FORM 10-Q

                       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 09/30/97

                                         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:  5,580,842  shares as of November 3,
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; (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 nine months ended September 30, 1997 and 1996.................  1

   Condensed Consolidated Statement of Financial Condition
   at September 30, 1997 and December 31, 1996.............................  2

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

   Condensed Consolidated Statement of Changes in Stockholders' Equity
   for the nine months ended September 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...............................................  28

   Item 2. Changes in Securities...........................................  28

   Item 3. Default upon Senior Securities..................................  28

   Item 4. Submission of Matters to a Vote of Security Holders.............  28

   Item 5. Other Information...............................................  28

   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                  Nine Months Ended
                                                        ---------------------------------    ------------------------------
                                                         September 30,      September 30,    September 30,    September 30,
                                                              1997              1996             1997             1996
                                                        --------------      -------------    -------------    -------------
<S>                                                       <C>               <C>               <C>              <C>           
Interest and dividend income:
        Loans                                              $ 13,958          $ 12,472          $ 40,285         $ 35,946 
        Investment securities available for sale              8,019             5,934            24,105           15,230
        Investment securities held to maturity                3,169             3,279             9,849            9,494
        Federal funds sold and short term investments           357               121               716              380
                                                           --------          --------          --------         --------
                   Total interest and dividend income        25,503            21,806            74,955           61,050
                                                           --------          --------          --------         --------
Interest expense:                                                                                             
        Deposits                                              8,735             8,270            25,614           24,338
        Borrowings                                            4,258             2,291            11,782            5,439
                                                           --------          --------          --------         --------
                   Total interest expense                    12,993            10,561            37,396           29,777
                                                           --------          --------          --------         --------
Net interest and dividend income                             12,510            11,245            37,559           31,273
Less: Provision for possible loan losses                        402               750             1,203            2,200
                                                           --------          --------          --------         --------
Net interest and dividend income after provision                                                              
        for possible loan losses                             12,108            10,495            36,356           29,073
                                                                                                              
Noninterest income:                                                                                           
        Net gain on sale of loans                               136               105               328              537
        Net gain on sale of securities                           10                62                21               64
        Fees and other income                                 3,157             2,761             8,533            7,645
                                                           --------          --------          --------         --------
                   Total noninterest income                   3,303             2,928             8,882            8,246
                                                           --------          --------          --------         --------
                                                                                                              
Noninterest expense:                                                                                          
        Operating expenses:                                                                                   
                 Salaries and employee benefits               4,971             4,408            14,631           12,900
                 Occupancy expense of bank premises, net        982               810             2,885            2,387
                 Furniture and equipment expense                565               558             1,596            1,614
                 Other operating expenses                     3,751             3,846            10,992           10,617
                                                           --------          --------          --------         --------
                   Total operating expenses                  10,269             9,622            30,104           27,518
                                                           --------          --------          --------         --------
        Foreclosed real estate expense                           90                29                58              252
        Net (income) expense of real estate operations          (63)               (8)              416             (170)
                                                           --------          --------          --------         --------
                   Total noninterest expense                 10,296             9,643            30,578           27,600
                                                                                                              
Income before income tax expense (benefit)                    5,115             3,780            14,660            9,719
Income tax expense (benefit)                                  1,946            (6,421)            5,731           (5,931)
                                                           --------          --------          --------         --------
                   Net income                              $  3,169          $ 10,201          $  8,929         $ 15,650
                                                           ========          ========          ========         ========
                                                                                                        
Earnings per share:
         Primary                                           $   0.57         $    1.85          $   1.60        $    2.86
         Fully diluted                                     $   0.57         $    1.84          $   1.58        $    2.82

Weighted average shares outstanding:
         Primary                                          5,521,785         5,511,554         5,584,339        5,475,422
         Fully diluted                                    5,559,872         5,556,512         5,647,024        5,543,980



                                See accompanying Notes to the Unaudited Financial Statements
</TABLE>

                                                             1


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

                                                                                     (Unaudited)
                                                                                    September 30,   December 31,
                                                                                         1997           1996
                                                                                   --------------   -----------
ASSETS

<S>                                                                                 <C>            <C>             
Cash and due from banks                                                              $    34,464    $    31,902
Federal funds sold and short-term investments                                              6,692         10,045
Investment securities available for sale                                                 502,868        449,323
Investment securities held to maturity (fair value: $182,537 at September 30, 1997
  and $191,617 at December 31, 1996)                                                     182,320        192,174
Loans receivable, net of allowance for possible losses
  ($18,393 at September 30, 1997 and $15,597 at December 31, 1996)                       670,056        610,597
Accrued interest and dividends receivable                                                  9,517          8,982
Investments in real estate and real estate partnerships                                    2,666          2,757
Foreclosed real estate, net                                                                  199            381
Bank premises, furniture and fixtures, net                                                28,244         27,106
Other assets                                                                              15,991         15,345
                                                                                     -----------    -----------
    Total assets                                                                     $ 1,453,017    $ 1,348,612
                                                                                     ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                             $ 1,021,613    $   969,517
Federal Home Loan Bank advances                                                          134,297         68,471
Securities sold under agreements to repurchase                                           148,888        176,577
Loans payable                                                                              2,670          2,848
Mortgage escrow deposits                                                                   6,543          4,396
Accrued expenses and other liabilities                                                    32,048         24,886
                                                                                     -----------    -----------
    Total liabilities                                                                  1,346,059      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 September 30, 1997 and 5,723,600 at December 31, 1996;
  outstanding: 5,580,842 at September 30, 1997 and 5,723,600 at December 31, 1996)            57             57
Unearned compensation                                                                     (3,036)        (3,693)
Additional paid-in capital                                                                43,218         42,665
Retained earnings                                                                         67,901         60,993
Net unrealized gain on investment securities available for sale                            2,678          1,895
Treasury stock, at cost (146,400 shares at September 30, 1997)                            (3,860)          --
                                                                                     -----------    -----------
    Total stockholders' equity                                                           106,958        101,917
                                                                                     -----------    -----------
Total liabilities and stockholders' equity                                           $ 1,453,017    $ 1,348,612
                                                                                     ===========    ===========

                          See accompanying Notes to the Unaudited Financial Statements
</TABLE>

                                                       2
<PAGE>

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

                                                                           (Unaudited)
                                                                         Nine Months Ended
                                                                           September 30,
                                                                     ------------------------
                                                                         1997          1996
                                                                     ----------    ----------   
<S>                                                                 <C>           <C>           
Cash Flows From Operating Activities
Net income                                                            $   8,929    $  15,650
Adjustments to reconcile net income to net cash provided by/
   (used for) operating activities
     Provision for possible loan losses                                   1,203        2,200
     Depreciation                                                         2,275        2,271
     Amortization of premium on investment securities, net                1,836        1,585
     ESOP and restricted stock expenses                                   1,375        1,104
     Investment security gains                                             --            (64)
     Income from equity investment in partnerships                            6          (47)
     Gain on sale of loans                                                 (328)        (537)
     Disbursements for mortgage loans held for sale                     (42,571)     (65,258)
     Receipts from mortgage loans held for sale                          42,898       65,795
     Loss on sale of fixed assets and real estate                          --            343
     Changes in other assets and other liabilities:
         Increase in other assets, net                                   (1,937)      (8,501)
         Increase in accrued expenses and other liabilities               7,162        3,092
                                                                      ---------    ---------
             Net cash provided by operating activities                   20,848       17,633
                                                                      ---------    ---------

