FORM 10-Q/A
                                  (Amendment 1)

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended 06/30/97

                                       OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934

For the transition period from ________ to ___________

Commission file number: 000-20809

                                SIS BANCORP, INC.
               (Exact Name of Issuer as Specified in its Charter)

Massachusetts                                            04-3303264

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


SIS BANCORP, INC.
1441 Main Street
Springfield, Massachusetts                             01102
(Address of Principal Executive Offices)            (Zip Code)

                                 (413) 748-8000
                 (Issuers Telephone Number, Including Area Code)

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

         Indicate the number of shares  outstanding of the  registrant's  common
stock, as of the latest practicable date: 5,576,842 shares as of August 4, 1997.

<PAGE>



                    CAUTIONARY STATEMENT FOR PURPOSES OF THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


This Report contains certain  "forward-looking  statements" including statements
concerning plans,  objectives,  future events or performance and assumptions and
other  statements  which are other  than  statements  of  historical  fact.  SIS
Bancorp,  Inc. and its subsidiaries (the "Company") wish to caution readers that
the following  important  factors,  among others, may have affected and could in
the future  affect the  Company's  actual  results and could cause the Company's
actual results for subsequent  periods to differ materially from those expressed
in any forward-looking statement made by or on behalf of the Company herein: (i)
the effect of  changes  in laws and  regulations,  including  federal  and state
banking  laws and  regulations,  with which the  Company  must  comply,  and the
associated  costs of compliance with such laws and regulations  either currently
or in the  future as  applicable;  (ii) the  effect  of  changes  in  accounting
policies and practices,  as may be adopted by the regulatory agencies as well as
by the  Financial  Accounting  Standards  Board,  or of changes in the Company's
organization,  compensation and benefit plans; (iii) the effect on the Company's
competitive  position  within its market  area of the  increasing  consolidation
within the banking and financial  services  industries,  including the increased
competition from larger regional and out-of-state banking  organizations as well
as  nonbank  providers  of  various  financial  services;  (iv)  the  effect  of
unforeseen  changes  in  interest  rates;  and (v) the  effect of changes in the
business cycle and downturns in the local, regional or national economies.



                                                 


<PAGE>

                       SIS BANCORP, INC. AND SUBSIDIARIES

                                   FORM 10-Q

                                     INDEX


                                                                        PAGE NO.

   PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Statement of Operations for the
three and six months ended June 30, 1997 and 1996........................  1

Condensed Consolidated Statement of Financial Condition
at June 30, 1997 and December 31, 199....................................  2

Condensed Consolidated Statement of Cash Flows for the
six months ended June 30, 1997 and 1996..................................  3

Condensed Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 1997 and 1996..........................  5

Notes to the Unaudited Financial Statements..............................  6


Item 2. Management's Discussion and Analysis of
            Financial Condition and Results of Operations................  8


PART II OTHER INFORMATION

Item 1. Legal Proceedings................................................ 27

Item 2. Changes in Securities............................................ 27

Item 3. Default upon Senior Securities................................... 27

Item 4. Submission of Matters to a Vote of Security Holders.............. 27

Item 5. Other Information................................................ 27

Item 6. Exhibits and Reports on Form 8-K................................. 28


SIGNATURES............................................................... 29



<PAGE>
<TABLE>
<CAPTION>

                                               SIS BANCORP, INC. AND SUBSIDIARIES
                                         CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                         (Dollars In Thousands Except Per Share Amounts)

                                                                 (Unaudited)           (Unaudited)
                                                             Three Months Ended      Six Months Ended 
                                                           ----------------------  ---------------------
                                                            June 30,     June 30,   June 30,    June 30,
                                                              1997        1996        1997        1996
                                                           ---------   ---------   ---------   ---------
<S>                                                        <C>         <C>         <C>        <C>

Interest and dividend income:
        Loans                                               $ 13,343    $ 11,922    $ 26,327    $ 23,474
        Investment securities available for sale               8,298       5,170      16,086       9,296
        Investment securities held to maturity                 3,317       3,269       6,680       6,215
        Federal funds sold and short term investments            130          45         359         259
                                                            --------    --------    --------    --------
                       Total interest and dividend income     25,088      20,406      49,452      39,244
                                                            --------    --------    --------    --------
Interest expense:
        Deposits                                               8,542       7,992      16,879      16,068
        Borrowings                                             3,990       1,957       7,524       3,148
                                                            --------    --------    --------    --------
                       Total interest expense                 12,532       9,949      24,403      19,216
                                                            --------    --------    --------    --------
Net interest and dividend income                              12,556      10,457      25,049      20,028
Less: Provision for possible loan losses                         400         750         801       1,450
                                                            --------    --------    --------    --------
Net interest and dividend income after provision
        for possible loan losses                              12,156       9,707      24,248      18,578

Noninterest income:
        Net gain on sale of loans                                 86         162         192         432
        Net gain on sale of securities                            11        --            11           2
        Fees and other income                                  2,764       2,575       5,376       4,884
                                                            --------    --------    --------    --------
                       Total noninterest income                2,861       2,737       5,579       5,318
                                                            --------    --------    --------    --------

Noninterest expense:
        Operating expenses:
                 Salaries and employee benefits                4,941       4,242       9,660       8,492
                 Occupancy expense of bank premises, net         927         795       1,903       1,577
                 Furniture and equipment expense                 523         514       1,031       1,056
                 Other operating expenses                      3,568       3,656       7,241       6,771
                                                            --------    --------    --------    --------
                        Total operating expenses               9,959       9,207      19,835      17,896
                                                            --------    --------    --------    --------
        Foreclosed real estate (income) expense                   (4)         63         (32)        223
        Net expense (income) of real estate operations            58        (148)        479        (162)
                                                            --------    --------    --------    --------
                        Total noninterest expense             10,013       9,122      20,282      17,957

Income before income tax expense                               5,004       3,322       9,545       5,939
Income tax expense                                             2,014         278       3,785         490
                                                            --------    --------    --------    --------
                        Net income                          $  2,990    $  3,044    $  5,660    $  5,449
                                                            ========    ========    ========    ========

Earnings per share:
         Primary                                            $   0.53    $   0.56    $   1.03    $   1.00
         Fully diluted                                      $   0.53    $   0.56    $   1.02    $   1.00

Weighted average shares outstanding:
         Primary                                           5,634,786   5,434,834   5,608,141   5,432,265
         Fully diluted                                     5,657,177   5,450,529   5,640,349   5,445,968


</TABLE>

          See accompanying Notes to the Unaudited Financial Statements


                                                    1


<PAGE>
<TABLE>
<CAPTION>
                                              SIS BANCORP, INC. AND SUBSIDIARIES
                                             CONDENSED CONSOLIDATED BALANCE SHEET
                                         (Dollars In Thousands Except Share Amounts)


                                                                                (Unaudited)
                                                                                 June 30,      December 31,
                                                                                   1997            1996
                                                                                -----------    -----------
<S>                                                                            <C>            <C>
ASSETS

Cash and due from banks                                                         $    42,807         31,902
Federal funds sold and short-term investments                                        10,585         10,045
Investment securities available for sale                                            493,862        449,323
Investment securities held to maturity (fair value: $184,424 at June 30, 1997
  and $191,617 at December 31, 1996)                                                184,993        192,174
Loans receivable, net of allowance for possible losses
  ($16,392 at June 30, 1997 and $15,597 at December 31, 1996)                       645,877        610,597
Accrued interest and dividends receivable                                             9,846          8,982
Investments in real estate and real estate partnerships                               2,703          2,757
Foreclosed real estate, net                                                             214            381
Bank premises, furniture and fixtures, net                                           27,783         27,106
Other assets                                                                         15,875         15,345
                                                                                -----------    -----------
    Total assets                                                                $ 1,434,545    $ 1,348,612
                                                                                ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                        $ 1,015,404    $   969,517
Federal Home Loan Bank advances                                                     118,878         68,471
Securities sold under agreements to repurchase                                      158,809        176,577
Loans payable                                                                         2,670          2,848
Mortgage escrow deposits                                                              4,707          4,396
Accrued expenses and other liabilities                                               30,804         24,886
                                                                                -----------    -----------
      Total liabilities                                                           1,331,272      1,246,695
                                                                                -----------    -----------

Commitments and contingent liabilities                                                 --             --

Stockholders' equity:
Preferred stock ($.01 par value; 5,000,000 shares
  authorized; no shares issued and outstanding)                                        --             --
Common stock ($.01 par value; 25,000,000 shares authorized; shares
issued: 5,727,242 at June 30, 1997 and 5,723,600 at December 31, 1996;
outstanding: 5,576,842 at June 30, 1997 and 5,723,600 at December 31, 1996)              57             57
Unearned compensation                                                                (3,306)        (3,693)
Additional paid-in capital                                                           43,039         42,665
Retained earnings                                                                    65,472         60,993
Net unrealized gain on investment securities available for sale                       1,976          1,895
Treasury stock, at cost (150,400 shares at June 30, 1997)                            (3,965)          --
                                                                                -----------    -----------
      Total stockholders' equity                                                    103,273        101,917
                                                                                -----------    -----------
Total liabilities and stockholders' equity                                      $ 1,434,545    $ 1,348,612
                                                                                ===========    ===========
</TABLE>

          See accompanying Notes to the Unaudited Financial Statements


                                                    2


<PAGE>
<TABLE>
<CAPTION>

                                               SIS BANCORP, INC. AND SUBSIDIARIES
                                         CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                     (Dollars In Thousands)


