121

In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"), which the Company will adopt on January
1, 1996. SFAS 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The adoption of this standard is not
expected to have a material impact on the Company's financial condition or its
results of operations.

SFAS No. 122

In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights--an amendment of FASB
Statement No. 65" ("SFAS 122"), which the Company will adopt on January 1, 1996.
SFAS 122 amends FASB Statement No. 65, "Accounting for Certain Mortgage Banking
Activities," to provide that a mortgage banking enterprise recognize as separate
assets rights to service mortgage loans for others, however those servicing
rights are acquired. It also requires the Company to assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. The adoption of this standard is not expected to have a material impact
on the Company's financial condition or its results of operations.

SFAS No. 123

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 establishes financial accounting and reporting standards for stock-based
compensation plans. SFAS 123 defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, SFAS 123 also allows the Company to continue to
measure compensation costs for stock-based compensation plans using the
intrinsic value based method of accounting prescribed by APB No. 25, "Accounting
for Stock Issued to Employees" and make pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting defined in
SFAS 123 had been applied. The Company has elected not to adopt the accounting
requirements of SFAS 123 and continue to account for stock-based compensation
plans in accordance with APB No. 25. The Company's fiscal 1996 financial
statements will include the pro forma disclosure requirements of SFAS 123.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a) The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-K on the following
pages:

Page
-----
Report of Independent Accountants ................................. 35
BNH Bancshares, Inc. (and Subsidiaries):
Consolidated Statement of Financial Position ..................... 37
Consolidated Statement of Operations ............................. 38
Consolidated Statement of Cash Flows ............................. 39
Consolidated Statement of Changes in Shareholders' Equity ........ 40
Notes to Consolidated Financial Statements ....................... 41

(b) The following supplementary data is set forth in this
Annual Report on Form 10-K on the following pages:

Consolidated Quarterly Financial Data ............................ 56

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
the Shareholders of
BNH Bancshares, Inc.

We have audited the accompanying consolidated statement of financial
position of BNH Bancshares, Inc. and its Subsidiaries (the "Company") as of
December 31, 1995, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BNH Bancshares, Inc. and its Subsidiaries as of December 31, 1995 and the
consolidated results of its operations, and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

As discussed in Notes 1 and 4 to the consolidated financial statements, the
Company changed its method of accounting for impaired loans in 1995, investments
in 1994, and income taxes in 1993.

COOPERS & LYBRAND L.L.P.

New Haven, Connecticut
January 26, 1996

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
the Shareholders of
BNH Bancshares, Inc.

In our opinion, the accompanying consolidated statements of financial
position and related consolidated statements of operations, of cash flows and of
changes in shareholders' equity present fairly, in all material respects, the
financial position of BNH Bancshares, Inc. and its subsidiaries at December 31,
1994 and the results of their operations, and their cash flows for the years
ending December 31, 1994 and 1993 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits 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, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

The Company adopted a new Financial Accounting Standard for investments in
1994 as described in Note 1.

PRICE WATERHOUSE LLP

Hartford, Connecticut
February 21, 1995

BNH BANCSHARES, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

December 31,
----------------------------------
1995 1994
------------ ------------

ASSETS
Cash and due from banks .............................................. $ 19,818,406 $ 22,011,625
Federal funds sold ................................................... 5,800,000
Investment securities:
Held to maturity (fair value $23,825,146 and $36,597,058) ........... 23,830,868 38,799,457
Available for sale, at fair value ................................... 42,766,901 29,155,531
Loans:
Commercial .......................................................... 58,745,612 67,418,046
Real estate:
Construction ....................................................... 400,000
Commercial mortgage ................................................ 54,518,084 57,096,802
Residential mortgage ............................................... 45,398,532 36,604,695
Consumer ............................................................ 45,433,205 45,866,001
------------ ------------
Total loans ....................................................... 204,495,433 206,985,544
Less allowance for loan losses ....................................... (5,892,675) (6,827,374)
------------ ------------
Loans--net ........................................................... 198,602,758 200,158,170
Property and equipment--net .......................................... 3,891,749 4,139,386
Accrued interest receivable .......................................... 2,052,832 2,140,277
Other real estate owned .............................................. 614,272 1,852,068
Other assets ......................................................... 1,533,294 918,672
------------ ------------
TOTAL ASSETS ....................................................... $298,911,080 $299,175,186
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand deposits ..................................................... $ 52,320,298 $ 59,232,645
NOW accounts ........................................................ 44,018,506 39,869,769
Money market accounts ............................................... 29,395,173 23,095,704
Savings deposits .................................................... 32,508,789 36,169,539
Time deposits under $100,000 ........................................ 103,719,077 108,055,465
Time deposits $100,000 or more ...................................... 14,802,638 11,293,040
------------ ------------
Total deposits ..................................................... 276,764,481 277,716,162
Federal funds purchased and securities sold
under repurchase agreements 3,561,134
Federal Home Loan Bank advances ...................................... 5,546,683 4,692,180
Accrued interest payable ............................................. 404,262 304,815
Other liabilities .................................................... 602,931 545,236
------------ ------------
TOTAL LIABILITIES .................................................. 283,318,357 286,819,527
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock $.01 stated value,
authorized 30,000,000, issued 14,745,756 ........................... 147,458 147,458
Capital surplus ..................................................... 47,523,492 47,523,492
Undivided losses .................................................... (31,581,840) (33,392,619)
Net unrealized losses on investment securities available for sale ... (249,216) (1,675,501)
Treasury stock (19,106 shares), at cost ............................. (247,171) (247,171)
------------ ------------
Total shareholders' equity .......................................... 15,592,723 12,355,659
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $298,911,080 $299,175,186
============ ============

See accompanying Notes to Consolidated Financial Statements.

BNH BANCSHARES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31,
-----------------------------------------------
1995 1994 1993
----------- ----------- ------------

INTEREST INCOME:
Loans ...................................................... $18,432,118 $17,287,044 $16,356,622
Investment securities:
Held to maturity .......................................... 1,842,188 1,895,835 3,219,337
Available for sale ........................................ 2,045,541 1,464,300
Federal funds .............................................. 329,522 46,343 229,231
----------- ----------- ------------
Total interest income ..................................... 22,649,369 20,693,522 19,805,190
----------- ----------- ------------
INTEREST EXPENSE:

Time deposits of $100,000 or more .......................... 772,530 416,151 423,334
Other deposits ............................................. 8,439,596 6,812,760 7,535,005
Other borrowings ........................................... 572,826 366,198 228,248
----------- ----------- ------------
Total interest expense .................................... 9,784,952 7,595,109 8,186,587
----------- ----------- ------------
NET INTEREST INCOME ......................................... 12,864,417 13,098,413 11,618,603
PROVISION FOR LOAN LOSSES ................................... 3,663,000 9,199,054 4,889,890
----------- ----------- ------------
NET INTEREST INCOME AFTER
LOAN LOSS PROVISION ........................................ 9,201,417 3,899,359 6,728,713
----------- ----------- ------------
OTHER INCOME:
Net income (loss) on investment securities ................. 5,128 (49,290) (8,125)
Service charges ............................................ 2,167,659 1,656,239 1,626,210
Other ...................................................... 889,511 996,852 1,012,625
----------- ----------- ------------
Total other income ........................................ 3,062,298 2,603,801 2,630,710
----------- ----------- ------------
OPERATING EXPENSES:
Salaries and employee benefits ............................. 5,471,592 5,483,290 4,877,140
Occupancy .................................................. 1,328,196 1,284,854 1,162,165
Advertising and promotion .................................. 462,849 357,500 416,453
Office stationary and supplies ............................. 256,725 302,276 243,564
Professional fees .......................................... 704,613 775,624 839,262
Insurance .................................................. 793,147 1,023,237 1,111,977
Other real estate owned expense ............................ 482,539 1,396,562 1,787,440
Other ...................................................... 1,987,226 2,045,484 1,591,268
----------- ----------- ------------
Total operating expense ................................... 11,486,887 12,668,827 12,029,269
----------- ----------- ------------
INCOME (LOSS) BEFORE TAXES .................................. 776,828 (6,165,667) (2,669,846)
PROVISION (BENEFIT) FOR INCOME TAXES ........................ (1,033,950) 22,480 (158,128)
----------- ----------- ------------
NET INCOME (LOSS) ........................................... $ 1,810,778 $ (6,188,147) $ (2,511,718)
=========== ============ ============
NET INCOME (LOSS) PER SHARE ................................. $0.12 ($0.42) ($0.29)
WEIGHTED AVERAGE SHARES OUTSTANDING ......................... 14,726,650 14,726,650 8,797,465

See accompanying Notes to Consolidated Financial Statements.

