**Click here for Contents**

***FORM 10-Q***

|  |
|--|
|  |
|  |

United States Securities and Exchange Commission  Washington, DC 20549  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934  For the Quarterly Period Ended September 30, 2002  Commission File Number 001–13405

 

**ALLIANCE BANCORP OF NEW ENGLAND, INC.**

Incorporated in the State of Delaware  IRS Employer Identification Number 06–1495617  Address and Telephone:       348 Hartford Turnpike, Vernon, Connecticut 06066,  (860) 875–2500

Securities registered pursuant to Section 12(b)  of the Act: Common Stock – $.01 par value, which is registered on the American  Stock Exchange.

Alliance Bancorp of New England (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 and (2) has been subject to such  filing requirements for the past 90 days.

As of November 8, 2002, Alliance Bancorp of New  England had 2,589,333 shares of common stock outstanding.

 

**TABLE OF CONTENTS   **

|               |                                                                |   |                                                                  | **Page** |
|--------------------|---------------------------------------------------------------------|--------|-----------------------------------------------------------------------|----------|
| **Table**          | **Consolidated      Selected Financial Data**                       | 2      |
| **Part I**         | **Financial Information**                                           |   |
| **Item 1**         | **Financial Statements**                                            |   |
|               |                                                                |   | Consolidated Balance Sheets                                           | 3        |
|               |                                                                |   | Consolidated Income Statements                                        | 4        |
|               |                                                                |   | Consolidated Statements of      Changes in Shareholders’ Equity | 5        |
|               |                                                                |   | Consolidated Statements of      Cash Flows                            | 6        |
|               |                                                                |   | Notes to Consolidated Financial      Statements                       | 7        |
| **Item 2**         | **Management’s      Discussion and Analysis**                 |   |
|               |                                                                |   | **of Financial Condition      and Results of Operations**             | 10       |
| **Item 3**         | **Quantitative      and Qualitative Disclosures About Market Risk** | 16     |
| **Item 4**         | **Controls and      Procedures**                                    | 16     |
| **Part II**        | **Other Information**                                               | 16     |
| **Table**          | **Average Balance      Sheet and Interest Rates**                   | 17     |
| **Signatures**     |                                                                |   |                                                                  | 18       |
| **Certifications** |                                                                |   |                                                                  | 19       |