Cash Flows From Investing Activities

    Proceeds from sales of investment securities available for sale       7,002       30,863
    Proceeds from maturities and principal payments received
       on investment securities available for sale                      117,753       90,816
    Purchase of investment securities available for sale               (178,248)    (262,977)
    Proceeds from maturities and principal payments received
       on investment securities held to maturity                         32,381       37,211
    Purchase of investment securities held to maturity                  (22,876)     (58,991)
    Net decrease in investments in real estate                             --            475
    Net increase in loans receivable                                    (60,980)     (40,489)
    Net decrease in foreclosed real estate                                  409        1,862
    Proceeds from sale of loans                                              92        4,056
    Proceeds from sale of fixed assets and leases                          --            267
    Purchase of fixed assets                                             (3,328)      (2,029)
                                                                      ---------    ---------
             Net cash used for investing activities                    (107,795)    (198,936)
                                                                      ---------    ---------

                 See accompanying Notes to the Unaudited Financial Statements
</TABLE>


                                              3

<PAGE>

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

                                                                   (Unaudited)
                                                                Nine Months Ended
                                                                  September 30,
                                                            -----------------------
                                                               1997         1996
                                                            ----------    ---------
<S>                                                           <C>               <C>
Cash Flows from Financing Activities

  Net increase in deposits                                      52,096      68,746
  Net increase in borrowings                                    37,959     124,288
  Net increase in mortgagors' escrow deposits                    2,147       2,101
  Net proceeds from exercise of stock options                      168        --
  Repurchase of common stock                                    (4,193)       --
  Cash dividends paid                                           (2,021)       --
                                                              --------    --------
        Net cash provided by financing activities               86,156     195,135
                                                              --------    --------

Increase in cash and cash equivalents                             (791)     13,832

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

Cash and cash equivalents, end of period                      $ 41,156    $ 52,254
                                                              ========    ========


Supplemental disclosures of cash flow information:
     Cash paid during the period for interest to depositors
             and interest on debt                             $ 36,528    $ 29,861

     Income taxes paid                                        $  2,172    $    438


Non-cash investing activities:
     Transfers to foreclosed real estate, net                 $    227    $    845


            See accompanying Notes to the Unaudited Financial Statements
</TABLE>

                                         4

<PAGE>

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

                                                                                              Net unrealized
                                                                                                gain (loss)
                                                                                               on investment
                                                                        Additional              securities   Treasury
                                                    Common   Unearned     Paid-In    Retained   available     Stock
                                                     Stock Compensation   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   $  60,033   $   1,895   $     -   $ 101,917
Net income                                                -          -           -       8,929           -         -       8,929
Cash dividends declared ($0.38 per share)                 -          -           -      (2,021)          -         -      (2,021)
Issuance of common stock in connection with employee
    and non-employee directors benefit programs           -        (98)        (67)          -           -       333         168
Decrease in unearned compensation                         -        755         620           -           -         -       1,375
Change in unrealized gain on investment
    securities available for sale                         -          -           -           -         783         -         783
Treasury stock purchased                                  -          -           -           -           -    (4,193)     (4,193)
                                                    -------  ---------   ---------   ---------   ---------   -------   ---------
Balance at September 30, 1997                       $    57  $  (3,036)  $  43,218   $  67,901   $   2,678   $(3,860)  $ 106,958
                                                    =======  =========   =========   =========   =========   =======   =========


Balance at December 31, 1995                        $    57  $  (4,937)  $  41,790   $  42,833   $   1,726   $     -   $  81,469
Net income                                                -          -           -      15,650           -         -      15,650
Issuance of common stock in connection with employee
    and non-employee directors benefit programs           -       (315)        297           -           -         -         (18)
Decrease in unearned compensation                         -        970         382           -           -         -       1,352
Change in unrealized gain on investment
    securities available for sale                         -          -           -           -      (1,393)        -      (1,393)
                                                    -------  ---------   ---------   ---------   ---------   -------   ---------
Balance at September 30, 1996                       $    57  $  (4,282)  $  42,469   $  58,483   $     333   $     -   $  97,060
                                                    =======  =========   =========   =========   =========   =======   =========



                                   See accompanying Notes to the Unaudited Financial Statements
</TABLE>



                                                                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 nine 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 September 30, 1997 or on the results of its
operations for the three and nine 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 nine months of 1997, pro forma
basic EPS for the three and nine months ended September 30, 1997 would have been
$0.61 and  $1.71,  respectively.  Pro forma  diluted  EPS for the three and nine
months ended September 30, 1997 would have been $0.58 and $1.60, respectively.

In June  1997,  the  Financial  Accounting  Standards  Board  issued  SFAS  131,
"Disclosures  about  Segments of an Enterprise  and Related  Information"  which
establishes  standards  for the way  that  public  business  enterprises  report

                                       6
<PAGE>

financial and descriptive information about its reportable operating segments in
annual financial  statements and requires that those enterprises report selected
information  about  operating  segments in interim  financial  reports issued to
shareholders. SFAS 131 defines reportable operating segments as components of an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly  by  management  in deciding  how to allocate  resources in
assessing  performance.  The statement is effective for financial statements for
periods  beginning  after December 15, 1997.  Management of the Company does not
believe  that the  adoption  of SFAS  131 will  have a  material  impact  on its
financial statements.

4. Dividend Policy
The  Company  paid cash  dividends  in the amount of $0.12,  $0.12 and $0.14 per
share on February 20, 1997, May 23, 1997 and August 21, 1997,  respectively.  On
October 22, 1997 the Company  declared a dividend of $0.14 per share  payable on
November  21,  1997 to  shareholders  of record as of the close of  business  on
November 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 September 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 September 30, 1997, no amounts have been paid relating to
the divestiture. This divestment is scheduled to be completed by March 31, 1998.

6. Agreement and Plan of Merger
On August 18, 1997,  the Company and  Glastonbury  Bank & Trust Company  ("GBT")
signed a definitive  Agreement and Plan of  Reorganization  and on September 12,
1997 the parties signed a related Agreement and Plan of Merger,  under which the
Company would acquire all of the outstanding  shares of GBT (the "Merger").  GBT
is a Connecticut  commercial  bank that provides a variety of deposit,  loan and
investments  services to small and medium-sized  businesses and consumers.  As a
result of the Merger,  GBT will become a wholly owned subsidiary of the Company.
The  transaction  will  be  accounted  for  as a  pooling  of  interests  and is
structured  as a tax-free  exchange of 0.74 of a share of the  Company's  common
stock  for each of GBT's  1,829,920  shares  of  common  stock.  The  Merger  is
scheduled to be  completed  by year end 1997,  and is subject to approval of the
shareholders of the Company and GBT as well as various regulatory  agencies.  As
of November 10, 1997 the Federal  Reserve Bank of Boston and the Federal Deposit
Insurance  Corporation  notified the Company that they had no  objections to the
notifications filed by the Company to acquire  GBT.  While the Company  does not
anticipate any undue delays in receiving the remaining regulatory approvals,  as
of  November  10, 1997 the Company had not yet  received  the  approvals  of the
Massachusetts  Board of Bank  Incorporation  and the  Connecticut  Department of
Banking.