BNH BANCSHARES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended December 31,
-----------------------------------------------
1995 1994 1993
----------- ----------- ------------

OPERATING ACTIVITIES
Net income (loss) ................................................ $ 1,810,778 ($ 6,188,147) ($ 2,511,718)
Adjustments for items not affecting cash:
Provision for loan losses ........................................ 3,663,000 9,199,054 4,889,890
Depreciation and amortization of property and equipment .......... 504,487 547,035 518,776
Accretion (amortization) of bond premiums and discounts .......... (180,687) 175,504 78,548
Losses (gains) on investment securities transactions, net ........ (5,127) 49,290 8,125
Gains on sales of longer term loans .............................. (30,000)
Loss/writedown on other real estate owned ........................ 408,598 960,033 1,568,023
Decrease in interest receivable .................................. 87,445 7,587 34,005
Increase (decrease) in interest payable .......................... 99,447 30,220 (90,575)
Other, net (incl. deferred tax asset) ............................ (556,926) (291,084) 1,717,470
----------- ----------- -----------
Net cash provided by operating activities ........................ 5,831,015 4,459,492 6,212,544
----------- ----------- -----------
FINANCIAL ACTIVITIES
Net increase (decrease) in demand, NOW,
money market and savings accounts ............................... (124,891) 8,084,519 (5,521,028)
Net increase (decrease) in time deposits ......................... (826,790) 5,025,323 (2,991,870)
Net increase (decrease) in federal funds purchased
and securities sold under repurchase agreements ................. (3,561,134) 3,472,200 (599,899)
Net proceeds from common stock rights offering 11,992,442
Proceeds from Federal Home Loan Bank advance ..................... 854,503 4,692,180
Payment of Federal Home Loan Bank advance ........................ (2,000,000) (3,000,000)
----------- ----------- -----------
Net cash provided (used) by financing activities ................. (3,658,312) 19,274,222 (120,355)
----------- ----------- -----------
INVESTING ACTIVITIES
Net decrease (increase) in federal funds sold .................... (5,800,000) 6,690,354 (5,090,354)
Purchase of investment securities ................................ (42,506,494)
Proceeds from sale of investment securities ...................... 8,003,843
Proceeds from maturities of investment securities ................ 21,750,882
Purchase of securities held to maturity .......................... (500,000) (7,889,439)
Maturities of securities held to maturity ........................ 10,200,000 8,005,000
Purchase of securities available for sale ........................ (32,396,633) (8,341,723)
Maturities of securities available for sale ...................... 11,552,676 593,624
Proceeds from sale of available for sale securities .............. 14,113,275 3,954,710
Net loans originated and matured ................................. (1,943,302) (35,443,910) (430,278)
Purchase of property and equipment ............................... (256,850) (393,855) (180,362)
Proceeds from sales of loans ..................................... 16,447,790
Net proceeds from sale of other real estate owned ................ 664,913 2,306,269 2,888,221
----------- ----------- -----------
Net cash provided by investing activities ........................ (4,365,922) (14,071,180) (15,564,542)
----------- ----------- -----------
Increase (decrease) in cash ...................................... (2,193,219) 9,662,534 (9,472,353)
Cash and due from banks at beginning of period ................... 22,011,625 12,349,091 21,821,444
----------- ----------- -----------
Cash and due from banks at end of period ......................... $19,818,406 $22,011,625 $12,349,091
=========== =========== ===========
Cash paid for:
Interest expense ................................................ $ 9,684,885 $ 7,564,889 $ 8,277,162
Income taxes .................................................... 39,050 22,480 25,800

Non-cash transfers from loans receivable to other real estate owned was
$809,467, $308,709 and $1,762,252 for the twelve month periods ending December
31, 1995, 1994 and 1993, respectively.

Non-cash transfers from other real estate owned to loans receivable for
transactions that satisfy sales treatment were $973,750, $1,379,073 and
$1,061,401 for the twelve month periods ending December 31, 1995, 1994 and 1993,
respectively.

The Company received a federal tax refund of $2,161,000 in 1993.

See accompanying Notes to Consolidated Financial Statements.

BNH BANCSHARES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Year Ended December 31,
----------------------------------------------
1995 1994 1993
----------- ----------- -----------

SHAREHOLDERS' EQUITY, Beginning of Year ..................... $12,355,659 $20,206,348 $10,738,583

COMMON STOCK
Adopted stated value of $.01 ............................... (4,298,433)
Net proceeds of rights offering ............................ 104,039

CAPITAL SURPLUS
Adopted Stated Value of $.01 ............................... 4,298,433
Net proceeds of rights offering ............................ 11,888,403

UNDIVIDED PROFITS
Net income (loss) .......................................... 1,810,778 (6,188,147) (2,511,718)
Change in unrealized depreciation on
marketable equity securities .............................. 12,959 (12,959)
Unrealized appreciation (depreciation) on
investment securities available for sale .................. 1,426,286 (1,675,501)
----------- ----------- -----------
SHAREHOLDERS' EQUITY, End of Year ........................... $15,592,723 $12,355,659 $20,206,348
=========== =========== ===========

See accompanying Notes to Consolidated Financial Statements.

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of BNH Bancshares, Inc. ("the
Company") conform with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The significant policies are summarized below.

Basis Of Presentation: The consolidated financial statements include the
accounts of the Company and its subsidiaries, The Bank of New Haven ("the Bank")
and Northeastern Capital Corporation ("Northeastern"). All intercompany accounts
have been eliminated.

For the purpose of reporting cash flows, the Company has defined cash and
cash equivalents as cash on hand and demand deposits due from other financial
institutions.

Nature Of Operations: The Company operates eight branches in the greater
New Haven metropolitan area located in southwestern Connecticut. The Company's
primary source of revenue is providing loans to customers who are predominantly
small and middle market businesses and middle income individuals.

Investment Securities: The Company adopted, as of January 1, 1994,
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." ("SFAS 115")

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, adjusted for amortization of premiums and accretion of discounts. Debt and
equity securities which are not classified as held to maturity or as trading
securities are classified as available for sale and reported at fair value, with
unrealized gains and losses excluded from the results of operations and reported
as a separate component of shareholders' equity, net of income taxes, if
applicable. Realized gains and losses on sales of all securities are reported in
earnings and computed using the specific identification cost basis. Fair values
of securities are determined by prices obtained from independent market sources.
See Note 3--Investment Securities.

Prior to adoption of SFAS 115, debt securities which were held for
indefinite periods of time, including securities that management intended to use
as part of its asset/liability management strategy or that may be sold in
response to changes in interest rates, prepayment risk or other factors, were
stated at the lower of aggregate cost or market value. Equity securities were
stated at the lower of aggregate cost or fair value with net unrealized losses
reported as a reduction of retained earnings.

In November of this year, the Financial Accounting Standards Board ("FASB")
issued a pronouncement allowing companies to make a one time repositioning of
their respective investment portfolios. Accordingly, the Bank transferred
approximately $5.2 million of securities in its Held to Maturity portfolio to
its Available for Sale portfolio to enhance the liquidity of the Company's
investment portfolio.

Loans And Allowance For Loan Losses: Loans are carried at their unpaid
principal balance and are net of unearned interest income. Interest income on
loans not made on a discounted basis is accrued and credited to income based
upon the contractual rates of the loans applied to the principal amounts
outstanding. Unearned discount on consumer loans is recognized as income over
the terms of the loans by the actuarial, sum-of-the-months-digits and simple
interest methods. Consumer loans at December 31, 1995, 1994 and 1993 are shown
net of unearned income of $1,494,796, $2,834,893, and $2,648,030, respectively.

Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized over the contractual life of the
related loans as an adjustment to their yield.