1

----

**Back to Contents**

**Alliance Bancorp of New England, Inc.  Consolidated Selected Financial Data (Unaudited) **

|                                     | **As of        and for the three months ended September 30,** | ** ** | **As of        and for the nine months ended September 30,** |   |
|------------------------------------------|---------------------------------------------------------------|------------|--------------------------------------------------------------|--------|
|                                     |                                                               |
|                                     |                                                          | **2002**   |                                                              |        | **2001** |  |  | **2002** |  |  | **2001** |   |
|                                          |
| **For the Period** (in thousands)        |                                                          |
| Net interest income                      | $                                                             | 3,090      |                                                         | $      | 2,974 |   | $ | 9,353 |   | $ | 9,073 |   |
| Provision for loan losses                |                                                          | 64         |                                                         |   | 75 |   |   | 301 |   |   | 209 |   |
| Service charges and other income         |                                                          | 743        |                                                         |   | 414 |   |   | 1,789 |   |   | 1,186 |   |
| Net gain (loss) on securities and assets |                                                          | 8          |                                                         |   | 7 |   |   | 311 |   |   | (33 | ) |
| Non-interest expense                     |                                                          | 2,570      |                                                         |   | 2,224 |   |   | 7,489 |   |   | 6,546 |   |
| Net income                               | $                                                             | 861        |                                                         | $      | 821 |   | $ | 2,576 |   | $ | 2,468 |   |
|                                          |
| **Per Share**(a)                         |                                                          |       |                                                         |   |   |   |   |   |   |   |   |   |
| Earnings - basic                         | $                                                             | 0.33       |                                                         | $      | 0.32 |   | $ | 1.00 |   | $ | 0.96 |   |
| Earnings - diluted                       |                                                          | 0.32       |                                                         |   | 0.31 |   |   | 0.95 |   |   | 0.93 |   |
| Dividends declared                       |                                                          | 0.07       | 5                                                            |   | 0.06 | 8 |   | 0.21 | 1 |   | 0.20 | 5 |
| Book value                               |                                                          | 9.16       |                                                         |   | 8.48 |   |   | 9.16 |   |   | 8.48 |   |
| Common stock price:                      |                                                          |       |                                                         |   |   |   |   |   |   |   |   |   |
| High                                     |                                                          | 15.70      |                                                         |   | 12.73 |   |   | 15.70 |   |   | 12.73 |   |
| Low                                      |                                                          | 12.94      |                                                         |   | 10.73 |   |   | 12.94 |   |   | 7.61 |   |
| Close                                    |                                                          | 15.30      |                                                         |   | 10.82 |   |   | 15.30 |   |   | 10.82 |   |
|                                          |
| **At Period End** (in millions)          |                                                          |       |                                                         |   |   |   |   |   |   |   |   |   |
| Total assets                             | $                                                             | 414.4      |                                                         | $      | 374.6 |   | $ | 414.4 |   | $ | 374.6 |   |
| Total loans                              |                                                          | 273.6      |                                                         |   | 249.6 |   |   | 273.6 |   |   | 249.6 |   |
| Other earning assets                     |                                                          | 116.2      |                                                         |   | 102.5 |   |   | 116.2 |   |   | 102.5 |   |
| Deposits                                 |                                                          | 335.2      |                                                         |   | 302.6 |   |   | 335.2 |   |   | 302.6 |   |
| Borrowings                               |                                                          | 51.5       |                                                         |   | 48.5 |   |   | 51.5 |   |   | 48.5 |   |
| Shareholders’ equity               |                                                          | 23.7       |                                                         |   | 21.8 |   |   | 23.7 |   |   | 21.8 |   |
|                                          |
| **Operating Ratios** (b)                 |                                                          |       |                                                         |   |   |   |   |   |   |   |   |   |
| Return on average equity                 |                                                          | 14.47      | %                                                            |   | 15.16 | % |   | 15.05 | % |   | 16.59 | % |
| Return on average assets                 |                                                          | 0.83       |                                                         |   | 0.89 |   |   | 0.87 |   |   | 0.93 |   |
| Net interest margin                      |                                                          | 3.31       |                                                         |   | 3.56 |   |   | 3.44 |   |   | 3.74 |   |
| Equity % total assets (period end)       |                                                          | 5.72       |                                                         |   | 5.82 |   |   | 5.72 |   |   | 5.82 |   |
| Dividend payout ratio                    |                                                          | 22.57      |                                                         |   | 21.33 |   |   | 21.19 |   |   | 21.27 |   |
|                                          |
| **2002 Growth** (c)                      |                                                          |       |                                                         |   |   |   |   |   |   |   |   |   |
| Net income                               |                                                          | 4.9        | %                                                            |   |   |   |   | 4.4 | % |   |   |   |
| Regular loans                            |                                                          | 21.7       |                                                         |   |   |   |   | 11.3 |   |   |   |   |
| Deposits                                 |                                                          | 5.5        |                                                         |   |   |   |   | 14.0 |   |   |   |   |
|                                          |

(a) All per share data has been  retroactively adjusted in all periods to reflect the 10% stock split effected  in the form of a stock dividend distributed on May 21, 2002.

(b) Return and margin ratios are  annualized based on average balances for the period. Net interest margin is  fully taxable equivalent.

(c) Net income growth is compared  to the same period in the preceding year. Loan and deposit growth is compared  to the beginning of the period, annualized. Regular loans are total loans excluding  government guaranteed loans.