                                                                             (Unaudited)
                                                                          Six Months Ended
                                                                              June 30,
                                                                      -----------------------
                                                                          1997        1996
                                                                      ----------   ----------
<S>                                                                  <C>          <C>

Cash Flows From Operating Activities
Net income                                                            $   5,760    $   5,449
Adjustments to reconcile net income to net cash provided by/
   (used for) operating activities
     Provision for possible loan losses                                     801        1,450
     Depreciation                                                         1,479        1,510
     Amortization of premium on investment securities, net                1,112        1,193
     ESOP and restricted stock expenses                                     868          722
     Investment security gains                                             --             (2)
     Income from equity investment in partnerships                           (2)        (145)
     Gain on sale of loans                                                 (192)        (432)
     Disbursements for mortgage loans held for sale                     (26,746)     (54,864)
     Receipts from mortgage loans held for sale                          26,938       55,296
     Loss on sale of fixed assets and real estate                          --            342
     Changes in other assets and other liabilities:
         Increase in other assets, net                                   (1,803)      (1,644)
         Increase in accrued expenses and other liabilities               5,918          680
                                                                      ---------    ---------
             Net cash provided by operating activities                   14,133        9,555
                                                                      ---------    ---------


Cash Flows From Investing Activities

    Proceeds from sales of investment securities available for sale       3,634       12,200
    Proceeds from maturities and principal payments received
       on investment securities available for sale                       62,425       71,652
    Purchase of investment securities available for sale               (110,994)    (176,695)
    Proceeds from maturities and principal payments received
       on investment securities held to maturity                         21,333       25,862
    Purchase of investment securities held to maturity                  (14,378)     (46,583)
    Net decrease in investments in real estate                             --            475
    Net increase in loans receivable                                    (36,201)     (22,549)
    Net decrease in foreclosed real estate                                  195        1,767
    Proceeds from sale of loans                                              92          462
    Purchase of fixed assets                                             (2,100)      (1,480)
                                                                      ---------    ---------
             Net cash used for investing activities                     (75,994)    (134,889)
                                                                      ---------    ---------

</TABLE>



          See accompanying Notes to the Unaudited Financial Statements


                                        3


<PAGE>

<TABLE>
<CAPTION>

                                               SIS BANCORP, INC. AND SUBSIDIARIES
                                   CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
                                                     (Dollars In Thousands)

                                                                   (Unaudited)
                                                                 Six Months Ended
                                                                     June 30,
                                                              ---------------------
                                                                1997         1996
                                                              --------    ---------
<S>                                                           <C>         <C>

Cash Flows from Financing Activities

  Net increase in deposits                                      45,887      41,912
  Net increase in borrowings                                    32,461      90,848
  Net increase in mortgagors' escrow deposits                      311         128
  Net proceeds from exercise of stock options                      121        --
  Repurchase of common stock                                    (4,193)       --
  Cash dividends paid                                           (1,281)       --
                                                              --------    --------
        Net cash provided by financing activities               73,306     132,888
                                                              --------    --------

Increase in cash and cash equivalents                           11,445       7,554

Cash and cash equivalents, beginning of period                  41,947      38,422
                                                              --------    --------

Cash and cash equivalents, end of period                      $ 53,392    $ 45,976
                                                              ========    ========


Supplemental disclosures of cash flow information:
     Cash paid during the period for interest to depositors
             and interest on debt                             $ 23,734    $ 19,217

Non-cash investing activities:
     Transfers to foreclosed real estate, net                 $     28    $    665

</TABLE>





          See accompanying Notes to the Unaudited Financial Statements




                                        4


<PAGE>
<TABLE>
<CAPTION>
                                                        SIS BANCORP, INC. AND SUBSIDIARIES
                                        CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                  For The Six Months Ended June 30, 1997 and 1996
                                                              (Dollars In Thousands)

                                                                                               Net unrealized
                                                                                                 gain (loss)                     
                                                                                                on investment
                                                                Unearned  Additional             securities    Treasury        
                                                        Common   Compen-    Paid-In   Retained   available       Stock
                                                        Stock    sation     Capital   Earnings    for sale      at Cost     Total
                                                       -------  --------   ---------  --------  ------------  ----------  --------- 
<S>                                                   <C>      <C>        <C>        <C>        <C>          <C>        <C>

Balance at December 31, 1996                           $   57   $(3,693)   $42,665    $60,993    $   1,895    $    --     $ 101,917
Net income                                                 --        --         --      5,760           --         --         5,760
Cash dividends declared ($0.24 per share)                  --        --         --     (1,281)          --         --        (1,281)
Issuance of common stock in connection with employee
    and non-employee directors benefit programs            --       (98)        (9)        --           --        228           121
Decrease in unearned compensation                          --       485        383         --           --         --           868
Change in unrealized gain (loss) on investment
    securities available for sale                          --        --         --         --           81         --            81
Treasury stock purchased                                   --        --         --         --           --     (4,193)       (4,193)
                                                       ------   -------    -------    -------    ---------    -------     ---------
Balance at June 30, 1997                               $   57   $(3,306)   $43,039    $65,472    $   1,976    $(3,965)    $ 103,273
                                                       ======   =======    =======    =======    =========    =======     =========


Balance at December 31, 1995                           $   57   $(4,937)   $41,790    $42,833    $   1,726    $    --     $  81,469
Net income                                                 --        --         --      5,449           --         --         5,449
Issuance of common stock in connection with employee
    and non-employee directors benefit programs            --      (315)       297         --           --         --           (18)
Decrease in unearned compensation                          --       749        221         --           --         --           970
Change in unrealized gain (loss) on investment
    securities available for sale                          --        --         --         --         (874)        --          (874)
                                                       ------   -------    -------    -------    ---------    -------     ---------
Balance at June 30, 1996                               $   57   $(4,503)   $42,308    $48,282    $     852    $    --     $  86,996
                                                       ======   =======    =======    =======    =========    =======     =========

</TABLE>



          See accompanying Notes to the Unaudited Financial Statements



                                                    5


<PAGE>

                       SIS BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
                 (Dollars in thousands except per share amounts)

1. Holding Company Formation
SIS Bancorp,  Inc., a  Massachusetts  corporation,  was organized by Springfield
Institution  for Savings (the "Bank") for the purpose of  reorganizing  the Bank
into a holding company  structure.  The Company acquired 100% of the outstanding
shares of the Bank's common stock,  par value $1.00 per share, in a 1:1 exchange
for shares of the Company's common stock, par value $.01 per share (the "Company
Common Stock").  Upon the  effectiveness of such  share-for-share  exchange (the
"Reorganization") on June 21, 1996, the Bank became the wholly-owned  subsidiary
of the Company and the Bank's former  stockholders  became  stockholders  of the
Company.  The  Reorganization was accounted for in a manner similar to a pooling
of  interests,  and  accordingly,  the  information  included  in the  financial
statements and their  accompanying  notes  presents the combined  results of the
Bank and the Company as if the  Reorganization  had been  effected on January 1,
1996.

2. Condensed Consolidated Financial Statements
The Condensed  Consolidated  Financial Statements of the Company included herein
are unaudited, and in the opinion of management all adjustments, consisting only
of  normal  recurring  adjustments  necessary  for a  fair  presentation  of the
financial  condition,  results of operations  and cash flows,  as of and for the
periods covered herein, have been made. Certain information and note disclosures
normally  included in  Condensed  Consolidated  Financial  Statements  have been
omitted  as they  are  included  in the  most  recent  Securities  and  Exchange
Commission ("SEC") Form 10-K and accompanying Notes to the Financial  Statements
(the "Form  10-K")  filed by the Company for the year ended  December  31, 1996.
Management believes that the disclosures contained herein are adequate to make a
fair presentation.

These unaudited condensed  consolidated  financial  statements should be read in
conjunction with the Form 10-K.

The results for the three and six month interim  periods  covered hereby are not
necessarily indicative of the operating results for a full year.

3. New Accounting Pronouncements
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards  ("SFAS") No. 125 "Accounting for Transfers and Servicing of Financial
Assets  and  Extinguishments  of  Liabilities",  that  provides  accounting  and
reporting  standards which require that after a transfer of financial assets, an
entity  recognizes  the  financial  and  servicing  assets it  controls  and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered,  and  derecognizes  liabilities when  extinguished.  In addition to
setting requirements  regarding the initial recording and subsequent  accounting
for assets,  liabilities  and  derivatives  acquired in  transfers  of financial
assets, this Statement requires that debtors reclassify financial assets pledged
as  collateral  and that  secured  parties  recognize  those  assets  and  their
obligation  to return them in certain  circumstances  in which the secured party
has taken  control of those  assets.  SFAS 125 is  effective  prospectively  for
transfers and servicing of financial assets and  extinguishments  of liabilities
occurring after December 31, 1996 and for collateral  related matters on January
1, 1998.  The adoption of this  statement did not have a material  affect on the
Company's  financial  position  as of June  30,  1997 or on the  results  of its
operations for the three and six month periods then ended.

In February of 1997 the Financial  Accounting  Standards  Board issued SFAS 128,
"Earnings  Per  Share".  SFAS  128  establishes   standards  for  computing  and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. This statement  simplifies the standards
for computing EPS previously  found in APB Opinion No. 15, "Earnings Per Share,"
and makes them  comparable  to  international  EPS  standards.  It replaces  the
presentation  of primary EPS with a presentation  of basic EPS. It also requires
dual  presentation of basic and diluted EPS on the face of the income  statement
for all entities with complex capital structures and requires  reconciliation of
the numerator and  denominator of the basic EPS computation to the numerator and
denominator  of the  diluted EPS  computation.  SFAS 128 will be  effective  for
financial  statements issued after December 15, 1997, and will be adopted by the
Company in its December 31, 1997 financial statements.