                                       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.

On August 18, 1997,  the Company and  Glastonbury  Bank & Trust Company  ("GBT")
signed a definitive  Agreement and Plan of  Reorganization  and on September 12,
1997 the parties signed a related Agreement and Plan of Merger,  under which the
Company would acquire all of the outstanding  shares of GBT (the "Merger").  GBT
is a Connecticut  commercial  bank that provides a variety of deposit,  loan and
investments  services to small and medium-sized  businesses and consumers.  As a
result of the Merger,  GBT will become a wholly owned subsidiary of the Company.
The  transaction  will  be  accounted  for  as a  pooling  of  interests  and is
structured  as a tax-free  exchange of 0.74 of a share of the  Company's  common
stock  for each of GBT's  1,829,920  shares  of  common  stock.  The  Merger  is
scheduled to be  completed  by year end 1997,  and is subject to approval of the
shareholders of the Company and GBT as well as various regulatory  agencies.  As
of November 10, 1997 the Federal  Reserve Bank of Boston and the Federal Deposit
Insurance  Corporation  notified the Company that they had no  objections to the
notifications filed by the Company to acquire  GBT.  While the Company  does not
anticipate any undue delays in receiving the remaining regulatory approvals,  as
of  November  10, 1997 the Company had not yet  received  the  approvals  of the
Massachusetts  Board of Bank  Incorporation  and the  Connecticut  Department of
Banking.

The Company has  conducted a review of its  computer  systems to identify  those
areas that could be  affected  by the "Year  2000"  issue  (i.e.,  that  current
computer  programs  use only two digits to identify a year in the date field and
cannot reflect a change in the century) and is developing an implementation plan
to resolve the issue. A timely resolution of the Year 2000 issue depends largely
upon the expertise and advice of outside vendors and consultants retained by the
Company to both modify  existing  software  and develop new  software to address
current  deficiencies.  The Company is not aware of any obstacles or issues that
are presently  anticipated  in connection  with the  resolution of the Year 2000
issue that are likely to cause significant operational problems or are otherwise
expected to have a material adverse effect on the Company's  financial condition
or future results of operations.

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

The  Company  reported  net  income of $3.2  million,  or $0.57 per share  fully
diluted for the three months ended  September 30, 1997 as compared to net income
of $10.2  million,  or $1.84 per share  fully  diluted  for the same period last
year.  In  1996  financial   results  for  the  quarter  were  affected  by  two
non-recurring  tax events  totaling $8.0 million.  Excluding the impact of these
tax items,  the Company  experienced an increase in pre-tax  operating  earnings
primarily  attributable to increased net interest income and noninterest  income
as well as lower provisions for possible loan losses, partially offset by higher
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 
                                       8
<PAGE>

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>
                                                                         Three Months Ended September 30,
                                          ------------------------------------------------------------------------------------------
                                                              1997                                              1996
                                          ---------------------------------------------     ----------------------------------------
                                                                                                                            Average
                                             Average                         Average           Average                      Yield/
                                             Balance         Interest (1)   Yield/Cost (1)     Balance       Interest (1)   Cost(1)
                                          --------------   --------------- ---------------  --------------   ------------ ----------
                                                                              (Dollars In Thousands)
<S>                                         <C>              <C>                <C>          <C>               <C>            <C>  
Interest-earning assets:
Fed funds sold and short-term investments   $    26,011      $     357           5.37%        $     9,029      $    122        5.29%
Investment securities held to maturity          180,931          3,169           7.01%            193,415         3,279        6.78%
Investment securities available for sale        484,878          8,082           6.67%            353,556         5,975        6.76%
Residential real estate loans                   235,559          4,766           8.09%            241,064         4,764        7.90%
Commercial real estate loans                    120,172          2,606           8.67%            119,211         2,596        8.71%
Commercial loans                                178,298          3,836           8.42%            139,128         3,053        8.59%
Home equity loans                               128,779          2,587           7.97%             87,201         1,834        8.37%
Consumer loans                                    4,534            163          14.38%              4,373           225       20.58%
                                            -----------      ---------         ------         -----------      --------      ------
Total interest-earning assets                 1,359,162         25,566           7.52%          1,146,977        21,848        7.62%

Allowance for loan losses                       (17,550)                                          (15,195)
Non-interest-earning assets                      93,694                                            86,001
                                            -----------                                       -----------                          
Total assets                                $ 1,435,306      $  25,566                        $ 1,217,783      $ 21,848
                                            ===========      =========                        ===========      ========            
Interest-bearing liabilities:
Deposits
  Savings accounts                          $   206,050      $   1,165           2.24%        $   196,741         1,236        2.50%
  NOW accounts (2)                               28,284             73           1.02%             56,639           156        1.10%
  Money manager accounts (2)                     31,572             85           1.07%                  -             -        0.00%
  Money market accounts                         206,880          1,736           3.33%            208,641         1,740        3.32%
  Time deposit accounts                         426,855          5,676           5.28%            389,219         5,137        5.25%
                                            -----------      ---------         ------         -----------      --------      ------
Total interest-bearing deposits                 899,641          8,735           3.85%            851,240         8,269        3.86%

Borrowed funds                                  283,242          4,258           5.88%            162,513         2,292        5.52%
                                            -----------      ---------         ------         -----------      --------      ------

Total interest-bearing liabilities            1,182,883         12,993           4.36%          1,013,753        10,561        4.14%
Non-interest-bearing liabilities                150,676                                           115,809
                                            -----------                                       -----------  
Total liabilities                             1,333,559                                         1,129,562
Total stockholders' equity                      101,747                                            88,221
                                            -----------                                       -----------  
    Total liabilities and 
       stockholders' equity                 $ 1,435,306      $  12,993                        $ 1,217,783      $ 10,561
                                            ===========      =========                        ===========      ========     

Net interest income/spread                                   $  12,573           3.16%                         $ 11,287        3.48%
                                                             =========         ======                          ========      ======

Net interest margin as a % of interest-
  earning assets                                                                 3.70%                                         3.94%
                                                                               ======                                        ======

Tax equivalent adjustment                                    $      63                                         $     42
                                                             ---------                                         --------            
Net interest income/spread per Condensed Consolidated
  Statement of Operations                                    $  12,510                                         $ 11,245
                                                             =========                                         ========  
<FN>
(1)      On a fully taxable equivalent basis. Calculated using a Federal income tax rate of 34% for 1997 and 1996.
(2)      During July 1997, the Company implemented a program which converted certain NOW accounts to money manager accounts.  This
         program  has no effect on the  Company's  depositors,  but has  provided  additional  investable  funds to the Company by
         substantially reducing the reserve balances required to be maintained at the Federal Reserve Bank of Boston.
</FN>
</TABLE>

Net interest  income on a fully  taxable  equivalent  basis for the three months
ended  September  30, 1997 was $12.6  million  compared to $11.3 million for the
three months  ended  September  30, 1996,  an increase of $1.3 million or 11.4%.
This  increase was  primarily  the result of higher  levels of interest  earning
assets  partially  offset by a decrease of 24 basis  points in the net  interest
margin  to 3.70%  for the three  months  ended  September  30,  1997 from  3.94%
reported for the same period last year.