2

----

**Back to Contents**

**Alliance Bancorp of New England, Inc.  Consolidated Balance Sheets (Unaudited)**

| ***(in thousands,      except share data)***               | ** **                                                                                                                                                                              | **September        30,         2002**                 | ** ** |    | ** ** | **December        31,         2001** |    |
|------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|------------|---------|------------|--------------------------------------|---------|
|                                                            |
| **Assets**                                                 |                                                                                                                                                                                    |                                                  |       |    |       |                                 |    |
|                                                       | Cash and due from banks                                                                                                                                                                 | $                                                     | 12,511     |    |       | $                                    | 12,723  |   |
|                                                       | Short-term investments                                                                                                                                                                  |                                                  | 33,519     |    |       |                                 | 2,591   |   |
|                                                            |
|                                                       |                                                                                                                                                                                    | Total cash and cash equivalents                       |       | 46,030  |       |                                 |    | 15,314 |   |
|                                                       |                                                                                                                                                                                    |                                                  |       |    |       |                                 |    |   |   |
|                                                       | Securities available for sale      (at fair value)                                                                                                                                      |                                                  | 76,467     |    |       |                                 | 85,973  |   |
|                                                       |                                                                                                                                                                                    |                                                  |       |    |       |                                 |    |   |   |
|                                                       | Securities        held to maturity         (fair value of $7,050 in 2002 and $11,987 in 2001)                                                                                           |                                                  | 6,254      |    |       |                                 | 12,397  |   |
|                                                       |                                                                                                                                                                                    |                                                  |       |    |       |                                 |    |   |   |
|                                                       | Residential mortgage loans                                                                                                                                                              |                                                  | 73,092     |    |       |                                 | 63,037  |   |
|                                                       | Commercial mortgage loans                                                                                                                                                               |                                                  | 92,101     |    |       |                                 | 87,485  |   |
|                                                       | Other commercial loans                                                                                                                                                                  |                                                  | 40,786     |    |       |                                 | 37,658  |   |
|                                                       | Consumer loans                                                                                                                                                                          |                                                  | 41,355     |    |       |                                 | 39,849  |   |
|                                                       | Government guaranteed loans                                                                                                                                                             |                                                  | 26,311     |    |       |                                 | 29,595  |   |
|                                                            |
|                                                       |                                                                                                                                                                                    | Total loans                                           |       | 273,645 |       |                                 |    | 257,624 |   |
|                                                       | Less: Allowance for loan losses                                                                                                                                                         |                                                  | (4,000     | )       |       |                                 | (3,700  | ) |
|                                                            |
|                                                       |                                                                                                                                                                                    | Net loans                                             |       | 269,645 |       |                                 |    | 253,924 |   |
|                                                       |                                                                                                                                                                                    |                                                  |       |    |       |                                 |    |   |   |
|                                                       | Premises and equipment, net                                                                                                                                                             |                                                  | 5,148      |    |       |                                 | 5,458   |   |
|                                                       | Accrued interest income receivable                                                                                                                                                      |                                                  | 2,289      |    |       |                                 | 2,812   |   |
|                                                       | Cash surrender value of life insurance                                                                                                                                                  |                                                  | 6,127      |    |       |                                 | 4,391   |   |
|                                                       | Other assets                                                                                                                                                                            |                                                  | 2,402      |    |       |                                 | 4,296   |   |
|                                                            |
|                                                       |                                                                                                                                                                                    | Total assets                                          | $          | 414,362 |       |                                 | $       | 384,565 |   |
|                                                            |
| **       Liabilities and Shareholders’ Equity** |                                                                                                                                                                                    |                                                  |       |    |       |                                 |    |
|                                                       | Demand deposits                                                                                                                                                                         | $                                                     | 39,881     |    |       | $                                    | 33,647  |   |
|                                                       | NOW deposits                                                                                                                                                                            |                                                  | 35,072     |    |       |                                 | 36,400  |   |
|                                                       | Money market deposits                                                                                                                                                                   |                                                  | 46,750     |    |       |                                 | 41,223  |   |
|                                                       | Savings deposits                                                                                                                                                                        |                                                  | 74,589     |    |       |                                 | 60,182  |   |
|                                                       | Time deposits                                                                                                                                                                           |                                                  | 138,864    |    |       |                                 | 131,906 |   |
|                                                            |
|                                                       |                                                                                                                                                                                    | Total deposits                                        |       | 335,156 |       |                                 |    | 303,358 |   |
|                                                       | Borrowings                                                                                                                                                                              |                                                  | 51,500     |    |       |                                 | 57,069  |   |
|                                                       | Other liabilities                                                                                                                                                                       |                                                  | 3,984      |    |       |                                 | 2,049   |   |
|                                                            |
|                                                       |                                                                                                                                                                                    | Total liabilities                                     |       | 390,640 |       |                                 |    | 362,476 |   |
|                                                       |                                                                                                                                                                                    |                                                  |       |    |       |                                 |    |   |   |
|                                                       | Preferred        stock, ($0.01 par value; 100,000 shares         authorized, none issued)                                                                                               |                                                  | —      |    |       |                                 | —  |   |
|                                                       | Common        stock, ($0.01 par value; authorized 4,000,000         shares; issued 2,789,932 in 2002 and 2,539,896 in 2001;        outstanding 2,589,333 in 2002 and 2,339,297 in 2001) |                                                  | 28         |    |       |                                 | 25      |   |
|                                                       | Additional paid-in capital                                                                                                                                                              |                                                  | 11,709     |    |       |                                 | 11,577  |   |
|                                                       | Retained earnings                                                                                                                                                                       |                                                  | 18,495     |    |       |                                 | 16,473  |   |
|                                                       | Accumulated other comprehensive      loss, net                                                                                                                                          |                                                  | (3,401     | )       |       |                                 | (2,877  | ) |
|                                                       | Treasury stock (200,599 shares)                                                                                                                                                         |                                                  | (3,109     | )       |       |                                 | (3,109  | ) |
|                                                            |
|                                                       |                                                                                                                                                                                    | Total shareholders’ equity                      |       | 23,722  |       |                                 |    | 22,089 |   |
|                                                            |
|                                                       |                                                                                                                                                                                    | Total liabilities and shareholders’      equity | $          | 414,362 |       |                                 | $       | 384,565 |   |
|                                                            |

