Exhibit 13

                                    2001

                                   ANNUAL

                                   REPORT


BancorpRI

<PAGE>


This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the Company's
Form 10-K for the year ended December 31, 2001. The Company has no
significant operating entities other than Bank Rhode Island, therefore
substantially all of the discussion in this document relates to the
operations of the Bank.

<PAGE>


BANCORP RHODE ISLAND, INC. -- 2001: THE GROWTH CONTINUES

[PHOTO]            Bank Rhode Island launched its first image campaign in
                   2001. The Bank's core message, "We treat your business
                   like big business," reached hundreds of thousands of
                   Rhode Islanders through local television, radio, print
                   ads and billboards.

In June, the Company's President & CEO Merrill W.                   [PHOTO]
Sherman joined the likes of Ben Cohen and Jerry
Greenfield of Ben & Jerry's, Jim Koch of the
Boston Beer Company and Leon Gorman of L.L. Bean,
Inc. when she was named one of Ernst & Young's
New England Entrepreneurs of the Year.

[CHART]
1997   $114.7      Bank Rhode Island continued its strong commercial loan
1998   $134.0      growth in 2001. Total commercial loan outstandings
1999   $174.5      reached $239 million, a better than 12 percent increase
2000   $212.8      over 2000 in what was widely acknowledged to be a very
2001   $239.4      challenging business environment.
(In millions)

Bank Rhode Island unveiled a new concept in branch                  [PHOTO]
design with its new Xcel branch in Cranston. The
branch combines the best in convenience, service
and technology and will serve as a cornerstone of
the Bank's retail distribution strategy.

<PAGE>  1


To Our Shareholders:

In 2001 we continued the strategy, vision and focus which has helped make
Bank Rhode Island the success that it is today.

We continued to build a sophisticated product mix not often found at a bank
our size. We continued our commitment to providing our customers with an
unparalleled level of service. And we continued to post strong financial
results, as we remained focused on our ultimate goal, creating shareholder
value.

In 1996 we set out to fill a void in the marketplace. Consolidation had
polarized the banking landscape in the greater Providence area, with very
large institutions on one side and very small ones on the other. We
believed that a mid-sized, commercially oriented bank could thrive,
providing a product range not available at one end of the banking spectrum,
and a high level of personal service not found at the other.

Bank Rhode Island's results have proven that founding philosophy sound.

Since we opened our doors nearly six years ago, our total assets have
climbed more than 85 percent and total deposits are up almost 60 percent.
We've posted 10 straight quarters of record earnings and our net income is
80 percent higher than it was in our first full year of operations.


[SIDEBAR]
TV Advertising Bank Rhode Island stepped up its advertising efforts in
2001, launching its first-ever image campaign. The campaign included the
use of billboards, newspaper advertising, radio spots and the Bank's first
television commercial. The campaign was designed to position Bank Rhode
Island as one of the top banks in the State. The ads placed the Bank in the
company of the two largest banking competitors in the marketplace, and then
differentiated Bank Rhode Island from its competitors with the slogan, "We
treat your business like big business." The campaign successfully raised
the Bank's profile among both personal and business customers.

<PAGE>  2


We've built a solid reputation in the marketplace and have taken a
disparate mix of retail outlets and turned them into a competitive force in
the Rhode Island banking arena.

[PHOTO]       [CHART]
              1997     $464.9
              1998     $500.7
              1999     $513.4
              2000     $631.6
              2001     $670.4
               (In millions)
              Total Deposits

              [CHART]
              1997     $533.0
              1998     $596.0
              1999     $632.0
              2000     $739.4
              2001     $862.3
               (In millions)
               Total Assets

<PAGE>  3


              [CHART]
              1997     $ .75
              1998     $ .85
              1999     $1.14
              2000     $1.49
              2001     $1.62
                    EPS

              [CHART]
              1997     $1.03
              1998     $1.07
              1999     $1.34
              2000     $1.69
              2001     $1.81
                 EPS (Cash)

Our accomplishments are a testament to the hard work of everyone at Bank
Rhode Island. The dedication, skill and commitment of our employees are
what enable us to distinguish ourselves from our competitors. Their efforts
are why we were able to continue our success in 2001.

For the third straight year we posted double-digit earnings growth as net
income climbed 12 percent to $6.3 million. We also saw a 9 percent increase
in our diluted earnings per share, which reached $1.62. On a cash basis,
diluted EPS topped $1.81.

Driving EPS growth has always been a primary goal. The earnings per share
we achieved this year represents a 116 percent increase over our 1997
results. The increase in EPS reflects the overall profitable growth of the
Bank, which allowed us to begin paying dividends in 1999. We are pleased
that we were able to increase the quarterly dividend to $0.13 per share
following the fourth quarter of 2001.

In 2001 we also added more than $122 million in assets, pushing total
assets to more than $862 million. Half that increase came from the overall
growth of the Bank. We also were able to take advantage of our new holding
company structure to participate in a trust preferred

<PAGE>  4


              [CHART]
              1997     $3.5         Net income
              1998     $3.8         reached a
              1999     $4.4         record
              2000     $5.6         $6.3 million
              2001     $6.3         in 2001, a
              (In millions)         12.4 percent
               Net Income           increase over
                                    2000.

pool early in the year, which gave us the capital necessary to expand our
assets by another $60 million.

Strong deposit and commercial loan growth once again highlighted our 2001
financial performance. Our deposits climbed more than $38 million in 2001
and commercial loan outstandings increased more than $26 million.

We continue to attract both personal and business customers alike, which
has been and continues to be the basis for profitable growth. Attracting
checking and savings deposits gives us a lower cost source of funds.
Attracting commercial loans provides us with higher yielding assets, and
growing the number of customers who use our products and services helps
drive noninterest income.

The impact of all these factors on earnings and profitability is why we
have spent so much time and energy over the last six years strengthening
our product mix, improving our franchise and building our reputation.

All of that work has given us an excellent foundation on which to further
grow Bank Rhode Island. We are now at a point where we can look to other
parts of the State for opportunities.

Earlier this year we announced plans to expand beyond our original
footprint. We will bring our sophisticated products and service-oriented
approach to Pawtucket and South County. We believe that the market demand
exists throughout the State for a commercially oriented, mid-sized bank
like ours, and that we can grow to be a $1.5 billion institution over the
coming years.

We believe these plans will allow us to continue our history of strong
across-the-board growth, adding to our deposit base, our commercial loan
portfolio and ultimately our profitability.

<PAGE>  5


[PHOTO]

[SIDEBAR]
Cash Management In 2001 Bank Rhode Island continued its commitment to
providing its business customers with an array of sophisticated products
and  services. Through an expanded cash management program, the Bank now
offers its commercial customers all the tools they need to manage their
companies' finances quickly and efficiently.
Commercial services including overnight investment sweeps, account
reconciliation, ACH transfers, lock box, electronic data interchange, wire
transfers and zero balance accounting can be customized to meet the needs
of any business customer.
The Bank's ability to service these products out of its local operations
center gives it a competitive edge.
Add to those elements leasing, payroll and international trade services
provided through partnerships with some of the best companies in the
business, and Bank Rhode Island rivals the service offerings of its largest
competitors.


Commercial Lending

Nowhere has the depth of our product offering and the breadth of our
expertise proven to be more advantageous than in commercial lending.

Bank Rhode Island is a full service commercial bank. We can structure
financing for any business need, and can offer the financial management
tools needed to make a business run smoothly. We offer financing for
equipment needs and physical plant improvements, and have developed an
expertise in asset-based lending.

We've built a product mix atypical of an institution our size. Over the
years, we've added leasing services and international trade services
through third party providers. Last year, we introduced online banking,
which is now being used by 17 percent of our business checking customers.
And this year, we filled out our product offerings by expanding our cash
management services.

<PAGE>  6


[PHOTO]

We've put together a lending team that averages more than 15 years
experience, much of it at large financial institutions. We've structured
the department so that senior lenders are aligned with dedicated portfolio
managers and administrative staff. Customers not only have a senior officer
to meet their needs, but they also have a direct line of communication with
analytical and administrative staff who are familiar with their daily
operations. This level of service enhances our responsiveness and reflects
our high-touch relationship management culture.

[SIDEBAR]
Commercial Lending Commercial lending has always been a cornerstone of the
Bank's success and 2001 was no exception. Despite a slowing national and
regional economy, the Bank's commercial loan outstandings grew a solid 12
percent during the year, reaching more than $239 million.
The Bank continues to attract new business customers. Bank Rhode Island's
strong reputation in the marketplace, reinforced by the Bank's new
advertising campaign, helped bring 37 new large business lending
relationships to the Bank. Commercial Real Estate Lending had its second
best year ever as outstandings topped $100 million. And Small Business
Lending closed nearly 200 loans, pushing outstandings up more than 25
percent over year-end 2000.
All of that activity resulted in more than $350,000 in fees and has brought
commercial loan outstandings to almost three times the level they were when
the Bank opened in 1996.

<PAGE>  7


[SIDEBAR]
SUM(sm) Program In March of 2001, Bank Rhode Island joined the NYCE
Network's SUM program, giving its customers surcharge free access to over
2,800 ATMs throughout New England. The SUM program helps minimize ATM fees
for banking consumers by substantially increasing access across the region.
Participating financial institutions, nearly 500 in all, agree to provide
surcharge free ATM access to customers of other participating institutions.
Bank Rhode Island customers can now visit any ATM displaying the SUM logo
from Maine to Connecticut without incurring a surcharge fee.

[PHOTO]

Our commitment to building our commercial lending capacity has produced
tangible results. The Bank's commercial loan outstandings have nearly
tripled since we opened. In 2001 alone, total outstandings grew $26
million, a more than 12 percent increase. We've been able to grow all
aspects of our commercial base, adding significantly to our commercial and
industrial, commercial real estate and small business portfolio segments.

The success of our commercial lending area has allowed us to significantly
shift our asset mix, helping improve profitability. Commercial loans now
make up 39 percent of total loans, compared to 22 percent at inception.

                          [CHART]
Sweep                     1998     $ 4.0
balances                  1999     $14.6
topped $27                2000     $21.4
million at the            2001     $27.5
end of 2001,               (In millions)
up 31 percent             Sweep Balances
over 2000.

<PAGE>  8



Business Lending extended more than $43 million in commercial and
industrial loan commitments in 2001 and brought in 37 large lending
relationships to the Bank. And we remained the No. 3 U.S. Small Business
Administration (SBA) lender in the State, not only in the number of loans
but in dollar volume as well.

Commercial Real Estate had its second best year ever, booking $32 million
in loans and pushing outstandings past the $100-million mark.  The group
funded real estate projects of a variety of sizes and types in 2001.
Projects included a $200,000 warehouse in Johnston, a $675,000 medical
office building in Cranston, a $3 million retail development in Coventry,
residential and office space construction in downtown Providence and multi-
family residential projects in Woonsocket and Central Falls.

[PHOTO]

[SIDEBAR]
BARI Investment Services The Bank took a major step forward in its non-
deposit investment program with the launching of BARI Investment Services
early in 2001.
The Bank brought the management of the program in house, retained a well-
respected third party provider to furnish the technical back office
support, and hired top-notch investment representatives to work throughout
the Bank's branch network.
The result has been a program that is fully integrated with the overall
sales and service philosophy of the Bank. Customers are getting
professional investment advice when it comes to stocks, bonds, annuities
and mutual funds, and are receiving the personal attention they've come to
expect from Bank Rhode Island. The revamped program helped push sales to
three times the level achieved in the year 2000.

<PAGE>  9


The group also funded more than $8 million in single-family construction
loans through its line of credit program for contractors. The program, in
its third year, has filled a financial need among residential builders in
Rhode Island and has allowed Bank Rhode Island to build relationships with
some of the premier residential construction firms in the State.

Our Small Business Lending group continued to meet the borrowing needs in
the under $250,000 market, making 192 loans for $11 million. Small Business
Lending has grown to over 10 percent of our commercial loan portfolio,
reaching $24 million at year-end.

[PHOTO]

[SIDEBAR]
Xcel Branch In the Fall, Bank Rhode Island unveiled a new branch concept
designed to attract customers through a unique combination of service,
technology and style.
The new Xcel branch combines the "best of breed" sales models from around
the country and incorporates popular service concepts implemented by Bank
Rhode Island in other parts of the State. The result is a customer-focused
retail environment that is unlike any other banking location in Rhode
Island.
The Xcel branch features overhead television monitors playing cable news, a
curved teller line that extends into the center of the branch, modern
furniture and innovative signage and marketing displays.
The design compliments a host of customer conveniences, including extended
hours, a 24-hour Automated Banking Center, Internet Kiosks and dedicated
areas for business banking and investment services.

<PAGE>  10


The Small Business Lending area has not only been a source of a growing
number of small loans, but it has become a pipeline for larger loans. A
number of small businesses eventually outgrow our small business lending
area. But their relationship with us, and the service they receive, prompt
them to rely on the Bank for their lending needs as they grow.

Retail Banking

In 2001 we launched a major effort to increase our market visibility in the
State. While we've had great success over the years attracting customers
with our service-oriented approach, our goal was to make Bank Rhode Island
top of mind among more Rhode Island consumers.

We launched a multi-faceted image campaign, including our first ever
television commercial. We sponsored high-profile events like the telecast
of the Bristol 4th of July

[MAP]

[SIDEBAR]
Expansion Bank Rhode Island plans to add three new branches in 2002 as it
looks to continue to grow its presence in the State.
The Bank will add a branch in Western Cranston over the Summer, giving it
three service locations in the third largest city in Rhode Island. It will
also look to new markets with branches targeted for Pawtucket and North
Kingstown by the end of the year.
The expansion will bring Bank Rhode Island's sophisticated, service-
oriented approach to a host of new personal and business customers and is a
key to continuing the Bank's history of strong deposit and commercial loan
growth.

<PAGE>  11


[SIDEBAR]
Technology
In 2001, Bank Rhode Island continued its commitment to bring the best in
service and convenience to its customers through technology.
Customers can now get instant approval on home equity loans and lines of
credit through the Bank's Fast Equity Online. That product, along with the
overall success of the Bank's online banking products, has pushed the
number of visits to the Bank's website up 36 percent in the last year
alone. The online product, which offers one of the best online cash
management systems in the area, has become a staple among the Bank's
business customers and has been integral to attracting new customers to the
Bank.
Ironically, Bank Rhode Island's relative youth and size sometimes
constitutes an advantage when it comes to technology. The Bank doesn't have
the patchwork of legacy systems that a number of its larger competitors
have. This can allow the Bank to be more nimble when it comes to employing
new technological solutions to meet customers' needs.
The Bank also made a major service commitment in the Fall with the
introduction of Image Checking Statements. The new system allows the Bank
to create a complete electronic history of every customer's checking
account. Customers now get electronic images of their checks, making
account balancing easier, accessing records more convenient and eliminating
the need to store bulky loose checks. Imaging also allows the Bank's
customer service representatives to retrieve customer information more
quickly and easily.

[PHOTO]

Parade, the oldest Independence Day parade in the country. And we developed
a comprehensive print campaign that consistently put the Bank Rhode Island
name in front of both personal and business customers.

Those efforts could not have been more successful. We elevated the public
perception of the Bank and were able to build upon our history of
impressive deposit growth.

Total deposits reached $670 million at the end of 2001. Our total deposits
have climbed 30 percent in the last two years, with most of that growth
coming in checking and savings deposits. Those deposits climbed $56 million
during the year, a 15 percent increase, and are up more than 48 percent
since the start of 2000.

We place a high value on growing these balances because they represent the
strongest relationships with our customers. Customers consider the bank
where they maintain their checking and savings deposits to be their primary
bank. These customers generally use more of your products and services and
are more likely to remain customers.

<PAGE>  12


Our checking and savings deposits have nearly doubled since we opened our
doors, reaching $422 million at year-end. These deposits now make up more
than 63 percent of total deposits, up from 51 percent at inception.

The checking and savings growth has fueled the increase in deposits
throughout our branch network. We now have an average branch size of more
than $50 million. Six branches have topped the $60-million mark and one,
Smithfield, crossed the $70-million hurdle in 2001.

[PHOTO]

[SIDEBAR]
CampusMate(TM) Always in search of ways to leverage its expertise, Bank
Rhode Island launched an innovative product in 2001 that makes financial
management easier for college students, their parents and college
administrators. The patent-pending product called CampusMate(TM) gives Bank
Rhode Island a unique opportunity to tap the college market by combining an
online student bank account with a back office financial administration
function for colleges and universities.
The result is a product that meets the personal banking needs of students,
streamlines the administration of student activity accounts and gives
parents the ability to fund all of a student's financial needs
electronically.
The program was introduced to students at the Rhode Island School of Design
through an innovative CD, which went on to win one of the most prestigious
interactive award competitions in New England. The CD won the Vertical
Award in Financial Services from the Massachusetts Interactive Media
Council, beating out some national financial giants, including Scudder
Retirement Services and Merrill Lynch.

<PAGE>  13


And our online banking product has been a tremendous success since we
launched it in 2000. We've achieved a 9 percent penetration rate among
checking customers, which outpaces both the Northeast and national
averages.

More than 1,600 business and personal checking customers are now online.
The growth in online use shows that the Internet is gaining acceptance as a
delivery channel for banking products. It also pushed the activity on our
website up 36 percent for the year. We now receive more than 20,000 visits
per month at www.bankri.com.

We also saw tremendous growth in Retail Lending in 2001. A favorable
interest rate environment spurred the residential mortgage market. The Bank
closed more than twice the number of residential mortgage loans it did the
previous year, totaling more than $40 million.

All of that growth would not be possible if we did not consistently provide
our customers with superior products and services. We are constantly
looking for ways to improve the banking experience for our customers and
2001 was no exception.


[SIDEBAR]
Community Involvement Bank Rhode Island has always prided itself on being
an active member of the community. The Bank supported more than 150
organizations throughout the year, helping spur economic development,
providing access to the arts and helping those less fortunate meet the
basic needs of food and shelter.
But it's not just financial support that connects the Bank to the
community. Employees have spent countless hours participating in walkathons
and volunteering at local festivals and have given up their time to serve
on boards and committees in support of causes that mean the most to them.
Whether it's large organizations like the Rhode Island Philharmonic or the
Rhode Island Community Food Bank, or a local theatre group or softball
team, Rhode Islanders have come to rely on the support of Bank Rhode
Island. And we couldn't be more pleased that we can play a meaningful role.

[PHOTO]

<PAGE>  14


[PHOTO]

We joined the NYCE Network's SUMSM Program last year, giving our customers
surcharge free access to more than 2,800 ATMs throughout New England. We
upgraded to image checking statements, which streamlines the statements our
customers receive and enables us to quickly find historic information on
their accounts. And we added instant approvals of home equity loans and
lines of credit through our website.

We upgraded our ATM network and continued to make physical improvements to
our branches. We also launched the ultimate in service and convenience when
we opened our Xcel branch in Cranston. The branch features the latest
technology, extended hours and dedicated business lending and investment
personnel.

The Xcel branch, and our smaller Xpress branch design, will figure
prominently in the Bank's expansion plans, which we announced early in
2002.

We have shown the ability to execute a growth strategy that builds value
for our shareholders as well as our customers. And we've created a mid-
sized commercial bank that is unlike any other in our marketplace.

There remains a tremendous opportunity for us in the State of Rhode Island.
We are confident that our strategy, vision and focus will allow us to
continue to thrive as the service-oriented alternative to the large
regional players in the area.

Thank you for your continued support.


/s/ Malcolm G. Chace

Malcolm G. Chace
Chairman of the Board


/s/ Merrill W. Sherman

Merrill W. Sherman
President & CEO

<PAGE>  15


Bancorp Rhode Island, Inc.
and Bank Rhode Island
Boards of Directors

Malcolm G. Chace
Chairman
Bancorp Rhode Island, Inc.
Chairman
Bank Rhode Island
Providence, RI
Chairman
Mossberg Industries
Cumberland, RI
Chairman
SENESCO
North Kingstown, RI

Karen Adams
News Anchor
WPRI-TV CBS 12
East Providence, RI

Anthony F. Andrade
President
A & H Printing
East Providence, RI

John R. Berger
Consultant
West Hartford, CT

Ernest J. Chornyei, Jr.
Consultant
Watch Hill, RI

Karl F. Ericson
Consultant
Providence, RI

Margaret D. Farrell, Esq.
Hinckley, Allen & Snyder LLP
Providence, RI

Mark R. Feinstein
President
Northeast Management, Inc.
Lincoln, RI

F. James Hodges
Chairman
Hodges Badge Company
Portsmouth, RI

Edward J. Mack
President
Tri-Mack Plastics Manufacturing Co.
Bristol, RI

Donald J. Reaves
Executive Vice President/Finance
and Administration and
Chief Financial Officer
Brown University
Providence, RI

Merrill W. Sherman
President and CEO
Bancorp Rhode Island, Inc.
President and CEO
Bank Rhode Island
Providence, RI

Cheryl W. Snead
President and CEO
Banneker Industries, Inc.
Lincoln, RI

John A. Yena
President
Johnson & Wales University
Providence, RI

[Photos]

<PAGE>  16


CONTENTS
---------------------------------------------------------------------------

Selected Consolidated Financial Data                                  18-19

Management's Discussion and Analysis of
Finanical Condition and Results of Operations (MD&A)                  20-43

Management's Report                                                      44

Independent Auditor's Report                                             45

Consolidated Financial Statements                                     46-49

Notes to Consolidated Financial Statements                            50-77

Officers List                                                         78-79

Locations & Stock Information                                            80

<PAGE>  17


SELECTED CONSOLIDATED FINANCIAL DATA

      The following table represents selected consolidated financial data
as of and for the years ended December 31, 2001, 2000, 1999, 1998 and 1997.
The selected consolidated financial data is derived from the Company's
Consolidated Financial Statements that have been audited by KPMG LLP. The
selected consolidated financial data set forth below does not purport to be
complete and should be read in conjunction with, and are qualified in their
entirety by, the more detailed information, including the Consolidated
Financial Statements and related Notes, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing
elsewhere herein.