Total interest income was $25.6 million on a fully taxable  equivalent basis for
the three months ended  September 30, 1997, an increase of $3.7 million or 17.0%
from  the  same  period  last  year  primarily  due to an  increase  in  average
interest-earning assets. Average interest-earning assets totaled $1.4 billion in
the third quarter of 1997 compared to $1.1 billion in the third quarter of 1996,
an increase  of $212.2  million or 18.5%.  Total  investments  increased  $118.8
million and were funded by higher deposit levels and borrowed funds. Total loans
increased $76.4 million as the Company  continued to focus on the commercial and
home  equity  market  segments,  which grew by $39.2  million or 28.2% and $41.6
million or 47.7%,  respectively.  Residential real estate loan balances declined
$5.5 million or 2.3% for 

                                       9
<PAGE>

the  three  months  ended  September  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 $13.0 million for the three months ended  September
30, 1997 compared to $10.6  million  during the same period in 1996, an increase
of $2.4  million  or 23.0%.  This  increase  is  attributable  to  increases  in
interest-bearing  deposits and borrowed funds. Average interest-bearing deposits
totaled  $899.6  million for the quarter  ended  September  30, 1997 compared to
$851.2  million  for the same period in 1996,  an  increase of $48.4  million or
5.7%.  This growth  occurred  primarily in time deposits which  increased  $37.6
million  largely due to growth in corporate  jumbo CD balances.  Borrowed  funds
averaged  $283.2 million for the three months ended  September 30, 1997 compared
to $162.5 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  as well as the match  funding  of  certain  fixed  rate
commercial loans.

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 September 30,
                                                          1997 versus 1996
                                                --------------------------------
                                                    Increase (Decrease) Due to
                                                --------------------------------
                                                    Volume     Rate        Net
                                                -----------  --------  ---------
Interest-earning assets:
  Federal funds sold and
     interest bearing deposits                    $   231    $     4    $   235
  Investment securities held to maturity             (215)       105       (110)
  Investment securities available for sale          2,204        (98)     2,106
  Residential real estate loans                      (110)       112          2
  Commercial real estate loans                         21        (11)        10
  Commercial loans                                    851        (68)       783
  Home equity loans                                   855       (102)       753
  Consumer loans                                        7        (69)       (62)
                                                  -------    -------    -------
Total interest-earning assets                       3,844       (126)     3,718
                                                  -------    -------    -------
Interest-bearing liabilities:
Deposits:
  Savings accounts                                     56       (127)       (71)
  NOW accounts                                        (76)        (7)       (83)
  Money manager account                                42         43         85
  Money market accounts                               (15)        11         (4)
  Time deposit accounts                               499         40        539
                                                  -------    -------    -------
Total deposits                                        506        (40)       466

Borrowed funds                                      1,759        207      1,966
                                                  -------    -------    -------
Total interest-bearing liabilities                  2,265        167      2,432
                                                  -------    -------    -------
Change in net interest income                     $ 1,579    $  (293)   $ 1,286
                                                  =======    =======    =======

Provision for Possible Loan Losses
The Company's  provision for possible loan losses was $0.4 million for the third
quarter  of 1997  compared  to $0.8  million in the third  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
                                                       September 30,
                                                -----------------------------
                                                     1997            1996
                                                -----------       -----------

Net gain on sale of loans                         $  136             $  105
Net gain on sale of securities                        10                 62
Loan charges and fees                                764                943
Deposit related fees                               1,801              1,592
Other charges and fees                               592                226
                                                  ------             ------
                                                  $3,303             $2,928
                                                  ======             ======

Non-interest  income totaled $3.3 million for the third quarter of 1997 compared
to $2.9  million  for the same period in 1996,  an  increase of $0.4  million or
12.8%.  Deposit  related fees increased $0.2 million due to fees associated with
the Company's larger  non-interest  bearing deposit base. Other charges and fees
are up $0.4 million due to a recovery of $0.2 million paid by the  Massachusetts
Thrift Fund for Economic Development, Inc. and $0.1 million from fees associated
with Business Manager,  a commercial cash management  product  introduced by the
Company  in  1997,  which  involves  the  funding  and  management  of  accounts
receivable for small-to-medium  sized business customers.  Loan charges and fees
declined $0.2 million reflecting a decline in commercial loan prepayment fees.

Non-interest Expense

Salaries and Benefits Expense
Salaries and benefits expense totaled $5.0 million for the third quarter of 1997
compared  to $4.4  million  for the same  period in 1996,  an  increase  of $0.6
million reflecting standard wage increases as well as increased staffing related
to new branch openings and branch related support.

Occupancy Expense of Bank Premises
Occupancy  expense of bank  premises  totaled $1.0 million for the third quarter
1997  compared to $0.8 million for the same period in 1996,  an increase of $0.2
million.  This increase is primarily due to costs  associated with the expansion
of the retail branch network which includes the opening of five new branches and
the addition of three stand alone ATMs since January 1, 1996.

                                       11
<PAGE>

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


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

Marketing                                     $  421           $  694
Insurance                                        126               93
Professional services                            711              854
Outside processing                             1,220            1,035
Other                                          1,273            1,170
                                              ------           ------
                                              $3,751           $3,846
                                              ======           ======
                                                       

Other  operating  expenses  totaled $3.8 million for both the third  quarters of
1997 and 1996.  The $0.3  million  decrease  in  marketing  expense  reflects  a
television  advertising campaign in 1996 directed towards the Company's consumer
strategy. Professional services expense decreased $0.1 million, primarily due to
lower levels of legal,  consulting,  and audit and accounting expenses.  Outside
processing  expense 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 remained relatively
flat for the three months ended  September  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 its 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 zero  for the  three  months  ended
September  30,  1997  and  September  30,  1996,  respectively,  reflect  normal
operating results.

Income Taxes
For the three months ended  September 30, 1997 the Company  recorded  income tax
expense of $1.9 million  compared with an income tax benefit of $6.4 million for
the three months ended September 30, 1996. The tax benefit recorded in the third
quarter  1996 was  influenced  by two  non-recurring  tax events  totaling  $8.0
million.  Exclusive  of these  events  the  increase  in income  tax  expense is
attributable to a 35.3% increase in pre-tax earnings.

                                       12
<PAGE>

Results of Operations for the Nine Months Ended September 30, 1997 and September
30, 1996

The  Company  reported  net  income of $8.9  million,  or $1.58 per share  fully
diluted for the nine months ended  September  30, 1997 as compared to net income
of $15.7  million,  or $2.82 per share  fully  diluted  for the same period last
year.  Net  income in 1996 was  positively  impacted  by two  non-recurring  tax
benefits  totaling  $8.0 million.  Excluding the impact of these tax items,  the
Company   experienced  an  increase  in  pre-tax  operating  earnings  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.