If SFAS 128 had been  effective  during the first six months of 1997,  pro forma
basic EPS for the three and six months ended June 30, 1997 would have been $0.57
and  $1.10,  respectively.  Pro forma  diluted  EPS for the three and six months
ended June 30, 1997 would have been $0.53 and $1.03, respectively.


                                       6
<PAGE>


4. Dividend Policy
The  Company  paid a cash  dividend  in the amount of $0.12 per share on May 23,
1997.  On July 23,  1997 the  Company  declared  a  dividend  of $0.14 per share
payable on August 21, 1997 to shareholders of record as of the close of business
on August 4, 1997.

5. Divestment Related Charges
The  Company has certain  subsidiaries  that are engaged in various  real estate
investments,  directly  or in joint  ventures  with  unaffiliated  partners.  In
accordance with the Federal  Deposit  Insurance  Corporation  Improvement Act of
1991  ("FDICIA"),  the  Company  has  terminated  its  real  estate  development
activities  and  is  in  the  process  of  selling  its  remaining  real  estate
investments.  In the first quarter of 1997, the Company established a reserve of
$1.0  million  relating  to the  divestment  of its real estate  investment  and
brokerage  subsidiaries,  Colebrook Inc. and  subsidiaries (" Colebrook").  This
amount is included in net expense of real estate operations in the June 30, 1997
Condensed  Consolidated  Statement  of  Operations.  The  $1.0  million  reserve
consists of $0.7 million in severance and benefit  accruals and $0.3 million for
other  expenses.  As of June 30, 1997, no amounts have been paid relating to the
divestiture. This divestment is scheduled to be completed by March 31, 1998.




                                       7


<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
                               FINANCIAL CONDITION

                             (DOLLARS IN THOUSANDS)


Overview

SIS Bancorp, Inc., a Massachusetts corporation (the "Company"), was organized by
Springfield Institution for Savings (the "Bank") for the purpose of reorganizing
the Bank into a  holding  company  structure  ("the  Reorganization").  Upon the
effectiveness of the Reorganization, the Bank became the wholly-owned subsidiary
of the Company and the Bank's former  stockholders  became  stockholders  of the
Company. Substantially all of the Company's operations are conducted through the
Bank.  The Bank  provides a wide variety of  financial  services  which  include
retail and commercial banking,  residential  mortgage origination and servicing,
and commercial and consumer lending. The Bank's revenues are derived principally
from interest  payments on its loan  portfolios  and  mortgage-backed  and other
investment  securities.  The  Bank's  primary  sources  of funds  are  deposits,
borrowings  and  principal  and interest  payments on loans and  mortgage-backed
securities.


Results of Operations for the Three Months Ended June 30, 1997 and June 30, 1996

The  Company  reported  net  income of $3.0  million,  or $0.53 per share  fully
diluted  for the  second  quarter  of 1997 as  compared  to net  income  of $3.0
million,  or $0.56 per share fully diluted for the same period last year.  These
results reflect an increase in net interest  income as well as lower  provisions
for possible loan losses,  offset by increases in noninterest expense and income
tax expense.

Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and  expense on  interest-bearing  liabilities.  Net  interest  income is
affected by the mix and volume of assets and  liabilities,  and the movement and
level of  interest  rates.  The  Company  invests  in certain  assets  that have
preferential  tax treatment.  In order to present yields on a comparable  basis,
net  interest  income  is  presented  on a fully  taxable  equivalent  basis for
purposes of yield and margin analysis.

The following  table sets forth,  for the period  indicated,  average  balances,
interest  income  and  expense,  and  yields  earned or rates  paid on the major
categories of assets and  liabilities.  Non-accrual  loans have been included in
the  appropriate   average  balance  loan  category,   but  unpaid  interest  on
non-accrual  loans has not been  included for purposes of  determining  interest
income. In addition,  investment  securities available for sale are reflected at
amortized cost.
                                       8
<PAGE>
<TABLE>
<CAPTION>
                                                                           Three Months Ended June 30,
                                             ------------------------------------------------------------------------------------
                                                                1997                                  1996
                                             ----------------------------------------   -----------------------------------------
                                               Average                    Average         Average                     Average
                                               Balance     Interest(1)  Yield/Cost(1)     Balance   Interest(1)     Yield/Cost)(1)
                                             ----------   ------------  -------------   ---------- -------------   ---------------
                                                                            (Dollars In Thousands)
<S>                                          <C>          <C>               <C>         <C>          <C>                <C>
Interest-earning assets:
Fed funds sold and short-term investments     $    9,764   $      131         5.31%      $    3,396   $       45          5.24% 
Investment securities held to maturity           190,435        3,318         6.97%         193,672        3,269          6.75%
Investment securities available for sale         493,752        8,365         6.78%         319,709        5,170          6.47%
Residential real estate loans                    235,695        4,744         8.05%         243,998        4,758          7.80%
Commercial real estate loans                     113,098        2,464         8.71%         119,523        2,573          8.61%
Commercial loans                                 174,434        3,810         8.64%         128,974        2,841          8.71%
Home equity loans                                114,075        2,241         7.88%          76,590        1,592          8.36%
Consumer loans                                     4,408          135        12.25%           7,096          158          8.91%
                                              ----------   ----------        -----       ----------    ---------         -----
Total interest-earning assets                  1,335,661       25,208         7.55%       1,092,958       20,406          7.47%
                                                                                                                 
Allowance for loan losses                        (16,447)                                   (14,737)
Non-interest-earning assets                       92,818                                     84,258
                                               ---------                                 ----------
Total assets                                  $1,412,032   $   25,208                    $1,162,479    $  20,406
                                              ==========   ==========                    ==========    =========
Interest-bearing liabilities:             
Deposits
  Savings accounts                            $  206,839   $    1,161         2.25%      $  195,987    $   1,218          2.50%
  NOW accounts                                    59,222          148         1.00%          57,412          161          1.13%
  Money market accounts                          205,782        1,703         3.32%         206,801        1,701          3.31%
  Time deposit accounts                          422,393        5,530         5.25%         371,828        4,912          5.31%
                                              ----------   ----------        -----       ----------    ---------         -----
Total interest-bearing deposits                  894,236        8,542         3.83%         832,028        7,992          3.86%
                                                                                                                        
Borrowed funds                                   274,991        3,990         5.74%         141,217        1,957          5.48%
                                              ----------   ----------        -----       ----------    ---------         -----
Total interest-bearing liabilities             1,169,227       12,532         4.30%         973,245        9,949          4.11%
Non-interest-bearing liabilities                 142,110                                    106,530                 
                                               ---------                                 ----------
Total liabilities                              1,311,337                                  1,079,775
Total stockholders' equity                       100,695                                     82,704
                                              ----------                                 ----------
  Total liabilities and stockholders' equity  $1,412,032   $   12,532                    $1,162,479    $   9,949
                                              ==========   ==========                    ==========    =========
Net interest income/spread                                 $   12,676         3.25%                    $  10,457         3.36%
                                                           ==========        =====                     =========        =====
Net interest margin as a % of interest-
earning assets                                                                3.80%                                      3.83%
                                                                             =====                                      =====
Tax equivalent adjustment                                   $     120                                  $       -
                                                            ---------                                  ---------
Net interest income/spread per Condensed Consolidated
Statement of Operations                                     $  12,556                                  $  10,457
                                                            =========                                  =========
<FN>
(1) On a fully taxable equivalent basis.  Calculated using a Federal income tax rate of 34% for 1997 and 1996.
</FN>
</TABLE>
Net interest  income on a fully  taxable  equivalent  basis for the three months
ended June 30, 1997 was $12.7  million  compared to $10.5  million for the three
months ended June 30, 1996, an increase of $2.2 million or 21.2%. Total interest
income  was $25.2  million  on a fully  taxable  equivalent  basis for the three
months ended June 30,  1997,  an increase of $4.8 million or 23.5% from the same
period last year.  These  increases  are primarily due to an increase in average
interest-earning assets.

Average  interest-earning  assets  totaled $1.3 billion in the second quarter of
1997  compared  to $1.1  billion in the second  quarter of 1996,  an increase of
$242.7 million or 22.2%.  Total  investments  increased  $170.8 million and were
funded by higher deposit levels and borrowed funds.  Total loans increased $65.5
million as the  Company  continued  to focus on the  commercial  and home equity
market  segments,  which  grew by $45.5  million  or 35.3% and $37.5  million or
48.9%, respectively. Residential real estate loan balances declined $8.3 million
or 3.4% for the three months ended June 30, 1997,  reflecting  amortization  and
prepayments of the existing loan portfolio  partially  offset by adjustable rate
mortgage  production.  The Company originates long-term fixed rate mortgages for
sale in the secondary  market and generally  holds  adjustable rate mortgages in
the Company's loan portfolio.

Total  interest  expense was $12.5  million for the three  months ended June 30,
1997  compared to $9.9  million  during the same period in 1996,  an increase of
$2.6  million  or  26.0%.   This  increase  is   attributable  to  increases  in
interest-bearing  deposits and borrowed funds. Average interest-bearing deposits
totaled  $894.2  million for the quarter  ended June 30, 1997 compared to $832.0
million for the same period in 1996, an increase of $62.2 million or 7.5%.  This
growth
                                       9
<PAGE>

occurred  primarily in time  deposits  which  increased  $50.6  million  largely
attributable  to the  introduction  of new CD products.  Borrowed funds averaged
$275.0  million  for the three  months  ended June 30,  1997  compared to $141.2
million for the same period in 1996 reflecting the use of Federal Home Loan Bank
("FHLB")  advances  and  repurchase  agreements  to  leverage  a portion  of the
Company's capital.