<TABLE>
<CAPTION>

                                                                                          As of and for the
                                                                                       Year Ended December 31,
                                                                      ----------------------------------------------------------
                                                                         2001        2000        1999        1998        1997
                                                                         ----        ----        ----        ----        ----
                                                                            (Dollars in thousands, except Per Share Data)


                                                                   <c>         <c>         <c>         <c>         <c>
Statement of Operations Data:
  Interest income                                                     $  55,903   $  50,035   $  41,651   $  40,034   $  37,269
  Interest expense                                                       26,537      23,678      19,600      19,845      17,478
                                                                      ---------------------------------------------------------
  Net interest income                                                    29,366      26,357      22,051      20,189      19,791
  Provision for loan losses                                               1,669       1,542       1,000       1,017       1,000
  Noninterest income                                                      5,231       3,578       3,222       2,727       1,916
  Noninterest expense                                                    23,196      19,662      17,354      16,043      15,273
                                                                      ---------------------------------------------------------
  Income before taxes and change in accounting principle                  9,732       8,731       6,919       5,856       5,434
  Income taxes                                                            3,417       3,113       2,448       2,022       1,924
                                                                      ---------------------------------------------------------
  Income before change in accounting principle                            6,315       5,618       4,471       3,834       3,510
  Cumulative effect of change in accounting principle, net of taxes          --          --         109          --          --
                                                                      ---------------------------------------------------------
  Net income                                                              6,315       5,618       4,362       3,834       3,510
  Dividends on preferred stock                                               --          --          88         793       1,413
                                                                      ---------------------------------------------------------
  Net income available to common shareholders                         $   6,315   $   5,618   $   4,274   $   3,041   $   2,097
                                                                      =========================================================

Per Share Data:
  Basic earnings per common share:
    Income before change in accounting principle                      $    1.69   $    1.51   $    1.18   $    0.87   $    0.75
    Cumulative effect of change in accounting principle                      --          --       (0.03)         --          --
                                                                      ---------------------------------------------------------
    Net income                                                        $    1.69   $    1.51   $    1.15   $    0.87   $    0.75
                                                                      =========================================================

  Basic cash earnings per common share (b)                            $    1.90   $    1.71   $    1.35   $    1.10   $    1.03

  Diluted earnings per common share:
    Income before change in accounting principle                      $    1.62   $    1.49   $    1.17   $    0.85   $    0.75
    Cumulative effect of change in accounting principle                      --          --       (0.03)         --          --
                                                                      ---------------------------------------------------------
    Net income                                                        $    1.62   $    1.49   $    1.14   $    0.85   $    0.75
                                                                      =========================================================

  Diluted cash earnings per common share (b)                          $    1.81   $    1.69   $    1.34   $    1.07   $    1.03

  Dividends per common share                                          $    0.48   $    0.42   $    0.10          --          --
  Dividend pay-out ratio                                                   29.6%       28.2%        8.8%         NA          NA

  Book value per common share                                         $   15.74   $   14.29   $   12.79   $   12.31   $   10.77
  Tangible book value per common share                                $   12.88   $   11.09   $    9.27   $    8.44   $    5.18
  Average common shares outstanding - Basic                           3,730,910   3,728,688   3,727,010   3,506,573   2,800,061
  Average common shares outstanding - Diluted                         3,900,028   3,768,589   3,741,778   3,584,820   2,805,688


<PAGE>  18


<CAPTION>

                                                                                          As of and for the
                                                                                       Year Ended December 31,
                                                                      ----------------------------------------------------------
                                                                         2001        2000        1999        1998        1997
                                                                         ----        ----        ----        ----        ----


                                                                   <c>         <c>         <c>         <c>         <c>
Balance Sheet Data:
  Total assets                                                        $ 862,250   $ 739,420   $ 631,977   $ 595,964   $ 533,025
  Investment securities                                                  49,453      47,296      50,503      39,703      48,319
  Mortgage-backed securities                                            150,650     117,431      74,793      79,924      43,078
  Total loans receivable                                                610,964     518,825     458,958     431,402     405,819
  Allowance for loan losses                                               8,524       7,294       5,681       5,018       4,340
  Excess of costs over net assets acquired                               10,766      11,930      13,094      14,424      15,658
  Deposits                                                              670,413     631,632     513,416     500,713     464,907
  Borrowings                                                            129,398      51,889      67,911      45,512      19,754
  Common shareholders' equity                                            59,097      53,292      47,675      45,835      30,165
  Total shareholders' equity                                             59,097      53,292      47,675      47,687      44,707

Average Balance Sheet Data:
  Total assets                                                        $ 818,905   $ 679,085   $ 616,426   $ 565,759   $ 499,382
  Investment securities                                                  49,881      47,034      47,348      44,040      47,242
  Mortgage-backed securities                                            130,342      86,114      79,463      57,627      15,689
  Total loans receivable                                                584,400     491,327     439,099     421,554     395,684
  Allowance for loan losses                                               8,056       6,472       5,358       4,799       4,210
  Excess of costs over net assets acquired                               11,373      12,540      13,720      15,077      16,318
  Deposits                                                              644,795     572,924     516,610     476,227     442,604
  Borrowings                                                            115,677      54,471      50,496      39,944      10,823
  Common shareholders' equity                                            56,101      48,530      46,169      40,568      27,981
  Total shareholders' equity                                             56,101      48,530      46,631      46,041      43,196

Operating Ratios:
  Interest rate spread                                                     3.12%       3.44%       3.25%       3.20%       3.68%
  Net interest margin                                                      3.75%       4.10%       3.80%       3.78%       4.22%
  Efficiency ratio (a)                                                    67.05%      65.68%      68.67%      70.01%      70.36%
  Cash basis efficiency ratio (a) (b)                                     63.68%      61.79%      64.06%      64.62%      64.67%
  Return on average assets (c)                                             0.77%       0.83%       0.73%       0.68%       0.70%
  Cash basis return on average assets (b) (c)                              0.88%       0.96%       0.87%       0.84%       0.89%
  Return on average equity (c)                                            11.26%      11.58%       9.59%       8.33%       8.13%
  Cash basis return on average equity (b) (c)                             12.60%      13.12%      11.20%      10.08%       9.97%

Asset Quality Ratios:
  Nonperforming loans to total loans                                       0.12%       0.10%       0.24%       0.36%       0.41%
  Nonperforming assets to total assets                                     0.12%       0.07%       0.18%       0.33%       0.38%
  Allowance for loan losses to nonperforming loans                      1132.01%    1435.83%     510.88%     321.05%     258.49%
  Allowance for loan losses to total loans                                 1.40%       1.41%       1.24%       1.16%       1.07%
  Net loans charged-off to average loans outstanding                       0.08%      (0.01%)      0.08%       0.08%       0.17%

Capital Ratios:
  Average shareholders' equity to average total assets                     6.85%       7.15%       7.54%       8.14%       8.64%
  Tier I leverage ratio                                                    5.93%       5.91%       5.88%       5.72%       5.62%
  Tier I risk-based capital ratio                                          9.86%       9.50%       9.70%       9.60%       9.41%
  Total risk-based capital ratio                                          11.10%      10.76%      10.96%      10.85%      10.66%

<FN>
(a)   Calculated by dividing total noninterest expenses by net interest
      income plus noninterest income.
(b)   Excludes amortization of intangibles and any related income taxes.
(c)   Excludes cumulative effect of change in accounting principle, net of
      taxes.
</FN>
</TABLE>


<PAGE>  19


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Cautionary Statement

      Certain statements contained herein are "Forward Looking Statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward Looking Statements may be identified by reference to a future
period or periods or by the use of forward looking terminology such as
"may," "believes," "intends," "expects," and "anticipates" or similar terms
or variations of these terms.  Actual results may differ materially from
those set forth in Forward Looking Statements as a result of certain risks
and uncertainties, including but not limited to, changes in political and
economic conditions, interest rate fluctuations, competitive product and
pricing pressures, equity and bond market fluctuations, credit risk,
inflation, as well as other risks and uncertainties detailed from time to
time in filings with the Securities and Exchange Commission ("SEC").

General

      Bancorp Rhode Island, Inc. (the "Company"), a Rhode Island
corporation, was organized by Bank Rhode Island (the "Bank") on February
15, 2000, to be a bank holding company and to acquire all of the capital
stock of the Bank.  The reorganization of the Bank into the holding company
form of ownership was completed on September 1, 2000.  The Company has no
significant operating entities other than the Bank.  For this reason,
substantially all of the discussion in this document relates to the
operations of the Bank and its subsidiaries.

      Bank Rhode Island is a commercial bank chartered as a financial
institution in the State of Rhode Island.  The Bank pursues a community
banking mission and is principally engaged in providing banking products
and services to individuals and businesses in Providence and Kent counties.
The Bank is subject to competition from a variety of traditional and
nontraditional financial service providers both within and outside of Rhode
Island.  The Bank offers its customers a wide range of deposit products,
non-deposit investment products, commercial, residential and consumer
loans, and other traditional banking products and services, designed to
meet the needs of individuals and small- to mid-sized businesses.  The Bank
also has introduced both commercial and consumer online banking products
and maintains a web site at http://www.bankri.com.  The Company and Bank
are subject to regulation by a number of federal and state agencies and
undergo periodic examinations by certain of those regulatory authorities.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC"), subject to regulatory limits.  The Bank is also a
member of the Federal Home Loan Bank of Boston ("FHLB").

Non-GAAP Measures of Financial Performance

      The Bank's formation in 1996 resulted in the generation of $17.5
million of intangibles that are being amortized over a 15-year period.  The
amortization of these intangibles reduces the Bank's pre-tax income by $1.2
million annually.  Because of the impact of this amortization, certain
measures of financial performance have been calculated excluding such
amortization and any related income taxes.  These measures are identified
as "cash" or "cash basis" and have been provided to assist the reader in
evaluating the core performance of the Company.  Information presented on a
cash basis is not in accordance with Generally Accepted Accounting
Principles ("GAAP"), but management believes it to be beneficial to gaining
an understanding of the financial performance of the Company.


<PAGE>  20


Results of Operations

Net Interest Income

      The Company's operating results depend primarily on its "net interest
income", or the difference between its interest income and its cost of
money, and on the quality of its assets.  Interest income depends on the
amount of interest-earning assets outstanding during the year and the
interest rates earned thereon.  The Company's cost of money is a function
of the average amount of deposits and borrowed money outstanding during the
year and the interest rates paid thereon.  Earnings are further influenced
by the quality of assets through the amount of interest income lost on
nonaccrual loans, the amount of additions made to the allowance for loan
losses, and the amount of expenses incurred as a result of resolving
troubled assets.

      Net interest income for 2001 was $29.4 million, compared to $26.4
million for 2000 and $22.1 million for 1999.  This increase of $3.0
million, or 11.4%, during 2001 was primarily attributable to the continued
growth of the Company.  The Company's net interest margin decreased in 2001
and was 3.75%, compared to 4.10% in 2000 and 3.80% for 1999.  Average
earning assets were $140.5 million, or 21.9%, higher and average interest-
bearing liabilities were $115.5 million, or 21.2%, higher during 2001 than
during the previous year.

Average Balances, Yields and Costs

      The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets
and average cost of liabilities for the years indicated.  Such yields and
costs are derived by dividing income or expense by the average balance of
assets or liabilities.  Average balances are derived from daily balances
and include nonperforming loans.


<PAGE>  21


<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                   -----------------------------------------------------------------------------
                                                             2001                      2000                      1999
                                                   ------------------------- ------------------------- -------------------------
                                                            Interest                  Interest                  Interest
                                                   Average  Earned/  Average Average  Earned/  Average Average  Earned/  Average
                                                   Balance    Paid   Yield   Balance    Paid   Yield   Balance    Paid   Yield
                                                   -------  -------- ------- -------  -------- ------- -------  -------- -------
                                                                             (Dollars in thousands)


                                                <c>      <c>      <c>     <c>      <c>       <c>    <c>      <c>       <c>
Assets:
Earning assets:
  Fed funds sold & overnight investments           $ 13,642 $   510   3.74%  $ 14,571 $   930   6.38%  $ 10,051 $   482   4.80%
  Investment securities                              49,881   3,044   6.10%    47,034   3,056   6.50%    47,348   2,814   5.94%
  Mortgage-backed securities                        130,342   7,720   5.92%    86,114   5,576   6.48%    79,463   4,835   6.08%
  Stock in the FHLB                                   4,973     288   5.79%     3,704     282   7.61%     3,622     237   6.54%
  Loans receivable:
    Residential mortgage loans                      301,729  21,694   7.19%   243,706  17,982   7.38%   244,698  16,997   6.95%
    Commercial loans                                221,966  18,078   8.14%   197,200  17,737   8.99%   151,725  12,795   8.43%
    Consumer and other loans                         60,705   4,569   7.53%    50,421   4,472   8.87%    42,676   3,491   8.18%
                                                   ----------------          ----------------          ----------------
      Total earning assets                          783,238  55,903   7.14%   642,750  50,035   7.78%   579,583  41,651   7.19%
                                                            -------                   -------                   -------
Cash and due from banks                              19,889                    17,998                    18,268

Allowance for loan losses                            (8,056)                   (6,472)                   (5,358)
Premises and equipment                                6,641                     6,306                     5,283
Other real estate owned                                 169                        80                       226
Excess of cost over net assets acquired, net         11,373                    12,540                    13,720
Accrued interest receivable                           4,767                     4,126                     3,704
Prepaid expenses and other assets                       884                     1,757                     1,000
                                                   --------                  --------                  --------
      Total assets                                 $818,905                  $679,085                  $616,426
                                                   ========                  ========                  ========

Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
  Deposits:
    NOW accounts                                   $ 39,642     209   0.53%  $ 31,555     205   0.65%  $ 27,082     175   0.65%
    Money market accounts                            10,799     221   2.05%    14,113     375   2.66%    17,284     473   2.74%
    Savings accounts                                236,608   6,507   2.75%   192,217   6,137   3.19%   172,073   4,742   2.76%
    Certificate of deposit accounts                 257,646  13,458   5.22%   252,521  13,685   5.42%   230,901  11,396   4.94%
  Overnight and short-term borrowings                15,386     461   3.00%    11,474     636   5.54%     7,329     335   4.57%
  FHLB and other borrowings                          97,718   5,418   5.54%    42,997   2,640   6.14%    43,167   2,479   5.74%
  Capital trust securities                            2,573     263  10.22%        --      --     --%        --      --     --%
                                                   ----------------          ----------------          ----------------
      Total interest-bearing liabilities            660,372  26,537   4.02%   544,876  23,678   4.34%   497,836  19,600   3.94%
                                                            -------                   -------                   -------
Noninterest-bearing deposits                        100,100                    82,518                    69,270
Other liabilities                                     2,332                     3,161                     2,689
                                                   --------                  --------                  --------
      Total liabilities                             762,804                   630,555                   569,795
Shareholders' equity                                 56,101                    48,530                    46,631
                                                   --------                  --------                  --------
      Total liabilities and shareholders' equity   $818,905                  $679,085                  $616,426
                                                   ========                  ========                  ========

Net interest income                                         $29,366                   $26,357                   $22,051
                                                            =======                   =======                   =======
Net interest rate spread                                              3.12%                     3.44%                     3.25%
Net interest rate margin                                              3.75%                     4.10%                     3.80%
</TABLE>


<PAGE>  22


Rate/Volume Analysis

      The following table sets forth certain information regarding changes
in the Company's interest income and interest expense for the periods
indicated.  For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to (i)
changes in rate (changes in rate multiplied by old average balance) and
(ii) changes in volume (changes in average balances multiplied by old
rate).  The net change attributable to the combined impact of rate and
volume was allocated to the individual rate and volume changes.

<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                             ------------------------------------------------------------------
                                                       2001 vs. 2000                      2000 vs. 1999
                                                Increase/(Decrease) Due To          Increase/(Decrease) Due To
                                             ---------------------------------     ----------------------------
                                               Rate        Volume       Total       Rate      Volume     Total
                                               ----        ------       -----       ----      ------     -----
                                                                       (In thousands)


                                          <c>          <c>          <c>         <c>        <c>        <c>
Interest income:
  Fed funds sold & overnight investments     $  (364)     $   (56)     $ (420)     $  190     $  258     $  448
  Investment securities                       (2,232)       2,220         (12)        261        (19)       242
  Mortgage-backed securities                    (427)       2,571       2,144         321        420        741
  Stock in the FHLB                              (17)          23           6          40          5         45
  Residential mortgage loans                    (447)       4,159       3,712       1,054        (69)       985
  Commercial loans                            (1,039)       1,380         341         898      4,044      4,942
  Consumer and other loans                      (279)         376          97         311        670        981
                                             ------------------------------------------------------------------
      Total interest income                   (4,805)      10,673       5,868       3,075      5,309      8,384
                                             ------------------------------------------------------------------

Interest Expense:
  NOW accounts                                   (11)          15           4           1         29         30
  Money market accounts                          (76)         (78)       (154)        (14)       (84)       (98)
  Savings accounts                              (556)         926         370         803        592      1,395
  Certificate of deposit accounts               (518)         291        (227)      1,171      1,118      2,289
  Overnight & short-term borrowings             (681)         506        (175)         82        219        301
  FHLB and other borrowings                     (229)       3,007       2,778         171        (10)       161
  Capital trust securities                        --          263         263          --         --         --
                                             ------------------------------------------------------------------
      Total interest expense                  (2,071)       4,930       2,859       2,214      1,864      4,078
                                             ------------------------------------------------------------------

      Net interest income                    $(2,734)     $ 5,743      $3,009      $  861     $3,445     $4,306
                                             ==================================================================
</TABLE>


<PAGE>  23


Comparison of Years Ended December 31, 2001 and December 31, 2000
-----------------------------------------------------------------

General

      Net income for 2001, increased $697,000, or 12.4%, to $6.3 million,
or $1.62 per diluted common share, from $5.6 million, or $1.49 per diluted
common share, for 2000.  Diluted cash earnings per common share were $1.81
for 2001, compared to $1.69 for 2000.  This performance represented a
return on average assets of 0.77% and a return on average equity of 11.26%
for 2001, as compared to a return on average assets of 0.83% and a return
on average equity of 11.58% for 2000.  Cash basis return on average assets
and cash basis return on average equity were 0.88% and 12.60% for 2001, and
0.96% and 13.12% for 2000, respectively.

      Net interest income was $29.4 million for 2001, compared to $26.4
million for 2000.  The net interest margin for 2001 was 3.75%, compared to
a net interest margin of 4.10% for 2000.  The increase in net interest
income of $3.0 million, or 11.4%, was primarily attributable to the overall
growth of the Company.  Average earning assets increased $140.5 million, or
21.9%, and average interest-bearing liabilities increased $115.5 million,
or 21.2%, over the prior year.  The decrease of 35 basis points in the net
interest margin was caused by the 475 basis point drop in short-term market
interest rates, along with tighter spreads on wholesale asset purchases
completed in the first quarter of 2001.

Interest Income - Investments

      Total investment income (consisting of interest or dividends on
federal funds sold, investment securities, mortgage-backed securities, and
FHLB stock) was $11.6 million for 2001, compared to $9.8 million for 2000.
This increase in total investment income of $1.7 million, or 17.5%, was
primarily attributable to a $44.2 million, or 51.4%, increase in the
average balance of mortgage-backed securities ("MBSs").  Meanwhile, the
overall yield on investments decreased 69 basis points due to dramatically
lower market interest rates.  The Company's investments at December 31,
2001 were primarily comprised of Agency securities or MBSs with either
remaining maturities or repricing periods of less than five years.  In
addition to assisting in overall tax planning, management believes that this
composition, along with a structured maturity ladder, provides more stable
earnings and predictable cash flows from the portfolio.  As a result of the
low interest rate environment present at the end of 2001, prepayments on MBSs
accelerated.  These higher prepayment levels had a negative impact on the
yield of MBSs purchased at a premium.

Interest Income - Loans

      Interest from loans was $44.3 million for 2001, and represented a
yield on total loans of 7.59%.  This compares to $40.2 million of interest,
and a yield of 8.18%, for 2000.  This increase of $4.2 million, or 10.3%,
in interest on loans was due primarily to an increase in the average
balance of loans outstanding, partially offset by lower interest rates.
The average balance of the various components of the loan portfolio changed
as follows:  residential mortgage loans increased $58.0 million, or 23.8%,
commercial loans increased $24.8 million, or 12.6%, and consumer and other
loans increased $10.3 million, or 20.4%.  The Company has concentrated its
origination efforts on commercial and consumer loan opportunities, while
purchasing residential mortgage loans, and more recently automobile loans,
as cash flows have dictated.  Meanwhile, in response to declining market
interest rates, the yields on the various components of the loan portfolio
changed as follows:  residential mortgage loans increased 19 basis points,
to 7.19%; commercial loans decreased 85 basis points, to 8.14%; and
consumer and other loans decreased 134 basis points, to 7.53%.  In recent
months prepayments speeds have increased on residential mortgage loans.  If
these prepayment speeds remain high, residential mortgage loan yields will
be negatively impacted as increased cash flows will be reinvested at lower
rates and premiums paid on purchased loans will be amortized more quickly.


<PAGE>  24


Interest Expense - Deposits and Borrowings

      Interest paid on deposits and borrowings increased $2.9 million, or
12.1%, to $26.5 million for 2001, compared to $23.7 million for 2000.  The
increase in total interest expense was primarily attributable to growth in
savings accounts, along with the use of borrowings, to fund the overall
growth of the Company.  The average balance of interest-bearing liabilities
increased $115.5 million, from $544.9 million in 2000, to $660.4 million in
2001.  The Company continued to experience strong average balance growth in
core deposit accounts, specifically noninterest bearing demand deposit
accounts (up $17.6 million, or 21.3%) and savings accounts (up $44.4
million, or 23.1%).  In addition, the Company increased its utilization of
borrowed funds (average balances up $61.2 million, or 112.4%).  In response
to declining market interest rates, the overall average cost for interest-
bearing liabilities decreased 33 basis points from 4.35% for 2000, to 4.02%
for 2001.  Deposit and borrowing costs are dependent on a number of factors
including general economic conditions, national and local interest rates,
competition in the local marketplace, interest rate tiers offered, and the
Company's cash flow needs.

Provision for Loan Losses

      The provision for loan losses was $1.7 million for 2001, compared to
$1.5 million for 2000.  Increases to the Provision for Loan Losses were
primarily in response to a softening economy, some deterioration in
commercial credit quality and growth in loans outstanding.  As the loan
portfolio continues to grow and mature, or if economic conditions worsen,
management believes it highly likely that the level of nonperforming assets
will increase, which in turn may lead to increases to the provision for
loan losses in future periods.  Management evaluates several factors
including new loan originations, actual and estimated charge-offs, the risk
characteristics of the loan portfolio and general economic conditions when
determining the provision for each quarter.  Also see discussion under
"Asset Quality" and "Allowance for Loan Losses."

Noninterest Income

      Total noninterest income increased $1.7 million, or 46.2%, from $3.6
million for 2000, to $5.2 million for 2001.  Service charges on deposit
accounts, which continue to represent the largest source of noninterest
income, rose $729,000, or 26.8%, from $2.7 million for 2000, to $3.5
million for 2001, primarily as a result of growth in checking and savings
accounts.  Commissions on Loans Originated for Others increased $214,000,
or 289.2%, in response to significantly higher fixed-rate mortgage loan
activity resulting from the drop in market interest rates.  Additionally,
Other Income increased $679,000, or 129.6%, primarily from increased
commissions on sales of non-deposit investment products.

      The following table sets forth the components of noninterest income:


<TABLE>
<CAPTION>

                                               Year Ended December 31,
                                               -----------------------
                                                   2001       2000
                                                   ----       ----
                                                   (In thousands)


                                               <c>        <c>
Loan related fees                                 $  285     $  258
Service charges on deposit accounts                3,451      2,722
Gain on sale of MBSs                                   4         --
Commissions on loans originated for others           288         74
Other income                                       1,203        524
                                                  -----------------
      Total noninterest income                    $5,231     $3,578
                                                  =================
</TABLE>


<PAGE>  25


Noninterest Expense

      Noninterest expenses for 2001 increased a total of $3.5 million, or
18.0%, to $23.2 million, from $19.7 million in 2000.  This increase
occurred primarily as a result of the overall growth of the Company and was
centered in the following areas:  Salaries and Benefits (up $1.7 million,
or 18.2%), Occupancy and Equipment (up $193,000, or 7.9%), Data Processing
(up $439,000, or 32.8%), Loan Servicing (up $184,000, or 24.2%), Workout
and OREO Expense (up $322,000, or 1038.7%) and Other Expenses (up $751,000,
or 32.4%).  During 2000 and early 2001, the Company experienced substantial
growth in both loans and core deposits that resulted in the increased
operating costs evidenced in 2001.  In addition, the softening of both the
national and local economies in 2001 has lead to increases in workout and
fraudulent activity charges.  Partially offsetting these increases was a
decrease in Marketing (down $90,000, or 8.4%).  The Company's efficiency
ratio increased 137 basis points, to 67.05%, and its cash basis efficiency
ratio increased 189 basis points, to 63.68%, for 2001.  As a result of the
Company's announced expansion plans for 2002, management anticipates
continued upward pressure on noninterest expenses.

      The following table sets forth the components of noninterest expense:

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                                            -----------------------
                                                               2001        2000
                                                               ----        ----
                                                                (In thousands)


                                                           <c>         <c>
Salaries and employee benefits                                $11,287     $ 9,552
Occupancy and equipment                                         2,622       2,429
Data processing                                                 1,779       1,340
Marketing                                                         979       1,069
Professional services                                             883         891
Loan servicing                                                    945         761
Other real estate owned                                           353          31
Amortization of excess of cost over net assets acquired         1,164       1,164
Deposit tax and assessments                                       117         109
Other expenses                                                  3,067       2,316
                                                              -------------------
      Total noninterest expense                               $23,196     $19,662
                                                              ===================
</TABLE>

Income Tax Expense

      The Company recorded income tax expense of $3.4 million for 2001,
compared to $3.1 million for 2000.  This represented total effective tax
rates of 35.1% and 35.7%, respectively.  Tax-favored income from U.S.
Treasury and Agency securities and its utilization of a Rhode Island
passive investment company has reduced the Company's effective tax rate
from the 39.9% combined statutory federal and state tax rates.