                                       13
<PAGE>
<TABLE>
<CAPTION>


                                                                              Nine Months Ended September 30,
                                             ---------------------------------------------------------------------------------------
                                                                  1997                                        1996
                                             ---------------------------------------------  ----------------------------------------
                                                                                Average                                      Average
                                                 Average                        Yield/           Average                     Yield/
                                                 Balance          Interest (1)  Cost (1)         Balance       Interest (1) Cost (1)
                                             ----------------   -------------- -----------  ---------------  -------------- --------
                                                                                   (Dollars In Thousands)
<S>                                            <C>                <C>            <C>         <C>                <C>           <C>  
Interest-earning assets:
Fed funds sold and short-term investments      $      17,812      $     716       5.30%      $       9,404      $    380       5.31%
Investment securities held to maturity               188,102          9,849       6.98%            186,354         9,494       6.79%
Investment securities available for sale             478,910         24,323       6.77%            312,169        15,318       6.54%
Residential real estate loans                        236,184         14,242       8.04%            246,932        14,557       7.86%
Commercial real estate loans                         116,200          7,625       8.75%            119,139         7,613       8.52%
Commercial loans                                     172,794         11,173       8.53%            126,587         8,386       8.70%
Home equity loans                                    116,389          6,903       7.93%             77,748         4,911       8.44%
Consumer loans                                         4,445            426      12.78%              6,103           479      10.48%
                                               -------------      ---------     ------       -------------      --------     ------

Total interest-earning assets                      1,330,836         75,257       7.54%          1,084,436        61,138       7.52%

Allowance for loan losses                            (16,633)                                      (15,255)
Non-interest-earning assets                           92,059                                        83,851
                                               -------------                                 -------------                         
Total assets                                   $   1,406,262      $  75,257                  $   1,153,032      $ 61,138
                                               =============      =========                  =============      ========          

Interest-bearing liabilities:
Deposits
  Savings accounts                             $     203,728 $        3,424       2.25%      $     193,874 $       3,631       2.50%
  NOW accounts (2)                                    48,405            365       1.01%             56,101           485       1.15%
  Money manager accounts (2)                          10,640             85       1.07%                  -             -          -
  Money market accounts                              205,972          5,116       3.32%            206,425         5,137       3.32%
  Time deposit accounts                              423,703         16,623       5.25%            377,253        15,085       5.34%
                                               -------------      ---------     ------       -------------      --------     ------
Total interest-bearing deposits                      892,448         25,613       3.84%            833,653        24,338       3.90%

Borrowed funds                                       271,801         11,782       5.72%            129,272         5,439       5.53%
                                               -------------      ---------     ------       -------------      --------     ------

Total interest-bearing liabilities                 1,164,249         37,395       4.29%            962,925        29,777       4.13%
Non-interest-bearing liabilities                     141,045                                       106,574
                                               -------------                                 -------------   
Total liabilities                                  1,305,294                                     1,069,499
Total stockholders' equity                           100,968                                        83,533
                                               -------------                                 -------------   
    Total liabilities and 
      stockholders' equity                     $   1,406,262      $  37,395                  $   1,153,032      $ 29,777
                                               =============      =========                  =============      ========           

Net interest income/spread                                        $  37,862       3.25%                         $ 31,361       3.39%
                                                                  =========     ======                          ========     ======

Net interest margin as a % of interest-
  earning assets                                                                  3.79%                                        3.86%
                                                                                ======                                       ======

Tax equivalent adjustment                                         $     303                                     $     88
                                                                  ---------                                     --------    
Net interest income/spread per Condensed Consolidated
  Statement of Operations                                         $  37,559                                     $ 31,273
                                                                  =========                                     ======== 
<FN>
(1)      On a fully taxable equivalent basis. Calculated using a Federal income tax rate of 34% for 1997 and 1996.

(2)      During July 1997, the Company  implemented a program which converted certain NOW accounts to money manager  accounts.  This
         program  has no effect on the  Company's  depositors,  but has  provided  additional  investable  funds to the  Company  by
         substantially reducing the reserve balances required to be maintained at the Federal Reserve Bank of Boston.
</FN>
</TABLE>

Net  interest  income on a fully  taxable  equivalent  basis for the nine months
ended  September  30, 1997 was $37.9  million  compared to $31.4 million for the
nine months ended September 30, 1997, an increase of $6.5 million or 20.7%. This
increase was primarily the result of higher  levels of interest  earning  assets
partially  offset by a decrease of 7 basis points in the net interest  margin to
3.79% for the period ended  September 30, 1997 from 3.86%  reported for the same
period last year.

Total interest income was $75.3 million on a fully taxable  equivalent basis for
the nine months ended  September 30, 1997, an increase of $14.1 million or 23.1%
from  the  same  period  last  year  primarily  due to an  increase  in  average
interest-earning  assets. Average  interest-earning  assets totaled $1.3 billion
for the nine months ended  September  30, 1997  compared to $1.1 billion for the
same period in 1996, an increase of $246.4 million or 22.7%.  Total  investments
increased  $168.5  million and were funded by higher deposit levels and borrowed
funds.  Total loans increased $69.5 million as the Company continued to focus on
the commercial and home equity market  segments,  which grew by $46.2 million or
36.5% and $38.6  million or 49.7%,  respectively.  Residential  real estate loan
balances  declined $10.7 million or 4.4% for the nine months ended September 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.

                                       14
<PAGE>


Total interest expense was $37.4 million for the nine months ended September 30,
1997  compared to $29.8  million  during the same period in 1996, an increase of
$7.6  million  or  25.6%.   This  increase  is   attributable  to  increases  in
interest-bearing  deposits and borrowed funds. Average interest-bearing deposits
totaled $892.4 million for the nine months ended  September 30, 1997 compared to
$833.7  million  for the same period in 1996,  an  increase of $58.8  million or
7.1%.  This growth  occurred  primarily in time deposits which  increased  $46.5
million largely  attributable to the  introduction of new CD products as well as
growth in the  corporate  jumbo CD portfolio.  Borrowed  funds  averaged  $271.8
million for the nine months ended  September 30, 1997 compared to $129.3 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 as well as the match
funding of certain fixed rate commercial loans.

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.

                                                                   
                                              Nine Months Ended September 30,
                                                      1997 versus 1996      
                                              ---------------------------------
                                                 Increase (Decrease) Due to  
                                              ---------------------------------
                                                  Volume     Rate        Net  
                                              -----------  ---------  ---------
                                                     (Dollars In Thousands)
Interest-earning assets:
  Federal funds sold and
     short term investments                    $    339    $     (3)   $    336
  Investment securities held to maturity             90         265         355
  Investment securities available for sale        8,325         680       9,005
  Residential real estate loans                    (641)        326        (315)
  Commercial real estate loans                     (190)        202          12
  Commercial loans                                3,025        (238)      2,787
  Home equity loans                               2,366        (374)      1,992
  Consumer loans                                   (145)         92         (53)
                                               --------    --------    --------
Total interest-earning assets                    13,169         950      14,119
                                               --------    --------    --------
Interest-bearing liabilities:
Deposits:
  Savings accounts                                  175        (382)       (207)
  NOW accounts                                      (62)        (58)       (120)
  Money manager accounts                             42          43          85
  Money market accounts                             (11)        (10)        (21)
  Time deposit accounts                           1,840        (302)      1,538
                                               --------    --------    --------
Total deposits                                    1,984        (709)      1,275
Borrowed funds                                    6,087         256       6,343
                                               --------    --------    --------
Total interest-bearing liabilities                8,071        (453)      7,618
                                               --------    --------    --------
Change in net interest income                  $  5,098    $  1,403    $  6,501
                                               ========    ========    ========


Provision for Possible Loan Losses
The  Company's  provision for possible loan losses was $1.2 million for the nine
months ended  September 30, 1997 compared to $2.2 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.