The allowance for loan losses is maintained at a level considered by
management to be adequate to provide for probable losses inherent in the loan
portfolio, including commitments to extend credit. The allowance for loan losses
is established through a provision for loan losses charged to operations. Loans
are charged against the allowance for loan losses when management believes that
the collectibility of the principal is unlikely. Recoveries of loans

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

previously charged-off are credited to the allowance when received. The
allowance represents an amount which, in management's judgment, will be adequate
to absorb probable losses on existing loans that may become uncollectible.
Management's judgment in determining the adequacy of the allowance is based on
various factors influencing the collectibility of loans. These factors include,
but are not limited to, an analysis of the borrower's ability to meet the
repayment terms, the borrower's overall financial condition, the estimated value
of collateral supporting the credit, the concentration of credit risk in the
portfolio and judgments as to the effect of both the local and national
economies on the Company's borrowers' economic prospects. Management's
determination of the allowance is, by necessity, dependent upon estimates,
appraisals and judgments, which may change quickly because of changing economic
conditions and the Company's perception as to how these factors may affect the
financial condition of the borrowers. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowance for losses on loans and writedowns of Other Real Estate Owned
("OREO"). Such agencies may require the Bank to recognize additions to the
allowance or additional writedowns on OREO based on their judgments of
information available to them at the time of their examination.

The Company's nonaccrual policy is as follows: commercial and mortgage
loans are placed on nonaccrual status when a loan attains a past due status of
90 days or more, unless such loans are well secured and in the process of
collection. Any exceptions to placement on nonaccrual status that extend beyond
120 days past due must be approved by the Board of Directors Loan Committee. Any
installment or consumer loan that attains a 180 day past due status will be
placed on nonaccrual status regardless of collateral value or collection
proceedings. Previously accrued interest income on loans placed on nonaccrual
status, which has not been collected, is reversed from current period interest
income. Nonaccruing loans are returned to accrual status when principal and
interest become current and collectibility is reasonably assured.

Property And Equipment: Property, equipment and improvements are stated at
cost less accumulated depreciation and amortization. Depreciation is calculated
on a straight-line basis over the estimated useful lives of the assets. Gains
and losses on the disposition of assets are included in net income.

Income Taxes: Deferred income taxes are provided for differences arising in
the timing of income and expenses for financial reporting and for income tax
purposes. Effective January 1, 1993 the Company adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109") which requires the use of the asset/liability method of
accounting for income taxes. Deferred income taxes and tax benefits are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
Company provides deferred taxes for the estimated future tax effects
attributable to temporary differences and carryforwards when realization is more
likely than not.

Per Common Share Calculations: Net income (loss) per common share is
computed based on the weighted average number of common shares outstanding
during each year. Per share earnings and weighted average shares of common stock
for all periods presented reflect all stock dividends and splits. The exercise
of stock options would not result in material dilution of earnings per share.

Other Real Estate Owned: Real estate acquired through foreclosure or by
deed in lieu of foreclosure, is carried at the lower of 1) carrying value of the
related loan or 2) fair value at date acquired through foreclosure less the cost
to dispose. At the time of foreclosure, the excess, if any, of the loan value
over the estimated fair value of the property acquired less costs to dispose is
charged to the allowance for loan losses. Subsequent to the time of foreclosure,
reductions in the carrying value of foreclosed properties are recognized through
charges to OREO expense, with unrealized depreciation reported as a reduction of
OREO. Costs relating to the subsequent development or improvement of the
property are capitalized. Holding costs are charged to OREO expense in the
period in which they are incurred.

Fair Value Of Financial Instruments: In 1992, the Company adopted Statement
of Financial Accounting Standard No. 107, "Disclosures about Fair Value of
Financial Instruments" ("SFAS 107") which requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

practical to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, for these values as well as those
established through market quotations in many cases, could not be realized in
immediate settlement of the instrument. Accordingly, the aggregate fair value
amounts presented do not represent the underlying value of the Company. In
October 1994, Statement of Financial Accounting Standards No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments"
("SFAS 119") amended the disclosure requirements of SFAS 107. SFAS 119 requires
fair value information to be presented together with the related carrying
amounts in the body of the financial statements, a single footnote, or a summary
table in a form that makes it clear whether the amount represents assets or
liabilities.

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash And Cash Equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair values.

Investment Securities: Fair values for investment securities are based on
quoted market prices.

Loans Receivable: For variable-rate loans that reprice frequently with no
significant change in credit risk, fair values are based on carrying values. The
fair values for other loans are estimated using discounted cash flow analysis,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The discounted cash flow used in the loans
receivable valuation is reduced by anticipated lost interest on nonperforming
loans. Additionally, the return of principal on loans receivable in the cash
flow analysis is reduced by anticipated uncollectible amounts. The carrying
amount of accrued interest approximates its fair value. The Company's
off-balance sheet lending commitments are predominantly at market interest and
accordingly are fair value neutral.

Deposit Liabilities: The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date. The
carrying amounts for variable-rate money market accounts approximate their fair
values. Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.

Short-term Borrowings: The carrying amounts of federal funds purchased,
securities sold under repurchase agreements, and Federal Home Loan Bank advances
approximate their fair values.

New Accounting Pronouncements Disclosures:

SFAS No. 121

In March 1995, FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"), which the Company will adopt on January
1, 1996. SFAS 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The adoption of this standard is not
expected to have a material impact on the Company's financial condition or its
results of operations.

SFAS No. 122

In May 1995, FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights--an amendment of FASB Statement
No. 65" ("SFAS 122"), which the Company will adopt on January 1, 1996. SFAS 122
amends FASB Statement No. 65, "Accounting for Certain Mortgage Banking
Activities," to provide that a mortgage banking enterprise recognize as separate
assets rights to service mortgage loans for others, however those servicing
rights are acquired. It also requires the Company to assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. The adoption of this standard is not expected to have a material impact
on the Company's financial condition or its results of operations.

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

SFAS No. 123

In October 1995, FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
establishes financial accounting and reporting standards for stock-based
compensation plans. SFAS 123 defines a fair value-based method of accounting for
an employee stock option or similar equity instruments and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, SFAS 123 also allows the Company to continue to
measure compensation costs for stock-based compensation plans using the
intrinsic value based method of accounting prescribed by APB No. 25, "Accounting
for Stock Issued to Employees" and make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
SFAS 123 had been applied. The Company has elected not to adopt the accounting
requirements of SFAS 123 and continue to account for stock-based compensation
plans in accordance with APB No. 25. The Company's fiscal 1996 financial
statements will include the pro forma disclosure requirements of SFAS 123.

2. REGULATORY MATTERS

During the second quarter of 1994, the Company incurred a net loss of
$6,500,000 which reduced both the Bank's and the Company's Tier 1 leverage
capital ratios below the Order's minimum Tier 1 leverage requirement of 6%. This
quarterly net loss was primarily related to an $18,000,000 bulk loan sale of
problem assets. Although the loan sale resulted in the Bank and the Company not
complying with the capital requirements of the Order, management believes that
the bulk sale of problem assets significantly improved the quality of the
Company's loan portfolio. Consequently, the Bank, as required by the Order,
filed a capital restoration plan with the FDIC during the third quarter of 1994.
The plan was accepted by the FDIC and called for restoration of the Bank's
capital ratios through future earnings. As of December 31, 1994, the Company and
the Bank were adequately capitalized as defined by normal regulatory standards
and management believed it was in compliance with every provision of the Order
except that its Tier 1 leverage capital ratio fell short of the 4.7%
requirement.

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

risk-based capital ratios were 9.4% as of December 31, 1995. The Memorandum also
required the Bank to charge-off certain loans and develop and implement a
written problem loan reduction program to continue to reduce its level of
problem loans. In addition, the Memorandum prohibits the payment of dividends
without prior FDIC consent and requires the Bank to review, monitor and update
certain loan and liquidity policies. As of December 31, 1995, the Bank was in
compliance with every provision of the Memorandum.