Comparison of Years Ended December 31, 2000 and December 31, 1999
-----------------------------------------------------------------

General

      Net income for 2000 increased $1.3 million, or 28.8%, to $5.6
million, or $1.49 per diluted common share, from $4.4 million, or $1.14 per
diluted common share, for 1999.  Net income for 1999 was reduced by a one-
time charge of $109,000 resulting from a change in accounting principle
that required remaining unamortized organizational costs to be charged
against earnings.  Operating income, which excludes this one-time charge,
was $5.6 million for 2000, compared to $4.5 million for 1999, an increase
of $1.1 million, or 25.7%.  Diluted cash earnings per common share were
$1.69 in 2000, compared to $1.37 in 1999.


<PAGE>  26


      This performance represented a return on average assets of 0.83% and
a return on average equity of 11.58% for 2000, as compared to a return on
average assets of 0.73% and a return on average equity of 9.59% for 1999.
Cash basis return on average assets and cash basis return on average equity
were 0.96% and 13.12% for 2000, and 0.87% and 11.20% for 1999,
respectively.

Interest Income - Investments

      Total investment income was $9.8 million for 2000, compared to $8.4
million for 1999.  This increase in total investment income of $1.5
million, or 17.6%, was attributable to an increase of $10.9 million, or
7.8%, in the average balance of investments (resulting from growth in
deposits), along with an increase in the overall yield of investments of 54
basis points (resulting from increases in market interest rates).  The
Company's investments at December 31, 2000 were primarily comprised of
Treasury and Agency securities with remaining maturities of less than five
years, along with MBSs with repricing periods of less than five years.
Management believes that this composition, along with a structured maturity
ladder, provides more stable earnings and predictable cash flows from the
portfolio.  As a result of the rising interest rate environment present
during 2000, prepayments on MBSs slowed during the year.  These lower
prepayment levels had a positive impact on the yield of MBSs purchased at a
premium.

Interest Income - Loans

      Interest from loans was $40.2 million for 2000, and represented a
yield on total loans of 8.18%.  This compares to $33.3 million of interest,
and a yield of 7.58%, for 1999.  Interest from commercial loans increased
$4.9 million, or 38.6%, between the two years and represented the fastest
growing segment of the total loan portfolio.  Income from consumer and
other loans increased $981,000, or 28.1%, and residential mortgage loan
income increased $985,000, or 5.8%.  Since 1996, origination efforts have
been concentrated on commercial and, to a lesser extent, consumer loan
opportunities, with residential mortgage loans purchased as cash flows
dictated.  The Bank also originates residential mortgage loans on a limited
basis.  The average balance of the various components of the loan portfolio
changed from 1999 as follows:  commercial loans increased $45.5 million, or
30.0%, consumer and other loans increased $7.7 million, or 18.1%, and
residential mortgage loans decreased $992,000, or 0.4%.  In response to
rising market interest rates, the yields on the various loan portfolio
components changed as follows:  commercial loans increased 56 basis points,
to 8.99%; consumer and other loans increased 69 basis points, to 8.87%, and
residential mortgage loans increased 43 basis points, to 7.38%.  As with
MBSs, the rising interest rate and slower prepayment environment present
during 2000 positively impacted the yield on the loan portfolio.

Interest Expense - Deposits and Borrowings

      Interest paid on deposits and borrowings increased $4.1 million, or
20.8%, to $23.7 million for 2000, from $19.6 million paid during 1999.  The
overall average cost of interest-bearing liabilities increased 41 basis
points, from 3.94% for 1999 to 4.34% for 2000, and resulted in $2.2 million
of additional interest expense.  Liability costs are dependent on a number
of factors including general economic conditions, national and local
interest rates, competition in the local deposit marketplace, interest rate
tiers offered and cash flow needs.  In general, deposit costs during the
second half of 2000 showed signs of reacting (on a delayed basis) to the
increases in market rates that occurred during the first half of the year.
Average costs for the various components of interest-bearing liabilities
changed from 1999 as follows:  NOW accounts remained the same at 0.65%,
money market accounts decreased 8 basis points, to 2.66%, savings accounts
increased 44 basis points, to 3.19%, certificate of deposit accounts
increased 48 basis points, to 5.42%, and borrowings increased 44 basis
points to 6.01%.  Meanwhile, the average balance of interest-bearing
liabilities increased $47.0 million, from $497.8 million in 1999 to $544.9
million in 2000, as the Bank actively sought checking and savings deposits
("core deposits") to fund asset growth and benefited from the unusual
market conditions created by the Fleet Financial/BankBoston divestitures.


<PAGE>  27


Provision for Loan Losses

      The provision for loan losses was $1.5 million for 2000, up $542,000,
or 54.2%, from the prior year.  The commercial loan portfolio grew at a
rate of 21.9% during 2000, while the Bank experienced net recoveries of
$71,000 for the year.  When determining the provision for loan losses,
management evaluates several factors including new loan originations,
actual and estimated charge-offs and the risk characteristics of the loan
portfolio.  Also see discussion under "Financial Condition -- Allowance for
Loan Losses."

Noninterest Income

      Total noninterest income increased $356,000, or 11.0%, to $3.6
million for 2000, from $3.2 million for 1999.  Service Charges on Deposit
Accounts, which represent the largest source of noninterest income, rose
$507,000, or 22.9%, from $2.2 million for 1999, to $2.7 million for 2000,
primarily as a result of growth in core deposit accounts.  Loan Related
Fees decreased $48,000, or 15.7%, as prepayment penalties were less in 2000
than in the prior year and Other Income decreased $94,000, or 15.2%, as
income from investment product sales decreased $110,000.  The Bank
announced a number of initiatives to revitalize this program at the end of
2000.

      The following table sets forth the components of noninterest income:

<TABLE>
<CAPTION>

                                          Year Ended December 31,
                                          -----------------------
                                              2000       1999
                                              ----       ----
                                               (In thousands)


                                          <c>        <c>
Loan related fees                            $  258     $  306
Service charges on deposit accounts           2,722      2,215
Commissions on loans originated for others       74         83
Other income                                    524        618
                                             -----------------
      Total noninterest income               $3,578     $3,222
                                             =================
</TABLE>

Noninterest Expense

      Total noninterest expense for 2000 increased $2.3 million, or 13.3%,
to $19.7 million from $17.4 million in 1999.  This increase occurred
primarily in the following areas:  Salaries and Benefits (up $1.5 million,
or 18.4%), Occupancy and Equipment (up $383,000, or 18.7%), Marketing (up
$186,000, or 21.1%) and Other Expenses (up $329,000, or 16.6%) and
primarily represent increased costs associated with the overall growth of
the institution.  The increase in Occupancy and Equipment was partially
attributable to the Bank opening a de novo branch in the Buttonwoods
section of Warwick and the Bank's ongoing replacement and upgrading of
fixed assets throughout its branch network.  The increase in Marketing
expense was attributable to the Bank seeking to take advantage of unusual
market conditions created by the Fleet Financial/BankBoston divestitures.
Partially offsetting these increases were decreases in:  Loan Servicing
(down $64,000, or 7.8%) due to decreases in mortgage loans serviced by
others and OREO expense (down $77,000, or 71.3%) due to decreased levels of
foreclosures.  The Company's efficiency ratio decreased 299 basis points,
to 65.68%, in 2000 and its cash basis efficiency ratio decreased 227 basis
points to 61.79%.


<PAGE>  28


      The following table sets forth the components of noninterest expense:

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                                            -----------------------
                                                               2000        1999
                                                               ----        ----
                                                                (In thousands)


                                                           <c>         <c>
Salaries and employee benefits                                $ 9,552     $ 8,065
Occupancy and equipment                                         2,429       2,046
Data processing                                                 1,340       1,348
Marketing                                                       1,069         883
Professional services                                             891         870
Loan servicing                                                    761         825
Other real estate owned                                            31         108
Amortization of excess of cost over net assets acquired         1,164       1,164
Deposit tax and assessments                                       109          58
Other expenses                                                  2,316       1,987
                                                              -------------------
      Total noninterest expense                               $19,662     $17,354
                                                              ===================
</TABLE>

Income Tax Expense

      Income tax expense of $3.1 million was recorded for 2000, compared to
$2.4 million for 1999.  This represented total effective tax rates of 35.7%
and 35.4%, respectively.  Tax-favored income from U.S. Treasury and Agency
securities along with the utilization of a Rhode Island passive investment
company has reduced the effective tax rate from the 39.9% combined
statutory federal and state tax rates.

Financial Condition

Loans Receivable

      Total loans were $611.0 million, or 70.9% of total assets, at
December 31, 2001, compared to $518.8 million, or 70.2% of total assets, at
December 31, 2000, an increase of $92.1 million, or 17.8%.  Total loans as
of December 31, 2001, may be segmented in three broad categories:
residential mortgages that aggregate $310.2 million, or 50.8% of the
portfolio; commercial loans that aggregate $239.4 million, or 39.2% of the
portfolio; and consumer and other loans that aggregate $61.4 million, or
10.0% of the portfolio.

      During the second quarter of 1998, the Bank completed a comprehensive
project begun in late 1997, to refine the classification of its individual
commercial loans.  This project defined the classification of a loan based
on its primary purpose and collateral.   As a result of this project, the
Bank reclassified a number of loans from the commercial & industrial
category to the commercial real estate or multi-family real estate
categories.  The amounts shown for December 31, 1997 have not been restated
to reflect this reclassification.  Included in the following table as
commercial real estate loans at December 31, 2001, 2000, 1999 and 1998, are
$46.7 million, $38.3 million, $34.0 million and $36.9 million of "owner
occupied" loans, many of which were originated in conjunction with a
commercial & industrial loan to the same borrower and previously classified
as commercial & industrial loans.  This classification project did not
affect the total outstanding for commercial loans, only the breakdown by
individual category within the total portfolio.

      The Bank utilizes the term "small business loans" to describe its
portfolio comprised of loans to businesses of up to $250,000 in the
aggregate.


<PAGE>  29


      The following is a summary of loans receivable:

<TABLE>
<CAPTION>

                                                                  December 31,
                                          ------------------------------------------------------------
                                            2001         2000         1999         1998         1997
                                            ----         ----         ----         ----         ----
                                                                 (In thousands)


                                       <c>          <c>          <c>          <c>          <c>
Residential mortgage loans:
  One- to four-family adjustable rate     $285,589     $212,197     $196,863     $211,076     $205,020
  One- to four-family fixed rate            23,306       34,609       39,037       45,671       50,704
                                          ------------------------------------------------------------
    Subtotal                               308,895      246,806      235,900      256,747      255,724
  Premium on loans acquired                  1,381        1,166        1,446        2,110        2,045
  Net deferred loan origination fees           (64)        (49)          (26)          --           --
                                          ------------------------------------------------------------
      Total                               $310,212     $247,923     $237,320     $258,857     $257,769
                                          ============================================================

Commercial loans:
  Commercial real estate                  $120,067     $107,587     $ 90,149     $ 76,562     $ 49,412
  Commercial & industrial                   53,677       51,470       40,109       30,655       47,440
  Small business                            24,122       19,170       13,322        6,804        3,775
  Multi-family                              14,927       15,933       16,270       13,221        6,874
  Construction                              14,027        7,070        6,379        3,482        4,683
  Leases and other                          12,715       11,731        8,499        3,370        2,600
                                          ------------------------------------------------------------
    Subtotal                               239,535      212,961      174,728      134,094      114,784
  Net deferred loan origination fees          (171)        (143)        (180)         (61)        (112)
                                          ------------------------------------------------------------
      Total                               $239,364     $212,818     $174,548     $134,033     $114,672
                                          ============================================================

Consumer and other loans:
  Home equity - lines of credit           $ 28,460     $ 26,215     $ 24,166     $ 18,400     $ 11,515
  Home equity - term loans                  22,930       23,292       19,710       16,996       18,758
  Automobile                                 6,335        4,643           --           --           --
  Installment                                1,240        1,348        1,279        1,010          888
  Savings secured                              656          987        1,005          935        1,261
  Unsecured and other                        1,153        1,044          590          972          956
                                          ------------------------------------------------------------
    Subtotal                                60,774       57,529       46,750       38,313       33,378
  Premium on loans acquired                    192          144           --           --           --
  Net deferred loan origination costs          422          411          340          199           --
                                          ------------------------------------------------------------
      Total                               $ 61,388     $ 58,084     $ 47,090     $ 38,512     $ 33,378
                                          ============================================================
</TABLE>

      During 2001, residential mortgage loans increased $62.3 million, or
25.1%, as purchases of $186.0 million and originations of $18.0 million
were partially offset by $141.7 million in repayments.  As part of a
wholesale leverage transaction completed during the first quarter of 2001,
the Bank purchased $50.2 million of residential mortgage loans.  These
purchases were funded with a series of FHLB borrowings and supported by the
additional capital created through the issuance of trust preferred
securities.  Since inception, the Bank has concentrated its portfolio
lending efforts on commercial and, to a lesser extent, consumer lending
opportunities.  During late 1997, the Bank began to originate mortgage
loans for its own portfolio as well as for sale to others and anticipates
continuing to originate mortgage loans on a limited basis for its
customers.  The Bank does not employ any mortgage originators and typically
only holds in its portfolio loans whose rate will adjust in less than 10
years.  Until such time as the Bank can originate sufficient commercial and
consumer loans to utilize available cash flow, it intends to continue
purchasing residential mortgage loans as opportunities develop.

      The commercial loan portfolio (consisting of commercial real estate,
commercial & industrial, multi-family real estate, construction and small
business loans) increased $26.5 million, or 12.5%, during 2001.  The
Company believes it is well positioned for continued commercial loan
growth.  Particular emphasis is placed on generation of small- to medium-
sized commercial relationships (those relationships with $5.0 million or
less in loan commitments).  The Bank is also active in small business
lending in which it utilizes credit scoring, in conjunction with
traditional review standards, and employs streamlined documentation.  The
small business portfolio increased $5.0 million, or 25.8%, during 2001.
The Bank is a participant in the U.S. Small Business Administration ("SBA")
Preferred Lender Program ("PLP") in Rhode Island and the 7a Guarantee Loan
Program in Massachusetts.


<PAGE>  30


      The consumer loan portfolio is comprised primarily of home equity
term loans and home equity lines of credit.  During 2001, consumer loan
outstandings increased $3.3 million, or 5.7%, to $61.4 million at December
31, 2001, from $58.1 million at December 31, 2000.  During 2001, the Bank
purchased a $4.9 million package of automobile loans from another New
England institution.  These purchased automobile loans represented a
significant portion of the total growth that occurred in the consumer and
other loan portfolio.  The remainder of the growth was in home equity term
loans and lines of credit.

      The table below shows loan originations, purchases, sales and
repayment activities.

<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                              ---------------------------------------------------------------
                                                2001          2000         1999          1998          1997
                                                ----          ----         ----          ----          ----
                                                                      (In thousands)


                                           <c>           <c>          <c>           <c>           <c>
Originations and Principal Additions:

Loans purchased:
  Residential mortgage loans                  $ 186,013     $ 48,491     $  53,747     $ 107,559     $ 58,271
  Consumer and other loans                        4,902        4,891            --            --           --
                                              ---------------------------------------------------------------
      Total loans purchased                     190,915       53,382        53,747       107,559       58,271
                                              ---------------------------------------------------------------

Loans originated:
  Residential mortgage loans                     18,037        9,985        17,659        13,093          200
  Commercial loans                               59,186       65,465        62,430        41,872       40,065
  Consumer and other loans                       22,332       17,950        18,704        16,837       12,526
                                              ---------------------------------------------------------------
      Total loans originated                     99,555       93,400        98,793        71,802       52,791
                                              ---------------------------------------------------------------

Principal Reductions:

Charge-offs/transfers to OREO:
  Residential mortgage loans                       (304)        (148)         (412)         (950)      (1,116)
  Commercial loans                                 (981)         (93)         (176)          (15)        (145)
  Consumer and other loans                          (61)         (20)          (80)         (163)        (178)
                                              ---------------------------------------------------------------
      Total charge-offs/transfers to OREO        (1,346)        (261)         (668)       (1,128)      (1,439)
                                              ---------------------------------------------------------------

Principal payments:
  Residential mortgage loans                   (141,657)     (47,422)      (91,841)     (118,679)     (58,419)
  Commercial loans                              (31,631)     (27,139)      (21,620)      (22,547)     (17,817)
  Consumer and other loans                      (23,928)     (12,042)      (10,187)      (11,739)      (9,985)
                                              ---------------------------------------------------------------
      Total principal payments                 (197,216)     (86,603)     (123,648)     (152,965)     (86,221)
                                              ---------------------------------------------------------------

Change in loans receivable (before
 net items)                                   $  91,908     $ 59,918     $  28,224     $  25,268     $ 23,402
                                              ===============================================================
</TABLE>

      The following table sets forth certain information at December 31,
2001, regarding the aggregate dollar amount of certain loans maturing in
the loan portfolio based on scheduled payments to maturity.  Actual loan
principal payments may vary from this schedule due to refinancings,
modifications and other changes in loan terms.  Demand loans and loans
having no stated schedule of repayments and no stated maturity are reported
as due in one year or less.

<TABLE>
<CAPTION>

                                                        Principal Repayments Contractually Due
                                                     ---------------------------------------------
                                                                     After One, But
                                                     One Year or      Within Five       After Five
                                                        Less             Years            Years
                                                     -----------     --------------     ----------
                                                                         (In thousands)


                                                    <c>              <c>               <c>
Construction loans                                     $14,027          $    --           $   --
Commercial & industrial loans (including leases)        41,451           17,957            6,984
Small business loans                                    12,741           10,772              609
                                                       -----------------------------------------
      Total                                            $68,219          $28,729           $7,593
                                                       =========================================
</TABLE>


<PAGE>  31


      The following table sets forth as of December 31, 2001, the dollar
amount of certain loans due after one year that have fixed interest rates
or floating or adjustable interest rates.

<TABLE>
<CAPTION>

                                                     Loans Due After One Year
                                                     ------------------------
                                                                 Floating or
                                                      Fixed      Adjustable
                                                      Rates         Rates
                                                      -----      -----------
                                                          (In thousands)


                                                  <c>         <c>
Construction loans                                   $    --     $    --
Commercial & industrial loans (including leases)      10,957      13,984
Small business loans                                   7,914       3,467
                                                     -------------------
      Total                                          $18,871     $17,451
                                                     ===================
</TABLE>

Asset Quality

      The definition of nonperforming assets includes nonperforming loans
and OREO.  OREO consists of real estate acquired through foreclosure
proceedings and real estate acquired through acceptance of a deed in lieu
of foreclosure.  Nonperforming loans are defined as nonaccrual loans, loans
past due 90 days or more, but still accruing and impaired loans.  Under
certain circumstances the Bank may restructure the terms of a loan as a
concession to a borrower.  These restructured loans are considered impaired
loans.  Included in nonaccrual loans at December 31, 1999, were $329,000 of
impaired loans.  At December 31, 2001 and 2000, the Company did not have
any impaired loans.

      Nonperforming Assets. At December 31, 2001, the Company had
nonperforming assets of $1.0 million, or 0.12% of total assets.  This
compares to nonperforming assets of $538,000, or 0.07% of total assets, at
December 31, 2000, and nonperforming assets of $1.2 million, or 0.18% of
total assets, at December 31, 1999.  Nonperforming assets at December 31,
2001, consisted of residential mortgage loans aggregating $656,000,
commercial loans aggregating $42,000, consumer loans aggregating $55,000
and OREO aggregating $264,000.  Nonperforming assets at December 31, 2000
and 1999, were also primarily comprised of nonaccrual residential mortgage
loans.  The Company evaluates the underlying collateral of each
nonperforming loan and continues to pursue the collection of interest and
principal.  Management believes that the December 31, 2001 level of
nonperforming assets is low.  As the loan portfolio continues to grow and
mature, or if economic conditions worsen, management believes it highly
likely that the level of nonperforming assets will increase, as will its
level of charged-off loans.

      The following table sets forth information regarding nonperforming
assets.

<TABLE>
<CAPTION>

                                                              December 31,
                                                       ---------------------------
                                                        2001      2000       1999
                                                        ----      ----       ----
                                                         (Dollars in thousands)


                                                    <c>        <c>       <c>
Nonaccrual loans                                       $  753     $ 508     $1,112
Loans past due 90 days or more, but still accruing         --        --         --
Impaired loans (not included in nonaccrual loans)          --        --         --
                                                       ---------------------------
      Total nonperforming loans                           753       508      1,112
Other real estate owned                                   264        30         49
                                                       ---------------------------
      Total nonperforming assets                       $1,017     $ 538     $1,161
                                                       ===========================

Nonperforming loans as a percent of total loans          0.12%     0.10%      0.24%
Nonperforming assets as a percent of total assets        0.12%     0.07%      0.18%
</TABLE>


<PAGE>  32


      Nonaccrual Loans.  Accrual of interest income on all loans is
discontinued when concern exists as to the collectibility of principal or
interest, or when a loan becomes over 90 days delinquent.  Additionally,
when a loan is placed on nonaccrual status, all interest previously accrued
but not collected is reversed against current period income.  Loans are
removed from nonaccrual when they become less than 90 days past due and in
the case of commercial and consumer loans, when concern no longer exists as
to the collectibility of principal or interest.  Interest collected on
nonaccruing loans is either applied against principal or reported as income
according to management's judgment as to the collectibility of principal.
At December 31, 2001, nonaccrual loans totaled $753,000.  Interest on
nonaccrual loans that would have been recorded as additional income for the
year ended December 31, 2001, had the loans been current in accordance with
their original terms, totaled $31,000.  This compares with $35,000 and
$66,000 of foregone interest income on nonaccrual loans for the years ended
December 31, 2000 and 1999, respectively.

      The following table sets forth certain information regarding
nonaccrual loans.

<TABLE>
<CAPTION>

                                                              December 31,
                                 -----------------------------------------------------------------------
                                         2001                     2000                     1999
                                 ---------------------    ---------------------    ---------------------
                                              Percent                  Percent                  Percent
                                 Principal    of Total    Principal    of Total    Principal    of Total
                                  Balance      Loans       Balance      Loans       Balance      Loans
                                 ---------    --------    ---------    --------    ---------    --------
                                                         (Dollars in thousands)


                                <c>         <c>          <c>         <c>         <c>          <c>
Nonaccrual loans:
  Residential mortgage loans       $656        0.11%        $398        0.08%       $  602       0.13%
  Commercial loans                   42        0.00%         109        0.02%          510       0.11%
  Consumer and other loans           55        0.01%           1        0.00%           --         --
                                   ------------------------------------------------------------------
      Total nonaccrual loans       $753        0.12%        $508        0.10%       $1,112       0.24%
                                   ==================================================================
</TABLE>

      Delinquencies. At December 31, 2001, $3.7 million of loans were 30 to
89 days past due.  This compares to $1.1 million and $811,000 of loans 30
to 89 days past due as of December 31, 2000 and 1999, respectively.  The
majority of these loans at December 31, 2001 were commercial loans, while
at December 31, 2000 and 1999 they were residential mortgage loans.

      Management reviews delinquent loans frequently to assess problem
situations and to quickly address these problems.  In the case of consumer
and commercial loans, the Bank contacts the borrower when a loan becomes
delinquent.  When a payment is not made, generally within 10-15 days of the
due date, a late charge is assessed.  After 30 days of delinquency, a
notice is sent to the borrower advising that failure to cure the default
may result in formal demand for payment in full.  In the event of further
delinquency, the matter is generally referred to legal counsel to commence
civil proceedings to collect all amounts owed.  In the case of residential
mortgage loans, delinquency and collection proceedings are conducted by
either the Bank or its mortgage servicers in accordance with standard
servicing guidelines.  In any circumstance where the Bank is secured by
real property or other collateral, the Bank enforces its rights to the
collateral in accordance with applicable law.


<PAGE>  33


      The following table sets forth information as to loans delinquent for
30 to 89 days.