The  following  table  presents the changes in net  interest  income (on a fully
taxable equivalent basis) resulting from changes in interest rates or changes in
the volume of interest-earning  assets and  interest-bearing  liabilities during
the periods  indicated.  Changes which are  attributable to both rate and volume
have been allocated evenly between the change in rate and volume components.

                                                Three months ended June 30,
                                                     1997 versus 1996
                                             ------------------------------
                                                Increase (Decrease) Due to
                                             ------------------------------
                                               Volume      Rate       Net
                                             ---------  --------   -------- 
                                        
Interest-earning assets:
  Federal funds sold and
     interest bearing deposits               $    85    $     1    $    86
  Investment securities held to maturity         (56)       104         48
  Investment securities available for sale     2,882        314      3,196
  Residential real estate loans                 (165)       151        (14)
  Commercial real estate loans                  (139)        30       (109)
  Commercial loans                               997        (28)       969
  Home equity loans                              758       (109)       649
  Consumer loans                                 (71)        48        (23)
                                             -------    -------    -------

Total interest-earning assets                  4,291        511      4,802
                                             -------    -------    -------

Interest-bearing liabilities:
Deposits:
  Savings accounts                                64       (121)       (57)
  NOW accounts                                     5        (18)       (13)
  Money market accounts                           (8)        10          2
  Time deposit accounts                          665        (47)       618
                                             -------    -------    -------

Total deposits                                   726       (176)       550

Borrowed funds                                 1,897        136      2,033
                                             -------    -------    -------

Total interest-bearing liabilities             2,623        (40)     2,583
                                             -------    -------    -------

Change in net interest income                $ 1,668    $   551    $ 2,219
                                             =======    =======    =======


Provision for Possible Loan Losses
The Company's provision for possible loan losses was $0.4 million for the second
quarter of 1997  compared  to $0.8  million in the second  quarter of 1996.  The
provision  for possible loan losses is based upon  management's  judgment of the
amount  necessary to maintain the  allowance for possible loan losses at a level
which is considered adequate.

                                       10
<PAGE>



Non-interest Income
Non-interest  income is  composed of fee income for bank  services  and gains or
losses from the sale of assets.  The components of  non-interest  income for the
periods presented are as follows:


                                                   Three months ended
                                                        June 30,
                                             ---------------------------
                                               1997                1996
                                             -------             -------

Net gain on sale of loans                    $   86               $  162
Net gain on sale of securities                   11                   --
Loan charges and fees                           696                  754
Deposit related fees                          1,690                1,544
Other charges and fees                          378                  277
                                             ------               ------
                                             $2,861               $2,737
                                             ======               ======
                                                    



Net gain on sale of loans  decreased  $0.1 million.  Management  attributes  the
decrease to reduced  production and sale of fixed rate single family residential
mortgage loans due to a higher interest rate environment.

Loan  charges  and fees  decreased  $0.1  million as a result of lower  mortgage
servicing fees.

Deposit service charges  increased $0.1 million due primarily to fees associated
with the Company's larger noninterest bearing account base.

Non-interest Expense

Salaries and Benefits Expense
Salaries and  benefits  expense  totaled $4.9 million for the second  quarter of
1997  compared to $4.2 million for the same period in 1996,  an increase of $0.7
million  reflecting  standard wage  increases as well as an increase in staffing
related to new branch openings and branch related support.

Occupancy Expense of Bank Premises
Occupancy  expense of bank premises  totaled $0.9 million for the second quarter
1997  compared to $0.8 million for the same period in 1996,  an increase of $0.1
million.  This increase is primarily due to costs  associated with the expansion
of the retail branch network and the addition of stand alone ATMs.



                                       11


<PAGE>


Other Operating Expense
The  components  of other  operating  expense for the periods  presented  are as
follows:


                                   Three months ended
                                        June 30,
                               ------------------------
                                 1997             1996
                               -------          -------

Marketing                      $  406          $  422
Insurance                         131              93
Professional services             609             851
Outside processing              1,160           1,098
Other                           1,262           1,192
                               ------          ------
                               $3,568          $3,656
                               ======          ======
                                      



Professional  services  expense  decreased $0.2 million,  primarily due to lower
levels of legal, consulting, and audit and accounting expenses.

Outside processing expense increased $0.1 million, reflecting higher transaction
and account volume resulting from the Company's consumer strategy.

Foreclosed Real Estate Expense
Foreclosed  real estate  expense  reflects  losses on sales,  writedowns and net
operating results of foreclosed  properties.  These expenses remained relatively
flat for the three months  ended June 30, 1997  compared to the same period last
year.

Net Expense of Real Estate Operations
The Company's real estate  investment and brokerage  subsidiary,  Colebrook Inc.
and  subsidiaries  ("Colebrook")  engages in various  real  estate  investments,
directly or in joint ventures with unaffiliated partners. In accordance with the
Federal Deposit Insurance Corporation  Improvement Act of 1991 (" FDICIA"),  the
Company has  terminated  its real estate  development  activities  and is in the
process of selling its remaining  real estate  investments.  Net expense of real
estate  operations of $0.1 million and $(0.1) million for the three months ended
June 30, 1997 and June 30, 1996, respectively reflects normal operating results.

Income Taxes
For the three months ended June 30, 1997 the Company recorded income tax expense
of $2.0 million  compared  with income tax expense of $0.3 million for the three
months ended June 30, 1996.  The increase in income tax expense is  attributable
to the Company becoming fully taxable for financial reporting purposes beginning
in the fourth quarter of 1996 and a 50.6% increase in pre-tax earnings.


                                       12

<PAGE>
Results of Operations for the Six Months Ended June 30, 1997 and June 30, 1996

The  Company  reported  net  income of $5.8  million,  or $1.03 per share  fully
diluted for the six months ended June 30, 1997 as compared to net income of $5.4
million,  or $1.00 per share fully  diluted  for the same period last year.  The
improved results are primarily  attributable to increased net interest income as
well as lower  provisions  for possible loan losses  partially  offset by higher
noninterest expenses and income tax expense.

Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and  expense on  interest-bearing  liabilities.  Net  interest  income is
affected by the mix and volume of assets and  liabilities,  and the movement and
level of  interest  rates.  The  Company  invests  in certain  assets  that have
preferential  tax treatment.  In order to present yields on a comparable  basis,
net  interest  income  is  presented  on a fully  taxable  equivalent  basis for
purposes of yield and margin analysis.

The following  table sets forth,  for the period  indicated,  average  balances,
interest  income  and  expense,  and  yields  earned or rates  paid on the major
categories of assets and  liabilities.  Non-accrual  loans have been included in
the  appropriate   average  balance  loan  category,   but  unpaid  interest  on
non-accrual  loans has not been  included for purposes of  determining  interest
income. In addition,  investment  securities available for sale are reflected at
amortized cost.
<TABLE>
<CAPTION>
                                                                           Six Months Ended June 30,
                                             ------------------------------------------------------------------------------------
                                                                1997                                  1996
                                             ----------------------------------------   -----------------------------------------
                                               Average                    Average         Average                     Average
                                               Balance     Interest(1)  Yield/Cost(1)     Balance   Interest(1)     Yield/Cost)(1)
                                             ----------   ------------  -------------   ---------- -------------   ---------------
                                                                            (Dollars In Thousands)
<S>                                          <C>          <C>               <C>         <C>          <C>                <C>
Interest-earning assets:
Fed funds sold and short-term investments     $   13,645   $      359       5.23%        $    9,594   $      259        5.34%
Investment securities held to maturity           191,748        6,680       6.97%           182,841        6,215        6.80%
Investment securities available for sale         475,878       16,240       6.83%           291,192        9,296        6.38%
Residential real estate loans                    236,501        9,475       8.01%           249,899        9,792        7.84%
Commercial real estate loans                     114,180        5,022       8.80%           119,102        5,018        8.43%
Commercial loans                                 169,996        7,337       8.58%           120,248        5,333        8.77%
Home equity loans                                110,091        4,316       7.91%            72,971        3,077        8.48%
Consumer loans                                     4,409          263      11.93%             6,977          254        7.32%
                                              ----------   ----------      -----         ----------   ----------        ----
                                                                                                                 
Total interest-earning assets                  1,316,448       49,692       7.55%         1,052,824       39,244        7.45%
                                             
Allowance for loan losses                        (16,167)                                   (15,286)
Non-interest-earning assets                       91,521                                     82,267
                                              ----------                                 ----------
Total assets                                  $1,391,802   $   49,692                    $1,119,805   $   39,244
                                              ==========   ==========                    ==========   ==========
Interest-bearing liabilities:                
Deposits                                     
  Savings accounts                            $  202,625   $    2,260       2.25%        $  192,419   $    2,395        2.50%
  NOW accounts                                    58,632          292       1.00%            55,829          328        1.18%
  Money market accounts                          205,511        3,381       3.32%           205,305        3,397        3.33%
  Time deposit accounts                          422,101       10,946       5.23%           371,205        9,948        5.39%
                                              ----------   ----------      -----         ----------   ----------        ----
Total interest-bearing deposits                  888,869       16,879       3.83%           824,758       16,068        3.92%
                                                                                         
Borrowed funds                                   265,985        7,524       5.63%           112,469        3,148        5.54%
                                              ----------   ----------      -----         ----------   ----------        ----
                                                                                         