3. INVESTMENT SECURITIES

A summary of the amortized cost and fair value of securities classified as
held to maturity at December 31, 1995 is as follows:

Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------

U.S. Treasury securities ....................... $13,959,923 $78,187 $ 0 $14,038,110
U.S. Government agencies ....................... 9,495,945 0 83,909 9,412,036
Other securities ............................... 375,000 0 0 375,000
----------- ------- ------- -----------
Total ........................................ $23,830,868 $78,187 $83,909 $23,825,146
=========== ======= ======= ===========

A summary of the amortized cost and fair value of securities classified as
available for sale at December 31, 1995 is as follows:

Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------

U.S. Treasury securities ....................... $11,982,649 $61,845 $ 0 $12,044,494
U.S. Government agencies ....................... 22,754,567 0 93,415 22,661,152
Other securities ............................... 3,281,943 0 26,437 3,255,506
Equity securities .............................. 2,000,950 7,242 0 2,008,192
Mutual fund investments ........................ 2,996,008 0 198,451 2,797,557
----------- ------- -------- -----------
Total ........................................ $43,016,117 $69,087 $318,303 $42,766,901
=========== ======= ======== ===========

A summary of the amortized cost and fair value of securities classified as
held to maturity at December 31, 1994 is as follows:

Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------

U.S. Treasury securities ....................... $18,976,230 $ 0 $ 844,966 $18,131,264
U.S. Government agencies ....................... 12,993,497 0 977,873 12,015,624
Other securities ............................... 6,829,730 1,609 381,169 6,450,170
----------- ------ ---------- -----------
Total ........................................ $38,799,457 $1,609 $2,204,008 $36,597,058
=========== ====== ========== ===========

A summary of the amortized cost and fair value of securities classified as
available for sale at December 31, 1994 is as follows:

Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------- ---------- ---------- -----------

U.S. Treasury securities ....................... $12,857,068 $3,181 $ 248,272 $12,611,977
U.S. Government agencies ....................... 11,313,504 0 1,041,538 10,271,966
Other securities ............................... 1,996,943 0 133,506 1,863,437
Equity securities .............................. 1,667,509 0 9,043 1,658,466
Mutual fund investments ........................ 2,996,008 0 246,323 2,749,685
----------- ------ ---------- -----------
Total ........................................ $30,831,032 $3,181 $1,678,682 $29,155,531
=========== ====== ========== ===========

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Investment securities held to maturity with an amortized cost of
$19,455,970 and available for sale securities with a fair value of $4,018,596 at
December 31, 1995 were pledged to secure public deposits, securities sold under
agreements to repurchase, letters of credit and for other purposes as required
by law.

Below are the maturity schedules and corresponding amortized cost and fair
values of U.S. Treasury securities, U.S. Government agencies and other debt
securities:

Held to Maturity Available for Sale
---------------------------- ----------------------------
Amortized Amortized
December 31, 1995 Cost Fair Value Cost Fair Value
- ----------------- ----------- ----------- ----------- -----------

Due in one year or less ...................... $10,759,095 $10,681,568 $22,953,488 $22,978,318
Due after one year through five years ........ 12,956,773 13,028,578 12,830,486 12,747,649
Due after five years through ten years ....... 115,000 115,000 0 0
Due after ten years .......................... 0 0 7,232,143 7,040,934
----------- ----------- ----------- -----------
Total ...................................... $23,830,868 $23,825,146 $43,016,117 $42,766,901
=========== =========== =========== ===========

In 1995, U.S. Treasury securities available for sale with a carrying value
of $7,855,707 were sold at a net gain of $93,976, corporate bond securities
available for sale with a carrying value of $6,161,000 were sold at a net loss
of $89,521 and equity securities with a carrying value of $91,375 were sold at a
gain of $672.

In 1994, available for sale corporate bond securities with a carrying value
of $2,000,000 were sold for a net loss of $43,290 and mutual fund investments
with a carrying value of $2,004,000 were sold with a loss of $6,000.

In 1993, U.S. Treasury securities with a carrying value of $3,011,968 were
sold for a gain of $112,661. Mutual fund investments with a carrying value of
$5,000,000 were sold with a loss of $120,786.

The Company adopted SFAS 115 on January 1, 1994, resulting in
classification of approximately $27,000,000 of investment securities as
available for sale and $39,000,000 of investment securities as held to maturity.
In management's judgment, the Company's adoption and ongoing compliance with
SFAS 115 did not have an adverse effect on its net interest margin, liquidity
position or its regulatory capital ratios during 1994. As of December 31, 1995
and 1994, shareholders' equity was reduced $249,216 and $1,676,000,
respectively, to reflect the unrealized depreciation on the Company's available
for sale portfolio.

4. LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company engages in lending activities that finance business
development, inventory and working capital, as well as loans to individuals for
residential real estate, auto and home improvement purposes. Loans for which
payment was past due ninety days or more and still accruing were $139,000,
$357,000 and $1,088,000 as of December 31, 1995, 1994 and 1993, respectively.
Nonaccrual loans were $5,964,000 as of December 31, 1995, $7,043,000 as of
December 31, 1994 and $8,803,000 as of December 31, 1993. As of December 31,
1995, approximately $4,737,000 of the nonaccrual portfolio were collateralized
partially by commercial or residential real estate or business assets and
approximately $1,226,000 of nonaccrual loans were unsecured. Interest income was
not recognized on nonaccrual loans for the years ending December 31, 1995, 1994
and 1993. If such loans had been accruing the entire year under their original
terms, the amount of interest income that would have been earned was $649,000,
$762,000 and $743,000 for the periods ending December 31, 1995, 1994 and 1993,
respectively. Restructured loans totaled $1,570,000, $2,448,000 and $15,139,000
at December 31, 1995, 1994 and 1993, respectively. Interest income recorded on
these loans in 1995, 1994 and 1993 was $119,000, $709,000 and $1,159,000,
respectively. Interest income would have been $51,000, $268,000 and $316,000
higher during 1995, 1994 and 1993, respectively, had these loans earned interest
in accordance with their original terms.

The Company has adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors For Impairment of a Loan" ("SFAS 114"), effective
January 1, 1995. The new accounting standard requires that impaired loans, which
are defined as loans where it is probable that a creditor will not be able to
collect both the contractual interest and principal payments, be measured at the
present value of expected future cash flows

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral, if
the loan is collateral dependent, when assessing the need for a loss accrual.
The adoption of the standard resulted in an additional loan loss provision of
$500,000 which was recorded in the first quarter of 1995. As of December 31,
1995, the Company's investment in loans that are considered to be impaired under
SFAS 114 was $5,590,000 of which $4,703,000 were on a nonaccrual status and
$509,000 were classified as troubled debt restructured loans. The remaining
$378,000 of loans classified as impaired, which are also classified as potential
problem loans, have either experienced slight delinquency problems or collateral
deterioration but continue to meet the contractual terms of the loan. As of
December 31, 1995, the Company's reserve for loan losses on impaired loans was
$2,288,000. The average balance of impaired loans during 1995 was $7,221,000. As
of December 31, 1995, $4,703,000 of the Company's impaired loans were nonaccrual
loans for which interest income was not recognized. The remaining $887,000 of
impaired loans were accruing loans and income was recognized in accordance with
the Company's loan accrual policy. No additional loan commitments were made to
borrowers whose loans were considered impaired.

As of December 31, 1995, mortgage loans with a carrying value of
$19,917,000 were pledged to secure various borrowing facilities from the Federal
Reserve Bank and the Federal Home Loan Bank of Boston.

The Bank has transactions in the ordinary course of business with directors
and officers and companies with which they are associated, which resulted in
related party loans aggregating $4,457,000, $7,702,000 and $7,993,000 at
December 31, 1995, 1994 and 1993, respectively. During 1995, new loans totaling
$657,000 were made and $3,899,000 were either repaid or the obligation is no
longer a related party transaction.

Changes in the allowance for loan losses are as follows:

1995 1994 1993
---------- ----------- -----------
Balance, January 1 ............... $6,827,374 $ 9,497,305 $10,574,588
Provision charged to operations .. 3,663,000 9,199,054 4,889,890
Loans charged-off:
Commercial ...................... 4,200,258 5,563,941 4,567,238
Real Estate:
Commercial mortgage ............ 228,728 6,164,962 1,340,906
Residential mortgage ........... 89,776 574,223 92,962
Consumer ........................ 367,170 187,006 301,173
---------- ----------- -----------
Total ........................ 4,885,932 12,490,132 6,302,279
Loan recoveries:
Commercial ...................... 191,950 333,644 174,431
Real Estate:
Commercial mortgage ............ 3,111 173,116 46,319
Residential mortgage ........... 5,350 23,901 7,320
Consumer ........................ 87,822 90,486 107,036
---------- ----------- -----------
Total ........................ 288,233 621,147 335,106
---------- ----------- -----------
Net loans charged-off ............ 4,597,699 11,868,985 5,967,173
---------- ----------- -----------
Balance, December 31 ............. $5,892,675 $ 6,827,374 $ 9,497,305
========== =========== ===========

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. PROPERTY AND EQUIPMENT

Property and Equipment are summarized as follows:

December 31,
---------------------------
1995 1994
---------- ----------

Land .................................... $ 175,000 $ 175,000
Building ................................ 2,923,649 2,866,045
Furniture and equipment ................. 3,041,006 2,931,487
Leasehold improvements .................. 1,885,278 1,860,770
---------- ----------
Total cost .............................. 8,024,933 7,833,302
Less accumulated depreciation
and amortization ...................... (4,133,184) (3,693,916)
---------- ----------
Total ................................. $3,891,749 $4,139,386
========== ==========

The 1995, 1994 and 1993 depreciation and amortization expense on property
and equipment was $504,486, $547,035, and $518,776, respectively.