<TABLE>
<CAPTION>

                                                                            December 31,
                                               -----------------------------------------------------------------------
                                                       2001                     2000                     1999
                                               ---------------------    ---------------------    ---------------------
                                                            Percent                  Percent                  Percent
                                               Principal    of Total    Principal    of Total    Principal    of Total
                                                Balance      Loans       Balance      Loans       Balance      Loans
                                               ---------    --------    ---------    --------    ---------    --------
                                                                       (Dollars in thousands)


                                             <c>          <c>         <c>          <c>          <c>         <c>
Loans delinquent for 30 to 59 days:
  Residential mortgage loans                    $  526       0.09%       $  584       0.11%        $378        0.08%
  Commercial loans                               2,878       0.47%          168       0.03%         334        0.08%
  Consumer and other loans                         143       0.02%           39       0.01%           6        0.00%
                                                -------------------------------------------------------------------
      Total loans delinquent 30 to 59 days       3,547       0.58%          791       0.15%         718        0.16%
                                                -------------------------------------------------------------------

Loans delinquent for 60 to 89 days:
  Residential mortgage loans                       131       0.02%          278       0.05%          92        0.02%
  Commercial loans                                  --         --            39       0.01%          --          --
  Consumer and other loans                          --         --            20       0.01%           1        0.00%
                                                -------------------------------------------------------------------
      Total loans delinquent 60 to 89 days         131       0.02%          337       0.07%          93        0.02%
                                                -------------------------------------------------------------------

      Total loans delinquent 30 to 89 days      $3,678       0.60%       $1,128       0.22%        $811        0.18%
                                                ===================================================================
</TABLE>

      Adversely Classified Assets.  The Company's management adversely
classifies certain assets as "substandard," "doubtful" or "loss" based on
criteria established under banking regulations. An asset is considered
substandard if inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any.  Substandard
assets include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if existing deficiencies are
not corrected.  Assets classified as doubtful have all of the weaknesses
inherent in those classified substandard with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the
basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets classified as loss are those
considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not
warranted.

      At December 31, 2001, the Company had $8.7 million of assets that
were classified as substandard.  This compares to $5.8 million and $1.2
million of assets that were classified as substandard at December 31, 2000
and 1999, respectively.  The Company had no assets that were classified as
loss or doubtful at any of these dates.  Performing loans may or may not be
adversely classified depending upon management's judgment with respect to
each individual loan.  At December 31, 2001, included in the $8.7 million
of assets that were classified as substandard, were $7.9 million of
performing loans.  This compares to $5.3 million and $127,000 of adversely
classified performing assets as of December 31, 2000 and 1999,
respectively.  These amounts constitute assets that, in the opinion of
management, could potentially migrate to nonperforming or doubtful status.
The increase in adversely classified assets is reflective of a softening
economy and some deterioration in commercial credit quality.  This may lead
to an increase in nonaccrual loans and an increase to the provision for
loan losses in future periods.

Allowance for Loan Losses

      The allowance for loan losses is established for credit losses
inherent in the loan portfolio through a charge to earnings.  Loans deemed
uncollectible are charged against the allowance, while recoveries of
amounts previously charged-off are added to the allowance.  Amounts are
charged-off once the probability of loss has been established, with
consideration given to such factors as the customer's financial condition,
underlying collateral and guarantees, and general and industry economic
conditions.


<PAGE>  34


      When an insured institution classifies problem loans as either
substandard or doubtful, it is required to establish allowances for loan
losses in an amount deemed prudent by management.  Additionally, general
allowances represent loss allowances that have been established to
recognize the inherent risk associated with lending activities, and have
not been allocated to particular problem loans.

      The following table represents the allocation of the allowance for
loan losses as of the dates indicated:

<TABLE>
<CAPTION>

                                                                       December 31,
                             -------------------------------------------------------------------------------------------------
                                   2001                2000                1999                1998                1997
                             -----------------   -----------------   -----------------   -----------------   -----------------
                                      Percent             Percent             Percent             Percent             Percent
                                      of Loans            of Loans            of Loans            of Loans            of Loans
                                      in Each             in Each             in Each             in Each             in Each
                                      Category            Category            Category            Category            Category
                                      to Total            to Total            to Total            to Total            to Total
                             Amount    Loans     Amount    Loans     Amount    Loans     Amount    Loans     Amount    Loans
                             ------   --------   ------   --------   ------   --------   ------   --------   ------   --------
                                                                  (Dollars in thousands)


                          <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>
Residential mortgage loans   $1,835     50.8%    $1,460     47.8%    $1,395     51.7%    $1,558     60.0%    $1,534     63.5%
Commercial loans              4,191     39.2%     3,210     41.0%     2,007     38.0%     1,277     31.1%     1,040     28.3%
Consumer and other loans        787     10.0%       731     11.2%       566     10.3%       456      8.9%       393      8.2%
Unallocated                   1,711       --      1,893       --      1,713       --      1,727       --      1,373       --
                             -----------------------------------------------------------------------------------------------
      Total                  $8,524    100.0%    $7,294    100.0%    $5,681    100.0%    $5,018    100.0%    $4,340    100.0%
                             ===============================================================================================
</TABLE>

      Assessing the adequacy of the allowance for loan losses involves
substantial uncertainties and is based upon management's evaluation of the
amounts required to meet estimated charge-offs in the loan portfolio after
weighing various factors.  Management's methodology to estimate loss
exposure includes an analysis of individual loans deemed to be impaired,
reserve allocations for various loan types based on payment status or loss
experience and an unallocated allowance that is maintained based on
management's assessment of many factors including the growth, composition
and quality of the loan portfolio, historical loss experiences, general
economic conditions and other pertinent factors.  Based on this evaluation,
management believes that the year-end allowance for loan losses is
adequate.

      While management evaluates currently available information in
establishing the allowance for loan losses, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluations.  In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review a financial institution's allowance for loan losses and
carrying amounts of other real estate owned.  Such agencies may require the
financial institution to recognize additions to the allowance based on
their judgments about information available to them at the time of their
examination.

      During 2001, 2000 and 1999, the Bank made additions to the allowance
of $1.7 million, $1.5 million and $1.0 million and experienced net charge-
offs (recoveries) of $439,000, ($71,000) and $337,000, respectively.  At
December 31, 2001, the allowance for loan losses stood at $8.5 million and
represented 1132.01% of nonperforming loans and 1.40% of total loans
outstanding.  This compares to an allowance for loan losses of $7.3
million, representing 1435.83% of nonperforming loans and 1.41% of total
loans outstanding at December 31, 2000.


<PAGE>  35


      An analysis of the activity in the allowance for loan losses is as
follows:

<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                           --------------------------------------------------
                                                            2001       2000       1999       1998       1997
                                                            ----       ----       ----       ----       ----
                                                                             (In thousands)


                                                        <c>        <c>        <c>        <c>        <c>
Balance at beginning of year                               $7,294     $5,681     $5,018     $4,340     $4,024

Loans charged-off:
  Residential mortgage loans                                   --        (11)      (128)      (174)      (505)
  Commercial loans                                           (406)       (94)      (176)       (15)       (71)
  Consumer and other loans                                    (61)       (20)       (80)      (163)      (135)
                                                           --------------------------------------------------
      Total loans charged-off                                (467)      (125)      (384)      (352)      (711)
                                                           --------------------------------------------------

Recoveries of loans previously charged-off:
  Residential mortgage loans                                   --         --         29         --          8
  Commercial loans                                             --        191          1          3          3
  Consumer and other loans                                     28          5         17         10         16
                                                           --------------------------------------------------
      Total recoveries of loans previously charged-off         28        196         47         13         27
                                                           --------------------------------------------------

Net (charge-offs) recoveries                                 (439)        71       (337)      (339)      (684)

Provision for loan losses charged against income            1,669      1,542      1,000      1,017      1,000
                                                           --------------------------------------------------

Balance at end of year                                     $8,524     $7,294     $5,681     $5,018     $4,340
                                                           ==================================================

Net charge-offs (recoveries) to average loans
 outstanding                                                 0.08%     (0.01%)     0.08%      0.08%      0.17%
                                                           ==================================================
</TABLE>

Investments

      Total investments (consisting of fed funds sold and overnight
investments, investment securities, MBSs, and FHLB stock) totaled $210.7
million, or 24.4% of total assets, at December 31, 2001.  This compares to
total investments of $174.0 million, or 23.5% of total assets, as of
December 31, 2000.  The increase of $36.7 million, or 21.1%, was primarily
in MBSs that were purchased to reinvest the funds generated from unusually
high prepayment levels of residential mortgage loans and continued deposit
growth.  Some of these purchases were of SBA securities that, in addition
to a governmental guarantee, have a floating interest rate indexed to a
specified prime rate.

      The investment portfolio provides a source of short-term liquidity
and acts as a counterbalance to loan and deposit flows.  Investment
securities and MBSs are primarily comprised of U.S. Agency securities.  All
investment securities and MBSs at December 31, 2001 and 2000, were
classified as securities available for sale.  At December 31, 2001, these
securities carried a total of $1.4 million in net unrealized gains,
compared to $275,000 in net unrealized losses at December 31, 2000.


<PAGE>  36


      A summary of investment and mortgage-backed securities available for
sale follows:

<TABLE>
<CAPTION>

                                                             Unrealized
                                           Amortized     -------------------      Market
                                             Cost        Gains       Losses       Value
                                           ---------     -----       ------       ------
                                                           (In thousands)


                                        <c>           <c>        <c>          <c>
At December 31, 2001:
U.S. Agency obligations                    $ 46,004      $  514     $   (74)     $ 46,444
Trust preferred securities                    3,189          --        (180)        3,009
U.S. Agency mortgage-backed securities      140,316       1,260        (325)      141,251
Collateralized mortgage obligations           9,233         166          --         9,399
                                           ----------------------------------------------
      Total                                $198,742      $1,940     $  (579)     $200,103
                                           ==============================================

At December 31, 2000:
U.S. Treasury obligations                  $  1,016      $   --     $   (11)     $  1,005
U.S. Agency obligations                      44,256         167        (119)       44,304
Trust preferred securities                    2,187          --        (200)        1,987
U.S. Agency mortgage-backed securities      104,863         457        (468)      104,852
Collateralized mortgage obligations          12,680          --        (101)       12,579
                                           ----------------------------------------------
      Total                                $165,002      $  624     $  (899)     $164,727
                                           ==============================================

At December 31, 1999:
U.S. Treasury obligations                  $ 10,023      $   21     $   (36)     $ 10,008
U.S. Agency obligations                      39,256           5        (875)       38,386
Trust preferred securities                    2,198          --         (89)        2,109
U.S. Agency mortgage-backed securities       62,101          --      (1,125)       60,976
Collateralized mortgage obligations          14,357          --        (540)       13,817
                                           ----------------------------------------------
       Total                               $127,935      $   26     $(2,665)     $125,296
                                           ==============================================
</TABLE>

      The following table sets forth the maturities of investment and
mortgage-backed securities available for sale and the weighted average
yields of such securities:

<TABLE>
<CAPTION>

                                                                  After One, But       After Five, But
                                           Within One Year      Within Five Years     Within Ten Years       After Ten Years
                                          ------------------    ------------------    -----------------    -------------------
                                                    Weighted              Weighted             Weighted               Weighted
                                          Market    Average     Market    Average     Market   Average      Market    Average
                                           Value     Yield       Value     Yield       Value    Yield       Value      Yield
                                          ------    --------    ------    --------    ------   --------     ------    --------
                                                                         (Dollars in thousands)


                                       <c>        <c>        <c>        <c>        <c>        <c>       <c>          <c>
At December 31, 2001:
U.S. Agency obligations                   $ 3,046    5.91%      $43,398    4.94%      $   --       --      $     --       --
Trust preferred securities                     --      --            --      --           --       --         3,009     8.59%
U.S. Agency mortgage-backed securities         --      --            --      --        1,664     3.47%      139,587     5.37%
Collateralized mortgage obligations            --      --            --      --           --       --         9,399     6.47%
                                          -------               -------               ------               --------
      Total                               $ 3,046    5.91%      $43,398    4.94%      $1,664     3.47%     $151,995     5.51%
                                          ===============       ===============       ===============      =================

At December 31, 2000:
U.S. Treasury obligations                 $ 1,005    4.16%      $    --      --       $   --       --      $     --       --
U.S. Agency obligations                     5,243    5.70%       39,061    6.40%          --       --            --       --
Trust preferred securities                     --      --            --      --           --       --         1,987     8.16%
U.S. Agency mortgage-backed securities         --      --            --      --           --       --       104,852     6.69%
Collateralized mortgage obligations            --      --            --      --           --       --        12,579     6.47%
                                          -------               -------               ------               --------
      Total                               $ 6,248    5.46%      $39,061    6.40%      $   --       --      $119,418     6.71%
                                          ===============       ===============       ===============      =================

At December 31, 1999:
U.S. Treasury obligations                 $ 9,007    6.39%      $ 1,002    4.15%      $   --       --      $     --       --
U.S. Agency obligations                     3,991    5.80%       24,557    5.74%       9,838     7.10%           --       --
Trust preferred securities                     --      --            --      --           --       --         2,108     8.16%
U.S. Agency mortgage-backed securities         --      --            --      --           --       --        60,976     5.98%
Collateralized mortgage obligations            --      --            --      --           --       --        13,817     6.48%
                                          -------               -------               ------               --------
      Total                               $12,998    6.21%      $25,559    5.68%      $9,838     7.10%     $ 76,901     6.13%
                                          ===============       ===============       ===============      =================
</TABLE>


<PAGE>  37


Deposits and Borrowings

      The Company has devoted considerable time and resources to its
deposit gathering network.  The Company experienced a net increase in total
deposits during 2001, to $670.4 million, or 77.8% of total assets, at
December 31, 2001, from $631.6 million, or 85.4% of total assets, at
December 31, 2000.  This increase of $38.8 million, or 6.1%, in total
deposits was centered in core accounts and broken down as follows:  Demand
deposit and NOW accounts up $14.4 million, or 10.1%; savings accounts up
$44.1 million, or 20.9%; while certificates of deposit accounts were down
$17.4 million, or 6.5%.  By comparison, the increase in total deposits
during 2000 (which was an unusual year) was $118.2 million, or 23.0%.

      The following table sets forth certain information regarding
deposits:

<TABLE>
<CAPTION>

                                                                              December 31,
                                       -------------------------------------------------------------------------------------------
                                                   2001                           2000                           1999
                                       -----------------------------  -----------------------------  -----------------------------
                                                  Percent   Weighted             Percent   Weighted             Percent   Weighted
                                                    of      Average                of      Average                of      Average
                                        Amount     Total      Rate     Amount     Total      Rate     Amount     Total      Rate
                                        ------    -------   --------   ------    -------   --------   ------    -------   --------
                                                                         (Dollars in thousands)


                                    <c>        <c>        <c>      <c>        <c>        <c>      <c>        <c>        <c>
NOW accounts                           $ 44,445     6.6%     0.40%    $ 36,910     5.8%     0.64%    $ 27,456     5.4%     0.64%
Money market accounts                     9,914     1.5%     1.40%      12,283     1.9%     2.59%      16,073     3.1%     2.70%
Savings accounts                        254,861    38.0%     1.90%     210,728    33.4%     3.52%     173,692    33.8%     2.78%
Certificate of deposit accounts         248,268    37.0%     4.15%     265,623    42.1%     5.76%     228,351    44.5%     4.95%
                                       ----------------               ----------------               ----------------
      Total interest bearing deposits   557,488    83.1%     2.77%     525,544    83.2%     4.43%     445,572    86.8%     3.76%
Noninterest bearing accounts            112,925    16.9%       --      106,088    16.8%       --       67,844    13.2%       --
                                       ----------------               ----------------               ----------------
      Total deposits                   $670,413   100.0%     2.31%    $631,632   100.0%     3.69%    $513,416   100.0%     3.26%
                                       ========================================================================================
</TABLE>

      At December 31, 2001, certificate of deposit accounts with balances
greater than $100,000 aggregated $35.4 million, compared to $32.1 million
and $25.3 million at December 31, 2000 and 1999, respectively.

      Total borrowings (consisting of overnight and short-term borrowings,
FHLB and other borrowings) increased $74.5 million during 2001, to $126.4
million, from $51.9 million at December 31, 2000.  The Company had $67.9
million of borrowings outstanding at the end of 1999.  The increase during
2001 was the result of the Company seeking to take advantage of lower,
long-term borrowing rates to partially fund its asset growth, along with
funding a number of residential mortgage loan purchases during the first
quarter of 2001.  During 2000, the decrease in total borrowings was
primarily attributable to the strong deposit growth the Company
experienced, permitting the repayment of maturing FHLB borrowings.  The
Bank, through its membership in the FHLB, has access to a variety of
borrowing alternatives, and management will from time to time take
advantage of these opportunities to fund asset growth.  However, on a long-
term basis, the Bank intends to concentrate on increasing its core
deposits.


<PAGE>  38


Company-Obligated Mandatorily Redeemable Capital Securities

      On February 22, 2001, the Company, through its statutory trust
subsidiary, issued $3.0 million of trust preferred securities.  These
securities have a 10.20% interest rate and mature in 30 years.  The
regulatory capital generated from issuing these securities supported the
purchase of $50.5 million of residential mortgage loans and $10.1 million
of MBSs during the first quarter of 2001.  This issuance also confirmed the
Company's ability to access the capital markets through use of trust
preferred securities.

Asset and Liability Management

      The principal objective of the Company's asset and liability
management process is to maximize profit potential while minimizing the
vulnerability of its operations to changes in interest rates by means of
managing the ratio of interest rate sensitive assets to interest rate
sensitive liabilities within specified maturity or repricing periods.  The
Company's actions in this regard are taken under the guidance of the Bank's
Asset/Liability Committee ("ALCO") that is comprised of members of senior
management.  The ALCO generally meets monthly and is actively involved in
formulating the economic assumptions that the Company uses in its financial
planning and budgeting process and establishes policies which control and
monitor the sources, uses and pricing of funds.  The Company has not
engaged in any hedging activities.

      The ALCO manages the Company's interest rate risk position using both
income simulation and interest rate sensitivity "gap" analysis.  The ALCO
has established internal parameters for monitoring the income simulation
and gap analysis.  These guidelines serve as benchmarks for evaluating
actions to balance the current position against overall strategic goals.
The ALCO monitors current exposures and reports these to the Board of
Directors.

      Simulation is used as the primary tool for measuring the interest
rate risk inherent in the Company's balance sheet at a given point in time
by showing the effect on net interest income, over a 24-month period, of
interest rate ramps of up to 200 basis points.  These simulations take into
account repricing, maturity and prepayment characteristics of individual
products.  The ALCO reviews simulation results to determine whether the
downside exposure resulting from changes in market interest rates remains
within established tolerance levels over both a 12-month and 24-month
horizon, and develops appropriate strategies to manage this exposure.  The
Company's limits on interest rate risk specify that if interest rates were
to shift up or down 200 basis points over a 12-month period, estimated net
interest income for those 12 months and the subsequent 12 months, should
decline by no more than 5.0% or 10.0%, respectively.  As of December 31,
2001, net interest income simulation indicated that the Company's exposure
to changing interest rates was outside of the 10% tolerance level
established for the second year of a 200 basis point decline.  This
exposure primarily results from the unusually low current rates paid on
deposit accounts and the extremely high prepayment speeds anticipated for
mortgage-related assets if market rates declined 200 basis points.  The
current rates on many deposit accounts are so low, that they cannot decline
200 basis points without becoming negative.  This results in a floor of
zero percent for these deposit accounts, and this floor causes compression
of the net interest margin for modeling purposes.   The ALCO reviews the
methodology utilized for calculating interest rate risk exposure and may,
from time to time, adopt modifications to this methodology.  While the ALCO
reviews simulation assumptions and methodology to ensure that they reflect
historical experience, it should be noted that income simulation may not
always prove to be an accurate indicator of interest rate risk because the
actual repricing, maturity and prepayment characteristics of individual
products may differ from the estimates used in the simulations.


<PAGE>  39


      The following table presents the estimated impact of interest rate
ramps on estimated net interest income over a 24-month period beginning
January 1, 2002:

<TABLE>
<CAPTION>

                                 Estimated Impact on
                                 Net Interest Income
                                 -------------------
                                 Dollar      Percent
                                 Change      Change
                                 ------      -------
                                (Dollars in thousands)


                              <c>         <c>
Initial 12-Month Period:

Up 200 basis point ramp          $   983       3.19%
Up 100 basis point ramp              478       1.55%
Down 100 basis point ramp           (560)     (1.81%)
Down 200 basis point ramp         (1,225)     (3.97%)

Subsequent 12-Month Period:

Up 200 basis point ramp          $ 1,601       5.23%
Up 100 basis point ramp            1,028       3.36%
Down 100 basis point ramp         (1,503)     (4.91%)
Down 200 basis point ramp         (3,721)    (12.16%)
</TABLE>

      The Company also uses interest rate sensitivity "gap" analysis to
provide a more general overview of its interest rate risk profile.  The
effect of interest rate changes on the assets and liabilities of a
financial institution such as the Bank may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity gap.  An asset
or liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period.  The interest
rate sensitivity gap is defined as the difference between interest-earning
assets and interest-bearing liabilities maturing or repricing within a
given time period.  A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities.  A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds interest rate sensitive assets.
During a period of falling interest rates, a positive gap would tend to
adversely affect net interest income, while a negative gap would tend to
result in an increase in net income.  Conversely, during a period of rising
interest rates, a positive gap would tend to result in an increase in net
interest income while a negative gap would tend to affect net interest
income adversely.

      The Company has sought to maintain a relatively narrow gap position
and has, in some instances, foregone investment in higher yielding assets
when such investment, in management's opinion, exposed it to undue interest
rate risk.  However, the Company does not attempt to perfectly match
interest rate sensitive assets and liabilities and will selectively
mismatch its assets and liabilities to a controlled degree when it
considers it both appropriate and prudent to do so.  There are a number of
relevant time periods in which to measure the gap position, such as at the
30, 60, 90, or 180 day points in the maturity schedule.  Management
monitors the gap position at each of these maturity points, while also
focusing closely on the gap at the one-year point in making its principal
funding decisions, such as with respect to its commercial and residential
mortgage loan portfolios.  At December 31, 2001, the Company's cumulative
one-year gap was a positive $97.4 million, or 11.3% of total assets,
compared to negative $2.4 million, or 0.3% of total assets, at the end of
2000.  The Company's cumulative one-year gap at December 31, 2001 was
higher than in past years, but is projected to decrease to less than 10.0%
of total assets during 2002.


<PAGE>  40


      The following table presents the repricing schedule for interest-
earning assets and interest-bearing liabilities at December 31, 2001.  To
the extent applicable, amounts of assets and liabilities that mature or
reprice within a particular period were determined in accordance with their
contractual terms.  Investment securities are allocated based upon expected
call dates.  Loans and MBSs have been allocated based upon expected
amortization and prepayment rates based on historical performance.
Savings, NOW and money market deposit accounts, which have no contractual
term and are subject to immediate repricing, are anticipated to behave more
like core accounts and therefore are presented as spread evenly over the
first three years.  Nonetheless, this presentation does not reflect lags
that may occur in the actual repricing of these deposits.

<TABLE>
<CAPTION>

                                                    Within     Over Three    Over Six       Over One
                                                    Three        to Six      to Twelve      Year to       Over Five
                                                    Months       Months       Months       Five Years       Years        Total
                                                    ------     ----------    ---------     ----------     ---------      -----
                                                                              (Dollars in thousands)


                                                <c>          <c>          <c>            <c>           <c>           <c>
Interest-earning assets:
  Federal funds sold and overnight investments     $  4,913     $     --     $     --       $     --      $     --      $  4,913
  Investment securities                               3,000       16,003        5,000         22,001         3,449        49,453
  Mortgage-backed securities                         42,745       15,421       19,981         68,941         3,562       150,650
  FHLB Stock                                          5,668           --           --             --            --         5,668
  Residential mortgage loans                         43,204       34,940       60,279        152,354        19,435       310,212
  Commercial loans                                   93,708       17,871       22,240        101,284         4,261       239,364
  Consumer and other loans                           31,629        5,406        4,772         13,879         5,702        61,388
                                                   -----------------------------------------------------------------------------

      Total interest-earning assets                 224,867       89,641      112,272        358,459        36,409       821,648
                                                   -----------------------------------------------------------------------------

Interest-bearing liabilities:
  NOW accounts                                        3,705        3,705        7,408         29,627            --        44,445
  Money market accounts                                 825          825        1,652          6,612            --         9,914
  Savings accounts                                   21,237       21,237       42,476        169,911            --       254,861
  Certificate of deposit accounts                    73,710       39,710       89,845         43,970         1,033       248,268
  Overnight & short-term borrowings                  13,033           --           --             --            --        13,033
  FHLB borrowings                                     5,003            3        5,008         93,166        10,185       113,365
  Capital trust securities                               --           --           --             --         3,000         3,000
                                                   -----------------------------------------------------------------------------

      Total interest-bearing liabilities            117,513       65,480      146,389        343,286        14,218       686,886
                                                   -----------------------------------------------------------------------------

      Net interest sensitivity gap during
       the period                                  $107,354     $ 24,161     $(34,117)      $ 15,173      $ 22,191      $134,762
                                                   =============================================================================

      Cumulative gap -- 12/31/01                   $107,354     $131,515     $ 97,398       $112,571      $134,762
                                                   =============================================================================

      Cumulative gap -- 12/31/00                   $ 73,872     $ 56,910     $ (2,440)      $ 69,021      $115,423
                                                   =============================================================================

Interest-sensitive assets as a percent of
 interest-sensitive liabilities (cumulative)         191.35%      171.87%      129.57%        116.74%       119.62%

Cumulative gap as a percent of total assets           12.45%       15.25%       11.30%         13.06%        15.63%
</TABLE>

      The preceding table does not necessarily indicate the impact of
general interest rate movements on the Company's net interest income
because the repricing of various assets and liabilities is discretionary
and is subject to competitive and other factors.  As a result, assets and
liabilities indicated as repricing within the same period may, in fact,
reprice at different times and at different rate levels.