Total interest-bearing liabilities             1,154,854       24,403       4.26%           937,227       19,216        4.12%
Non-interest-bearing liabilities                 136,375                                    101,415               
                                              ----------                                 ----------
Total liabilities                              1,291,229                                  1,038,642
Total stockholders' equity                       100,573                                     81,163
                                              ----------                                 ----------
  Total liabilities and stockholders' equity  $1,391,802  $   24,403                     $1,119,805   $   19,216
                                              ==========  ==========                     ==========   ==========

Net interest income/spread                                $   25,289        3.29%                     $   20,028        3.33%
                                                          ==========       =====                      ==========       =====

Net interest margin as a % of interest-
earning assets                                                              3.84%                                       3.80%
                                                                           =====                                       =====

Tax equivalent adjustment                                 $      240                                 $        -
                                                          ----------                                 ----------
Net interest income/spread per Condensed Consolidated
Statement of Operations                                   $   25,049                                 $   20,028
                                                          ==========                                 ==========
<FN>
(1) On a fully taxable equivalent basis.  Calculated using a Federal income tax rate of 34% for 1997 and 1996.
</FN>
</TABLE>
                                                     13
<PAGE>


Net interest income on a fully taxable equivalent basis for the six months ended
June 30, 1997 was $25.3  million  compared  to $20.0  million for the six months
ended June 30, 1997, an increase of $5.3 million or 26.3%. Total interest income
was $49.7 million on a fully taxable  equivalent  basis for the six months ended
June 30, 1997,  an increase of $10.4  million or 26.7% from the same period last
year.   These   increases   are   primarily   due  to  an  increase  in  average
interest-earning assets.

Average  interest-earning  assets  totaled $1.3 billion for the six months ended
June 30, 1997  compared to $1.1 billion for the same period in 1996, an increase
of $263.6 million or 25.0%. Total investments  increased $193.6 million and were
funded by higher deposit levels and borrowed funds.  Total loans increased $66.0
million as the  Company  continued  to focus on the  commercial  and home equity
market  segments,  which  grew by $49.7  million  or 41.4% and $37.1  million or
50.9%,  respectively.  Residential  real estate  loan  balances  declined  $13.4
million or 5.4% for the six months ended June 30, 1997, reflecting  amortization
and  prepayments of the existing loan portfolio  partially  offset by adjustable
rate mortgage production.  The Company originates long-term fixed rate mortgages
for sale in the secondary  market and generally holds  adjustable rate mortgages
in the Company's loan portfolio.

Total interest  expense was $24.4 million for the six months ended June 30, 1997
compared to $19.2  million  during the same period in 1996,  an increase of $5.2
million or 27.0%. This increase is attributable to increases in interest-bearing
deposits and borrowed funds.  Average  interest-bearing  deposits totaled $888.9
million for the six months  ended June 30, 1997  compared to $824.8  million for
the same  period in 1996,  an  increase  of $64.1  million or 7.8%.  This growth
occurred  primarily in time  deposits  which  increased  $50.9  million  largely
attributable  to the  introduction  of new CD products.  Borrowed funds averaged
$266.0 million for the six months ended June 30, 1997 compared to $112.5 million
for the same period in 1996  reflecting  the use of FHLB advances and repurchase
agreements to leverage a portion of the Company's capital.

The  following  table  presents the changes in net  interest  income (on a fully
taxable equivalent basis) resulting from changes in interest rates or changes in
the volume of interest-earning  assets and  interest-bearing  liabilities during
the periods  indicated.  Changes which are  attributable to both rate and volume
have been allocated evenly between the change in rate and volume components.

                                                 Six Months Ended June 30,
                                                     1997 versus 1996
                                           -------------------------------------
                                                  Increase (Decrease) Due to
                                           -------------------------------------
                                               Volume       Rate         Net
                                           ------------  ---------   -----------
                                                   (Dollars In Thousands)
Interest-earning assets:
  Federal funds sold and
     short term investments                  $    108    $     (8)   $    100
  Investment securities held to maturity          307         158         465
  Investment securities available for sale      6,099         845       6,944
  Residential real estate loans                  (531)        214        (317)
  Commercial real estate loans                   (212)        216           4
  Commercial loans                              2,177        (173)      2,004
  Home equity loans                             1,510        (271)      1,239
  Consumer loans                                 (123)        132           9
                                             --------    --------    --------
Total interest-earning assets                   9,335       1,113      10,448
                                             --------    --------    --------

Interest-bearing liabilities:
Deposits:
  Savings accounts                                120        (255)       (135)
  NOW accounts                                     15         (51)        (36)
  Money market accounts                             3         (19)        (16)
  Time deposit accounts                         1,342        (344)        998
                                             --------    --------    --------
Total deposits                                  1,480        (669)        811
Borrowed funds                                  4,320          56       4,376
                                             --------    --------    --------
Total interest-bearing liabilities              5,800        (613)      5,187
                                             --------    --------    --------
Change in net interest income                $  3,535    $  1,726    $  5,261
                                             ========    ========    ========
  
                                       14
<PAGE>

Provision for Possible Loan Losses
The  Company's  provision  for possible loan losses was $0.8 million for the six
months ended June 30, 1997 compared to $1.5 million for the same period in 1996.
The provision for possible  loan losses is based upon  management's  judgment of
the amount  necessary to maintain the  allowance  for possible  loan losses at a
level which is considered adequate.

Non-interest Income
Non-interest  income is  composed of fee income for bank  services  and gains or
losses from the sale of assets.  The components of  non-interest  income for the
periods presented are as follows:


                                            Six months ended
                                               June 30,
                                        -----------------------
                                          1997           1996
                                        -------        --------   

Net gain on sale of loans               $  192          $  432
Net gain on sale of securities              11               2
Loan charges and fees                    1,381           1,461
Deposit related fees                     3,294           2,947
Other charges and fees                     701             476
                                        ------          ------
                                        $5,579          $5,318
                                        ======          ======
                                                

Net gain on sale of loans  decreased  $0.2 million.  Management  attributes  the
decrease to reduced  production and sale of fixed rate single family residential
mortgage loans due to a higher interest rate environment.

Deposit service charges  increased $0.3 million due primarily to fees associated
with the Company's larger noninterest bearing account base.

Other  charges and fees  increased  $0.2 million due primarily to an increase in
brokerage fees and the  introduction  of a new commercial  product in 1997 which
involves the funding and management of accounts  receivable for  small-to-medium
sized business customers.

Non-interest Expense

Salaries and Benefits Expense
Salaries and benefits expense totaled $9.7 million for the six months ended June
30, 1997  compared to $8.5  million for the same period in 1996,  an increase of
$1.2 million  reflecting  standard wage  increases,  higher ESOP and  restricted
stock expenses as a result of an increase in the Company's  stock price, as well
as an increase in staffing  related to new branch  openings  and branch  related
support.

Occupancy Expense of Bank Premises
Occupancy expense of bank premises totaled $1.9 million for the six months ended
June 30, 1997  compared to $1.6 million for the same period in 1996, an increase
of $0.3 million.  This increase is primarily  due to costs  associated  with the
expansion of the retail branch network and the addition of stand alone ATMs.


                                       15

<PAGE>

Other Operating Expense
The  components  of other  operating  expense for the periods  presented  are as
follows:

                                 Six months ended
                                     June 30,
                              -----------------------
                                1997           1996
                              -------        --------   

Marketing                     $  997         $  752
Insurance                        270            194
Professional services          1,356          1,490
Outside processing             2,277          2,055
Other                          2,341          2,280
                              ------         ------
                              $7,241         $6,771
                              ======         ======
                                     


Marketing  expense  increased $0.2 million  related to advertising and marketing
expenses associated with the promotion of home equity lines and loans.

Insurance  expense  increased  $0.1 million as a result of higher FDIC insurance
premiums.

Outside  processing  increased $0.2 million,  reflecting higher  transaction and
account volume resulting from the Company's consumer strategy.

Foreclosed Real Estate Expense
Foreclosed  real estate  expense  reflects  losses on sales,  writedowns and net
operating results of foreclosed properties. These expenses were zero for the six
months ended June 30, 1997 compared to $0.2 million for the same period in 1996.
This $0.2 million  decrease  reflects  increased gains on the sale of foreclosed
properties  during the six months  ended June 30,  1997 as  compared to the same
period last year.

Net Expense of Real Estate Operations
The  Company has certain  subsidiaries  that are engaged in various  real estate
investments,  directly  or in joint  ventures  with  unaffiliated  partners.  In
accordance with FDICIA,  the Company has terminated its real estate  development
activities  and  is  in  the  process  of  selling  its  remaining  real  estate
investments.  Net expense of real estate operations was $0.5 million for the six
months ended June 30, 1997 or $0.6 million higher compared to the same period in
1996.  In the first quarter of 1997,  the Company  established a reserve of $1.0
million  relating to the divestment of Colebrook which was partially offset by a
$0.6  million  gain on the sale of a real  estate  property.  The  $1.0  million
reserve  consists of $0.7  million in  severance  and benefit  accruals and $0.3
million  for other  expenses.  As of June 30,  1997,  no amounts  have been paid
relating to the  divestiture.  This  divestment  is scheduled to be completed by
March 31, 1998.

Income Taxes
For the six months ended June 30, 1997 the Company  recorded  income tax expense
of $3.8  million  compared  with income tax expense of $0.5  million for the six
months ended June 30, 1996.  The increase in income tax expense is  attributable
to the Company becoming fully taxable for financial reporting purposes beginning
in the fourth quarter of 1996 and a 60.7% increase in pre-tax earnings.