6. OTHER REAL ESTATE OWNED

Other real estate owned expense was $483,000 for the year ended December
31, 1995 as compared to $1,397,000 and $1,787,000 for the years ended December
31, 1994 and 1993, respectively. These expenses reflect losses on sales and
writedowns on OREO properties and associated holding costs. OREO holding costs
were $74,000 for the year ended December 31, 1995 as compared to $436,000 and
$219,000 for the years ended December 31, 1994 and 1993, respectively. Income
earned on OREO was $74,000, $123,000 and $210,000 for the years ended December
31, 1995, 1994 and 1993, respectively.

OREO activity for the past three years is summarized below:

1995 1994 1993
---------- ---------- ----------

Balance, January 1 ...................... $1,852,068 $5,993,229 $8,687,221
Properties added-net .................... 809,467 515,110 2,233,403
Proceeds from OREO sold ................. 1,638,665 3,216,030 2,888,221
Gains (losses) on properties sold ....... (126,458) (76,143) (24,929)
Other activity .......................... 480,010 471,151
Property writedowns ..................... 282,140 884,088 1,543,094
---------- ---------- ----------
Balance, December 31 .................... $ 614,272 $1,852,068 $5,993,229
========== ========== ==========

The following table sets forth the types and number of units of properties
which constitute the Company's OREO.

As of December 31, 1995 As of December 31, 1994
------------------------ -------------------------
Types of Properties # of Units Book Value # of Units Book Value
- ------------------- ---------- ---------- ---------- ----------

Single Family ............................... 3 $433,405 6 $ 323,138
Condominium ................................. 2 55,085 1 47,497
Commercial .................................. 2 50,992 5 924,286
Undeveloped Land ............................ 3 74,790 5 557,147
-- -------- -- ----------
Total ..................................... 10 $614,272 17 $1,852,068
== ======== == ==========

7. LEASES

The Bank leases seven offices, including its Main Office and Operations
Center space, under noncancellable agreements expiring on various dates through
2006, with various renewal options, and requiring various annual

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

minimum rentals and the payment of property taxes. The Bank also has ground
leases for its North Haven and Woodbridge branches which expire in the years
1997 and 2021, respectively. Rental expenses are accrued and charged to
operations over the lease term on a straight-line basis. Rental expense amounted
to $501,000, $496,000 and $422,000 for the years ended December 31, 1995, 1994
and 1993, respectively. The Bank owns a 25% interest in a partnership which owns
the Main Office building and a 50% interest in a partnership which owns its
Chapel Street facility.

The total future minimum rental payments due under the agreements at
December 31, 1995 for the years 1996 through 2000 are $583,000, $475,000,
$364,000, $345,000, and $213,000, respectively. Minimum rental payments for all
years after 2000 aggregate $1,226,000.

8. FEDERAL HOME LOAN BANK ADVANCES

The following table illustrates the Bank's advances with the Federal Home
Loan Bank of Boston.

December 31,
--------------------------------------------
1995 1994
------------------ ------------------
Rate Balance Rate Balance
----- ------- ----- -------
(Dollars in Thousands)

Due February 27, 1995 ............... 5.980% 1,000
Due March 17, 1995 .................. 6.390% 1,000
Due May 30, 1995 .................... 6.410% 1,000
Due February 14, 1996 ............... 7.200% 1,000
Due March 18, 1996 .................. 6.750% 1,000
Due May 16, 1996 .................... 5.990% 1,500
Due March 27, 1997 .................. 5.860% 1,000
Due May 5, 1997 ..................... 6.160% 1,047 6.160% 1,692
----- ------ ----- ------
Total ............................. $5,547 $4,692
====== ======

The FHLB Advance due May 5, 1997 is an amortizing advance with a paydown
the first day each month. The original balance was $2,000,000.

As a member of the Federal Home Loan Bank of Boston, the Bank has access to
a pre-approved overnight line of credit for up to 2% of its total assets. At
December 31, 1995, the Company had $1,997,800 of Federal Home Loan Bank Stock.

9. INCOME TAXES

Significant components of the provision for income taxes are as follows:

1995 1994 1993
----------- --------- ---------
Current:
Federal .................. 15,961 ($183,058)
State .................... 23,089 22,480 24,930
----------- --------- ---------
Total current .......... $ 39,050 $ 22,480 ($158,128)
----------- --------- ---------
Deferred:
Federal .................. (792,315) -- --
State .................... (280,685) -- --
----------- --------- ---------
Total deferred ......... (1,073,000) 0 0
----------- --------- ---------
($1,033,950) $ 22,480 ($158,128)
=========== ========= =========

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Following is a reconcilement of the statutory federal income tax rate
applied to pre-tax accounting income with the income tax provisions in the
statement of operations:

1995 1994 1993
----------- ---------- ----------

Tax (benefit) at statutory rate ........................... $ 264,122 ($2,096,327) ($ 907,748)
State tax, net of federal tax benefits .................... 385,202 (451,086) (203,473)
Valuation Allowance ....................................... (1,877,951) 2,620,200 1,212,258
Prior year overprovision .................................. (183,058)
Expiration of state net operating losses .................. 110,904
Dividend received deduction ............................... (70,401) (59,493) (81,410)
Effect of state tax reduction ............................. 99,300
Other, net ................................................ 54,874 9,186 5,303
----------- ---------- ----------
Provision (benefit) for income taxes ...................... ($1,033,950) $ 22,480 ($ 158,128)
=========== ========== ==========

The components of the Company's net deferred tax assets at December 31 are
as follows:

1995 1994 1993
----------- ----------- -----------

Deferred tax assets:
Operating loss carryforwards ............................. $ 7,357,222 $ 7,080,008 $ 3,890,487
Loan loss allowance ...................................... 2,003,510 2,321,180 3,229,084
OREO provisions .......................................... 239,746 1,164,400 1,514,234
SFAS 115 valuation ....................................... 75,625 569,670 0
State taxes .............................................. 2,757,584 3,243,167 2,650,073
Accrued and other items .................................. 971,619 674,119 599,297
----------- ----------- -----------
Total deferred tax assets ............................... 13,405,306 15,052,544 11,883,175
----------- ----------- -----------
Deferred tax liabilities:
Bad debt recapture ....................................... 331,493 497,238 662,984
Other .................................................... 38,453 120,569 102,494
----------- ----------- -----------
Total deferred tax liabilities .......................... 369,946 617,807 765,478
----------- ----------- -----------
Deferred tax assets ....................................... 13,035,360 14,434,737 11,117,697
Valuation allowance ....................................... 11,962,360 14,434,737 11,117,697
----------- ----------- -----------
Net deferred tax assets ................................. $ 1,073,000 $ 0 $ 0
=========== =========== ===========

The Company adopted SFAS No. 109, "Accounting for Income Taxes", on a
prospective basis effective January 1, 1993 as explained in Note 1. No income
tax provision or benefit was incurred at the time of adoption.

The Company will only recognize a deferred tax asset when, based upon
available evidence, realization is more likely than not. Accordingly, at
December 31, 1995, the Corporation has reduced its valuation allowance against
deferred tax assets based on anticipated future taxable income resulting in a
tax benefit of $1,073,000. The deferred assets at December 31, 1994 and 1993
were fully reserved by the valuation allowance.

The Company has federal and state net operating loss carryforwards for tax
return purposes as follows:

Year Year of Year Year of
Federal Generated Expiration State Generated Expiration
--------- --------- ---------- ---------- --------- ----------

34,426 1987 2002
5,498,418 1991 2006
1,172,833 1992 1997
1,163,642 1992 2007 9,780,356 1991 1996
2,981,903 1993 1998 7,127,720 1992 1997
591,388 1993 2008 3,537,269 1993 1998
9,673,239 1994 2009 9,645,595 1994 1999
523,039 1994 2010 487,168 1995 2000
---------- ----------
21,638,888 30,578,108
========== ==========

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Federal and state net operating losses must be utilized in order beginning
with the earliest year in which the losses were generated. The federal net
operating loss of $5,498,416 generated in 1991 and expiring in 2006 must be
utilized prior to the net operating losses of $1,172,833 and $2,981,903 which
expire in 1997 and 1998, respectively.

Future changes in the ownership of the Company could limit the utilization
of federal tax carryforwards under Internal Revenue Code Section 382.