                                       15
<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:
                                                      Nine months ended
                                                        September 30,
                                                  ------------------------
                                                    1997           1996
                                                  ---------      --------

Net gain on sale of loans                          $  328         $  537
Net gain on sale of securities                         21             64
Loan charges and fees                               2,145          2,404
Deposit related fees                                5,095          4,539
Other charges and fees                              1,293            702
                                                   ------         ------
                                                   $8,882         $8,246
                                                   ======         ======

Non-interest income totaled $8.9 million for the nine months ended September 30,
1997  compared to $8.2 million for the same period in 1996,  an increase of $0.6
million or 7.7%.  Deposit fees grew $0.6 million due to fees associated with the
Company's  larger  non-interest  bearing  deposit  base.  Other charges and fees
increased $0.5 million due to $0.2 million in fees  associated with the Business
Manager, a commercial cash management product introduced by the Company in 1997,
a recovery of $0.2  million paid by the  Massachusetts  Thrift Fund for Economic
Development,  Inc.,  and a $0.1  million  increase  in fees  earned  in sales of
non-deposit  investment  products.  Loan charges and fees decreased $0.3 million
due to lower mortgage  servicing fees and commercial loan  prepayment  fees. Net
gain on sale of loans decreased $0.2 million due to lower production and sale of
fixed rate single family residential mortgage loans.

Non-interest Expense

Salaries and Benefits Expense
Salaries and benefits  expense  totaled  $14.6 million for the nine months ended
September  30, 1997  compared to $12.9  million for the same period in 1996,  an
increase of $1.7 million  reflecting  standard wage  increases,  higher Employee
Stock  Ownership  Plan  ("ESOP")  expenses  resulting  from an  increase  in the
Company's stock price and additional staffing related to new branch openings and
branch related support.

Occupancy Expense of Bank Premises
Occupancy  expense of bank  premises  totaled  $2.9  million for the nine months
ended  September  30, 1997 compared to $2.4 million for the same period in 1996,
an increase of $0.5 million.  This increase is primarily due to costs associated
with the  expansion of the retail branch  network which  includes the opening of
five new branches  and the  addition of three stand alone ATMs since  January 1,
1996.

                                       16
<PAGE>



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

                                                      Nine months ended
                                                        September 30,
                                                  ------------------------
                                                    1997           1996
                                                  ---------      --------

Marketing                                          $ 1,418       $ 1,446
Insurance                                              396           287
Professional services                                2,067         2,344
Outside processing                                   3,497         3,090
Other                                                3,614         3,450
                                                   -------       -------
                                                   $10,992       $10,617
                                                   =======       =======


Other  operating  expenses  totaled  $11.0  million  for the nine  months  ended
September  30, 1997  compared to $10.6  million for the same period in 1996,  an
increase  of  $0.4  million.  Outside  processing  expense  grew  $0.4  million,
reflecting  higher  transaction and account volume  resulting from the Company's
consumer  strategy.   Professional   services  expense  declined  $0.3  million,
primarily  due to lower levels of legal,  consulting,  and audit and  accounting
expenses.  Insurance  expense was up $0.1  million due to higher FDIC  insurance
premiums.

Foreclosed Real Estate Expense
Foreclosed  real estate  expense  reflects  losses on sales,  writedowns and net
operating results of foreclosed properties. These expenses were $0.1 million for
the nine months ended  September  30, 1997 compared to $0.3 million for the same
period in 1996. This $0.2 million decrease reflects  increased gains on the sale
of  foreclosed  properties  during the nine months ended  September  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 $0.4 million for the nine
months ended  September  30, 1997,  an increase of $0.6 million  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  September  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 nine months ended  September  30, 1997 the Company  recorded  income tax
expense of $5.7 million  compared with an income tax benefit of $5.9 million for
the nine months ended  September 30, 1996. The tax benefit  recorded in 1996 was
impacted by two  non-recurring  tax events  totaling $8.0 million.  Exclusive of
these  events the  increase  in income tax  expense  is  attributable  to a $4.9
million or 50.8% increase in pre-tax earnings.

                                       17
<PAGE>

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

Total assets increased from $1.3 billion at December 31, 1996 to $1.5 billion at
September  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 $43.7 million from $641.5 million
at December 31, 1996 to $685.2 million at September 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, FHLB
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>
                                                                September 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   $ 11,310           $ 11,322           $   --             $   --   
Collateralized mortgage obligations        26,523             26,565               --                 --
Mortgage-backed securities                436,938            440,417            134,237            134,365
Asset-backed securities                      --                 --               47,883             47,972
Other bonds and short term obligations       --                 --                  200                200
Other securities                           23,878             24,564               --                 --
                                         --------           --------           --------           --------
    Total                                $498,649           $502,868           $182,320           $182,537
                                         ========           ========           ========           ========
<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>
                                       18
<PAGE>

Loan Portfolio Composition
Gross loans  comprised  $686.3  million or 47.2% of total assets as of September
30, 1997. The following  table sets forth  information  concerning the Company's
loan portfolio in dollar amounts and  percentages,  by type of loan at September
30, 1997 and at December 31, 1996.
<TABLE>
<CAPTION>

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

                                                                    
<S>                                <C>             <C>                  <C>            <C>   
Residential real estate loans      $237,623        34.62%               $242,410       38.79%
Commercial real estate loans        121,355        17.68%                118,442       18.95%
Commercial loans                    189,440        27.60%                155,808       24.93%
Home equity loans                   133,049        19.39%                104,206       16.67%
Consumer loans                        4,841         0.71%                  4,132        0.66%
                                   --------       ------                --------      ------
   Total loans receivable, gross    686,308       100.00%                624,998      100.00%
                                   --------       ------                --------      ------
Less:                                                           
Unearned income and fees             (2,141)                              (1,196)
Allowance for loan losses            18,393                               15,597
                                   --------                             --------            
   Total loans receivable, net     $670,056                             $610,597
                                   ========                             ======== 

</TABLE>


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 nine months ended  September 30,
1997, the Company  experienced an increase in prepayments in its adjustable rate
mortgage portfolio.  These prepayments offset new originations and resulted in a
$4.8 million  decrease in residential  real estate balances between December 31,
1996 and September 30, 1997.

During the nine months  ended  September  30,  1997,  commercial  loan  balances
increased  $33.6 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 $2.9 million  primarily due to new originations,
partially offset by prepayments.