                                       16

<PAGE>


Balance Sheet Analysis - Comparison Of June 30, 1997 To December 31, 1996

Total assets increased from $1.3 billion at December 31, 1996 to $1.4 billion at
June 30, 1997. This increase  primarily reflects growth in loans and investments
funded through an increase in deposits and wholesale borrowings.

Investments
The Company's  investment  portfolio increased $37.4 million from $641.5 million
at December 31, 1996 to $678.9 million at June 30, 1997.

The Company  engages in investment  activities for both investment and liquidity
purposes.  The  Company  maintains  an  investment  securities  portfolio  which
consists  primarily  of  U.S.   Government  and  Agency  securities,   corporate
obligations,   asset-backed  securities,  collateralized  mortgage  obligations,
Federal Home Loan Bank stock, and marketable equity securities. Other short-term
investments held by the Company periodically include  interest-bearing  deposits
and federal funds sold. The Company also maintains a mortgage-backed  securities
portfolio consisting of securities issued and guaranteed by the Federal National
Mortgage  Association  ("FNMA")  and the  Federal  Home  Loan  Mortgage  Company
("FHLMC") in addition to publicly traded  mortgage-backed  securities  issued by
private  financial  intermediaries  which  are  rated  "AA" or  higher by rating
agencies of national prominence.

Securities  which the Company has the intent and ability to hold until  maturity
are  classified as  held-to-maturity  and are carried at amortized  cost,  while
those  securities which have been identified as assets that may be sold prior to
maturity or assets for which there is not a positive  intent to hold to maturity
are  classified  as  available-for-sale  and are  carried  at fair  value,  with
unrealized  gains and losses excluded from earnings and reported net of tax as a
separate component of stockholders' equity.

The table below sets forth certain information  regarding the amortized cost and
fair value of the Company's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                            June 30, 1997
                                                -----------------------------------------------------------------------
                                                       Available for Sale                  Held to Maturity
                                                --------------------------------       --------------------------------
                                                                         (Dollars In Thousands)
                                                   Amortized                             Amortized
                                                     Cost            Fair Value            Cost             Fair Value
                                                -------------       ------------       ------------        ------------
<S>                                              <C>                 <C>                 <C>                 <C>
U.S. Government and Agency obligations            $ 29,087            $ 29,039            $   --              $   --   
Collateralized mortgage obligations                 28,128              28,042                --                  --
Mortgage-backed securities                         409,642             412,637             139,383             138,953
Asset-backed securities                               --                  --                45,410              45,271
Other bonds and short term obligations                --                  --                   200                 200
Other securities                                    23,878              24,144                --                  --
                                                  --------            --------            --------            --------
    Total                                         $490,735            $493,862            $184,993            $184,424
                                                  ========            ========            ========            ========
<CAPTION>
                                                                          December 31, 1996
                                                -----------------------------------------------------------------------
                                                       Available for Sale                  Held to Maturity
                                                --------------------------------       --------------------------------
                                                                         (Dollars In Thousands)
                                                   Amortized                             Amortized
                                                     Cost            Fair Value            Cost             Fair Value
                                                -------------       ------------       ------------        ------------
<S>                                              <C>                 <C>                 <C>                 <C>                 
U.S. Government and Agency obligations            $ 29,901            $ 29,943            $   --              $   --
Collateralized mortgage obligations                 28,965              29,007                --                  --
Mortgage-backed securities                         371,921             374,218             149,856             149,252
Asset-backed securities                               --                  --                42,118              42,165
Other bonds and short term obligations               1,681               1,681                 200                 200
Other securities                                    14,276              14,474                --                  --
                                                  --------            --------            --------            --------
    Total                                         $446,744            $449,323            $192,174            $191,617
                                                  ========            ========            ========            ========
                                                                                                  
</TABLE>

                                       17
<PAGE>


Loan Portfolio Composition
Gross loans  comprised  $660.4  million or 46.0% of total  assets as of June 30,
1997. The following table sets forth  information  concerning the Company's loan
portfolio in dollar  amounts and  percentages,  by type of loan at June 30, 1997
and at December 31, 1996.

                                    June 30, 1997            December 31, 1996
                               ------------------------   ----------------------
                                             Percent of               Percent of
                                  Amount        Total       Amount       Total
                               -----------   ----------   ---------   ----------
                                             (Dollars In Thousands)

Residential real estate loans     $238,470     36.11%      $242,410     38.79%
Commercial real estate loans       120,160     18.19%       118,442     18.95%
Commercial loans                   173,587     26.28%       155,808     24.93%
Home equity loans                  121,953     18.47%       104,206     16.67%
Consumer loans                       6,260      0.95%         4,132      0.66%
                                  --------    ------       --------    ------
  Total loans receivable, gross    660,430    100.00%       624,998    100.00%
                                  --------    ------       --------    ------
Less:                                                  
Unearned income and fees            (1,839)                  (1,196)
Allowance for loan losses           16,392                   15,597
                                  --------                 --------
  Total loans receivable, net     $645,877                 $610,597
                                  ========                 ========


The Company continues to actively  originate loans secured by first mortgages on
one to four family residences, and offers a variety of fixed and adjustable rate
mortgage loan products.  The Company  originates  long-term fixed rate mortgages
for sale in the secondary  market and generally holds  adjustable rate mortgages
in the Company's loan portfolio.  During the six months ended June 30, 1997, the
Company  experienced an increase in prepayments in its adjustable  rate mortgage
portfolio.  These  prepayments  offset new  originations  and resulted in a $3.9
million  decrease in residential  real estate balances between December 31, 1996
and June 30, 1997.

During the six months ended June 30, 1997,  commercial  loan balances  increased
$17.8 million, reflecting the Company's continued focus on lending activities in
the local business market.  During this same period  commercial real estate loan
balances  increased $1.7 million  primarily due to new  originations,  partially
offset by prepayments.

Home equity loans  outstanding  have increased  $17.7 million since December 31,
1996.  Management  attributes  this  increase to the active  promotion  of these
products.

Non-performing Assets
Non-performing  assets totaled $6.7 million as of June 30, 1997 compared to $7.6
million as of December 31, 1996, a decrease of $0.8 million or 11.1%.

The  following  table  sets  forth  information   regarding  the  components  of
non-performing assets for the periods presented:


                                       18

<PAGE>

                                               June 30,          December 31,
                                                 1997              1996
                                            ---------------   ---------------
                                                 (Dollars In Thousands)
Non-accrual loans (1):
   Residential real estate loans                 $1,537             $1,287
   Commercial real estate loans                   3,048              4,428
   Commercial loans                                 759                674
   Home equity loans                                135                157
   Consumer loans                                  --                    1
                                                 ------             ------
   Total non-accrual loans                        5,479              6,547
                                                 ------             ------
                                                                   
Loans past due 90 days still accruing (2)           540                428
                                                                   
                                                 ------             ------
   Total non-performing loans                     6,019              6,975
Foreclosed real estate (3)                          214                381
Restructured loans on accrual status (4)            477                198
                                                 ------             ------
   Total non-performing assets                   $6,710             $7,554
                                                 ======             ======
                                                          
Total non-performing loans to total
   gross loans                                     0.91%              1.12%

Total non-performing assets to total
   assets                                          0.47%              0.56%

Allowance for possible losses to
   non-performing loans                          272.34%            223.61%


(1) Non-accrual loans are loans that are contractually  past due in excess of 90
days, for which the Company has stopped the accrual of interest,  or loans which
are not past due but on which the Bank has stopped the accrual of interest based
on management's assessment of the circumstances surrounding these loans.

(2) Accruing loans past due 90 days or more are loans which have not been placed
on non-accrual status as, in management's  opinion,  the collection of the loan,
in full, is not in doubt.

(3)  Foreclosed  real estate  includes  OREO,  defined as real  estate  acquired
through foreclosure or acceptance of a deed in lieu of foreclosure.  The Company
carries  foreclosed  real estate at the lower of cost or net  realizable  value,
which approximates fair value less estimated selling costs.

(4) Restructured loans are loans for which concessions,  including  reduction of
interest rates or deferral of interest or principal payments,  have been granted
due to the borrower's  financial  condition.  Restructured  loans on non-accrual
status are reported in the  non-accrual  loan  category.  Restructured  loans on
accrual status are those loans that have complied with terms of a  restructuring
agreement for a satisfactory period (generally six months).

                                       19
<PAGE>

The principal  amount of  non-performing  loans  aggregated  approximately  $6.0
million at June 30, 1997 compared to $7.0 million at December 31, 1996. Interest
income  that  would  have been  recorded  if the loans  had been  performing  in
accordance  with their original terms  aggregated  $0.4 million and $0.5 million
for the six months ended June 30, 1997 and 1996,  respectively.  Interest income
recorded on these loans for the six months ended June 30, 1997 and 1996 was $0.4
million and $0.4 million, respectively.

The principal  amount of restructured  loans aggregated $0.5 million at June 30,
1997 compared to $0.2 million at December 31, 1996.  Interest  income that would
have been recorded if the loans had been performing  within their original terms
aggregated  $22 thousand and $10 thousand for the period ended June 30, 1997 and
1996,  respectively.  Interest  income  recorded on these loans  amounted to $20
thousand  and $1  thousand  for the six  months  ended  June 30,  1997 and 1996,
respectively.

Watch List Loans
The Company maintains a "watch list" of loans, which represents performing loans
that have  potential  weaknesses  that  require  Management's  attention.  These
potential  weaknesses may stem from a variety of factors including,  among other
things, economic or market conditions, adverse terms in the obligor's operations
or balance  sheet  weaknesses.  Watch list loans totaled $11.7 million and $18.1
million at June 30, 1997 and December 31, 1996, respectively.