10. COMMITMENTS AND CONTINGENT LIABILITIES

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These instruments expose the Company to credit risk in excess of the amount
recognized in the balance sheet.

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial investment for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.

Total credit exposure related to these items at December 31, 1995 and 1994
is summarized below:

1995 1994
------ -------
(dollars in thousands)

Loan commitments ..................................... $ 4,284 $ 4,777
Unadvanced portion of lines of credit ................ 15,657 14,248
Unadvanced portion of home equity lines of credit .... 3,819 2,584
Standby letters of credit ............................ 1,967 2,641

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses.
The Company evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained (if deemed necessary by the Company) upon
extension of credit is based on management's credit evaluation of the
counterparty. Collateral held is primarily commercial and residential real
property. Interest rates on approved loan commitments, home equity loans and
lines of credit are a combination of fixed and variable interest rates.

The Bank is required to maintain certain average reserve balances under
requirements specified by the Federal Reserve Board. The average balance of such
reserves during 1995 was approximately $5,464,000.

11. SHAREHOLDERS' EQUITY

The Company has 30,000,000 common shares authorized for issuance.

The Company's principal assets are its investments in its wholly-owned
subsidiaries, The Bank of New Haven and Northeastern Capital Corporation. The
Company may declare and pay dividends only out of funds legally available and
pays cash dividends from its undivided profits (losses). Dividends from the Bank
are the primary source of funds for the Company. The payment of dividends by the
Bank is restricted by various state and federal statutory and regulatory
limitations and the need to maintain minimum regulatory capital levels.

Banking regulations also prohibit extensions of credit by the Bank to the
Company unless appropriately secured by collateral. The Company's undivided
losses component of shareholders' equity has increased from ($27,217,000) as of
December 31, 1993 to ($33,393,000) as of December 31, 1994 and decreased to
($31,582,000) as of December 31, 1995. Because, under Connecticut law, the
Company may declare and pay cash dividends only out of unreserved and
unrestricted undivided profits, the Company has suspended payment of its
quarterly cash dividend and the Company's ability to pay cash dividends in
future quarters is restricted until such funds are available therefor. The
Company during 1993 completed a rights offering of common stock to existing
shareholders and standby purchasers. The rights offering resulted in the
issuance of 10,404,000 new shares of common stock at a subscription price of
$1.25 per common share. The Company contributed the net proceeds, $11,992,000,
from the rights offering to the Bank in a manner that such proceeds constituted
Tier 1 leverage capital for regulatory purposes.

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. EMPLOYEE BENEFITS

In 1990, the Company authorized a Section 401(k) Profit Sharing Plan. The
plan, which began January 1, 1991, allows employees to make tax-deferred
contributions which can be invested in various investment vehicles, including
the Company's Common Stock. The Company, at the option of its directors, may
elect to match a portion of these employee contributions to the plan with
Company funds. Total profit sharing expense for the year ended December 31, 1995
was $40,000 and no expense was incurred in 1994 and 1993.

13. STOCK OPTION PLANS

In 1986, the Company adopted the 1986 BNH Bancshares, Inc. Stock Option
Plan ("the 1986 Option Plan"). Under the 1986 Option Plan, the Company may grant
incentive stock options or nonqualified stock options and/or stock appreciation
rights to key employees of the Company and its subsidiaries. At December 31,
1995, 1994 and 1993, 56,183 shares of common stock remained available for
issuance upon the exercise of outstanding and future grants of awards under the
1986 Option Plan. The option price is equal to the fair market value of the
shares on the date of grant. All options are exercisable from six months to
three years after the date of grant and expire five years after the date of
grant. As of December 31, 1995, 1994 and 1993, there were 17,100, 38,575 and
38,575, respectively, options outstanding under the 1986 Option Plan that were
exercisable by employees.

In 1992, the Company adopted the BNH Bancshares, Inc. 1992 Stock Incentive
Plan (the "1992 Incentive Plan"). Under the 1992 Incentive Plan, the Company may
grant incentive stock options or nonqualified stock options, stock appreciation
rights, unrestricted or restricted stock or other performance awards to key
employees of the Company and its subsidiaries. The Salary and Benefits Committee
of the Company's Board of Directors made awards of non-qualified stock options
to certain key employees of the Company on December 15, 1993 and on August 15,
1995. Pursuant to the 1993 Option awards, options are exercisable from one year
to three years after the date of grant and expire five years after the date of
grant. The 1993 options have an exercise price of $2.4375 which represents a 50%
premium over the fair market value of the Company's Common Stock on the date of
grant. Under the 1995 option awards, the options have a five-year term, with
one-half of the options exercisable on the first anniversary of the grant date
and the remainder exercisable on the second anniversary of the grant date. The
option exercise price initially is $1.375 (which is the fair market value of the
Company's Common Stock on the date of grant) and increases 8.4% on each
anniversary of the grant date over the five-year term of the option. The 1995
Option Agreements provide that the exercisability of the options may be
accelerated in the event of a change in control of the Company as defined
therein. As of December 31, 1995, 1994 and 1993, there were 247,761, 92,887 and
92,887 options outstanding under the 1992 Incentive Plan and 250,000 shares of
common stock remain available for issuance for outstanding and future grants. As
of December 31, 1995, there were 60,811 options exercisable under the 1992 Plan.

The combined activity for each year in the three-year period for all
outstanding options is as follows:

Year ended December 31
-----------------------------------------------
1995 1994 1993
------------ ----------- -----------

Options outstanding, beginning of year ...... 131,462 131,462 44,250
Options exercised ........................... 0 0 0
Options granted ............................. 156,909 0 92,887
Options canceled ............................ (23,600) 0 (5,675)
------------ ----------- -----------
Options outstanding, end of year ............ 264,771 131,462 131,462
============ =========== ===========
Option price range per share ................ $1.375-$4.00 $2.44-$6.25 $2.44-$6.25
------------ ----------- -----------
Weighted Average Option Price per share ..... $1.91 $3.26 $3.26
------------ ----------- -----------

The Company maintains for members of the Board of Directors the BNH
Bancshares, Inc. Stock Option Plan for Non-Employee Directors (the "Director
Plan") which was adopted in 1992. The purpose of the Director Plan is to attract
and retain the continued services of directors of the Company with the requisite
qualifications and to encourage such directors to secure or increase on
reasonable terms their stock ownership in the Company.

Two types of options can be granted under the Director Plan. "Annual Stock
Options" to purchase 1,000 shares of common stock are granted each year to
non-employee directors. The Annual Options are exercisable six months

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

after their grant date and expire ten years from the grant date unless
terminated earlier in accordance with the Director Plan. The exercise price for
each Annual Option will be the greater of the fair market value of the Company's
Common Stock on the date of grant or the par value of the Common Stock on the
date of exercise. As of December 31, 1995, 1994 and 1993, there were 57,000,
45,000 and 32,000 annual options outstanding, respectively, which can be
exercised at prices from $1.25 to $1.50 per share.

The Director Plan also makes available "Deferred Compensation Options"
which provide that each non-employee director may elect to receive nonqualified
stock options in lieu of all or part of the retainers and fees paid to them for
service on the Board. Deferred Compensation Options can be exercised after six
months and expire ten years after the date of grant. No Deferred Compensation
Options were issued as of December 31, 1995.

The aggregate number of shares of Common Stock subject to options granted
under the Director Plan in any calendar year may not exceed 2.5% of the number
of shares of common stock outstanding on January 1st of that year.