*See accompanying notes to consolidated financial statements*

3

----

**Back to Contents**

**Alliance Bancorp of New England, Inc.  Consolidated Income Statements (Unaudited)**

|                                         |                                                     |                               |       | **Three Months Ended       September 30,** | ** ** | ** ** | **Nine Months Ended       September 30,** |     |
|----------------------------------------------|----------------------------------------------------------|------------------------------------|------------|--------------------------------------------|------------|------------|-------------------------------------------|----------|
|                                         |                                                     |                               |            |
| ***(in thousands, except share      data)*** | ** **                                               | **2002**                           | ** ** | ** **                                 | **2001**   | ** ** | ** **                                | **2002** | ** ** | ** ** | **2001** |   |
|                                              |
| **Interest Income**                          |                                                     |                               |       |                                       |       |       |                                      |     |   |   |   |   |
|                                         | Loans                                                    | $                                  | 4,439      |                                       | $          | 4,708      |                                      | $        | 13,403 |   | $ | 14,340 |   |
|                                         | Debt securities                                          |                               | 1,244      |                                       |       | 1,276      |                                      |     | 3,836 |   |   | 3,834 |   |
|                                         | Dividends on equity securities                           |                               | 218        |                                       |       | 229        |                                      |     | 609 |   |   | 743 |   |
|                                         | Short-term investments                                   |                               | 119        |                                       |       | 144        |                                      |     | 251 |   |   | 310 |   |
|                                              |
|                                         |                                                     | Total interest and dividend income |       | 6,020                                      |       |       | 6,357                                     |     |   | 18,099 |   |   | 19,227 |   |
|                                              |
| **Interest Expense**                         |                                                     |                               |       |                                       |       |       |                                      |     |   |   |   |   |
|                                         | Deposits                                                 |                               | 2,144      |                                       |       | 2,624      |                                      |     | 6,440 |   |   | 7,982 |   |
|                                         | Borrowings                                               |                               | 786        |                                       |       | 759        |                                      |     | 2,306 |   |   | 2,172 |   |
|                                              |
|                                         |                                                     | Total interest expense             |       | 2,930                                      |       |       | 3,383                                     |     |   | 8,746 |   |   | 10,154 |   |
|                                              |
| **Net Interest Income**                      |                                                     | 3,090                              |       |                                       | 2,974      |       |                                      | 9,353    |   |   | 9,073 |   |
| **Provision For Loan Losses**                |                                                     | 64                                 |       |                                       | 75         |       |                                      | 301      |   |   | 209 |   |
|                                              |
|                                         | Net interest income after provision      for loan losses |                               | 3,026      |                                       |       | 2,899      |                                      |     | 9,052 |   |   | 8,864 |   |
| **Non-Interest Income**                      |                                                     |                               |       |                                       |       |       |                                      |     |   |   |   |   |
|                                         | Service charges and other income                         |                               | 743        |                                       |       | 414        |                                      |     | 1,789 |   |   | 1,186 |   |
|                                         | Net (loss) gain on securities                            |                               | (111       | )                                          |       | 7          |                                      |     | 189 |   |   | (42 | ) |
|                                         | Net gain on assets                                       |                               | 119        |                                       |       | —     |                                      |     | 122 |   |   | 9 |   |
|                                              |
|                                         |                                                     | Total non-interest income          |       | 751                                        |       |       | 421                                       |     |   | 2,100 |   |   | 1,153 |   |
| **Non-Interest Expense**                     |                                                     |                               |       |                                       |       |       |                                      |     |   |   |   |   |
|                                         | Compensation and benefits                                |                               | 1,434      |                                       |       | 1,207      |                                      |     | 4,186 |   |   | 3,496 |   |
|                                         | Occupancy                                                |                               | 183        |                                       |       | 180        |                                      |     | 519 |   |   | 520 |   |
|                                         | Data processing services and equipment                   |                               | 307        |                                       |       | 294        |                                      |     | 927 |   |   | 860 |   |
|                                         | Office and insurance                                     |                               | 153        |                                       |       | 145        |                                      |     | 444 |   |   | 414 |   |
|                                         | Purchased services                                       |                               | 300        |                                       |       | 213        |                                      |     | 833 |   |   | 724 |   |
|                                         | Other                                                    |                               | 193        |                                       |       | 185        |                                      |     | 580 |   |   | 532 |   |
|                                              |
|                                         |                                                     | Total non-interest expense         |       | 2,570                                      |       |       | 2,224                                     |     |   | 7,489 |   |   | 6,546 |   |
|                                              |
|                                         | Income before income taxes                               |                               | 1,207      |                                       |       | 1,096      |                                      |     | 3,663 |   |   | 3,471 |   |
|                                         | Income tax expense                                       |                               | 346        |                                       |       | 275        |                                      |     | 1,087 |   |   | 1,003 |   |
|                                              |
|                                         |                                                     | **Net Income**                     | $          | 861                                        |       | $          | 821                                       |     | $ | 2,576 |   | $ | 2,468 |   |
|                                              |
| **Per Share Data**(a)                        |                                                     |                               |       |                                       |       |       |                                      |     |   |   |   |   |
|                                         | Basic earnings per share                                 | $                                  | 0.33       |                                       | $          | 0.32       |                                      | $        | 1.00 |   | $ | 0.96 |   |
|                                              |
|                                         | Diluted earnings per share                               | $                                  | 0.32       |                                       | $          | 0.31       |                                      | $        | 0.95 |   | $ | 0.93 |   |
|                                              |
|                                         |                                                     |                               |       |                                       |       |       |                                      |     |   |   |   |   |   |   |
|                                         | Average basic shares outstanding                         |                               | 2,588,660  |                                       |       | 2,567,223  |                                      |     | 2,577,466 |   |   | 2,565,192 |   |
|                                         | Average additional dilutive shares                       |                               | 141,379    |                                       |       | 109,673    |                                      |     | 128,538 |   |   | 76,608 |   |
|                                              |
|                                         | Average diluted shares                                   |                               | 2,730,039  |                                       |       | 2,676,896  |                                      |     | 2,706,004 |   |   | 2,641,800 |   |
|                                              |