Classified Loans
The Company's Credit Grade Policy (the "Policy") provides for the classification
of loans considered to be lesser quality as "substandard", "doubtful", or "loss"
loans.  A loan is considered  substandard  under the  Company's  Policy if it is
inadequately  protected  by the current  sound worth and paying  capacity of the
obligor or of the collateral  pledged,  if any.  Substandard loans include those
characterized by the "distinct  possibility" that the Company will sustain "some
loss" if the deficiencies are not corrected.  Loans classified as doubtful under
the Company's  Policy have all the  weaknesses  inherent in those  classified as
substandard  with the added  characteristic  that the  weaknesses  present  make
"collection or liquidation  in full" on the basis of currently  existing  facts,
conditions  and  value,  "improbable."  Assets  characterized  as loss are those
considered  "uncollectible"  and of such little value that their  continuance as
bankable assets is not warranted.  Classified loans, all of which are considered
substandard,  totaled  $11.4  million  and $7.6  million  at June  30,  1997 and
December 31, 1996, respectively.  Included in these amounts are $5.5 million and
$6.5 million of loans which have been reported as non-performing  assets at June
30, 1997 and December 31 1996, respectively.

Allowance for Possible Loan Losses
The allowance for possible loan losses  reflects an amount that, in management's
judgment, is adequate to provide for potential losses in the loan portfolio.  In
addition,  examinations  of the adequacy of the loan loss reserve are  conducted
periodically  by various  regulatory  agencies.  The allowance for possible loan
losses at June 30, 1997 was $16.4 million, compared to $14.9 million at June 30,
1996.  The activity in the allowance for possible loan losses for the six months
ended June 30, 1997 and 1996 was as follows:

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                June 30,
                                                                     -------------------------------
                                                                        1997                1996
                                                                     ----------           ----------
                                                                         (Dollars In Thousands)
<S>                                                                  <C>                  <C>
Balance, beginning of period                                          $ 15,597             $ 14,986 
Provision for loan losses                                                  801                1,450
Charge-offs:                                                                             
  Residential real estate loans                                           (126)                (563)
  Commercial real estate loans                                            (300)              (2,102)
  Commercial loans                                                        (128)                (180)
  Home equity loans                                                        (38)                (138)
  Consumer loans                                                          (123)                 (38)
                                                                      --------             --------
    Total charge-offs                                                     (715)              (3,021)
Recoveries:                                                                              
  Residential real estate loans                                              1                  577
  Commercial real estate loans                                             542                  762
  Commercial loans                                                          74                  100
  Home equity loans                                                         73                   39
  Consumer loans                                                            19                   20
                                                                      --------             --------
    Total recoveries                                                       709                1,498
                                                                      --------             --------
Net recoveries/(charge-offs)                                                (6)              (1,523)
Balance, end of period                                                $ 16,392             $ 14,913
                                                                      ========             ========
                                                     
Ratio of net loan recoveries/(charge-offs) during the period to
    average loans outstanding during the period                              -                (0.27%)
Ratio of allowance for possible loan losses to total loans 
    at the end of the period                                              2.48%                2.51%
Ratio of allowance for possible loan losses to non-performing
    loans at the end of the period                                      272.34%              162.66%

</TABLE>

                                       21
<PAGE>

At June 30, 1997, the recorded  investment in loans that are considered impaired
under SFAS 114  "Accounting  by  Creditors  for  Impairment  of a Loan" was $9.6
million. Included in this amount is $0.2 million of impaired loans for which the
related SFAS 114  allowance  is $0.1 million and $9.3 million of impaired  loans
for which the SFAS 114  allowance is zero.  The average  recorded  investment in
impaired  loans  during  the  three  and six  months  ended  June  30,  1997 was
approximately $9.5 million and $9.0 million, respectively. For the three and six
month periods ended June 30, 1997,  the Company  recognized  interest  income on
these impaired loans of $0.2 million and $0.3 million, respectively.

The  following  table shows the  allocation  of the  allowance for possible loan
losses to the various types of loans as well as the  percentage of allowance for
possible  loan losses in each  category to total  allowance  for  possible  loan
losses.
<TABLE>
<CAPTION>
                                                         June 30, 1997             December 31, 1996
                                                 --------------------------   -------------------------
                                                                % of                         % of
                                                               Total                         Total
                                                             Allowance for                Allowance for
                                                  Amount      Loan Losses      Amount     Loan Losses
                                                 --------   ------------     ---------- ----------------
<S>                                              <C>         <C>             <C>           <C>
Residential real estate loans                     $ 2,295       14.00%         $ 1,540        9.87%
Commercial real estate loans                        4,945       30.17%           5,808       37.24%
Commercial loans                                    6,744       41.14%           6,711       43.03%
Home equity loans                                   1,776       10.83%           1,207        7.74%
Consumer loans                                        632        3.86%             331        2.12%
                                                  -------      ------          -------      ------
Total allowance for possible loan losses          $16,392      100.00%         $15,597      100.00%
                                                  =======      ======          =======      ======
</TABLE>
                                                                             

Deposit Distribution
The principal  source of funds for the Company are deposits from local consumers
and businesses.  There were no brokered deposits at June 30, 1997. The Company's
deposits  consist of demand and NOW  accounts,  passbook and  statement  savings
accounts, money market accounts and time deposits.

Total  deposits were $1.0 billion at June 30, 1997 compared to $969.5 million at
December 31, 1996, an increase of $45.9 million.  This growth occurred primarily
in demand  deposits,  savings  accounts and time deposits.  Demand  deposits and
savings  accounts  increased $20.1 million and $11.1 million,  respectively,  as
customers  continue to take  advantage  of free  savings and  checking  accounts
offered as a result of the Company's  consumer  deposit  strategy to attract and
retain core  deposits,  which  provide  the Company  with a lower cost source of
funds.  The $17.0 million growth in time deposits is primarily  attributable  to
the introduction of new CD products.

The following table presents the composition of deposits at the dates indicated:


                                June 30, 1997          December 31, 1996
                        -------------------------  ------------------------
                                         Percent                    Percent
                                            of                         of
                           Amount         Total       Amount         Total
                        ----------      --------   ----------     ---------
                                       (Dollars In Thousands)

Demand deposits         $  120,604       11.88%    $  100,527       10.37% 
NOW accounts                60,318        5.94%        57,980        5.98% 
Savings accounts           206,521       20.34%       195,418       20.16%
Money market accounts      204,913       20.18%       209,523       21.61%
Time deposits              423,048       41.66%       406,069       41.88%
                        ----------      ------     ----------      ------
   Total deposits       $1,015,404      100.00%    $  969,517      100.00%
                        ==========      ======     ==========      ======
                                               



                                       22


<PAGE>



Borrowings
Borrowings  consist  of FHLB  advances,  securities  sold  under  agreements  to
repurchase,  and loans payable related to the Company's employee stock ownership
plan. The Company  generally uses borrowings to fund loan growth and to leverage
a portion of its capital  position.  Borrowings  increased  $32.5  million  from
$247.9  million  at  December  31,  1996 to  $280.4  million  at June  30,  1997
reflecting a portion of the funding for the growth in loans and investments.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  both the Company and the Bank to  maintain  minimum  amounts and ratios
(set  forth in the table  below) of total  and Tier 1 capital  to  risk-weighted
assets  and Tier 1  capital  to  average  assets.  As of June 30,  1997 both the
Company and the Bank exceed all capital adequacy  requirements to which they are
subject and qualify as "well  capitalized"  under applicable  regulations of the
Board of Governors of the Federal Reserve System and the FDIC.

The Company's and Bank's actual capital  amounts and ratios are presented in the
table. No deductions were made from capital for interest-rate risk.
<TABLE>
<CAPTION>
                                                                            Minimum                 Minimum
                                                                          Requirements            Requirements
                                                                          For Capital             To Qualify As    
                                                Actual                 Adequacy Purposes        Well Capitalized
                                           -----------------------  ----------------------   ---------------------
                                             Amount        Ratio       Amount     Ratio         Amount      Ratio
                                           ---------    ----------  ----------  ---------    -----------  --------
<S>                                       <C>           <C>         <C>         <C>          <C>          <C>
As of June 30, 1997:

Tier I Capital (to Average Assets)
   Company                                 $ 98,451        7.0%      $ 56,368     4.0%           N/A
   Bank                                    $ 95,797        6.8%      $ 56,292     4.0%        $ 70,365      5.0%
Tier I Capital (to Risk Weighted Assets)                                                     
   Company                                 $ 98,451       11.9%      $ 33,157     4.0%        $ 49,736      6.0%
   Bank                                    $ 95,797       11.6%      $ 33,076     4.0%        $ 49,614      6.0%
Total Capital (to Risk Weighted Assets)                                                      
   Company                                 $108,862       13.1%      $ 66,314     8.0%        $ 82,893     10.0%
   Bank                                    $106,208       12.8%      $ 66,152     8.0%        $ 82,690     10.0%
                                                                                             
As of December 31, 1996:                                                                     
                                                                                             
Tier I Capital (to Average Assets)                                                           
   Company                                 $ 96,317        7.4%      $ 52,007     4.0%           N/A
   Bank                                    $ 95,816        7.4%      $ 51,999     4.0%        $ 64,999      5.0%
Tier I Capital (to Risk Weighted Assets)                                                     
   Company                                 $ 96,317       12.8%      $ 30,118     4.0%        $ 45,177      6.0%
   Bank                                    $ 95,816       12.7%      $ 30,110     4.0%        $ 45,165      6.0%
Total Capital (to Risk Weighted Assets)                                                      
   Company                                 $105,804       14.1%      $ 60,236     8.0%        $ 75,296     10.0%
   Bank                                    $105,300       14.0%      $ 60,220     8.0%        $ 75,275     10.0%
                                                                                         
</TABLE>
                                                             


                                       23


<PAGE>


Interest Rate Risk Management
Using management's  estimates of asset prepayments and core deposit decay in its
computation, the Company estimates that its cumulative one-year gap position was
a  positive  $22.8  million  or 1.59%  of total  assets  at June 30,  1997.  The
following table sets forth the amounts of assets and liabilities  outstanding at
June 30, 1997, which are anticipated by the Company to mature or reprice in each
of the  future  time  periods  shown  using  certain  assumptions  based  on its
historical  experience,  the current interest rate  environment,  and other data
available to management.  Management believes that these assumptions approximate
actual  experience  and considers  such  assumptions  reasonable,  however,  the
interest rate  sensitivity of the Company's  assets and  liabilities  could vary
substantially if different  assumptions were used or actual  experience  differs
from  the  assumptions   used.   Management   periodically   reviews  and,  when
appropriate, changes assumptions used in creating this table.