<PAGE>  41


Liquidity and Capital Resources

Liquidity

      Liquidity is defined as the ability to meet current and future
financial obligations of a short-term nature. The Company further defines
liquidity as the ability to respond to the needs of depositors and
borrowers, as well as to earnings enhancement opportunities, in a changing
marketplace.

      The primary source of funds for the payment of dividends and expenses
by the Company is dividends paid to it by the Bank.  Bank regulatory
authorities generally restrict the amounts available for payment of
dividends if the effect thereof would cause the capital of the Bank to be
reduced below applicable capital requirements.  These restrictions
indirectly affect the Company's ability to pay dividends.  The primary
sources of liquidity for the Bank consist of deposit inflows, loan
repayments, borrowed funds, maturity of investment securities and sales of
securities from the available for sale portfolio.  Management believes that
these sources are sufficient to fund the Bank's lending and investment
activities.

      Management is responsible for establishing and monitoring liquidity
targets as well as strategies and tactics to meet these targets.  In
general, the Company maintains a high degree of flexibility with a
liquidity target of 10% to 25% of total assets.  At December 31, 2001,
federal funds sold and overnight investments, investment securities and
mortgage-backed securities available for sale amounted to $205.0 million,
or 23.8% of total assets.  This compares to $170.3 million, or 23.0% of
total assets, at December 31, 2000.  The Bank is a member of the FHLB and,
as such, has access to both short- and long-term borrowings.  In addition,
the Bank maintains a line of credit at the FHLB as well as a line of credit
with a correspondent bank.  There have been no adverse trends in the
Company's liquidity or capital reserves.  Management believes that the
Company has adequate liquidity to meet its commitments.

Capital Resources

      Total shareholders' equity of the Company at December 31, 2001 was
$59.1 million, as compared to $53.3 million at December 31, 2000.  Major
activity in shareholders' equity during 2001 can be summarized as follows:
net income for the year was $6.3 million, dividends paid on Common Stock
totaled $1.8 million and changes in unrealized gains and losses on
securities equaled $1.1 million.

      All FDIC-insured institutions must meet specified minimal capital
requirements.  These regulations require banks to maintain a minimum
leverage capital ratio.  At December 31, 2001, the Bank's Tier I leverage
ratio stood at 5.84%.  In addition, the FDIC has adopted capital guidelines
based upon ratios of a bank's capital to total assets adjusted for risk.
The risk-based capital guidelines include both a definition of capital and
a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories.  These
regulations require banks to maintain minimum capital levels for capital
adequacy purposes and higher capital levels to be considered "well
capitalized."  According to these standards, the Bank had a Tier I risk-
weighted capital ratio of 9.72% and a Total risk-weighted capital ratio of
10.97% at December 31, 2001.

      Capital guidelines have also been issued by the Federal Reserve Board
("FRB") for bank holding companies.  These guidelines require the Company
to maintain minimum capital levels for capital adequacy purposes.  In
general, the FRB has adopted substantially identical capital adequacy
guidelines as the FDIC.  Such standards are applicable to bank holding
companies and their bank subsidiaries on a consolidated basis.  At December
31, 2001, the Company's Tier I leverage ratio was 5.93%, its Tier I Risk-
based capital ratio was 9.86% and its Total Risk-based capital ratio was
11.10%.


<PAGE>  42


      As of December 30, 2001, the Company and the Bank met all applicable
minimum capital requirements and were considered "well capitalized" by both
the FRB and the FDIC.

Impact of Inflation and Changing Prices

      The consolidated financial statements and related notes thereto,
included elsewhere herein, have been prepared in accordance with GAAP,
which require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.  Unlike many
industrial companies, substantially all of the assets and liabilities of
the Bank are monetary in nature. As a result, interest rates have a more
significant impact on the Bank's performance than the general level of
inflation. Over short periods of time, interest rates may not necessarily
move in the same direction or in the same magnitude as inflation.

Recent Accounting Developments

      On July 20, 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards 142, Goodwill and Other
Intangible Assets ("SFAS 142").  SFAS 142 addresses financial accounting
and reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, Intangible Assets.  Under SFAS 142, goodwill
and intangible assets that have indefinite useful lives will no longer be
amortized, but rather will be tested at least annually for impairment.  The
Statement applies to existing goodwill (i.e., recorded goodwill at the date
the financial statement is issued), as well as goodwill arising subsequent
to the effective date of the Statement.  Intangible assets that have finite
useful lives will continue to be amortized over their useful lives, but
without the constraint of the 40-year maximum life required by APB Opinion
No. 17.  The provisions of SFAS 142 must be applied for fiscal years
beginning after December 15, 2001 and may not be adopted earlier.

      On October 17, 2001, FASB issued Action Alert No. 01-37.  That Action
Alert reported a conclusion reached by FASB at its October 10, 2001 meeting
regarding the application of SFAS 142 and Statement of Financial Accounting
Standards 141, Business Combinations ("SFAS 141") with respect to goodwill
accounting for bank branch acquisitions.  The conclusion set forth in the
October 17th Action Alert states that paragraph 5 of Statement of Financial
Standards 72, Accounting for Certain Acquisitions of Banking or Thrift
Institutions (SFAS 72), "applies to all acquisitions of financial
institutions (or branches thereof) whether "troubled" or not, in which the
fair value of the liabilities assumed exceeds the fair value of tangible and
intangible assets acquired." SFAS 72 was originally issued in 1983, in the
context of the savings and loan crisis and the acquisition of so-called
"troubled" financial institutions. The branch acquisitions associated with
the formation of the Company's banking subsidiary in March 1996 were such
that the fair value of the liabilities assumed appear to exceed the fair
value of tangible and intangible assets acquired.  Thus, the March 1996
transaction gave rise to a type of intangible that, unlike goodwill, will
continue to be amortized under current accounting guidelines.

      Based upon the conclusion set forth in the October 17th Action Alert,
the Company is required to continue amortizing its intangible attributable
to its March 1996 bank branch acquisition during the Fleet Financial Group,
Inc. divestiture.  Current amortization of this intangible is $1.2 million
annually.  Accordingly, the Company anticipates that there will continue to
be a difference between its GAAP and cash basis presentations.

      The October 17th Action Alert also states that FASB will reconsider
its new guidance during future deliberations.  The conclusion reached by
FASB regarding the need to continue amortization of an unidentifiable
intangible asset, therefore, may be overturned at a later date.  The
Company, however, can give no assurance that FASB will vary from its
current position.  Regardless of its final outcome, this goodwill
accounting issue will not have any material impact on the Company's
financial condition.  At December 31, 2001, the Company had $10.8 million
of excess of cost over net assets acquired remaining on its balance sheet.


<PAGE>  43


                         BANCORP RHODE ISLAND, INC.
                             Management's Report








      The management of Bancorp Rhode Island, Inc. is responsible for the
preparation, integrity and fair presentation of the financial statements
and other financial information in this annual report.  Management believes
that the financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis in
all material respects.  In preparing the financial statements and other
financial information, management makes certain judgments and estimates
where appropriate.

      The accounting systems, which record, summarize and report financial
data, are supported by a system of internal control.  The Company's system
of internal control is designed to provide reasonable assurance that assets
are safeguarded, that transactions are executed in accordance with
management's authorizations and that transactions are properly recorded in
the financial statements.  This system is augmented by written policies and
procedures, along with internal audits.  Management recognizes that
estimates and judgments are required to assess and balance the relative
costs and expected benefits of the controls and that errors or
irregularities may nevertheless occur.  However, management believes that
the Company's internal control system provides reasonable assurance that
errors or irregularities that could be material to the financial statements
are prevented or would be detected on a timely basis and corrected in the
normal course of business.

      The Board of Directors oversees the financial statements through an
Audit Committee comprised solely of outside directors who are not employees
of the Company.  The Audit Committee reviews the activities of the internal
audit function and meets regularly with representatives of KPMG LLP, the
Company's independent auditors.  KPMG LLP has been appointed by the Board
of Directors to conduct an independent audit and to express an opinion as
to the fairness of the presentation of the consolidated financial
statements of Bancorp Rhode Island, Inc.





Merrill W. Sherman                     Albert R. Rietheimer
President and                          Chief Financial Officer and
Chief Executive Officer                Treasurer


<PAGE>  44


                         BANCORP RHODE ISLAND, INC.
                        Independent Auditors' Report








The Board of Directors and Shareholders
Bancorp Rhode Island, Inc.:

      We have audited the accompanying consolidated balance sheets of
Bancorp Rhode Island, Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 2001.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Bancorp Rhode Island, Inc. and subsidiaries as of December 31, 2001 and
2000, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of
America.





KPMG LLP
Providence, Rhode Island

January 16, 2002


<PAGE>  45


                         BANCORP RHODE ISLAND, INC.
                         Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                                    ---------------------
                                                                                      2001         2000
                                                                                      ----         ----
                                                                                        (In thousands)


                                                                                 <c>          <c>
Assets:
  Cash and due from banks (Note 2)                                                  $ 24,261     $ 28,853
  Federal funds sold and overnight investments                                         4,913        5,600
  Investment securities available for sale (amortized cost of $49,193 and
   $47,459, respectively) (Notes 3, 10, 11 and 12)                                    49,453       47,296
  Mortgage-backed securities available for sale (amortized cost of $149,549 and
   $117,543, respectively) (Notes 4 and 11)                                          150,650      117,431
  Stock in the Federal Home Loan Bank of Boston (Note 11)                              5,668        3,704

  Loans receivable  (Notes 5 and 11):
    Residential mortgage loans                                                       310,212      247,923
    Commercial loans                                                                 239,364      212,818
    Consumer and other loans                                                          61,388       58,084
                                                                                    ---------------------
      Total loans receivable                                                         610,964      518,825
  Allowance for loan losses (Note 6)                                                  (8,524)      (7,294)
                                                                                    ---------------------
      Net loans receivable                                                           602,440      511,531

  Premises and equipment, net (Note 7)                                                 7,184        6,384
  Other real estate owned (Note 8)                                                       264           30
  Excess of cost over net assets acquired, net (Note 2)                               10,766       11,930
  Accrued interest receivable                                                          5,803        5,630
  Prepaid expenses and other assets                                                      848        1,031
                                                                                    ---------------------

      Total assets                                                                  $862,250     $739,420
                                                                                    =====================

Liabilities:
  Deposits (Note 9):
    Demand deposit accounts                                                         $112,925     $106,088
    NOW accounts                                                                      44,445       36,910
    Money market accounts                                                              9,914       12,283
    Savings accounts                                                                 254,861      210,728
    Certificate of deposit accounts                                                  248,268      265,623
                                                                                    ---------------------
      Total deposits                                                                 670,413      631,632

  Overnight and short-term borrowings (Note 10)                                       13,033       13,847
  Federal Home Loan Bank of Boston borrowings (Note 11)                              113,365       33,292
  Other borrowings (Note 12)                                                              --        4,750
  Company-obligated mandatorily redeemable capital securities (Note 13)                3,000           --
  Other liabilities                                                                    3,342        2,607
                                                                                    ---------------------
      Total liabilities                                                              803,153      686,128
                                                                                    ---------------------

  Commitments and contingencies (Notes 7, 17 and 21)

Shareholders' equity (Notes 1 and 19):
  Common stock, par value $0.01 per share, authorized 11,000,000 shares:
    Voting:  Issued and outstanding:  3,753,550 shares in 2001 and 3,448,950
              shares in 2000                                                              37           34
    Non-Voting:  Issued and outstanding:  280,000 shares in 2000                          --            3
  Additional paid-in capital                                                          39,826       39,621
  Retained earnings                                                                   18,336       13,815
  Accumulated other comprehensive income (loss), net (Notes 3 and 4)                     898         (181)
                                                                                    ---------------------
      Total shareholders' equity                                                      59,097       53,292
                                                                                    ---------------------

      Total liabilities and shareholders' equity                                    $862,250     $739,420
                                                                                    =====================
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  46


                         BANCORP RHODE ISLAND, INC.
                    Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                                        ----------------------------------------
                                                                           2001           2000           1999
                                                                           ----           ----           ----
                                                                         (In thousands, except per share data)


                                                                     <c>            <c>            <c>
Interest and dividend income:
  Residential mortgage loans                                            $   21,694     $   17,982     $   16,997
  Commercial loans                                                          18,078         17,737         12,795
  Consumer and other loans                                                   4,569          4,472          3,491
  Mortgage-backed securities                                                 7,720          5,576          4,835
  Investment securities                                                      3,044          3,056          2,814
  Federal funds sold and overnight investments                                 510            930            482
  Federal Home Loan Bank of Boston stock dividends                             288            282            237
                                                                        ----------------------------------------
  Total interest and dividend income                                        55,903         50,035         41,651
                                                                        ----------------------------------------

Interest expense:
  NOW accounts                                                                 209            205            175
  Money market accounts                                                        221            375            473
  Savings accounts                                                           6,507          6,137          4,742
  Certificate of deposit accounts                                           13,458         13,685         11,396
  Overnight and short-term borrowings                                          461            636            335
  Federal Home Loan Bank of Boston borrowings                                5,280          2,359          2,198
  Other borrowings                                                             138            281            281
  Company-obligated mandatorily redeemable capital securities                  263             --             --
                                                                        ----------------------------------------
      Total interest expense                                                26,537         23,678         19,600
                                                                        ----------------------------------------
      Net interest income                                                   29,366         26,357         22,051
  Provision for loan losses (Note 6)                                         1,669          1,542          1,000
                                                                        ----------------------------------------
      Net interest income after provision for loan losses                   27,697         24,815         21,051
                                                                        ----------------------------------------

Noninterest income:
  Loan related fees                                                            285            258            306
  Service charges on deposit accounts                                        3,451          2,722          2,215
  Gain on sales of mortgage-backed securities                                    4             --             --
  Commissions on loans originated for others                                   288             74             83
  Other income                                                               1,203            524            618
                                                                        ----------------------------------------
      Total noninterest income                                               5,231          3,578          3,222
                                                                        ----------------------------------------

Noninterest expense:
  Salaries and employee benefits (Note 15)                                  11,287          9,552          8,065
  Occupancy (Note 7)                                                         1,744          1,530          1,302
  Equipment                                                                    878            899            744
  Data processing                                                            1,779          1,340          1,348
  Marketing                                                                    979          1,069            883
  Professional services                                                        883            891            870
  Loan servicing                                                               945            761            825
  Other real estate owned (Note 8)                                             353             31            108
  Amortization of excess of cost over net assets acquired                    1,164          1,164          1,164
  Deposit tax and assessments                                                  117            109             58
  Other expenses (Note 16)                                                   3,067          2,316          1,987
                                                                        ----------------------------------------
      Total noninterest expense                                             23,196         19,662         17,354
                                                                        ----------------------------------------
      Income before income taxes and change in accounting principle          9,732          8,731          6,919
  Income tax expense (Note 14)                                               3,417          3,113          2,448
                                                                        ----------------------------------------
      Net income before change in accounting principle                       6,315          5,618          4,471
  Cumulative effect of change in accounting principle                           --             --            109
                                                                        ----------------------------------------
      Net income                                                             6,315          5,618          4,362
  Dividends on preferred stock                                                  --             --             88
                                                                        ----------------------------------------
      Net income available to common shareholders                       $    6,315     $    5,618     $    4,274
                                                                        ========================================

Basic earnings per common share (Notes 2 and 20):
  Income per common share before change in accounting principle         $     1.69     $     1.51     $     1.18
  Cumulative effect of change in accounting principle, net of tax               --             --          (0.03)
                                                                        ----------------------------------------
  Net income per common share                                           $     1.69     $     1.51     $     1.15
                                                                        ========================================

Diluted earnings per common share (Notes 2 and 20):
  Income per common share before change in accounting principle         $     1.62     $     1.49     $     1.17
  Cumulative effect of change in accounting principle, net of tax               --             --          (0.03)
                                                                        ----------------------------------------
  Net income per common share                                           $     1.62     $     1.49     $     1.14
                                                                        ========================================

  Average common shares outstanding - basic                              3,730,910      3,728,688      3,727,010
  Average common shares outstanding - diluted                            3,900,028      3,768,589      3,741,778
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  47


                         BANCORP RHODE ISLAND, INC.
         Consolidated Statements of Changes in Shareholders' Equity
              For Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                                                                                                  Accumulated
                                                                                                     Other
                                                                                                    Compre-
                                                                        Additional                  hensive
                                                 Preferred    Common     Paid-in      Retained      Income/
                                                   Stock      Stock      Capital      Earnings      (Loss)        Total
                                                 ---------    ------    ----------    --------    -----------     -----
                                                                             (In thousands)


                                                <c>         <c>       <c>          <c>           <c>          <c>
Balance at December 31, 1998                       $ 804       $37       $40,774      $ 5,862       $   210      $47,687

  Net income                                          --        --            --        4,362            --        4,362
  Other comprehensive income, net
   of tax:
    Unrealized holding losses arising
     during the period, net of taxes of $1,002                                                       (1,952)      (1,952)
                                                                                                                 -------
  Comprehensive income                                                                                             2,410

  Exercise of stock options                           --        --            49           --            --           49
  Redemption of preferred stock                     (804)       --        (1,206)          --            --       (2,010)
  Dividends on preferred stock                        --        --            --          (88)           --          (88)
  Dividends on common stock                           --        --            --         (373)           --         (373)
                                                   ---------------------------------------------------------------------

Balance at December 31, 1999                          --        37        39,617        9,763        (1,742)      47,675

  Net income                                          --        --            --        5,618            --        5,618
  Other comprehensive income, net
   of tax:
    Unrealized holding gains arising
     during the period, net of taxes of $(804)                                                        1,561        1,561
                                                                                                                 -------
  Comprehensive income                                                                                             7,179

  Exercise of stock options                           --        --             4           --            --            4
  Dividends on common stock                           --        --            --       (1,566)           --       (1,566)
                                                   ---------------------------------------------------------------------

Balance at December 31, 2000                          --        37        39,621       13,815          (181)      53,292

  Net income                                          --        --            --        6,315            --        6,315
  Other comprehensive income, net
   of tax:
    Unrealized holding gains arising
     during the period, net of taxes of $(556)                                                        1,082        1,082
    Gain on securities available for
     sale included in net income, net of
     taxes of $1                                                                                         (3)          (3)
                                                                                                                 -------
  Comprehensive income                                                                                             7,394

  Exercise of stock options                           --        --           175           --            --          175
  Common stock issued for incentive stock
   award, net                                         --        --            30           --            --           30
  Dividends on common stock                           --        --            --       (1,794)           --       (1,794)
                                                   ---------------------------------------------------------------------

Balance at December 31, 2001                       $  --       $37       $39,826      $18,336       $   898      $59,097
                                                   =====================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  48


                         BANCORP RHODE ISLAND, INC.
                    Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                                  -----------------------------------
                                                                    2001          2000         1999
                                                                    ----          ----         ----
                                                                            (In thousands)


                                                               <c>           <c>          <c>
Cash flows from operating activities:
  Net income                                                      $   6,315     $  5,618     $  4,362
  Adjustment to reconcile net income to net cash provided by
   operating activities:
  Depreciation and amortization                                       3,168        2,558        3,030
  Provision for loan losses                                           1,669        1,542        1,000
  Gain on sales of mortgage-backed securities                            (4)          --           --
  Loss (gain) on other real estate owned                                (25)          (7)          12
  Compensation expense from restricted stock grant                       30           --           --
  (Increase) decrease in accrued interest receivable                   (173)        (960)          59
  (Increase) decrease in prepaid expenses and other assets             (374)        (290)        (225)
  Increase (decrease) in other liabilities                              735         (368)         923
  Increase (decrease) in other, net                                      17          204          213
                                                                  -----------------------------------
      Net cash provided by operating activities                      11,358        8,297        9,374
                                                                  -----------------------------------

Cash flows from investing activities:
  Origination of:
    Residential mortgage loans                                      (17,997)      (9,960)     (17,630)
    Commercial loans                                                (59,067)     (65,421)     (62,281)
    Consumer loans                                                  (22,515)     (18,111)     (18,909)
  Purchase of:
    Investment securities available for sale                        (54,026)      (9,000)     (35,168)
    Mortgage-backed securities available for sale                   (77,620)     (58,999)     (17,947)
    Residential mortgage loans                                     (186,869)     (48,503)     (53,883)
    Consumer and other loans                                         (5,045)      (5,043)          --
    Federal Home Loan Bank of Boston stock                           (1,964)          --         (359)
  Principal payments on:
    Investment securities available for sale                         52,263       13,000       23,000
    Mortgage-backed securities available for sale                    41,617       17,785       21,256
    Residential mortgage loans                                      141,657       47,422       91,841
    Commercial loans                                                 31,631       27,139       21,620
    Consumer loans                                                   23,928       12,042       10,187
    Proceeds from sale of mortgage-backed securities                  3,832           --           --
    Proceeds from disposition of other real estate owned                670          163          617
    Proceeds from sale of premises and equipment                         18           --           --
    Capital expenditures for premises and equipment                  (1,821)      (1,476)      (1,923)
                                                                  -----------------------------------
      Net cash used in investing activities                        (131,308)     (98,962)     (39,579)
                                                                  -----------------------------------

Cash flows from financing activities:
  Net increase in deposits                                           38,781      118,216       12,703
  Net increase in overnight and short-term borrowings                  (814)      (1,131)      10,716
  Proceeds from FHLB and other borrowings                            83,082       15,116       70,300
  Repayment of FHLB and other borrowings                             (7,759)     (30,007)     (58,617)
  Proceeds from capital trust securities                              3,000           --           --
  Redemption of preferred stock                                          --           --       (2,010)
  Dividends on preferred stock                                           --           --          (88)
  Proceeds from issuance of common stock                                175            4           49
  Dividends on common stock                                          (1,794)      (1,566)        (373)
                                                                  -----------------------------------
      Net cash provided by financing activities                     114,671      100,632       32,680
                                                                  -----------------------------------
Net increase (decrease) in cash and cash equivalents                 (5,279)       9,967        2,475
Cash and cash equivalents at beginning of year                       34,453       24,486       22,011
                                                                  -----------------------------------
Cash and cash equivalents at end of year                          $  29,174     $ 34,453     $ 24,486
                                                                  ===================================

Supplementary disclosures:
Cash paid for interest                                            $  26,122     $ 23,471     $ 19,604
Cash paid for income taxes                                            4,095        3,975        3,230
Non-cash transactions:
  Additions to other real estate owned in settlement of loans           879          137          284
  Change in other comprehensive income, net of taxes                  1,079        1,561       (1,952)
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  49


                         BANCORP RHODE ISLAND, INC.
                 Notes to Consolidated Financial Statements


(1)  Organization

      Bancorp Rhode Island, Inc., a Rhode Island corporation (the
"Company"), was organized by Bank Rhode Island (the "Bank") on February 15,
2000, to be a bank holding company and to acquire all of the capital stock
of the Bank.  The reorganization of the Bank into the holding company form
of ownership was completed on September 1, 2000.  The Company has no
significant operating entities other than the Bank.  For this reason,
substantially all of the discussion in these Consolidated Financial
Statements and accompanying Notes relates to the operations of the Bank and
its subsidiaries.