(a) All per share data has been retroactively adjusted  in all prior periods to reflect the 10% stock split effected in the form of  a stock dividend distributed on May 21, 2002.

*See accompanying notes to consolidated financial statements*

4

----

**Back to Contents**

**Alliance Bancorp of New England, Inc.  Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)**

|                                             |
|---------------------------------------------|
| **2001**      Balance, December 31, 2000    | $ | 25 |   | $ | 11,516 |   | $ | 14,198 |   |   | $ | (4,515 | ) |   | $ | (3,109 | ) |   | $ | 18,115 |   |
| Comprehensive income                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        | Net income |   |   |   |   |   |   |   | 2,468 |   |   |   |   |   |   |   |   |   |   |   | 2,468 |   |
|                                        | Unrealized gain on securities,          net of reclassification adjustment |   |   |   |   |   |   |   |   |   |   |   | 1,699 |   |   |   |   |   |   |   | 1,699 |   |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |
|                                        | Comprehensive income |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 4,167 |   |
| Dividends declared       ($0.205 per share) |   |   |   |   |   |   |   | (524 | ) |   |   |   |   |   |   |   |   |   |   | (524 | ) |
| Shares issued (exercise of options)         |   |   |   |   | 50 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 50 |   |
|                                             |
| Balance, September 30, 2001                 | $ | 25 |   | $ | 11,566 |   | $ | 16,142 |   |   | $ | (2,816 | ) |   | $ | (3,109 | ) |   | $ | 21,808 |   |
|                                             |
| **2002**      Balance, December 31, 2001    | $ | 25 |   | $ | 11,577 |   | $ | 16,473 |   |   | $ | (2,877 | ) |   | $ | (3,109 | ) |   | $ | 22,089 |   |
| Comprehensive income                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                        | Net income |   |   |   |   |   |   |   | 2,576 |   |   |   |   |   |   |   |   |   |   |   | 2,576 |   |
|                                        | Unrealized loss on securities,          net of reclassification adjustment |   |   |   |   |   |   |   |   |   |   |   | (524 | ) |   |   |   |   |   |   | (524 | ) |
|                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |   |
|                                        | Comprehensive income |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2,052 |   |
| Dividends declared       ($0.211 per share) |   |   |   |   |   |   |   | (544 | ) |   |   |   |   |   |   |   |   |   |   | (544 | ) |
| Stock split                                 |   | 3 |   |   |   |   |   | (3 | ) |   |   |   |   |   |   |   |   |   |   | — |   |
| Cash paid for fractional shares             |   |   |   |   |   |   |   | (7 | ) |   |   |   |   |   |   |   |   |   |   | (7 | ) |
| Shares issued (exercise of options)         |   |   |   |   | 132 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 132 |   |
|                                             |
| Balance, September 30, 2002                 | $ | 28 |   | $ | 11,709 |   | $ | 18,495 |   |   | $ | (3,401 | ) |   | $ | (3,109 | ) |   | $ | 23,722 |   |
|                                             |

Disclosure of reclassification amount

| ***Nine months ended September 30 (in thousands)***                                                                                                                        | ** 2002** | ** ** |   | ** 2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|------------|--------|----------------|--------|
|                                                                                                                                                                            |
| Unrealized        holding (loss) gain arising during        the period net of income tax (benefit) expense         of ($206) and $886, respectively                        | $              | (400       | )      |           | $      | 1,646 |   |
| Less        reclassification adjustment for net (gain) loss        included in net income net of income        tax expense (benefit) of $65 and ($11),        respectively |           | (124       | )      |           |   | 53 |   |
|                                                                                                                                                                            |
| Net unrealized (loss) gain on securities                                                                                                                                   | $              | (524       | )      |           | $      | 1,699 |   |
|                                                                                                                                                                            |