14. PARENT COMPANY FINANCIAL INFORMATION

The condensed financial statements of BNH Bancshares, Inc. are as follows:

CONDENSED STATEMENT OF FINANCIAL POSITION

December 31,
-----------------------------
1995 1994
----------- -----------

ASSETS
Cash on deposit with bank subsidiary .................... $ 3,559 $ 73,871
Investment in bank subsidiary ........................... 15,584,309 12,301,585
Investment in nonbank subsidiary ........................ 925 7,285
Other ................................................... 3,930 0
----------- -----------
Total assets .......................................... $15,592,723 $12,382,741
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities ............................................. $ 0 $ 27,082
Shareholders' equity .................................... 15,592,723 12,355,659
----------- -----------
Total liabilities and shareholders' equity ............ $15,592,723 $12,382,741
=========== ===========

CONDENSED STATEMENT OF OPERATIONS

Year ended December 31,
---------------------------------------------
1995 1994 1993
---------- ----------- -----------

Interest on deposits with bank subsidiary ............... $ 311 $ 8,093 $ 7,761
Operating expenses ...................................... (45,896) 145,052 129,567
---------- ----------- -----------
Loss before taxes ....................................... (45,585) (136,959) (121,806)
---------- ----------- -----------
Loss before equity in undistributed
loss of subsidiaries ................................... (45,585) (136,959) (121,806)
Equity in undistributed income (loss) of:
Bank subsidiary ........................................ 1,856,439 (5,946,391) (2,345,205)
Nonbank subsidiary ..................................... (76) (104,797) (44,707)
---------- ----------- -----------
Net income (loss) ....................................... $1,810,778 $(6,188,147) $(2,511,718)
========== =========== ===========

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

CONDENSED STATEMENT OF CASH FLOWS

Year ended December 31,
----------------------------------------------
1995 1994 1993
----------- ---------- -----------

Operating activities:
Net income (loss) ..................................... $ 1,810,778 ($6,188,147) ($ 2,511,718)
Adjustments for items not affecting cash:
Equity in undistributed loss of subsidiaries .......... (1,856,363) 6,051,188 2,389,912
Other, net ............................................ (31,012) (2,776) 2,196
----------- ---------- -----------
Net cash used by operating activities ................. (76,597) (139,735) (119,610)
Financing activities:

Rights offering proceeds .............................. 0 0 11,992,442
Transfer from nonbank subsidiary ...................... 6,285 0 0
----------- ---------- -----------
Net cash provided from financing activities .......... 6,285 0 11,992,442
----------- ---------- -----------
Investing activities:
Capital contribution to bank subsidiary ............... 0 (300,000) (11,850,223)
Capital contribution from nonbank subsidiary .......... 0 0 100,000
----------- ---------- -----------
Net cash used by investing activities ................. 0 (300,000) (11,750,223)
----------- ---------- -----------
Net (decrease) increase in cash ....................... (70,312) (439,735) 122,609
Cash and due from banks at beginning of year .......... 73,871 513,606 390,997
----------- ---------- -----------
Cash and due from banks at end of year ............... $ 3,559 $ 73,871 $ 513,606
=========== ========== ===========

15. CONCENTRATION OF CREDIT RISK

The Company primarily makes loans for commercial, industrial, consumer and
real estate purposes to individuals and businesses in the greater New Haven
area. Commercial loans, which totaled $59,145,000, or 29% of total loans, as of
December 31, 1995 as compared to $67,418,000, or 33%, as of December 31, 1994,
primarily consist of obligations of small and medium-sized business entities
located in the Company's market area. Commercial loans are generally
collateralized by business assets, commercial real estate and, on occasion,
residential real estate. The Company prefers not to lend to even its most
creditworthy borrowers on an unsecured basis, and, accordingly, will take
residential real estate as collateral for a commercial loan. The source of
collateral does not always correlate with the borrower's use of the loan
proceeds.

The Company's consumer loan portfolio totaled $45,433,000, or 22% of total
loans, as of December 31, 1995 as compared to $45,866,000, or 22%, as of
December 31, 1994. Consumer loans consist of automobile loans where applications
are taken directly at the Bank branch locations and also at the point of sale
through automobile dealerships. Other types of consumer loans can generally be
classified as all purpose loans used for financing, among other things,
education, home improvement and debt consolidation.

The Company's mortgage portfolio consists of both commercial and
residential mortgages. As of December 31, 1995, the commercial mortgage
portfolio totaled $54,519,000, or 27% of the total loan portfolio, as compared
to $57,097,000, or 28%, as of December 31, 1994. The residential mortgage
portfolio totaled $45,399,000, or 22% of the total loan portfolio, as of
December 31, 1995 as compared to $36,605,000, or 17%, as of December 31, 1994.
Most of the Company's mortgage loans are made to commercial entities and
individuals located within the Company's market area.

BNH BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial assets and liabilities
for the years ended December 31, 1995 and 1994 are as follows:

1995 1994
----------------------- -----------------------
Fair Carrying Fair Carrying
Amount Value Amount Value
-------- -------- -------- --------
(dollars in thousands)

Financial assets:
Cash and due from bank $ 19,818 $ 19,818 $ 22,012 $ 22,012
Federal funds sold 5,800 5,800 0 0
Investment securities:
Held to maturity 23,825 23,831 36,597 38,799
Available for sale 42,767 42,767 29,156 29,156
Loans 192,059 204,496 194,410 206,986
Less: allowance for loan losses (5,893) (6,827)
-------- -------- -------- --------
284,269 290,819 282,175 290,126
-------- -------- -------- --------
Financial liabilities:
Time deposits 120,002 118,521 119,577 119,348
Other deposits 157,816 158,243 158,816 158,368
Federal Home Loan Bank advances 5,574 5,547 4,645 4,692
Federal funds purchased and securities
sold under repurchase agreements 3,561 3,561
-------- -------- -------- --------
$283,392 $282,311 $286,599 $285,969
-------- -------- -------- --------

CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)

(dollars in thousands, except per share data)

First Second Third Fourth Year
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------

1995
Net interest income ................ $ 3,334 $ 3,242 $ 3,091 $ 3,197 $ 12,864
Provision for loan losses(1) ....... (1,394) (894) (775) (600) (3,663)
Other income ....................... 689 748 853 767 3,057
Net gain (loss) on investment
securities ........................ 0 6 0 (1) 5
Operating expenses ................. (2,892) (2,885) (2,811) (2,898) (11,486)
------- ------- ------- ------- --------
Income (loss) before taxes ......... (263) 217 358 465 777
Provision for income taxes ......... (485) 5 5 (559) (1,034)
------- ------- ------- ------- --------
Net income (loss) .................. $ 222 $ 212 $ 353 $ 1,024 $ 1,811
======= ======= ======= ======= ========
Net income (loss) per common
share ............................. $ 0.02 $ 0.01 $ 0.02 $ 0.07 $ 0.12
Weighted average shares ............ 14,726,650 14,726,650 14,726,650 14,726,650 14,726,650

1994
Net interest income ................ $ 3,039 $ 3,183 $ 3,407 $ 3,469 $ 13,098
Provision for loan losses(1) ....... 828 7,051 563 757 9,199
Other income ....................... 693 679 617 664 2,653
Net loss on investment
securities ........................ (6) 0 0 (43) (49)
Operating expenses ................. 3,209 3,299 3,194 2,967 12,669
------- ------- ------- ------- --------
Income (loss) before taxes ......... (311) (6,488) 267 366 (6,166)
Provision for income taxes ......... 15 2 1 4 22
------- ------- ------- ------- --------
Net income (loss) .................. $ (326) $(6,490) $ 266 $ 362 $ (6,188)
======= ======= ======= ======= ========

Net income (loss) per common
share .............................. $ (0.02) $ (0.44) $ 0.02 $ 0.02 $ (0.42)

Weighted average shares ............ 14,726,650 14,726,650 14,726,650 14,726,650 14,726,650

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

<FN>

(1) See discussion of provision for loan losses on page 19.
</FN>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On October 19, 1995, the Audit Committee of the Board of Directors of the
Company recommended and the Board of Directors of the Company approved the
dismissal of Price Waterhouse LLP, effective October 19, 1995, as the
independent accountants engaged to perform the audit examination of the
Company's financial statements for the year ending December 31, 1995. On October
19, 1995, the Company notified Price Waterhouse LLP of the Board of Directors'
decision to replace Price Waterhouse LLP as independent accounts of the Company.
Price Waterhouse LLP acted as the auditors of the Company from the fiscal year
ending December 31, 1987.

The reports of Price Waterhouse LLP on the financial statements of the
Company for the past two years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle, except that their report on the Company's financial
statements for the year ended December 31, 1993 included an explanatory
paragraph regarding the uncertainty that the Company could continue as a going
concern.

During the Company's two most recent fiscal years and the subsequent
interim period ending October 19, 1995, there were no disagreements with Price
Waterhouse LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Price Waterhouse LLP, would have caused Price
Waterhouse LLP to make reference thereto in their report on the financial
statements for such years.