      Bank Rhode Island is a commercial bank chartered as a financial
institution in the State of Rhode Island.  The Bank pursues a community
banking mission and is principally engaged in providing banking products
and services to individuals and businesses in Providence and Kent counties.
The Bank is subject to competition from a variety of traditional and
nontraditional financial service providers both within and outside of Rhode
Island.  The Bank offers its customers a broad range of basic deposit
services, including checking, savings and certificate of deposit accounts,
along with access to their accounts through automated teller machines
("ATMs"), debit cards and the internet.  The Bank also offers a broad range
of commercial, commercial real estate and consumer loans.  Additionally,
the Bank provides IRA and Keogh accounts, along with non-deposit investment
products.  The Company and Bank are subject to the regulations of certain
state and federal agencies and undergo periodic examinations by those
regulatory authorities.  The Bank's deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC"), subject to regulatory limits.

(2)  Summary of Significant Accounting Policies

Basis of Presentation

      The accounting and reporting policies of the Company conform to
accounting principles generally accepted in the United States of America
and to prevailing practices within the banking industry.  The Company has
one reportable operating segment.  The following is a summary of the
significant accounting and reporting policies used by management in
preparing and presenting the consolidated financial statements.

      In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ from those
estimates.  Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses.

Principles of Consolidation

      The accompanying consolidated financial statements include the
accounts of Bancorp Rhode Island, Inc., and its wholly-owned subsidiaries,
Bank Rhode Island and BRI Statutory Trust I (an issuer of trust preferred
securities), along with the Bank's wholly-owned subsidiaries, BRI
Investment Corp. (a Rhode Island passive investment company), BRI Realty
Corp. (a Rhode Island real estate holding company) and Acorn Insurance
Agency, Inc. (a licensed insurance agency).  All significant intercompany
accounts and transactions have been eliminated in consolidation.

Reclassifications

      Certain amounts in the prior year's financial statements may have
been reclassified to conform with the current year's presentation.


<PAGE>  50


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


Statement of Cash Flows

      For purposes of reporting cash flows, the Company considers cash, due
from banks, federal funds sold and overnight investments to be cash
equivalents.  Cash flows relating to deposits are presented net in the
statement of cash flows.

Comprehensive Income

      Comprehensive income is defined as all changes to equity except
investments by and distributions to shareholders.  Net income is a
component of comprehensive income, with all other components referred to in
the aggregate as 'other comprehensive income.'

Cash and Due From Banks

      The Bank is required to maintain average reserve balances in a
noninterest bearing account with the Federal Reserve Bank based upon a
percentage of certain deposits.  As of December 31, 2001 and 2000, the
average daily amount required to be held was $531,000 and $500,000,
respectively.  Additionally, in connection with a line of credit from a
correspondent bank, the Bank is required to maintain a compensating balance
in a noninterest bearing account.  As of both December 31, 2001 and 2000,
the required compensating balance was $100,000.

Investment and Mortgage-Backed Securities

      Debt securities are classified as held to maturity, available for
sale, or trading.  As of December 31, 2001 and 2000, all of the Company's
securities were classified as available for sale.  Securities are
classified as held to maturity and carried at amortized cost only if the
Company has a positive intent and the ability to hold these securities to
maturity.  Securities are classified as trading and carried at fair value,
with unrealized gains and losses included in earnings, if they are bought
and held principally for the purpose of selling in the near term.
Securities not classified as either held to maturity or trading are
classified as available for sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity, net of estimated income taxes.

      Premiums and discounts on securities are amortized or accreted into
income by the level-yield method.  If a decline in fair value below the
amortized cost basis of a security is judged to be other than temporary,
the cost basis of the security is written down to fair value.  The amount
of the writedown is included as a charge against earnings.  Gains and
losses on the sale of securities are recognized at the time of sale on a
specific identification basis.

Loans

      Loans held in portfolio are stated at the principal amount
outstanding, net of unamortized premiums, discounts, or deferred loan
origination fees and costs.  Interest income is accrued on a level-yield
basis based on the principal amount outstanding.  Premiums, discounts, and
deferred loan origination fees and costs are amortized as an adjustment to
yield over the life of the related loans.  When a loan is paid-off, the
unamortized portion of premiums, discounts or net fees is recognized into
income.


<PAGE>  51


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      Loans on which the accrual of interest has been discontinued are
designated nonaccrual loans.  Accrual of interest income is discontinued
when concern exists as to the collectibility of principal or interest, or
when a loan becomes over 90 days delinquent.  Additionally, when a loan is
placed on nonaccrual status, all interest previously accrued but not
collected is reversed against current period income.  Loans are removed
from nonaccrual when they become less than 90 days past due and when
concern no longer exists as to the collectibility of principal or interest.
Interest collected on nonaccruing loans is either applied against principal
or reported as income according to management's judgment as to the
collectibility of principal.

      Impaired loans are loans for which it is probable that the Bank will
not be able to collect all amounts due according to the contractual terms
of the loan agreements.  Impairment is measured on a discounted cash flow
method, or at the loan's observable market price, or at the fair value of
the collateral if the loan is collateral dependent.  When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
In addition, the Bank classifies a loan as an in-substance foreclosure only
when the Bank is in possession of the collateral.

Allowance for Loan Losses

      The allowance for loan losses is established for credit losses
inherent in the loan portfolio through a charge to earnings.  When
management believes that the collectibility of a loan's principal balance,
or portions thereof, is unlikely, the principal amount is charged against
the allowance.  Recoveries on loans which have been previously charged off
are credited to the allowance as received.

      Management's methodology to estimate loss exposure inherent in the
portfolio includes an analysis of individual loans deemed to be impaired,
reserve allocations for various loan types based on payment status or loss
experience and an unallocated allowance that is maintained based on
management's assessment of many factors including the growth, composition
and quality of the loan portfolio, historical loss experience, general
economic conditions, and other pertinent factors.  While management
evaluates currently available information in establishing the allowance for
loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in
making the evaluations.  In addition, various regulatory agencies, as an
integral part of their examination process, periodically review a financial
institution's allowance for loan losses.  Such agencies may require the
financial institution to recognize additions to the allowance based on
their judgments about information available to them at the time of their
examination.

Other Real Estate Owned

      OREO consists of property acquired through foreclosure, real estate
acquired through acceptance of a deed in lieu of foreclosure and loans
determined to be substantively repossessed.  Real estate loans that are
substantively repossessed include only those loans for which the Company
has taken possession of the collateral, but has not completed legal
foreclosure proceedings.

      OREO, including real estate substantively repossessed, is stated at
the lower of cost or fair value, minus estimated costs to sell, at the date
of acquisition or classification to OREO status.  Fair value of such assets
is determined based on independent appraisals and other relevant factors.
Any write-down to fair value at the time of foreclosure is charged to the
allowance for loan losses.  A valuation allowance is maintained for known
specific and potential market declines and for estimated selling expenses.
Increases to the valuation allowance, expenses associated with ownership of
these properties, and gains and losses from their sale, are reflected in
operations as incurred.  Realized gains upon disposal are recognized as
income.


<PAGE>  52


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      Management believes that the net carrying value of OREO reflects the
lower of its cost basis or net fair value.  Factors similar to those
considered in the evaluation of the allowance for loan losses, including
regulatory agency requirements, are considered in the evaluation of the net
fair value of OREO.

Premises and Equipment

      Premises and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
primarily by the straight-line method over the estimated useful lives of
the assets, or the terms of the leases if shorter.

Intangible Assets

      On March 22, 1996, the Bank acquired certain assets and assumed
certain liabilities from Fleet National Bank of Connecticut, formerly known
as Shawmut Bank Connecticut, N.A. and other related entities.  This
acquisition was accounted for utilizing the purchase method of accounting
and generated $17.5 million of an unidentifiable intangible asset in
accordance with Statement of Financial Accounting Standards ("SFAS") 72.
This intangible is being amortized to expense using the straight-line
method over 15 years and results in a annual pre-tax charge to earnings of
$1.2 million.  On an ongoing basis, management reviews the valuation and
amortization of this intangible, taking into consideration any events and
circumstances which might have diminished its value.

      In April 1998, the FASB issued Statement of Position ("SOP") 98-5,
"Accounting for Costs of a Start-Up Entity."  SOP 98-5 requires
organizational costs, which were being amortized, to be expensed as of the
effective date of this statement, January 1, 1999, and accounted for as a
cumulative effect of a change in accounting principle.  On January 1, 1999,
the Bank expensed $166,000 of unamortized organizational costs resulting in
a charge to earnings, net of taxes, of $109,000.

Securities Sold Under Agreements to Repurchase

      The Company enters into sales of securities under agreements to
repurchase.  These agreements are treated as financings, and the
obligations to repurchase securities sold are reflected as a liability in
the consolidated balance sheets.  Securities pledged as collateral under
agreements to repurchase are reflected as assets in the accompanying
consolidated balance sheets.

Employee Benefits

      The Bank maintains a Section 401(k) savings plan for employees of the
Bank and its subsidiaries.  Under the plan, the Bank makes a matching
contribution of the amount contributed by each participating employee, up
to 4% of the employee's yearly salary.  The Bank's contributions are
charged against current operations in the year made.

      The Company has adopted SFAS 123, "Accounting for Stock-Based
Compensation."   This Statement establishes a fair value based method of
accounting for stock-based compensation plans under which compensation cost
is measured at the grant date based on the value of the award and is
recognized over the service period.  However, the Statement allows a
company to continue to measure compensation cost for such plans under
Accounting Principles Board Opinion ("APB") 25, "Accounting for Stock
Issued to Employees."  Under APB 25, no compensation cost is recorded if,
at the grant date, the exercise price of the options is equal to the fair
market value of the Company's common stock.  The Company has elected to
continue to follow the accounting in APB 25.  SFAS 123 requires companies
that elect to continue to follow the accounting in APB 25 to disclose in
the notes to their financial statements pro forma net income and earnings
per share as if the fair value based method of accounting had been applied.


<PAGE>  53


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


Income Taxes

      The Company recognizes income taxes under the asset and liability
method.  Under this method, deferred tax assets and liabilities are
established for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards.  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 effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income during the period that includes the
enactment date.

Earnings Per Share

      Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period.  Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then share in the earnings of
the entity.

(3)  Investment Securities Available for Sale

      A summary of investment securities available for sale follows:

<TABLE>
<CAPTION>

                                                            Unrealized
                                           Amortized     ----------------     Market
                                             Cost        Gains     Losses     Value
                                           ---------     -----     ------     ------
                                                         (In thousands)


                                         <c>          <c>       <c>        <c>
At December 31, 2001:
U.S. Agency obligations                     $46,004      $514      $ (74)     $46,444
Trust Preferred securities                    3,189        --       (180)       3,009
                                            -----------------------------------------
      Total                                 $49,193      $515      $(254)     $49,453
                                            =========================================

At December 31, 2000:
U.S. Treasury obligations                   $ 1,016      $ --      $ (11)     $ 1,005
U.S. Agency obligations                      44,256       167       (119)      44,304
Trust Preferred securities                    2,187        --       (200)       1,987
                                            -----------------------------------------
      Total                                 $47,459      $167      $(330)     $47,296
                                            =========================================
</TABLE>


<PAGE>  54


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The following table sets forth the maturities of investment
securities available for sale and the weighted average yields of such
securities:

<TABLE>
<CAPTION>

                                                                                 After One, But
                                          Within One Year                      Within Five Years
                                 ---------------------------------     ----------------------------------
                                                          Weighted                               Weighted
                                 Amortized     Market     Average      Amortized     Market      Average
                                   Cost        Value       Yield         Cost         Value       Yield
                                 ---------     ------     --------     ---------     ------      --------
                                                          (Dollars in thousands)


                               <c>          <c>         <c>          <c>          <c>          <c>
At December 31, 2001:
  U.S. Agency obligations         $3,000       $3,046      5.91%        $43,004      $43,398      4.94%
  Trust Preferred securities          --           --        --%             --           --        --%
                                  -------------------                   --------------------
      Total                       $3,000       $3,046      5.91%         43,004      $43,398      4.94%
                                  =============================         ==============================

At December 31, 2000:
  U.S. Treasury obligations       $1,016       $1,005      4.16%        $    --      $    --        --%
  U.S. Agency obligations          5,256        5,243      5.70%         39,000       39,061      6.40%
  Trust Preferred securities          --           --        --%             --           --        --%
                                  -------------------                   --------------------
      Total                       $6,272       $6,248      5.46%        $39,000      $39,061      6.40%
                                  =============================         ==============================

<CAPTION>

                                          After Five, But
                                         Within Ten Years                       After Ten Years
                                 ---------------------------------     ----------------------------------
                                                          Weighted                               Weighted
                                 Amortized     Market     Average      Amortized     Market      Average
                                   Cost        Value       Yield         Cost         Value       Yield
                                 ---------     ------     --------     ---------     ------      --------
                                                          (Dollars in thousands)


                               <c>          <c>         <c>          <c>          <c>          <c>
At December 31, 2001:
  U.S. Agency obligations         $   --       $   --        --%        $    --      $    --        --%
  Trust Preferred securities          --           --        --%          3,189        3,009      8.59%
                                  -------------------                   --------------------
      Total                       $   --       $   --        --%        $ 3,189      $ 3,009      8.59%
                                  =============================         ==============================

At December 31, 2000:
  U.S. Treasury obligations       $   --       $   --        --%        $    --      $    --        --%
  U.S. Agency obligations             --           --        --%             --           --        --%
  Trust Preferred securities          --           --        --%          2,187        1,987      8.16%
                                  -------------------                   --------------------
      Total                       $   --       $   --        --%        $ 2,187      $ 1,987      8.16%
                                  =============================         ==============================
</TABLE>

      The weighted average remaining life of investment securities
available for sale at December 31, 2001 and 2000 was 4.6 years and 3.8
years, respectively.  Included in the weighted average remaining life
calculation at December 31, 2001 and 2000, were $37.5 million and $31.2
million, respectively, of securities that are callable at the discretion of
the issuer.  These call dates were not utilized in computing the weighted
average remaining life.  There were no sales of investment securities
during 2001, 2000 or 1999.

(4)  Mortgage-Backed Securities Available for Sale

      A summary of mortgage-backed securities available for sale by issuer
follows:

<TABLE>
<CAPTION>

                                                               Unrealized
                                             Amortized     -----------------       Market
                                               Cost        Gains      Losses       Value
                                             ---------     -----      ------       ------
                                                             (In thousands)


                                          <c>           <c>        <c>         <c>
At December 31, 2001:
  U.S. Small Business Administration         $ 30,147      $   42     $ (34)      $ 30,155
  Federal National Mortgage Association        58,766         764      (143)        59,387
  Federal Home Loan Mortgage Corporation       51,403         454      (148)        51,709
  Collateralized Mortgage Obligations           9,233         166        --          9,399
                                             ---------------------------------------------
      Total                                  $149,549      $1,426     $(325)      $150,650
                                             =============================================

At December 31, 2000:
  U.S. Small Business Administration         $ 21,785      $   --     $ (20)      $ 21,765
  Federal National Mortgage Association        66,623         381      (445)        66,559
  Federal Home Loan Mortgage Corporation       16,455          76        (3)        16,528
  Collateralized Mortgage Obligations          12,680          --      (101)        12,579
                                             ---------------------------------------------
      Total                                  $117,543      $  457     $(569)      $117,431
                                             =============================================
</TABLE>


<PAGE>  55


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The following table sets forth the maturities of mortgage-backed
securities available for sale and the weighted average yields of such
securities:

<TABLE>
<CAPTION>

                                             After Five, But Within Ten Years                After Ten Years
                                             ---------------------------------     -----------------------------------
                                                                      Weighted                                Weighted
                                             Amortized     Market     Average      Amortized      Market      Average
                                               Cost        Value       Yield         Cost         Value        Yield
                                             ---------------------------------     -----------------------------------
                                                                      (Dollars in thousands)


                                           <c>          <c>         <c>         <c>           <c>           <c>
At December 31, 2001:
  U.S. Small Business Administration          $1,672       $1,664      3.47%       $ 28,475      $ 28,491      3.57%
  Federal National Mortgage Association           --           --        --%         58,766        59,387      6.00%
  Federal Home Loan Mortgage Corporation          --           --        --%         51,403        51,709      5.65%
Collateralized Mortgage Obligations               --           --        --%          9,233         9,399      6.47%
                                              -------------------                  ----------------------
      Total                                   $1,672       $1,664      3.47%       $147,877      $148,986      5.44%
                                              =============================        ================================

At December 31, 2000:
  U.S. Small Business Administration          $   --       $   --        --%       $ 21,785      $ 21,765      7.27%
  Federal National Mortgage Association           --           --        --%         66,623        66,559      6.50%
  Federal Home Loan Mortgage Corporation          --           --        --%         16,455        16,528      6.74%
  Collateralized Mortgage Obligations             --           --        --%         12,680        12,579      6.47%
                                              -------------------                  ----------------------
      Total                                   $   --       $   --        --%       $117,543      $117,431      6.67%
                                              =============================        ================================
</TABLE>

      Maturities on mortgage-backed securities are based on contractual
maturities and do not take into consideration scheduled amortization or
prepayments.  Actual maturities will differ from contractual maturities due
to scheduled amortization and prepayments.  The weighted average remaining
contractual term of mortgage-backed securities available for sale at
December 31, 2001 and 2000 was 25.7 years and 25.0 years, respectively.

      The following table presents the sale of mortgage-backed securities
available for sale and the resulting gains from such sales:

<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                                                -----------------------------
                                                                 2001       2000       1999
                                                                 ----       ----       ----
                                                                       (In thousands)


                                                             <c>        <c>        <c>
Amortized cost of mortgage-backed securities sold               $3,828     $   --     $    --
Gains realized on sales of mortgage-backed securities                4         --          --
                                                                -----------------------------
      Net proceeds from sales of mortgage-backed securities     $3,832     $   --     $    --
                                                                =============================
</TABLE>


<PAGE>  56


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(5)  Loans Receivable

      The following is a summary of loans receivable:

<TABLE>
<CAPTION>

                                                     December 31,
                                                 ---------------------
                                                   2001         2000
                                                   ----         ----
                                                    (In thousands)


                                              <c>          <c>
Residential mortgage loans:
  One- to four-family adjustable rate            $285,589     $212,197
  One- to four-family fixed rate                   23,306       34,609
                                                 ---------------------
    Subtotal                                      308,895      246,806
  Premium on loans acquired                         1,381        1,166
  Net deferred loan origination fees                  (64)         (49)
                                                 ---------------------
      Total                                      $310,212     $247,923
                                                 =====================

Commercial loans:
  Commercial real estate - nonowner occupied     $ 73,369     $ 69,315
  Commercial and industrial                        53,677       51,470
  Commercial real estate - owner occupied          46,698       38,272
  Small business                                   24,122       19,170
  Multi-family                                     14,927       15,933
  Construction                                     14,027        7,070
  Leases and other                                 12,715       11,731
                                                 ---------------------
    Subtotal                                      239,535      212,961
  Net deferred loan origination fees                 (171)        (143)
                                                 ---------------------
      Total                                      $239,364     $212,818
                                                 =====================

Consumer and other loans:
  Home equity - lines of credit                  $ 28,460     $ 26,215
  Home equity - term loans                         22,930       23,292
  Automobile                                        6,335        4,643
  Installment                                       1,240        1,348
  Savings secured                                     656          987
  Unsecured and other                               1,153        1,044
                                                 ---------------------
    Subtotal                                       60,774       57,529
  Premium on loans acquired                           192          144
  Net deferred loan origination costs                 422          411
                                                 ---------------------
      Total                                      $ 61,388     $ 58,084
                                                 =====================
</TABLE>

      The Bank's commercial and consumer lending activities are conducted
principally in the State of Rhode Island and, to a lesser extent, in nearby
areas of Massachusetts.  The Bank originates commercial real estate loans,
commercial and industrial loans, multi-family residential loans and
consumer loans (principally home equity loans and lines of credit) for its
portfolio.  The Bank purchases one- to four-family residential mortgage
loans and automobile loans from third party originators.  These loans may
have been originated from areas outside of New England.  Most loans made by
the Bank are secured by borrowers' personal or business assets.  The Bank
considers a concentration of credit to a particular industry to exist when
the aggregate credit exposure to a borrower or group of borrowers in that
industry exceeds 25% of the Bank's capital plus reserves.  At December 31,
2001, no concentrations of credit to a particular industry existed as
defined by these parameters.  The ability of the Bank's residential and
consumer borrowers to honor their repayment commitments is generally
dependent on the level of overall economic activity within the area they
reside in.  Commercial borrowers' ability to repay is generally dependent
upon the general health of the economy and in cases of real estate loans,
the real estate sector in particular.  Accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio is
susceptible to changing conditions in the Rhode Island economy in
particular, and the New England and national economies, in general.


<PAGE>  57


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The Bank's lending limit to any single borrowing relationship is
limited by law to approximately $10.5 million.  At December 31, 2001, the
Bank had no outstanding commitments to any single borrowing relationship
that were in excess of $4.2 million.

      At December 31, 2001, the risk elements contained within the loan
portfolio were centered in $753,000 of nonaccrual loans and $131,000 of
loans past due 60 to 89 days.  This compares to $508,000 of nonaccrual
loans and $337,000 of loans past due 60 to 89 days as of December 31, 2000,
and $1.1 million of nonaccrual loans and $93,000 of loans past due 60 to 89
days as of December 31, 1999.  As of December 31, 2001 and 2000, the Bank
did not have any loans that were considered impaired.  Included in
nonaccrual loans as of December 31, 1999, were $329,000 of impaired loans.
No specific reserves were necessary in conjunction with these impaired
loans.  The average balance of impaired loans was $1.0 million during 2001,
$648,000 during 2000 and $304,000 during 1999.

      The reduction in interest income associated with nonaccrual loans was
as follows:

<TABLE>
<CAPTION>

                                             Year Ended December 31,
                                             ------------------------
                                             2001      2000      1999
                                             ----      ----      ----
                                                  (In thousands)


                                          <c>       <c>       <c>
Income in accordance with original terms     $ 68      $ 48      $130
Income recognized                             (37)      (13)      (64)
                                             ------------------------
Foregone interest income                     $ 31      $ 35      $ 66
                                             ========================
</TABLE>

      Loans outstanding to executive officers and directors of the Company,
including their immediate families and affiliated companies ("related
parties"), are made in the ordinary course of business under normal credit
terms, including interest rates and collateral, prevailing at the time of
origination for comparable transactions with other persons, and do not
represent more than normal credit risk.  An analysis of the activity of
these loans is as follows:

<TABLE>
<CAPTION>

                                 Year Ended December 31,
                                 -----------------------
                                   2001        2000
                                   ----        ----
                                     (In thousands)


                               <c>         <c>
Balance at beginning of year      $ 6,385     $ 3,767
  Additions                         1,329       4,251
  Repayments                       (2,193)     (1,633)
                                  -------------------
Balance at end of year            $ 5,521     $ 6,385
                                  ===================
</TABLE>


<PAGE>  58


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(6)  Allowance for Loan Losses

      An analysis of the activity in the allowance for loan losses is as
follows:

<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                                       ----------------------------
                                                        2001       2000       1999
                                                        ----       ----       ----
                                                              (In thousands)


                                                    <c>        <c>        <c>
Balance at beginning of year                           $7,294     $5,681     $5,018
  Provision for loan losses charged against income      1,669      1,542      1,000
  Loans charged-off                                      (467)      (125)      (384)
  Recoveries of loans previously charged-off               28        196         47
                                                       ----------------------------
Balance at end of year                                 $8,524     $7,294     $5,681
                                                       ============================
</TABLE>

      The following table represents the allocation of the allowance for
loan losses as of the dates indicated:

<TABLE>
<CAPTION>

                                   December 31,
                                 -----------------
                                  2001       2000
                                  ----       ----
                                  (In thousands)


                              <c>        <c>
Loan category:
  Residential mortgage loans     $1,835     $1,460
  Commercial loans                4,191      3,210
  Consumer and other loans          787        731
  Unallocated                     1,711      1,893
                                 -----------------
  Total                          $8,524     $7,294
                                 =================
</TABLE>

(7)  Premises and Equipment

      Premises and equipment consisted of the following:

<TABLE>
<CAPTION>

                                                      December 31,
                                                   -------------------
                                                    2001        2000
                                                    ----        ----
                                                     (In thousands)


                                                <c>         <c>
Land                                               $   793     $   785
Office buildings and improvements                    2,346       1,837
Leasehold improvements                               2,700       2,233
Data processing equipment and software               3,619       3,297
Furniture, fixtures and other equipment              3,054       2,610
                                                   -------------------
  Subtotal                                          12,512      10,762
Less accumulated depreciation and amortization      (5,328)     (4,378)
                                                   -------------------
  Total premises and equipment                     $ 7,184     $ 6,384
                                                   ===================
</TABLE>

      The Company utilizes a useful life of 40 years for buildings and 15
years for building improvements.  Leasehold improvements are amortized over
their respective lease terms.  Data processing equipment and software's
useful life is three years and furniture, fixtures and other equipment's
useful life varies but is primarily five years.  Depreciation expense
totaled $1.0 million, $941,000 and $841,000 for the years ended December
31, 2001, 2000 and 1999, respectively.