*See accompanying notes to consolidated financial statements*

5

----

**Back to Contents**

**Alliance Bancorp of New England, Inc.  Consolidated Statements of Cash Flows (Unaudited)**

|                                                       |                                                                                             |                                                |     |       | **Nine months ended September      30,** |       |
|------------------------------------------------------------|--------------------------------------------------------------------------------------------------|-----------------------------------------------------|----------|------------|------------------------------------------|------------|
|                                                       |                                                                                             |                                                |     |            |
| ***(in thousands)***                                       | ** **                                                                                       | ** **                                          | **2002** | ** ** |                                     | ** ** | **2001** |   |
|                                                            |
| **Operating Activities:**                                  |                                                                                             |                                                |     |       |                                     |       |   |   |
|                                                       | Net income                                                                                       |                                                | $        | 2,576      |                                     |       | $ | 2,468 |   |
|                                                       | Adjustments        to reconcile net income to         net cash provided by operating activities: |                                                |     |       |                                     |       |   |   |   |
|                                                       |                                                                                             | Provision for loan losses                           |     |       | 301                                      |       |   |   | 209 |   |
|                                                       |                                                                                             | Depreciation and amortization                       |     |       | 523                                      |       |   |   | 385 |   |
|                                                       |                                                                                             | Net (gain) loss on securities and other assets      |     |       | (1,100                                   | )          |   |   | 33 |   |
|                                                       |                                                                                             | Loans originated for sale                           |     |       | (14,925                                  | )          |   |   | (7,016 | ) |
|                                                       |                                                                                             | Proceeds from loans sold                            |     |       | 13,723                                   |       |   |   | 7,477 |   |
|                                                       |                                                                                             | Increase (decrease) in other liabilities            |     |       | 1,935                                    |       |   |   | (1,155 | ) |
|                                                       |                                                                                             | Decrease in accrued interest income receivable      |     |       | 523                                      |       |   |   | 230 |   |
|                                                       |                                                                                             | Decrease in other assets                            |     |       | 186                                      |       |   |   | 1,403 |   |
|                                                            |
|                                                       |                                                                                             | Net cash provided by operating activities           |     |       | 3,742                                    |       |   |   | 4,034 |   |
| **Investing Activities:**                                  |                                                                                             |                                                |     |       |                                     |       |   |   |
|                                                       | Securities available for sale:                                                                   |                                                |     |       |                                     |       |   |   |   |
|                                                       |                                                                                             | Proceeds from repayments and maturities             |     |       | 10,315                                   |       |   |   | 358 |   |
|                                                       |                                                                                             | Proceeds from sales of securities                   |     |       | 27,270                                   |       |   |   | 5,178 |   |
|                                                       |                                                                                             | Proceeds from calls                                 |     |       | 9,000                                    |       |   |   | — |   |
|                                                       |                                                                                             | Purchases of securities                             |     |       | (33,979                                  | )          |   |   | (14,934 | ) |
|                                                       | Securities held to maturity:                                                                     |                                                |     |       |                                     |       |   |   |   |
|                                                       |                                                                                             | Proceeds from amortization and maturities           |     |       | 2,251                                    |       |   |   | 2,880 |   |
|                                                       |                                                                                             | Proceeds from calls                                 |     |       | 1,000                                    |       |   |   | 2,005 |   |
|                                                       | Net increase in loans (other than      held for sale)                                            |                                                |     | (14,821    | )                                        |       |   | (21,708 | ) |
|                                                       | Purchases of premises and equipment                                                              |                                                |     | (83        | )                                        |       |   | (187 | ) |
|                                                       | Proceeds from the sale of premises      and equipment                                            |                                                |     | 211        |                                     |       |   | 194 |   |
|                                                            |
|                                                       |                                                                                             | Net cash provided by (used in) investing activities |     |       | 1,164                                    |       |   |   | (26,214 | ) |
| **Financing Activities:**                                  |                                                                                             |                                                |     |       |                                     |       |   |   |
|                                                       | Net increase in interest-bearing      deposits                                                   |                                                |     | 25,564     |                                     |       |   | 19,851 |   |
|                                                       | Net increase in demand deposits                                                                  |                                                |     | 6,234      |                                     |       |   | 2,241 |   |
|                                                       | Proceeds from FHLBB advances                                                                     |                                                |     | 14,570     |                                     |       |   | 3,121 |   |
|                                                       | Principal repayments of FHLBB      advances                                                      |                                                |     | (18,039    | )                                   |       |   | (121 | )  |
|                                                       | Net decrease in other borrowings                                                                 |                                                |     | (2,100     | )                                        |       |   | (1,200 | )  |
|                                                       | Stock options exercised                                                                          |                                                |     | 132        |                                     |       |   | 50 |   |
|                                                       | Cash dividends paid                                                                              |                                                |     | (551       | )                                        |       |   | (524 | ) |
|                                                            |
|                                                       |                                                                                             | Net cash provided by financing activities           |     |       | 25,810                                   |       |   |   | 23,418 |   |
|                                                            |
| **Net Increase in Cash and Cash      Equivalents**         |                                                                                             |                                                | 30,810   |       |                                     |       | 1,238 |   |
| Cash and cash equivalents at beginning      of the period  |                                                                                             |                                                | 15,314   |       |                                     |       | 30,187 |   |
|                                                            |
| Cash and cash equivalents at end      of the period        |                                                                                             | $                                                   | 46,030   |       |                                     | $          | 31,425 |   |
|                                                            |
|                                                       |                                                                                             |                                                |     |       |                                     |       |   |   |   |   |
| **Supplemental Information On      Cash Payments**         |                                                                                             |                                                |     |       |                                     |       |   |   |
|                                                       | Interest                                                                                         |                                                | $        | 8,750      |                                     |       | $ | 10,198 |   |
|                                                       | Income taxes                                                                                     |                                                |     | 1,500      |                                     |       |   | 1,300 |   |
|                                                       |                                                                                             |                                                |     |       |                                     |       |   |   |   |   |
| **Supplemental Information On      Non-cash Transactions** |                                                                                             |                                                |     |       |                                     |       |   |   |
|                                                       | Net loans transferred to foreclosed      assets                                                  |                                                |     | —     |                                     |       |   | 206 |   |
|                                                       | Securities transferred to held      to maturity                                                  |                                                |     | —     |                                     |       |   | 7,045 |   |
|                                                       | Securities transferred to available      for sale                                                |                                                |     | 3,166      |                                     |       |   | 11,883 |   |
|                                                       | Security writedowns                                                                              |                                                |     | 789        |                                     |       |   | 74 |   |