                                       24


<PAGE>
<TABLE>
<CAPTION>
                                                                                  GAP Position
                                                                                At June 30, 1997
                                              ------------------------------------------------------------------------------
                                                                 More than six
                                                 Less than         months less
                                                 six months      than one year    1 - 5 Years    Over 5 Yrs       TOTAL
                                              ----------------  --------------  -------------- -------------  --------------
                                                                             (Dollars In Thousands)
<S>                                              <C>             <C>            <C>             <C>             <C>
Assets:
Federal funds sold and
   interest bearing deposits                      $   10,585      $     --        $     --        $     --        $   10,585
Investment securities                                330,091         141,589         183,474          23,701         678,855
Residential real estate loans                         63,885          50,683         109,638          13,092         237,298
Commercial real estate loans                          31,921           9,666          69,046           6,516         117,149
Commercial loans                                      80,780          10,359          74,064           8,013         173,216
Home equity loans                                     75,867          21,173          15,742          10,118         122,900
Consumer loans                                         5,797              58             151             221           6,227
Other assets                                            --              --              --            88,315          88,315
                                                  ----------      ----------      ----------      ----------      ----------
                                                                                                                
Total assets                                      $  598,926      $  233,528      $  452,115      $  149,976      $1,434,545
                                                  ==========      ==========      ==========      ==========      ==========
                                                                                                                
Liabilities & stockholders' equity:                                                                             
Savings accounts                                  $   30,978      $   30,978      $  144,565      $     --        $  206,521
NOW accounts                                           9,048           9,048          42,222            --            60,318
Money market accounts                                 61,474          61,474          81,965            --           204,913
Time deposits                                        236,702         115,000          71,346            --           423,048
Borrowed funds                                       166,741          40,272          64,031           9,313         280,357
Other liabilities & stockholders' equity              23,966          23,966          71,899         139,557         259,388
                                                  ----------      ----------      ----------      ----------      ----------

Total liabilities & stockholders' equity          $  528,909      $  280,738       $ 476,028      $  148,870      $1,434,545
                                                  ==========      ==========      ==========      ==========      ==========

Period GAP position                               $   70,017      $  (47,210)     $  (23,913)     $    1,106

Net period GAP as a percentage of total assets          4.88%          (3.29%)         (1.67%)          0.08%

Cumulative GAP                                    $   70,017      $   22,807     $    (1,106)            --

Cumulative GAP as a percentage of total
   assets                                               4.88%           1.59%          (0.08%)           --
<FN>
For purposes of the above interest sensitivity analysis:

          Residential loans held for sale at June 30, 1997 totaling $4.3 million
          are in the less than six month interest sensitivity period.

          Fixed rate assets are scheduled by contractual maturity and adjustable
          rate assets are scheduled by their next repricing date. In both cases,
          assets that have prepayment optionality are adjusted for the Company's
          estimate of prepayments.

          Loans do not include non-accrual loans of $5.5 million.

          Loans do not include the allowance for loan loss of $16.4 million.

          In certain deposit categories where there is no contractual  maturity,
          Management assumed the sensitivity  characteristics listed below based
          on the current interest rate environment and the Company's  historical
          experience.  Management reviews these assumptions on a quarterly basis
          and may modify them as circumstances dictate.

          -    Savings accounts are assumed to decay at an annual rate of 30%.
          -    NOW accounts are assumed to decay at an annual rate of 30%.
          -    Money  market  accounts are assumed to decay at an annual rate of
               60%.
          -    Non-interest  bearing  accounts of $120.6 million are included in
               other  liabilities  and are assumed to decay at an annual rate of
               40%.
</FN>
</TABLE>
                                       25
<PAGE>



Certain  shortcomings  are  inherent in the method of analysis  presented in the
foregoing  table.  For example,  while certain assets and  liabilities  may have
similar  contractual  maturities  or  periods  to  repricing,  they may react in
different ways to changes in market interest rates.  Further,  in the event of a
change in interest rates,  prepayment and early  withdrawal  levels would likely
deviate significantly from those assumed in calculating the table. Additionally,
certain assets, such as adjustable rate mortgages,  have features which restrict
changes in interest rates on a short-term  basis and over the life of the asset.
Finally, the ability of borrowers to service their adjustable rate mortgages may
decrease in the event of an interest rate increase.

The Company also utilizes income  simulation  modeling in measuring its interest
rate risk and managing its interest rate sensitivity. Income simulation not only
considers  the  impact of  changing  market  interest  rates on  forecasted  net
interest income, but also takes into  consideration  other factors such as yield
curve  relationships,  the volume and mix of assets  and  liabilities,  customer
preferences and general market conditions.

Liquidity
Liquidity  measures the ability of the Company to meet its maturing  obligations
and existing commitments,  to withstand  fluctuations in deposit levels, to fund
its operations and to provide for customer credit needs. If the Company requires
funds  beyond  its  ability  to  generate  them  internally,  it has  additional
borrowing  capacity  with  the  FHLB  and  collateral  eligible  for  repurchase
agreements.  Because the Company has a stable retail  deposit  base,  management
believes  that  significant  borrowings  will not be  necessary  to maintain its
current liquidity position. Management intends to continue seeking opportunities
for expansion and believes that the Company's  liquidity,  capital resources and
borrowing capabilities are adequate for its current and intended operations.




                                       26


<PAGE>
Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings
         The Company is involved in  litigation  arising in the normal course of
         business.  Management  does not believe that the  ultimate  liabilities
         arising from such litigation,  if any, would be material in relation to
         the  consolidated  results of operations  or financial  position of the
         Company.

Item 2.  Changes in Securities
         Not applicable

Item 3.  Default upon Senior Securities
         Not applicable

Item 4.  Submission of Matters to a Vote of Security Holders
(a)      On April 30,  1997,  the  Annual  Meeting  of the  Stockholders  of SIS
         Bancorp, Inc. was held at the Springfield Marriott Hotel,  Springfield,
         Massachusetts.

(b)      Directors elected at the Annual Meeting (Term to Expire in 2000)
         Sister Mary Caritas, S.P.
                  Retired; former President and Chief Executive Officer of
                  Mercy Hospital

         John M. Naughton
                  Retired, former Executive Vice President, Massachusetts
                  Mutual Life Insurance Co.

         Continuing Directors   (Term to Expire in 1998)
         Charles L. Johnson
                  Consultant- Associated Energy Managers,
                  Investment Management Firm

         F. William Marshall,Jr.
                  President and Chief Executive Officer, SIS Bancorp, Inc.
                  and SIS Bank

         Continuing Directors  (Term to Expire in 1999)
         William B. Hart, Jr.
                  President, The Dunfey Group
                  an investment corporation

         Thomas O'Brien
                  Dean, University of Massachusetts
                  School of Management

         Stephen A. Shatz
                  Attorney, Partner in Shatz, Schwartz & Fentin, P.C.

(c)      The  matters  voted on at the  meeting  and the  results  included  the
         following proposals:

         1. To elect two Directors for a three-year term ending in the Year 2000
         (Proposal 1);

                                    Votes For (shares)  Votes Withheld (shares)
                                    ------------------  -----------------------
        Sr. Mary Caritas (Geary)        4,956,015               17,053
        John Naughton                   4,958,288               14,780


Item 5.  Other Information
         Not applicable

                                       27
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits:

         Exhibit No.                Exhibit                   Location

         10.               Material Contracts

         10.1              Form of  "Second Addendum to Form of Employment
                           and Severance Agreement for  Senior Vice
                           President and Executive Vice Presidents" of SIS Bank 
                           executed by Messrs. Barrett, Dill, Treanor, Ehmke,
                           McWhinnie, Sinton, Tucker, and Ms. Rinaldo.

         10.2              Amended and Restated Employment Agreement
                           between SIS Bank and F. William Marshall, Jr.
                           dated June 30, 1997

 (b)     Reports on Form 8-K

         None

                                       28
<PAGE>


                                   SIGNATURES


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


                                        SIS BANCORP, INC.
                                               (Registrant)


October 22, 1997                       /s/  F. William Marshall, Jr.
Date                                   F. William Marshall, Jr.
                                       President and Chief Executive Officer




October 22, 1997                       /s/  John F. Treanor
Date                                   John F. Treanor
                                       Executive Vice President
                                       and Chief Financial Officer



                                       29