<PAGE>  59


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      Rent expense for the years ended December 31, 2001, 2000 and 1999 was
$815,000, $686,000 and $531,000, respectively.  In connection with the
acquisition of branches from Fleet National Bank of Connecticut, the Bank
assumed the liability for lease payments on seven banking offices
previously occupied by Shawmut Bank Connecticut, N.A.  The Bank has
renegotiated some of these leases and has also entered into agreements to
lease additional space.  Under the terms of these noncancellable operating
leases, the Bank is currently obligated to minimum annual rents as follows:

<TABLE>
<CAPTION>

                                Minimum
                             Lease Payments
                             --------------
                             (In thousands)

              
                <c>
              2002               $  713
              2003                  638
              2004                  630
              2005                  618
              2006                  560
              Thereafter          1,388
                                 ------
                                 $4,547
                                 ======
</TABLE>

(8)  Other Real Estate Owned

      The following table provides a summary of OREO:

<TABLE>
<CAPTION>

                                              December 31,
                                             --------------
                                             2001     2000
                                             ----     ----
                                             (In thousands)


                                          <c>      <c>
One- to four-family residential property     $287     $ 61
                                             -------------
  Subtotal                                    287       61
Allowance for losses                          (23)     (31)
                                             -------------
      Total                                  $264     $ 30
                                             =============
</TABLE>

      A summary of the activity in the allowance for losses on OREO
follows:

<TABLE>
<CAPTION>

                                 Year Ended December 31,
                                 -----------------------
                                      2001     2000
                                      ----     ----
                                     (In thousands)


                                   <c>      <c>
Balance at beginning of year          $31      $35
Provisions                             --       --
Net charge-offs                        (8)      (4)
                                      ------------
Balance at end of year                $23      $31
                                      ============
</TABLE>


<PAGE>  60


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The following summarizes the operating results from OREO:

<TABLE>
<CAPTION>

                                         Year Ended December 31,
                                         -----------------------
                                         2001     2000     1999
                                         ----     ----     ----
                                             (In thousands)


                                      <c>      <c>      <c>
Collection and repossession expenses     $367     $42      $ 73
Net expenses of holding properties         11      (4)       23
Provision for losses                       --      --        12
Net gains from dispositions               (25)     (7)       --
                                         ----------------------
      Total                              $353     $31      $108
                                         ======================
</TABLE>

(9)  Deposits

      Certificate of deposit accounts had the following schedule of
maturities:

<TABLE>
<CAPTION>

                                               December 31,
                                           ---------------------
                                             2001         2000
                                             ----         ----
                                              (In thousands)


                                        <c>          <c>
1 year or less remaining                   $204,248     $224,690
More than 1 year to 2 years remaining        27,774       36,403
More than 2 years to 4 years remaining       15,737        2,938
More than 4 years remaining                     505        1,592
                                           ---------------------
      Total                                $248,264     $265,623
                                           =====================
</TABLE>

      At December 31, 2001, 2000 and 1999, certificate of deposit accounts
with balances $100,000 or more aggregated $35.4 million, $32.1 million and
$25.3 million, respectively.

(10)  Overnight and Short-Term Borrowings

      Overnight and short-term borrowings are comprised of the following:

<TABLE>
<CAPTION>

                                            December 31,
                                         -------------------
                                          2001        2000
                                          ----        ----
                                           (In thousands)


                                      <c>         <c>
Treasury tax and loan notes              $   691     $   819
Retail reverse repurchase agreements      12,342      13,028
                                         -------------------
      Total                              $13,033     $13,847
                                         ===================
</TABLE>


<PAGE>  61


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The Bank utilizes the Note Option for remitting Treasury Tax and Loan
payments to the Federal Reserve Bank.  Under this option the U.S. Treasury
invests in obligations of the Bank, as evidenced by open-ended interest-
bearing notes.  These notes are collateralized by U.S. Agency securities
owned by the Bank.  Information concerning these treasury tax and loan
notes is as follows:

<TABLE>
<CAPTION>

                                                   Year Ended December 31,
                                                   -----------------------
                                                      2001        2000
                                                      ----        ----
                                                   (Dollars in thousands)


                                                  <c>         <c>
Outstanding at end of year                           $  691      $  819
Outstanding collateralized by securities with:
  Amortized cost                                      3,997       3,999
  Market value                                        4,007       3,987
Average outstanding for the year                      1,038         921
Maximum outstanding at any month end                  3,000       3,000
Weighted average rate at end of year                   1.40%       5.72%
Weighted average rate paid for the year                1.50%       6.25%
</TABLE>

      The Bank utilizes retail reverse repurchase agreements in connection
with a cash management product that the Bank offers its commercial
customers.  Sales of retail reverse repurchase agreements are treated as
financings.  The obligations to repurchase the identical securities that
were sold are reflected as liabilities and the securities remain in the
asset accounts.  All of these agreements are collateralized by U.S. Agency
securities owned by the Bank.  The securities underlying the agreements
were held by the Bank in a special custody account and remained under the
Bank's control.  Information concerning these retail repurchase agreements
is as follows:

<TABLE>
<CAPTION>

                                                   Year Ended December 31,
                                                   -----------------------
                                                      2001        2000
                                                      ----        ----
                                                   (Dollars in thousands)


                                                  <c>         <c>
Outstanding at end of year                           $12,342     $13,028
Maturity date                                         1/2/02      1/2/01
Outstanding collateralized by securities with:
  Amortized cost                                      14,303      14,904
  Market value                                        14,397      14,903
Average outstanding for the year                      14,041      10,553
Maximum outstanding at any month end                  18,216      14,485
Weighted average rate at end of year                    1.70%       2.74%
Weighted average rate paid for the year                 3.04%       5.48%
</TABLE>

      Additionally, at December 31, 2001, the Bank had a $2.0 million line
of credit with a correspondent bank to facilitate the issuance of letters
of credit by the Bank and the conducting of foreign exchange transactions
for the Bank's customers.  Since inception, there have been no outstanding
balances under this line of credit.  The Bank is required to maintain a
compensating balance of $100,000 in conjunction with this line of credit.


<PAGE>  62


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(11)  Federal Home Loan Bank of Boston Borrowings

      FHLB borrowings are comprised of the following:

<TABLE>
<CAPTION>

                                     December 31, 2001                       December 31, 2000
                            -----------------------------------     -----------------------------------
                            Scheduled      First       Weighted     Scheduled      First       Weighted
                              Final         Call       Average        Final         Call       Average
                            Maturity      Date (1)     Rate (2)     Maturity      Date (1)     Rate (2)
                            ---------     --------     --------     ---------     --------     --------
                                                      (Dollars in thousands)


                         <c>           <c>           <c>          <c>          <c>           <c>
Within 1 year               $  7,000      $ 20,000      3.59%        $ 3,000      $13,000       3.57%
Over 1 year to 2 years        20,100        32,100      4.92%             --           --         --%
Over 2 years to 3 years       28,000        30,000      6.08%         10,100       10,100       5.87%
Over 3 years to 5 years       11,000        21,000      5.53%         20,000       10,000       6.37%
Over 5 years                  47,265        10,265      5.14%            192          192       6.29%
                            ----------------------                   -------------------
      Total                 $113,365      $113,365      5.27%        $33,292      $33,292       6.23%
                            ================================         ===============================

<FN>
<F1>  Callable FHLB advances are shown in the respective periods assuming
      that the callable debt is redeemed at the first call date while all
      other advances are shown in the periods corresponding to their
      scheduled maturity date.
<F2>  Weighted average rate based on scheduled maturity dates.
</FN>
</TABLE>

      All borrowings from the FHLB are secured by the Bank's stock in the
FHLB and a blanket lien on "qualified collateral" defined principally as
90% of the market value of U.S. Government and Agency obligations and 75%
of the carrying value of certain residential mortgage loans.  Unused term
borrowing capacity with the FHLB at December 31, 2001, 2000 and 1999 was
$191.6 million, $269.7 million and $221.0 million, respectively.  In
addition, the Bank has a short-term line of credit with the FHLB.  Unused
borrowing capacity under this line was $11.2 million for each of the years
in the three-year period.  As one requirement of its borrowings, the Bank
is required to invest in the common stock of the FHLB in an amount at least
equal to five percent of its outstanding borrowings from the FHLB.  As and
when such stock is redeemed, the Bank would receive from the FHLB an amount
equal to the par value of the stock.  As of December 31, 2001, the Bank's
FHLB stock holdings, recorded at cost, were $5.7 million.

(12)  Other Borrowings

      From time to time, the Bank utilizes term reverse repurchase
agreements as an alternative source of long-term funds.  These agreements
are treated as financings.  The obligation to repurchase the identical
securities that were sold is reflected as a liability and the securities
remain as assets.  The securities underlying this agreement are U.S. Agency
securities and are held by a third party custodian in a special custody
account.  Information concerning this term repurchase agreement is as
follows:

<TABLE>
<CAPTION>

                                                   Year Ended December 31,
                                                   -----------------------
                                                      2001        2000
                                                      ----        ----
                                                   (Dollars in thousands)


                                                  <c>        <c>
Outstanding at end of year                           $   --     $  4,750
Maturity date                                            NA      6/29/01
Outstanding collateralized by securities with:
  Amortized cost                                         --        5,000
  Market value                                           --        4,973
Average outstanding for the year                      2,329        4,750
Maximum outstanding at any month end                  4,750        4,750
Weighted average rate at end of year                     NA         5.83%
Weighted average rate paid for the year                5.91%        5.83%
</TABLE>


<PAGE>  63


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(13)  Company-Obligated Mandatorily Redeemable Capital Securities

      On January 23, 2001, the Company sponsored the creation of BRI
Statutory Trust I (the "Trust"), a Connecticut statutory trust.  The
Company is the owner of all of the common securities of the Trust.  On
February 22, 2001, the Trust issued $3.0 million of its 10.20% Capital
Securities through a pooled trust preferred securities offering.  The
proceeds from this issuance, along with the Company's $93,000 capital
contribution for the Trust's common securities, were used to acquire $3.1
million of the Company's 10.20% Junior Subordinated notes due February 22,
2031, and constitute the primary asset of the Trust.  The Company has,
through the Declaration of Trust, the Guarantee Agreement, the notes and
the related Indenture, taken together, fully irrevocably and
unconditionally guaranteed all of the Trust's obligations under the Capital
Securities, to the extent the Trust has funds available therefor.

(14)  Income Taxes

      The components of income tax expense are as follows:

<TABLE>
<CAPTION>

                                      Year Ended December 31,
                                   -----------------------------
                                    2001       2000        1999
                                    ----       ----        ----
                                          (In thousands)


                                <c>        <c>         <c>
Current expense:
  Federal                          $3,897     $ 4,133     $3,011
  State                                39          95         96
                                   -----------------------------
      Total current expense         3,936       4,228      3,107
                                   -----------------------------
Deferred benefit:
  Federal                            (519)     (1,115)      (659)
  State                                --          --         --
                                   -----------------------------
      Total deferred benefit         (519)     (1,115)      (659)
                                   -----------------------------
      Total income tax expense     $3,417     $ 3,113     $2,448
                                   =============================
</TABLE>

      The difference between the statutory federal income tax rate and the
effective federal income tax rate is as follows:

<TABLE>
<CAPTION>

                                                          Year Ended December 31,
                                                         -------------------------
                                                         2001      2000      1999
                                                         ----      ----      ----


                                                      <c>       <c>       <c>
Statutory federal income tax rate                        34.0%     34.0%     34.0%
Increase resulting from:
  State income tax, net of federal tax benefit            0.2       0.7       0.9
  Other, net                                              0.9       1.0       0.5
                                                         ------------------------
Effective combined federal and state income tax rate     35.1%     35.7%     35.4%
                                                         ========================
</TABLE>


<PAGE>  64


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The components of gross deferred tax assets and gross deferred tax
liabilities are as follows:

<TABLE>
<CAPTION>

                                                          December 31,
                                                       -------------------
                                                        2001        2000
                                                        ----        ----
                                                         (In thousands)


                                                    <c>         <c>
Gross deferred tax assets:
  Allowance for loan losses                            $ 2,898     $ 2,488
  Organizational costs                                      18           9
  Unrealized loss on securities available for sale          --          93
  Other                                                    295         294
                                                       -------------------
      Total gross deferred tax assets                    3,211       2,884
                                                       -------------------
Gross deferred tax liabilities:
  Purchase accounting adjustments                         (944)     (1,043)
  Unrealized gain on securities available for sale        (463)         --
                                                       -------------------
      Total gross deferred tax liabilities              (1,407)     (1,043)
                                                       -------------------
      Net deferred tax asset                           $ 1,804     $ 1,841
                                                       ===================
</TABLE>

      It is management's belief, that it is more likely than not, that the
reversal of deferred tax liabilities and results of future operations will
generate sufficient taxable income to realize the deferred tax assets.  In
addition, the Company's net deferred tax asset is supported by recoverable
income taxes.  Therefore, no valuation allowance was necessary at December
31, 2001, 2000 or 1999 for the deferred tax assets.  It should be noted,
however, that factors beyond management's control, such as the general
state of the economy and real estate values, can affect future levels of
taxable income and that no assurance can be given that sufficient taxable
income will be generated to fully absorb gross deductible temporary
differences.

(15)  Employee Benefits

Employee 401(k) Plan

      The Bank maintains a 401(k) Plan (the "Plan") which qualifies as a
tax exempt plan and trust under Sections 401 and 501 of the Internal
Revenue Code.  Generally, Bank employees who are at least twenty-one (21)
years of age and have completed one year of service with the Bank, are
eligible to participate in the Plan.  Expenses associated with the Plan
were $240,000, $191,000 and $164,000 for the years ended December 31, 2001,
2000 and 1999, respectively.

Nonqualified Deferred Compensation Plan

      The Bank also maintains a Nonqualified Deferred Compensation Plan
(the "Nonqualified Plan") under which certain participants may contribute
the amounts they are precluded from contributing to the Bank's 401(k) Plan
because of the qualified plan limitations, and additional compensation
deferrals that may be advantageous for personal income tax or other
planning reasons.  Expenses associated with the Nonqualified Plan were
$34,000, $24,000 and $20,000 for the years ended December 31, 2001, 2000
and 1999, respectively.


<PAGE>  65


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


Supplemental Executive Retirement Plan

      During 1999, the Bank established a Supplemental Executive Retirement
Plan (the "SERP") for certain of its senior executives under which
participants designated by the Board of Directors are entitled to an annual
retirement benefit.  Expenses associated with the SERP were $103,000,
$58,000 and $40,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

Restricted Stock Agreement

      During 2001, the Company entered into a Restricted Stock Agreement
with its CEO, pursuant to which she was awarded 7,700 shares of restricted
stock, subject to achievement of certain performance goals, which vests 50%
on January 1, 2005 and 50% on January 1, 2006.  The restricted stock is
subject to forfeiture if cumulative net income for the three-year period
ending December 31, 2002 does not equal or exceed cumulative net income
forecasted in the Company's budgets for such period.  The restricted shares
are also subject to forfeiture in the event of termination of the CEO's
employment prior to the applicable vesting dates for cause by the Company
or without good reason by the executive.  Expenses associated with the
Restricted Stock Agreement were $49,000 for the year ended December 31,
2001.

Employee Stock Option Plan

      The Company maintains an Incentive and Nonqualified Stock Option Plan
(the "Employee Stock Option Plan") under which it may grant options on its
common stock to officers and key employees.  The total number of shares
available for issuance under the Employee Stock Option Plan is 385,000.
Options are granted at an exercise price equal to the market value of the
stock on the date of the grant and vest over a three to five year period.
Unless exercised, options granted under the Employee Stock Option Plan
expire ten years from the grant date.

      The following table summarizes changes in options outstanding under
the Employee Stock Option Plan during 1999, 2000 and 2001 and options
exercisable at December 31, 2001:

<TABLE>
<CAPTION>

                                              Number of        Weighted
                                             Unexercised       Average
                                               Options       Option Price
                                             -----------     ------------


                                            <c>              <c>
Options outstanding at December 31, 1998       185,950          $10.68

  Granted                                       85,000           10.63
  Exercised                                     (4,950)          10.00
  Forfeited/Canceled                           (26,050)          10.60
                                               -------
Options outstanding at December 31, 1999       239,950           10.69
                                               -------
  Granted                                       62,300           10.06
  Exercised                                       (400)          10.00
  Forfeited/Canceled                            (1,600)          10.50
                                               -------
Options outstanding at December 31, 2000       300,250           10.56
                                               -------
  Granted                                       58,650           15.17
  Exercised                                    (15,900)          10.36
  Forfeited/Canceled                            (3,850)          14.21
                                               -------
Options outstanding at December 31, 2001       339,150          $11.32
                                               =======================
Options exercisable at December 31, 2001       229,015          $10.56
                                               =======================
</TABLE>


<PAGE>  66


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


Director Stock Plan

      The Company established a Non-Employee Director Stock Plan (the
"Director Stock Plan") under which it may grant up to 40,000 options on its
common stock to non-employee directors.  Each non-employee director elected
at the 1998 shareholders meeting received an option for 1,500 shares and
each new non-employee director elected subsequently will receive an option
for 1,000 shares.  Non-employee directors will also receive an annual
option grant for 500 shares as of the date of each annual meeting of
shareholders.  Options are granted at an exercise price equal to the market
value of the stock on the date of the grant and vest six months after the
grant date.  Unless exercised, options granted under the Director Stock
Plan expire ten years from the date granted.

      The following table summarizes changes in options outstanding under
the Director Stock Plan during 1999, 2000 and 2001 and options exercisable
at December 31, 2001:

<TABLE>
<CAPTION>

                                              Number of        Weighted
                                             Unexercised       Average
                                               Options       Option Price
                                             -----------     ------------


                                            <c>              <c>
Options at December 31, 1998                   16,500           $17.19

  Granted                                       5,500            10.88
  Exercised                                        --               --
  Forfeited/Canceled                               --               --
                                               ------
Options at December 31, 1999                   22,000            15.61
                                               ------
  Granted                                       5,500            10.13
  Exercised                                        --               --
  Forfeited/Canceled                               --               --
                                               ------
Options at December 31, 2000                   27,500            14.52
                                               ------
  Granted                                       5,500            16.00
  Exercised                                    (1,000)           10.50
  Forfeited/Canceled                               --               --
                                               ------
Options at December 31, 2001                   32,000           $14.89
                                               =======================
Options exercisable at December 31, 2001       32,000           $14.89
                                               =======================
</TABLE>


<PAGE>  67


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      APB 25 and related interpretations have been applied to account for
these plans.  Accordingly, no compensation cost has been charged against
income.  Had compensation cost been determined consistent with SFAS 123,
the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>

                                 Year Ended December 31,
                               ----------------------------
                                2001       2000       1999
                                ----       ----       ----


                            <c>        <c>        <c>
Net income (in thousands):
  As reported                  $6,315     $5,618     $4,362
  Pro forma                     6,181      5,492      4,228

Earnings per common share:
  Basic:
    As reported                $ 1.69     $ 1.51     $ 1.15
    Pro forma                    1.66       1.47       1.11
  Diluted:
    As reported                $ 1.62     $ 1.49     $ 1.14
    Pro forma                    1.58       1.46       1.11
</TABLE>

      The fair value of each option granted was estimated as of the date of
the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:  expected life of 7 years; expected
volatility of  20% in 2001 and 25% in 2000 and 1999; average risk-free
interest rates of 4.90% in 2001, 6.65% in 2000 and 4.84% in 1999; and a
dividend rate of 2.92% in 2001, 4.26% in 2000 and 3.78% in 1999.

(16)  Other Operating Expenses

      Major components of other operating expenses are as follows:

<TABLE>
<CAPTION>

                              Year Ended December 31,
                            ----------------------------
                             2001       2000       1999
                             ----       ----       ----
                                   (In thousands)


                         <c>        <c>        <c>
Telephone                   $  541     $  470     $  424
Forms and supplies             512        371        287
Postage                        305        251        207
Correspondent bank fees        209        128         99
Insurance                      178        128        132
Director fees                  158        120         90
Recruiting                     125        117         97
Other                        1,039        731        651
                            ----------------------------
      Total                 $3,067     $2,316     $1,987
                            ============================
</TABLE>


<PAGE>  68


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(17)  Financial Instruments with Off-Balance Sheet Risk

      The Bank is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to originate
loans and letters of credit. The instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.

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

      Financial instruments with off-balance sheet risk are summarized as
follows:

<TABLE>
<CAPTION>

                                       December 31,
                                   --------------------
                                     2001        2000
                                     ----        ----
                                      (In thousands)


                                <c>          <c>
Commitments to originate loans     $ 13,965     $ 5,440
Unused lines of credit              118,820      86,935
Letters of credit                     2,466       2,324
</TABLE>

      Commitments to originate loans and unused lines of credit are
agreements to lend to a customer provided there is no violation of any
condition established in the contract.  Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee.  Since certain commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis.  The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management's credit
evaluation of the borrower.

      Letters of credit are conditional commitments issued by the Bank to
guarantee the performance by a customer to a third party.  The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.


<PAGE>  69


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(18)  Fair Value of Financial Instruments

      The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS 107,
"Disclosures About Fair Value of Financial Instruments."  The estimated
fair value amounts have been determined by using available quoted market
information or other appropriate valuation methodologies.  The aggregate
fair value amounts presented are in accordance with SFAS 107 guidelines but
do not represent the underlying value of the Bank taken as a whole.

      The fair value estimates provided are made at a specific point in
time, based on relevant market information and the characteristics of the
financial instrument.  The estimates do not provide for any premiums or
discounts that could result from concentrations of ownership of a financial
instrument.  Because no active market exists for some of the Bank's
financial instruments, certain fair value estimates are based on subjective
judgments regarding current economic conditions, risk characteristics of
the financial instruments, future expected loss experience, prepayment
assumptions and other factors.  The resulting estimates involve
uncertainties and therefore cannot be determined with precision.  Changes
made to any of the underlying assumptions could significantly affect the
estimates.

      The book values and estimated fair values for the Company's financial
instruments are as follows:

<TABLE>
<CAPTION>

                                                           December 31, 2001           December 31, 2000
                                                        -----------------------     -----------------------
                                                          Book       Estimated        Book       Estimated
                                                         Value       Fair Value      Value       Fair Value
                                                         -----       ----------      -----       ----------
                                                                          (In thousands)


                                                     <c>           <c>           <c>           <c>
Assets:
Cash and due from banks                                 $ 24,261      $ 24,261      $ 28,853      $ 28,853
Fed funds sold and overnight investments                   4,913         4,913         5,600         5,600
Investment securities                                     49,453        49,453        47,296        47,296
Mortgage-backed securities                               150,650       150,650       117,431       117,431
Stock in the FHLB                                          5,668         5,668         3,704         3,704
Loans receivable, net of allowance for loan losses:
  Residential mortgage loans                             307,916       313,175       245,951       251,748
  Commercial loans                                       234,121       242,612       208,483       216,035
  Consumer and other loans                                60,403        61,494        57,097        58,382
Accrued interest receivable                                5,803         5,803         5,630         5,630

Liabilities:
  Deposits:
    Demand deposit accounts                              112,925       112,925       106,088       106,088
    NOW accounts                                          44,445        44,445        36,910        36,910
    Money market accounts                                  9,914         9,914        12,283        12,283
    Savings accounts                                     254,861       254,861       210,728       210,728
    Certificate of deposit accounts                      248,268       250,758       265,623       267,786
Overnight and short-term borrowings                       13,033        13,033        13,847        13,847
FHLB borrowings                                          113,365       115,639        33,292        34,027
Other borrowings                                              --            --         4,750         4,754
Company-obligated mandatorily redeemable
 capital securities                                        3,000         3,000            --            --
Accrued interest payable                                   1,839         1,839         1,424         1,424
</TABLE>

Cash and due from banks

      The carrying values reported in the balance sheet for cash and due
from banks approximates the fair value because of the short maturity of
these instruments.