*See accompanying notes to consolidated financial statements*

6

----

**Back to Contents**

**Notes to Consolidated Financial Statements  (unaudited)**

 

**Note 1.     Basis  of Presentation**

***Description of Business and Principles of  Consolidation.*** Alliance Bancorp of New England, Inc. (“Alliance”  or the “Company”) is a one bank holding company, chartered in Delaware.  Alliance owns 100% of the stock of Tolland Bank (the “Bank”), a  Connecticut chartered savings bank. Alliance also wholly owns Alliance Capital  Trust I (“Trust I”) and Alliance Capital Trust II (“Trust  II”). These Trusts have issued trust preferred securities which are included  in borrowings in the consolidated balance sheets.

Tolland Bank provides consumer and commercial banking  services from its nine offices located in and around Tolland County, Connecticut.  Retail activities include branch deposit services, and home mortgage and consumer  lending. Commercial activities include merchant deposit services, business cash  management, construction mortgages, permanent mortgages, and working capital  and equipment loans. Through third party relationships, the Bank also provides  investment products, insurance products, and electronic payment services to  retail and commercial customers. The Bank’s deposits are insured up to  applicable limits by the Federal Deposit Insurance Corporation (“FDIC”).  In 2001, the Bank established a new, wholly owned passive investment company,  Tolland Investment Corporation (“TIC”), chartered in Connecticut  to own and service real estate secured loans. Also as part of this reorganization,  the pre–existing passive investment company was merged into the Bank in  2001. The Bank also wholly owns a Connecticut chartered corporation named Asset  Recovery Systems, Inc. (“ARS”) which is a foreclosed asset liquidation  subsidiary. 

The consolidated financial statements include Alliance,  the Bank, Trust I, Trust II, TIC, and ARS. All significant intercompany accounts  and transactions have been eliminated in consolidation. The Company and its  subsidiaries have no significant transactions with entities in which they hold  an investment interest, except for Bankers Bank Northeast (a mutually owned  correspondent bank) and the Federal Home Loan Bank of Boston.

***Basis of Preparation and Presentation.***The  consolidated financial statements have been prepared and presented in conformity  with accounting principles generally accepted in the United States of America.  Unless otherwise noted, all dollar amounts presented in the financial statements  and note tables are rounded to the nearest thousand dollars, except share data.  Certain prior period amounts have been reclassified to conform with current  financial statement presentation. The Company uses the accrual method of accounting  for all material items of income and expense. 