Home equity loans  outstanding  have increased  $28.8 million since December 31,
1996.  Management  attributes  this  increase to the active  promotion  of these
products.

Non-performing Assets
Non-performing  assets totaled $4.9 million as of September 30, 1997 compared to
$7.6 million as of December 31, 1996, a decrease of $2.7 million or 35.8%.

                                       19
<PAGE>



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

                                             September 30,      December 31,
                                                 1997              1996
                                            ---------------   ---------------
                                                 (Dollars In Thousands)
Non-accrual loans (1):
   Residential real estate loans                  $1,703             $1,287
   Commercial real estate loans                      899              4,428
   Commercial loans                                1,368                674
   Home equity loans                                  81                157
   Consumer loans                                      7                  1
                                                  ------             ------
   Total non-accrual loans                         4,058              6,547
                                                  ------             ------
                                                                  
Loans past due 90 days still accruing (2)            121                428  
                                                  ------             ------
   Total non-performing loans                      4,179              6,975
Foreclosed real estate (3)                           199                381
Restructured loans on accrual status (4)             475                198
                                                  ------             ------
   Total non-performing assets                    $4,853             $7,554
                                                  ======             ======
                                                          
Total non-performing loans to total
   gross loans                                      0.61%              1.12%

Total non-performing assets to total
   assets                                           0.33%              0.56%

Allowance for possible losses to
   non-performing loans                           440.13%            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  Compamy  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).


                                       20
<PAGE>

The  principal  amount  of  non-performing  loans  aggregated  $4.2  million  at
September  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 $0.7 million
for the nine months ended  September 30, 1997 and 1996,  respectively.  Interest
income  recorded on these loans for the nine months ended September 30, 1997 and
1996 was $0.3 million and $0.6 million, respectively

The principal amount of restructured  loans aggregated $0.5 million at September
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 $33 thousand and $15 thousand for the periods ended  September
30,  1997 and  1996,  respectively.  Interest  income  recorded  on these  loans
amounted to $33 thousand and $2 thousand for the nine months ended September 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  conditions  in the  obligor's
operations  or financial  condition  weaknesses.  Watch list loans  totaled $9.1
million  and  $18.1  million  at  September  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,  of
which  the  Company  has  none,  have all of 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 values,  "improbable."  Loans  characterized  as
loss, of which the Company has none, are those considered "uncollectible" and of
such little value that their  continuance  as bankable  assets is not warranted.
Classified loans, all of which are categorized substandard, totaled $5.5 million
and $7.6  million at September  30, 1997 and  December  31, 1996,  respectively.
Included in these  amounts are $4.1 million and $6.5 million of loans which have
been  reported as  non-performing  assets at September 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 September  30, 1997 was $18.4  million,  compared to $14.9  million at
September  30, 1996  reflecting  both reduced  provisions  and  charge-offs  and
increased  recoveries during the 1997 period.  The activity in the allowance for
possible  loan losses for the nine months ended  September 30, 1997 and 1996 was
as follows:

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                                        Nine Months Ended
                                                                           September 30,
                                                                   --------------------------
                                                                       1997            1996
                                                                   ----------      ----------
                                                                      (Dollars In Thousands)

<S>                                                                <C>              <C>      
Balance, beginning of period                                       $ 15,597         $ 14,986 
Provision for loan losses                                             1,203            2,200
Charge-offs:                                                   
  Residential real estate loans                                        (195)            (755)
  Commercial real estate loans                                         (721)          (2,255)
  Commercial loans                                                     (387)            (355)
  Home equity loans                                                    (113)            (190)
  Consumer loans                                                       (196)             (61)
                                                                   --------         --------
    Total charge-offs                                                (1,612)          (3,616)
Recoveries:                                                    
  Residential real estate loans                                           1              594
  Commercial real estate loans                                        2,821            1,036
  Commercial loans                                                      272              163
  Home equity loans                                                      80               98
  Consumer loans                                                         31               27
                                                                   --------         --------
    Total recoveries                                                  3,205            1,918
                                                                   --------         --------
Net recoveries/(charge-offs)                                          1,593           (1,698)
Balance, end of period                                             $ 18,393         $ 15,488
                                                                   ========         ========
                                                  
Ratio of net loan recoveries/(charge-offs) during the period to
    average loans outstanding during the period                        0.25%           (0.29%)
Ratio of allowance for possible loan losses to total loans
    at the end of the period                                           2.68%            2.55%
Ratio of allowance for possible loan losses to non-performing
    loans at the end of the period                                   440.13%          249.65%
</TABLE>


In  August  1997,  the  Company   received  payment  of  $3.0  million  in  full
satisfaction  of a  commercial  real estate loan with a net book balance of $1.1
million.  Accordingly,  $1.9 million was recorded as a recovery to the allowance
for possible loan losses.

At September  30, 1997,  the recorded  investment  in loans that are  considered
impaired  under SFAS 114  "Accounting by Creditors for Impairment of a Loan" was
$3.7  million.  Included  in this amount is $1.0  million of impaired  loans for
which the  related  SFAS 114  allowance  is $0.3  million  and $2.7  million  of
impaired  loans for which the SFAS 114 allowance is zero.  The average  recorded
investment  in impaired  loans during the three and nine months ended  September
30, 1997 was approximately $7.9 million and $8.7 million,  respectively. For the
three and nine month periods ended  September 30, 1997,  the Company  recognized
interest  income  on these  impaired  loans of $0.2  million  and $0.5  million,
respectively.

                                       22
<PAGE>


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 loss.
<TABLE>
<CAPTION>

                                                     September 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              $ 2,842                 15.45%          $ 1,540                  9.87%
Commercial real estate loans                 5,542                 30.13%            5,808                 37.24%
Commercial loans                             6,875                 37.38%            6,711                 43.03%
Home equity loans                            2,391                 13.00%            1,207                  7.74%
Consumer loans                                 743                  4.04%              331                  2.12%
                                           -------                ------           -------                ------
Total allowance for possible loan losses   $18,393                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 September  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  September  30,  1997  compared to $969.5
million at December 31, 1996, an increase of $52.1 million or 5.4%.  This growth
occurred  primarily in demand  deposits,  savings  accounts  and time  deposits.
Demand deposits and savings  accounts  increased $18.7 million and $8.6 million,
respectively,  as  customers  continue to take  advantage  of free  checking and
savings 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  $23.7  million  growth  in time  deposits  is  primarily
attributable  to the  introduction  of new  consumer CD  products  and growth in
corporate jumbo CD balances.