On October 19, 1995, the Audit Committee of the Board of Directors
recommended and the Company's Board of Directors approved the engagement of
Coopers & Lybrand L.L.P., effective October 19, 1995, to perform the audit
examination of the Company's financial statements for the year ending December
31, 1995. During the Company's two most recent fiscal years and through October
19, 1995, the Company has not consulted with Coopers & Lybrand L.L.P. on items
which (1) were or should have been subject to SAS 50 or (2) concerned with
subject matter of a disagreement or reportable event with the former auditor.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 appears on pages 2 through 4, ELECTION
OF DIRECTORS, and page 14, COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, of the Company's definitive proxy statement dated March
22, 1996 and is incorporated by reference in this annual report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 appears on pages 7 through 13,
COMPENSATION OF DIRECTORS and COMPENSATION OF EXECUTIVE OFFICERS, of the
Company's definitive proxy statement dated March 22, 1996 and is incorporated by
reference in this annual report on Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 appears on pages 4 through 6, SECURITY
OWNERSHIP, of the Company's definitive proxy statement dated March 22, 1996 and
is incorporated by reference in this annual report on Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 appears on page 14, RELATED PARTY
TRANSACTIONS, of the Company's definitive proxy statement dated March 22, 1996
and is incorporated by reference in this annual report on Form 10-K.

PART IV

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

(a) The financial statements listed on the index set forth in Item 8 of
this Annual Report on Form 10-K are filed as part of this Annual
Report.

Financial Statement schedules are not required under the related
instructions of the Securities and Exchange Commission or are inapplicable and,
therefore, have been omitted except that the report of Price Waterhouse LLP, the
Company's predecessor accountant, is filed herewith (at page 36) in accordance
with instructions under Rule 14a-3 under the Securities Exchange Act of 1934, as
amended.

The exhibits listed below are incorporated herein by reference or filed
herewith, as indicated.

Exhibits
- --------
3(a) The Amended and Restated Certificate of Incorporation of BNH Bancshares,
Inc. is incorporated by reference to Exhibit 3(a) of Amendment No. 1 to
the Company's Registration Statement on Form S-1, Registration No.
33-61638 at pages 180 to 207.

3(b) The By-laws of BNH Bancshares, Inc., as amended March 19, 1991, is
incorporated by reference to Exhibit 3(b) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990 at pages 75-85.

10(a) The 1986 BNH Bancshares, Inc. Stock Option Plan, as amended, is
incorporated herein by reference to Exhibit 10(a) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 at pages
44 to 65. This is a compensatory plan for employees of the Company and
its subsidiaries.

10(b) BNH Bancshares, Inc. 1985 Warrant Plan for Directors is incorporated
herein by reference to Exhibit B of the Company's Proxy
Statement--Prospectus dated March 29, 1985 contained in Registration No.
2-96217. This is a compensatory plan for directors of the Company.

10(c) The BNH Bancshares, Inc. 1992 Stock Incentive Plan, amended effective
March 19, 1996, is filed herewith at page 63. This is a compensatory plan
for employees of the Company and its subsidiaries.

10(d) The BNH Bancshares, Inc. Stock Option Plan for Non-Employee Directors is
incorporated by reference to Exhibit 10(z) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 at page 93. This
is a compensatory plan for directors of the Company.

10(e) Employment Agreement between The Bank of New Haven and F. Patrick
McFadden, Jr., dated as of May 1, 1993, is incorporated by reference to
Exhibit 10(aa) of the Company's Registration Statement on Form S-1,
Registration No. 33-61638, at pages 175 to 186. This is a compensatory
arrangement.

10(f) Executive Compensation and Severance Pay Agreement between The Bank of
New Haven and F. Patrick McFadden, Jr. dated as of March 21, 1995 is
incorporated by reference to Exhibit 10(g) of the Company's Annual Report
on Form 10K for the fiscal year ended December 31, 1995 at page 45. This
is a compensatory arrangement.

10(g) Executive Compensation and Severance Pay Agreement between The Bank of
New Haven and John F. Trentacosta dated as of March 21, 1995 is
incorporated by referenced to Exhibit 10(h) of the Company's Annual
Report on Form 10K for the fiscal year ended December 31, 1995 at page
61. This is a compensatory arrangement.

10(h) Executive Compensation and Severance Pay Agreement between The Bank of
New Haven and Lorraine K. Young dated as of March 21, 1995 is
incorporated by reference to Exhibit 10(i) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 at page 77. This
is a compensatory arrangement.

10(i) Executive Compensation and Severance Pay Agreement between The Bank of
New Haven and Thomas J. Cahill dated as of March 21, 1995 is incorporated
by reference to Exhibit 10(j) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 at page 93. This is a
compensatory arrangement.

10(j) Executive Compensation and Severance Pay Agreement between The Bank of
New Haven and Richard R. Barredo dated as of March 21, 1995 is
incorporated by reference to Exhibit 10(k) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995 at page 106.
This is a compensatory arrangement.

10(k) Executive Compensation and Severance Pay Agreement between The Bank of
New Haven and Mark A. Candido dated as of March 21, 1995 is incorporated
by reference to Exhibit 10(l) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 at page 119. This is a
compensatory arrangement.

22 Subsidiaries of the Registrant is incorporated by reference to Exhibit 22
of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 at page 153.

23(a) Consent of Independent Accountants (Coopers & Lybrand L.L.P.) is filed
herewith at page 84.

23(b) Consent of Independent Accountants (Price Waterhouse LLP) is filed
herewith at page 85.

24 Power of Attorney is filed herewith at page 86.

27 Financial Data Schedule.

(b) Reports on Form 8-K. On October 25, 1995, the Company filed a Current
Report on Form 8-K reporting that the Audit Committee of the Board of
Directors of the Company recommended and the Board of Directors of the
Company approved (1) the dismissal of Price Waterhouse LLP, effective
October 19, 1995, as the independent accountants engaged to perform the
audit examination of the Company's financial statements for the year
ending December 31, 1995 and (2) the engagement of Cooper & Lybrand
L.L.P., effective October 19, 1995, to perform the audit examination of
the Company's financial statements for the year ending December 31, 1995.

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.

BNH BANCSHARES, INC.

By /s/ F. PATRICK McFADDEN, JR.
-------------------------------------------
F. Patrick McFadden, Jr.,
President and Chief Executive Officer

Dated: March 20, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

By /s/ F. PATRICK McFADDEN, JR.
-------------------------------------------
F. Patrick McFadden, Jr.,
President and Chief Executive Officer

Dated: March 20, 1996

By /s/ JOHN F. TRENTACOSTA
-------------------------------------------
John F. Trentacosta
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)

Dated: March 20, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ------ ----
* Director Dated: March 20, 1996
- -------------------------------
Richard L. Ades

* Director Dated: March 20, 1996
- -------------------------------
Martin R. Anastasio

* Director Dated: March 20, 1996
- -------------------------------
Thomas M. Donegan

* Director Dated: March 20, 1996
- -------------------------------
Theodore F. Hogan

* Director Dated: March 20, 1996
- -------------------------------
Lawrence M. Liebman

* Director Dated: March 20, 1996
- -------------------------------
Carl M. Porto

* Director Dated: March 20, 1996
- -------------------------------
Stephen P. Ahern

* Director Dated: March 20, 1996
- -------------------------------
George M. Dermer

Signature Title Date
--------- ----- ----

* Director Dated: March 20, 1996
- -------------------------------
Victor B. Hallberg

* Director Dated: March 20, 1996
- -------------------------------
Karl J. Jalbert

* Director Dated: March 20, 1996
- -------------------------------
F. Patrick McFaden, Jr.

* Director Dated: March 20, 1996
- -------------------------------
Vincent A. Romei

* Director Dated: March 20, 1996
- -------------------------------
Cheever Tyler

* Director Dated: March 20, 1996
- -------------------------------
Stanley Scholsohn

/S/ F. PATRICK McFADDEN, JR. Dated: March 20, 1996
- -------------------------------
F. Patrick McFadden, Jr.
Attorney-in-Fact

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

* F. Patrick McFadden, Jr., by signing his name hereto, does sign this
document on behalf of the persons indicated above pursuant to powers of
attorney duly executed by such persons.

EXHIBIT INDEX

Number Page
- ------ ----

3(a) The Amended and Restated Certificate of Incorporation of BNH Bancshares,
Inc. is incorporated by reference to Exhibit 3(a) of Amendment No. 1 to
the Company's Registration Statement on Form S-1, Registration No.
33-61638 at pages 180 to 207.

22 Subsidiaries of the Registrant is incorporated by reference to Exhibit 22
of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 at page 153.

23(a) Consent of Independent Accountants (Coopers & Lybrand L.L.P.) is filed
herewith at page 84.

23(b) Consent of Independent Accountants (Price Waterhouse LLP) is filed
herewith at page 85.

24 Power of Attorney is filed herewith at page 86.

27 Financial Data Schedule.