<PAGE>  70


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


Fed funds sold and overnight investments

      The carrying values reported in the balance sheet for federal funds
sold and overnight investments approximates the fair value because of the
short maturity of these instruments.

Investment and mortgage-backed securities

      The fair values presented for investment and mortgage-backed
securities are based on quoted bid prices received from securities dealers.

Stock in the Federal Home Loan Bank of Boston

      The fair value of stock in the FHLB equals the carrying value
reported in the balance sheet.  This stock is redeemable at full par value
only by the FHLB.

Loans receivable

      Fair value estimates are based on loans with similar financial
characteristics.  Loans have been segregated by homogenous groups into
residential mortgage, commercial, and consumer and other loans.  Fair
values are estimated by discounting contractual cash flows, adjusted for
prepayment estimates, using discount rates approximately equal to current
market rates on loans with similar characteristics and maturities.  The
incremental credit risk for nonperforming loans has been considered in the
determination of the fair value of loans.

Deposits

      The fair values reported for demand deposit, NOW, money market, and
savings accounts are equal to their respective book values reported on the
balance sheet.  The fair values disclosed are, by definition, equal to the
amount payable on demand at the reporting date.  The fair values reported
for certificate of deposit accounts are based on the discounted value of
contractual cash flows.  The discount rates used are representative of
approximate rates currently offered on certificate of deposit accounts with
similar remaining maturities.

Overnight and short-term borrowings

      The carrying values reported in the balance sheet for overnight and
short-term borrowings approximates the fair value because of the short
maturity of these instruments.

Federal Home Loan Bank of Boston borrowings

      The fair values reported for FHLB borrowings are based on the
discounted value of contractual cash flows.  The discount rates used are
representative of approximate rates currently offered on borrowings with
similar remaining maturities.

Other borrowings

      The fair values reported for other borrowings are based on the
discounted value of contractual cash flows.  The discount rates used are
representative of approximate rates currently offered on borrowings with
similar remaining maturities.


<PAGE>  71


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


Company-obligated mandatorily redeemable capital securities

      The fair values reported for Company-obligated mandatorily redeemable
capital securities are based on the discounted value of contractual cash
flows.  The discount rates used are representative of approximate rates
currently offered on instruments with similar terms and remaining
maturities.

Accrued interest receivable and payable

      The carrying values for accrued interest receivable and payable
approximates fair value because of the short-term nature of these financial
instruments.

Financial instruments with off-balance sheet risk

      Since the Bank's commitments to originate or purchase loans, and for
unused lines and outstanding letters of credit, are primarily at market
interest rates, there is no significant fair value adjustment.

(19)  Shareholders' Equity

      Capital guidelines issued by the Federal Reserve Board require the
Company to maintain minimum capital levels for capital adequacy purposes.
Tier I capital is defined as common equity and retained earnings, less
certain intangibles.  The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-weighted assets
by assigning assets and off-balance-sheet items to one of four risk
categories, each with an appropriate weight.  The risk-based capital rules
are designed to make regulatory capital more sensitive to differences in
risk profiles among banks and bank holding companies, to account for off-
balance sheet exposure and to minimize disincentives for holding liquid
assets.  The Bank is also subject to FDIC regulations regarding capital
requirements.  These regulations require banks to maintain minimum capital
levels for capital adequacy purposes and higher capital levels to be
considered "well capitalized."

    As of December 31, 2001, the Company and the Bank met all applicable
minimum capital requirements and were considered "well capitalized" by both
the FRB and the FDIC.  There have been no events or conditions since the
end of the year that management believes would cause a change in either the
Company's or the Bank's categorization.


<PAGE>  72


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The Company's and the Bank's actual and required capital amounts and
ratios are as follows:

<TABLE>
<CAPTION>

                                                                       For Capital         To Be Considered
                                                   Actual           Adequacy Purposes     "Well Capitalized"
                                             ------------------     -----------------     ------------------
                                             Amount      Ratio      Amount      Ratio     Amount      Ratio
                                             ------      -----      ------      -----     ------      -----
                                                                 (Dollars in thousands)


                                          <c>         <c>        <c>         <c>       <c>         <c>
At December 31, 2001:

Bancorp Rhode Island, Inc.
--------------------------
Tier I capital (to average assets)           $50,433      5.93%     $25,508     3.00%     $42,513      5.00%
Tier I capital (to risk-weighted assets)      50,433      9.86%      20,462     4.00%      30,694      6.00%
Total capital (to risk-weighted assets)       56,803     11.10%      40,925     8.00%      51,156     10.00%

Bank Rhode Island
-----------------
Tier I capital (to average assets)           $49,702      5.84%     $25,526     3.00%     $42,544      5.00%
Tier I capital (to risk-weighted assets)      49,702      9.72%      20,458     4.00%      30,687      6.00%
Total capital (to risk-weighted assets)       56,121     10.97%      40,916     8.00%      51,145     10.00%

At December 31, 2000:

Bancorp Rhode Island, Inc.
--------------------------
Tier I capital (to average assets)           $41,543      5.91%     $21,086     3.00%     $35,144      5.00%
Tier I capital (to risk-weighted assets)      41,543      9.50%      17,484     4.00%      26,226      6.00%
Total capital (to risk-weighted assets)       47,029     10.76%      34,968     8.00%      43,710     10.00%

Bank Rhode Island
-----------------
Tier I capital (to average assets)           $41,129      5.85%     $21,086     3.00%     $35,144      5.00%
Tier I capital (to risk-weighted assets)      41,129      9.41%      17,484     4.00%      26,226      6.00%
Total capital (to risk-weighted assets)       46,615     10.66%      34,968     8.00%      43,710     10.00%
</TABLE>

      Warrants.  In connection with its acquisition of certain assets and
assumption of certain liabilities from Fleet National Bank of Connecticut
in 1996, the Bank issued to Fleet Financial Group, Inc. a warrant to
acquire 136,315 shares of Common Stock of the Bank.  Upon conversion into a
holding company structure, the warrant became exercisable for 136,315
shares of the Company's Common Stock.  The per share exercise price of the
warrant is $10.00.  The warrant expires on March 22, 2006, and may be
exercised, in whole or in part, at any time prior to its expiration.  Upon
the occurrence of a change of control event the holders of the warrant may
sell the warrant to the Company for an amount that is equal to the product
of the number of shares represented by the warrant being sold and the
difference between the exercise price of the warrant and the fair market
value of the consideration per share received in the change of control
transaction.


<PAGE>  73


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(20)  Earnings Per Share

      The following table is a reconciliation of basic EPS and diluted EPS:

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                                    ----------------------------------------
                                                       2001           2000           1999
                                                       ----           ----           ----


                                                 <c>            <c>            <c>
Basic EPS Computation:

  Numerator (in thousands):
    Net income                                      $    6,315     $    5,618     $    4,362
    Preferred dividends                                     --             --            (88)
                                                    ----------------------------------------
    Net income available to common shareholders     $    6,315     $    5,618     $    4,274
                                                    ========================================

  Denominator:
    Common shares outstanding                        3,730,910      3,728,688      3,727,010
    Stock options                                           --             --             --
    Warrants                                                --             --             --
                                                    ----------------------------------------
    Total shares                                     3,730,910      3,728,688      3,727,010
                                                    ========================================

  Basic EPS                                         $     1.69     $     1.51     $     1.15
                                                    ========================================

Diluted EPS Computation:

  Numerator (in thousands):
    Net income                                      $    6,315     $    5,618     $    4,362
    Preferred dividends                                     --             --            (88)
                                                    ----------------------------------------
    Net income available to common shareholders     $    6,315     $    5,618     $    4,274
                                                    ========================================

  Denominator:
    Common shares outstanding                        3,730,910      3,728,688      3,727,010
    Stock options                                      115,572         24,534          7,233
    Warrants                                            53,546         15,367          7,535
                                                    ----------------------------------------
    Total shares                                     3,900,028      3,768,589      3,741,778
                                                    ========================================

  Diluted EPS                                       $     1.62           1.49     $     1.14
                                                    ========================================
</TABLE>

(21)  Regulation and Litigation

      The Company and the Bank are subject to extensive regulation and
examination by the Federal Reserve Board, the Rhode Island Division of
Banking and the FDIC, which insures the Bank's deposits to the maximum
extent permitted by law.  The federal and state laws and regulations which
are applicable to banks regulate, among other things, the scope of their
business, their investments, their reserves against deposits, the timing of
the availability of deposited funds and the nature and amount of and
collateral for certain loans.  The laws and regulations governing the Bank
generally have been promulgated to protect depositors and not for the
purpose of protecting shareholders.  Among other things, bank regulatory
authorities have the right to restrict the payment of dividends by banks
and bank holding companies to shareholders.


<PAGE>  74


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


      The Company is involved in routine legal proceedings occurring in the
ordinary course of business. In the opinion of management, final
disposition of these lawsuits will not have a material adverse effect on
the consolidated financial condition or results of operations of the
Company.

(22)  Parent Company Statements

      The following are condensed financial statements for Bancorp Rhode
Island, Inc. (the "Parent Company"):

                                Balance Sheet

<TABLE>
<CAPTION>

                                                                                December 31,
                                                                             -------------------
                                                                              2001        2000
                                                                              ----        ----
                                                                               (In thousands)


                                                                          <c>         <c>
Assets:
  Cash and due from banks                                                    $    20     $    16
  Overnight investments                                                          736         352
  Investment in subsidiaries                                                  61,465      52,878
  Prepaid and other assets                                                       108          --
                                                                             -------------------
      Total assets                                                           $62,329     $53,246
                                                                             ===================

Liabilities:
  Income taxes payable                                                       $   (47)    $   (46)
  Notes payable to subsidiaries                                                3,093          --
  Other liabilities                                                              186          --
                                                                             -------------------
      Total liabilities                                                        3,232         (46)
                                                                             -------------------

Shareholders' equity:
  Common stock, par value $0.01 per share, authorized 11,000,000 shares:
    Voting:  Issued and outstanding:  3,753,550 shares in 2001 and
              3,448,950 shares in 2000                                            37          34
    Non-Voting:  Issued and outstanding:  280,000 shares in 2000                  --           3
  Additional paid-in capital                                                  39,826      39,621
  Retained earnings                                                           18,336      13,815
  Accumulated other comprehensive income (loss), net                             898        (181)
                                                                             -------------------
      Total shareholders' equity                                              59,097      53,292
                                                                             -------------------

      Total liabilities and shareholders' equity                             $62,329     $53,246
                                                                             ===================
</TABLE>


<PAGE>  75


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


                           Statements of Operation

<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                                         -------------------------------------
                                                                                  2001           2000
                                                                                  ----           ----
                                                                         (In thousands, except per share data)


                                                                            <c>            <c>
Income:
  Dividends received from subsidiaries                                         $    2,250     $      950
  Interest on overnight investments                                                    16              8
                                                                               -------------------------
      Total income                                                                  2,266            958
                                                                               -------------------------
Expenses:
  Interest on notes payable                                                           271             --
  Compensation expense                                                                 49             --
  Directors' fees                                                                      63             15
  Professional services                                                               159            126
  Other expenses                                                                       --              2
                                                                               -------------------------
      Total expenses                                                                  542            143
                                                                               -------------------------
      Income before income taxes                                                    1,724            815
  Income tax expense (benefit)                                                       (176)           (46)
                                                                               -------------------------
      Income before equity in undistributed earnings of subsidiaries                1,900            861
  Equity in undistributed earnings of subsidiaries                                  4,415          4,757
                                                                               -------------------------
      Net income                                                               $    6,315     $    5,618
                                                                               =========================

Basic earnings per common share:                                               $     1.69     $     1.51
Diluted earnings per common share:                                             $     1.62     $     1.49

Average common shares outstanding - basic                                       3,730,910      3,728,688
Average common shares outstanding - diluted                                     3,900,028      3,768,589
</TABLE>

                           Statement of Cash Flow

<TABLE>
<CAPTION>

                                                                                       Year Ended December 31,
                                                                                       -----------------------
                                                                                          2001        2000
                                                                                          ----        ----
                                                                                          (In thousands)


                                                                                      <c>         <c>
Cash flows from operating activities:
  Net income                                                                             $ 6,315     $ 5,618
  Adjustment to reconcile net income to net cash provided by operating activities:
    Equity in undistributed earnings of subsidiaries                                      (4,415)     (4,757)
    Compensation expense from restricted stock grant                                          30          --
    (Increase) decrease in other assets                                                     (108)         --
    Increase (decrease) in other liabilities                                                 185         (46)
                                                                                         -------------------
      Net cash provided by operating activities                                            2,007         815
                                                                                         -------------------


Cash flows from financing activities:
  Proceeds from notes payable                                                              3,093          --
  Investment in subsidiaries                                                              (3,093)         --
  Proceeds from issuance of common stock                                                     175          --
  Dividends on common stock                                                               (1,794)       (447)
                                                                                         -------------------
      Net cash used by financing activities                                               (1,619)       (447)
                                                                                         -------------------

Net increase (decrease) in cash and due from banks                                           388         368
Cash and cash equivalents at beginning of year                                               368          --
                                                                                         -------------------
Cash and cash equivalents at end of year                                                 $   756     $   368
                                                                                         ===================

Supplementary disclosures:
  Cash paid for income taxes                                                             $  (175)    $    --
Non-cash transactions:
  Change in other comprehensive income, net of taxes                                       1,079        (181)
</TABLE>

The Parent Company's Statement of Changes in Shareholders' Equity is
identical to the Consolidated Statement of Changes in Shareholders' Equity
and therefore is not presented here.


<PAGE>  76


                         BANCORP RHODE ISLAND, INC.
           Notes to Consolidated Financial Statements (Continued)


(23)  Quarterly Results of Operations (unaudited)

<TABLE>
<CAPTION>

                                                                        2001 Quarter Ended
                                                          ----------------------------------------------
                                                           March       June       September     December
                                                            31          30           30            31
                                                           -----       ----       ---------     --------
                                                              (In thousands, except per share data)


                                                       <c>         <c>          <c>          <c>
Interest income                                           $14,157     $14,203      $14,047      $13,496
Interest expense                                            6,951       7,105        6,585        5,896
                                                          ---------------------------------------------
  Net interest income                                       7,206       7,098        7,462        7,600
Provision for loan losses                                     488         352          566          263
                                                          ---------------------------------------------
  Net interest income after provision for loan losses       6,718       6,746        6,896        7,337
Noninterest income                                          1,102       1,306        1,356        1,467
Noninterest expense                                         5,389       5,648        5,827        6,332
                                                          ---------------------------------------------
  Income before taxes                                       2,431       2,404        2,425        2,472
Income taxes                                                  871         832          849          865
                                                          ---------------------------------------------
      Net income                                          $ 1,560     $ 1,572      $ 1,576      $ 1,607
                                                          =============================================

Basic EPS                                                 $  0.42     $  0.42      $  0.42      $  0.43
Diluted EPS                                               $  0.40     $  0.40      $  0.40      $  0.41

<CAPTION>

                                                                        2000 Quarter Ended
                                                          ----------------------------------------------
                                                           March       June       September     December
                                                            31          30           30            31
                                                           -----       ----       ---------     --------
                                                              (In thousands, except per share data)


                                                       <c>         <c>          <c>          <c>
Interest income                                           $11,493     $12,195      $12,894      $13,453
Interest expense                                            5,372       5,684        6,128        6,494
                                                          ---------------------------------------------
  Net interest income                                       6,121       6,511        6,766        6,959
Provision for loan losses                                     340         382          410          410
                                                          ---------------------------------------------
  Net interest income after provision for loan losses       5,781       6,129        6,356        6,549
Noninterest income                                            776         874          984          944
Noninterest expense                                         4,556       4,923        5,034        5,149
                                                          ---------------------------------------------
  Income before taxes                                       2,001       2,080        2,306        2,344
Income taxes                                                  695         724          852          842
                                                          ---------------------------------------------
      Net income                                          $ 1,306     $ 1,356      $ 1,454      $ 1,502
                                                          =============================================

Basic EPS                                                 $  0.35     $  0.36      $  0.39      $  0.40
Diluted EPS                                               $  0.35     $  0.36      $  0.38      $  0.39
</TABLE>


<PAGE>  77



Bancorp Rhode Island, Inc.

Executive Officers

Merrill W. Sherman
President and CEO

Albert R. Rietheimer, CPA
Chief Financial Officer and Treasurer

Donald C. McQueen
Vice President and Assistant Secretary


Bank Rhode Island

Executive Officers

Merrill W. Sherman
President and CEO

Albert R. Rietheimer, CPA
Chief Financial Officer and Treasurer

Donald C. McQueen
Executive Vice President,
Chief Credit & Administration Officer

James V. DeRentis
Executive Vice President,
Retail Banking & Marketing


Officers

Accounting and Finance

John E. Westwood
Senior Vice President,
Controller

Joan E. Rivelli
Accounting Officer,
Accounting Manager

Administration

Elizabeth M. Carroll
Senior Vice President,
Administrative Services

Gisele M. Golembeski
Assistant Vice President,
Administrative Services

Daniel A. Patenaude
Assistant Vice President,
Facilities Manager & Security Officer

Bernice M. DeMello
Assistant Vice President,
Administrative Services

Stephen M. Turgeon
Vice President,
Corporate Communications

Debra S. Regan
Vice President,
Human Resources Director

Audit

Melissa A. Ogg
Assistant Vice President,
Internal Auditor

Retail Banking

Kathleen C. Orovitz
Vice President,
Branch Sales Manager

Linda A. Geremia
Vice President,
Regional Manager

Kathryn E. Taylor
Vice President,
Regional Manager

Elizabeth A. Hart
Vice President,
Marketing Manager

Michael J. Roy
Vice President,
Retail Banking

Melissa L. Mulhearn
Vice President,
Investment Manager

P. Michael Regnier
Vice President,
Cash Management Officer

Donald L. DiBlasi
Vice President,
Business Development Officer

Andrew J. Deluski
Assistant Vice President,
Branch Manager

Todd M. George
Assistant Vice President,
Investment Sales

Steven J. Grasso
Assistant Vice President,
Business Development Officer

Diane Y. Goyette
Assistant Vice President,
Branch Manager

Suzanne D. Joyal
Assistant Vice President,
Branch Manager

Doreen M. Sousa
Assistant Vice President,
Retail Training Officer

Lorie L. Bruyere
Retail Banking Officer
Branch Manager

Paula Burbank
Retail Banking Officer,
Branch Manager

Madeleine G. Dickie
Retail Banking Officer,
Branch Manager

Tanya S. Fandino
Retail Banking Officer,
Internet Banking Manager

Kathleen M. Morgan
Retail Banking Officer,
Branch Manager

Leah M. Prata
Retail Banking Officer,
Branch Manager

Maria T. Travassos
Retail Banking Officer,
Branch Manager

Eileen F. Tweedie
Retail Banking Officer,
Branch Manager


<PAGE>  78


Renay Houle
Retail Banking Officer,
Call Center Manager

Doris Bragger
Collections Officer

Jacqueline N. Binette
Marketing Officer

Lori A. Oliveira
Marketing Officer

Commercial Lending

Kevin R. Kelly
Senior Vice President,
Head of Business Lending

Emanuel E. Barrows
Senior Vice President,
Business Lending

Daniel J. Hagerty
Senior Vice President,
Business Lending

Michael J. Kerr
Senior Vice President,
Business Lending

James P. Tiernan
Senior Vice President,
Business Lending

Lori J. Webber
Senior Vice President,
Senior Risk Manager

James C. Kelshaw
Vice President,
Business Lending

Albert M. Jaffarian
Business Lending Officer,
Portfolio Manager

Real Estate Lending

Kyle A. Macdonald
Senior Vice President,
Head of Real Estate Lending

Stephen J. Gibbons
Senior Vice President,
Real Estate Lending
Rosa C. Medeiros
Assistant Vice President
Real Estate Lending

Consumer & Small Business Lending

Peter Walsh
Senior Vice President,
Retail, Small Business Lending, &
CRA Officer

David L. Goolgasian
Vice President,
Consumer Loan Manager

Joseph P. Hindle
Vice President,
Small Business Manager

Patricia O. Saracino
Assistant Vice President,
Community Relations

Joseph M. D'Amico
Retail Lending Officer

Abigail T. Moore
Small Business Officer,
Portfolio Manager

Credit Administration

Paul G. Wielgus
Senior Vice President,
Senior Credit & Compliance Officer

Gregory E. Kwiatkowski
Assistant Vice President,
Loan Review Officer

Maureen F. Snell
Assistant Vice President,
Loan Servicing

Operations/MIS

Kenneth L. Senus
Senior Vice President,
Information Technology & Operations

Tonia R. Ryan
Vice President,
Systems Planning & Project Management

Donald G. Morash
Assistant Vice President,
MIS Manager

Karen J. Talbot
Assistant Vice President,
Operations Manager

Elizabeth A. Limerick
Operations Officer


CampusMate

Patricia Hanratty
Senior Vice President,
CampusMate Director

Raymond K. Antonio
Vice President,
Systems & Operations Director


Stock Transfer

Agent
Registrar and Transfer Company
10 Commerce Way
Cranford, NJ  07016

Auditors
KPMG LLP
Providence, RI

Counsel
Hinckley, Allen & Snyder LLP
Providence, RI


Investor Information

The Bank Rhode Island 2001 annual meeting will be held on Wednesday, May
15, 2002 at 10:00 a.m. at the Courtyard by Marriott, Providence, RI.

Requests for information, including copies of the Bank's annual report, may
be obtained at no charge by writing to:

Investor Relations Department
Bank Rhode Island
One Turks Head Place
Providence, RI 02903


<PAGE>  79


Mission Statement

Bank Rhode Island will be the premier bank in the communities we serve. We
will provide excellent service and a broad range of competitive financial
products to our customers through a team of well-trained professional
employees. We will be a civic leader through direct involvement in local
organizations and activities.

All of these endeavors will result in a strong performance for our
shareholders, a rewarding work environment for our employees, and a
valuable resource for our customers and community.

Locations

1047 Park Avenue
Cranston, RI 02910

383 Atwood Avenue
Cranston, RI 02910

195 Taunton Avenue
East Providence, RI 02914

999 South Broadway
East Providence, RI 02914

1440 Hartford Avenue
Johnston, RI 02919

One Turks Head Place
Providence, RI 02903

137 Pitman Street
Providence, RI 02906


445 Putnam Pike
Smithfield, RI 02917

1300 Warwick Avenue
Warwick, RI 02888

1062 Centerville Road
Warwick, RI 02886

233 Lambert Lind Highway
Warwick, RI 02886

2975 West Shore Road
Warwick, RI 02886

1175 Cumberland Hill Road
Woonsocket, RI 02895

(Full Service Drive-up ATM)
17 Coventry Shoppers Park
Coventry, RI 02816

Market for the Company's Common Stock and Related Stockholder Matters

Bancorp Rhode Island, Inc.'s common stock is traded on the Nasdaq Stock
Market(R) under the symbol "BARI".  The following table sets forth certain
information regarding the Common Stock for the periods indicated.

<TABLE>
<CAPTION>

                        Stock Price
                     -----------------     Dividend
                      High       Low         Paid
                      ----       ---       --------


                  <c>        <c>         <c>
2000:
  First Quarter      $10.25     $ 9.13      $0.10
  Second Quarter      11.50       9.00       0.10
  Third Quarter       14.50      10.50       0.10
  Fourth Quarter      14.13      12.50       0.12

2001:
  First Quarter      $17.00     $12.63      $0.12
  Second Quarter      17.45      15.38       0.12
  Third Quarter       19.58      16.35       0.12
  Fourth Quarter      17.95      17.13       0.12
</TABLE>

As of March 11, 2002, there were approximately 1,300 holders of record of
the Common Stock.


<PAGE>  80