                                       23
<PAGE>


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

<TABLE>
<CAPTION>
                                        September 30, 1997                  December 31, 1996
                                  ---------------------------          -------------------------
                                                  Percent of                          Percent of
                                     Amount         Total                Amount         Total
                                  -----------    -----------           ----------     ----------
                                                        (Dollars In Thousands)
                                                                    
<S>                                <C>             <C>                  <C>            <C>   
Demand deposits                     $  119,220      11.67%               $100,527        10.37% 
NOW accounts (1)                        25,736       2.52%                 57,980         5.98% 
Money manager accounts (1)              37,718       3.69%                   --            --   
Savings accounts                       203,986      19.97%                195,418        20.16% 
Money market accounts                  205,135      20.08%                209,523        21.61% 
Time deposits                          429,818      42.07%                406,069        41.88% 
                                    ----------     ------              ----------       ------  
  Total deposits                    $1,021,613     100.00%             $  969,517       100.00% 
                                    ==========     ======              ==========       ====== 
<FN>
(1)      During July 1997, the Company  implemented a program which converted certain Now accounts to money manager  accounts.  This
         program  has no effect on the  Company's  depositors,  but has  provided  additional  investable  funds to the  Company  by
         substantially reducing the reserve balances required to be maintained at the Federal Reserve Bank of Boston.
</FN>
</TABLE>

Borrowings
Borrowings  consist  of FHLB  advances,  securities  sold  under  agreements  to
repurchase,  and loans  payable  related  to the  Company's  ESOP.  The  Company
generally  uses  borrowings to fund loan growth and to leverage a portion of its
capital  position.  Borrowings  increased  $38.0 million from $247.9  million at
December 31, 1996 to $285.9  million at September 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 September 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.

                                       24

<PAGE>

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 September 30, 1997:

Tier I Capital (to Average Assets)
   Company                                 $102,169      7.1%     $ 57,412     4.0%        N/A
   Bank                                    $100,047      7.0%     $ 57,346     4.0%     $ 71,682      5.0%
Tier I Capital (to Risk Weighted Assets)                                               
   Company                                 $102,169     11.8%     $ 34,592     4.0%     $ 51,888      6.0%
   Bank                                    $100,047     11.6%     $ 34,545     4.0%     $ 51,818      6.0%
Total Capital (to Risk Weighted Assets)                                                
   Company                                 $113,058     13.1%     $ 69,184     8.0%     $ 86,480     10.0%
   Bank                                    $110,936     12.9%     $ 69,090     8.0%     $ 86,363     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>


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
liability  sensitive by $14.1  million or 0.97% of total assets at September 30,
1997.  The  following  table  sets forth the  amounts of assets and  liabilities
outstanding  at September  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.

                                       25

<PAGE>
<TABLE>
<CAPTION>
                                                                                   GAP Position
                                                                               At September 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                     $    6,692         $     --            $     --         $     --       $    6,692
Investment securities                               315,171            146,524             200,693           22,800        685,188
Residential real estate loans                        63,010             52,043             108,204           13,020        236,277
Commercial real estate loans                         28,350             17,607              65,985            8,537        120,479
Commercial loans                                     74,112              9,423              91,791           13,226        188,552
Home equity loans                                   103,788              1,696              17,260           11,513        134,257
Consumer loans                                        4,443                 35                 125              223          4,826
Other assets                                           --                 --                  --             76,746         76,746
                                                 ----------         ----------          ----------       ----------     ----------
Total assets                                     $  595,566         $  227,328          $  484,058       $  146,065     $1,453,017
                                                 ==========         ==========          ==========       ==========     ==========
Liabilities & stockholders' equity:                                                                                    
Savings accounts                                 $   30,598         $   30,598             142,790       $     --       $  203,986
NOW accounts                                          9,518              9,518              44,418             --           63,454
Money market accounts                                62,652             61,064              81,419             --          205,135
Time deposits                                       249,620            104,311              75,887             --          429,818
Borrowed funds                                      167,487             64,018              54,350             --          285,855
Other liabilities & stockholders' equity             23,818             23,818              71,452          145,681        264,769
                                                 ----------         ----------          ----------       ----------     ----------
                                                                                                                       
Total liabilities & stockholders' equity         $  543,693         $  293,327          $  470,316       $  145,681     $1,453,017
                                                 ==========         ==========          ==========       ==========     ==========
Period GAP position                              $   51,873         $  (65,999)         $   13,742       $      384

Net period GAP as a percentage of total assets         3.57%            (4.54%)             (0.95%)            0.03%

Cumulative GAP                                   $   51,873         $  (14,126)         $     (384)               -

Cumulative GAP as a percentage of total assets         3.57%            (0.97%)             (0.03%)               -

Cumulative GAP as a percentage of total
   interest-earning assets                             3.77%            (1.03%)             (0.03%)               -

Cumulative interest-earning assets as a
   percentage of cumulative interest-bearing         114.56%            104.25%             109.99%               -
   liabilities
</TABLE>
For purposes of the above interest sensitivity analysis:

         Residential  loans held for sale at September  30, 1997  totaling  $9.4
         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 $4.1 million.

         Loans do not include the allowance for loan loss of $18.4 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 $119.2 million are
                           included  in other  liabilities  and are  assumed  to
                           decay at an annual rate of 40%.

                                       26
<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.

                                       27
<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
         Not applicable

Item 5.  Other Information

The Company has filed a Form S-3 registration  statement with the Securities and
Exchange  Commission  ("SEC")  relating  to the  proposed  sale of up to 146,400
shares out of treasury stock.  This sale would occur prior to the acquisition of
Glastonbury  Bank & Trust  Company  ("GBT") and is meant to reduce the  treasury
shares to a level that will qualify the acquisition for pooling  treatment under
applicable  accounting rules. The Company has also filed a Form S-4 registration
statement  relating to its  contemplated  issuance of up to 1,354,141  shares of
stock to GBT shareholders in connection with the pending acquisition of GBT.

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits:

 Exhibit No.       Exhibit                                             Location

    (2.1)    Agreement and Plan of Reorganization dated August 18, 1997    (i)
             relating to the acquisition by the Company of
             Glastonbury Bank & Trust Company

    (2.2)    Agreement and Plan of Merger dated September 12, 1997        (ii)
             relating to the acquisition by the Company of
             Glastonbury Bank & Trust Company

Locations of Exhibits if not attached hereto:

(i)      Incorporated  by  reference  to  Exhibit  2.1 to Form S-4  registration
         statement filed with the SEC on October 28, 1997.
(ii)     Incorporated  by  reference  to  Exhibit  2.2 to Form S-4  registration
         statement filed with the SEC on October 28, 1997.


(b)      Reports on Form 8-K

         (1) On  August  18,  1997,  a Form  8-K was  filed  with the SEC by the
         Company relating to (i) an Agreement and Plan of Reorganization entered
         into  by the  Company  and  Glastonbury  Bank &  Trust  Company,  which
         provides  for  the  acquisition  of GBT by the  Company  and  (ii)  the
         rescinding  of  the  Company's  stock  repurchase   program  which  had
         originally been authorized in January of 1997.

         (2) On  October  22,  1997,  a Form 8-K was  filed  with the SEC by the
         Company  relating to the Company's  10/22/97  press release  containing
         unaudited financial  information and announcing a cash dividend for the
         quarter ending 9/30/97 along with information relating to the Company's
         previously announced acquisition of Glastonbury Bank & Trust Company.

                                       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)


November 14, 1997                       /s/  F. William Marshall, Jr.
Date                                    F. William Marshall, Jr.
                                        President and Chief Executive Officer




November 14, 1997                       /s/  John F. Treanor
Date                                    John F. Treanor
                                        Executive Vice President
                                        and Chief Financial Officer