The quarterly financial statements are unaudited.  However, in the opinion of Management, all material adjustments, consisting  primarily of normal recurring accruals, necessary for a fair presentation of  the financial statements have been included. Operating results for any interim  period are not necessarily indicative of results for any other interim period  or for the entire year.

Management’s Discussion and Analysis of Financial  Condition and Results of Operations accompany these financial statements. These  consolidated interim financial statements and notes should be read in conjunction  with the Company’s Annual Report on Form 10–K for the year ended  December 31, 2001.

***Significant Estimates.***The Company  is required to make certain estimates and assumptions in preparing its consolidated  financial statements. The most significant estimates are those necessary in  determining impaired loans and the allowance for loan losses; other–than–temporary  declines in the fair value of securities; fair values in evaluating impairment  of loans and debt securities and in determining accumulated other comprehensive  income (loss); and the deferred tax asset valuation allowance. Factors affecting  these estimates include national and local economic conditions, the level and  trend of interest rates, real estate trends and values, securities market trends  and values, and financial ratings methodologies.

7

----

**Back to Contents**

**Note 2.     Securities**

| ***September 30, 2002 (in thousands)*** | ** **               | ** ** | **Amortized        Cost** | ** ** | ** ** | **Unrealized        Gains** | ** ** | ** ** | **Unrealized        Losses** | ** ** | ** ** | **Fair        Value** |   |
|-----------------------------------------|--------------------------|------------|---------------------------|------------|------------|-----------------------------|------------|------------|------------------------------|------------|------------|-----------------------|--------|
|                                         |
| **Securities available for sale**       |                     |       |                      |       |       |                        |       |       |                         |       |       |                  |   |
| U.S. Government and agency debt         |                     | $          | 12,078                    |       | $          | 146                         |       | $     | —                       |       | $          | 12,224                |   |
| U.S. Agency mortgage-backed debt        |                     |       | 15,802                    |       |       | 117                         |       |       | (13                          | )          |       | 15,906                |   |
| Trust preferred                         |                     |       | 14,218                    |       |       | 578                         |       |       | (1,765                       | )          |       | 13,031                |   |
| Other corporate debt                    |                     |       | 19,679                    |       |       | 1,165                       |       |       | (1,169                       | )          |       | 19,675                |   |
| Marketable equity                       |                     |       | 15,784                    |       |       | 32                          |       |       | (2,765                       | )          |       | 13,051                |   |
| Non-marketable equity                   |                     |       | 2,580                     |       |       | —                      |       |       | —                       |       |       | 2,580                 |   |
|                                         |
|                                    | Total available for sale |       | $                         | 80,141     |       | $                           | 2,038      |       | $                            | (5,712     | )          | $                     | 76,467 |   |
|                                         |
| **Securities held to maturity**         |                     |       |                      |       |       |                        |       |       |                         |       |       |                  |   |
| U.S. Government and agency debt         |                     | $          | 1,048                     |       | $          | 67                          |       | $     | —                       |       | $          | 1,115                 |   |
| U.S. Agency mortgage-backed debt        |                     |       | 1,388                     |       |       | 30                          |       |       | —                       |       |       | 1,418                 |   |
| Other mortgage-backed debt              |                     |       | 606                       |       |       | 19                          |       |       | (8                           | )          |       | 617                   |   |
| Other corporate debt                    |                     |       | 3,212                     |       |       | 688                         |       |       | —                       |       |       | 3,900                 |   |
|                                         |
|                                    | Total held to maturity   |       | $                         | 6,254      |       | $                           | 804        |       | $                            | (8         | )          | $                     | 7,050  |   |
|                                         |

| ***December 31, 2001 (in thousands)*** |                     |   | **Amortized        Cost** |        |        | **Unrealized        Gains** |        |        | **Unrealized        Losses** |        |        | **Fair        Value** |   |
|----------------------------------------|--------------------------|--------|---------------------------|--------|--------|-----------------------------|--------|--------|------------------------------|--------|--------|-----------------------|--------|
|                                        |
| **Securities available for sale**      |                     |   |                      |   |   |                        |   |   |                         |   |   |                  |   |
| U.S. Government and agency debt        |                     | $      | 10,149                    |   | $      | 55                          |   | $      | (99                          | )      | $      | 10,105                |   |
| U.S. Agency mortgage-backed debt       |                     |   | 17,876                    |   |   | 78                          |   |   | (120                         | )      |   | 17,834                |   |
| Trust preferred                        |                     |   | 24,526                    |   |   | 390                         |   |   | (2,464                       | )      |   | 22,452                |   |
| Other corporate debt                   |                     |   | 22,047                    |   |   | 212                         |   |   | (851                         | )      |   | 21,408                |   |
| Marketable equity                      |                     |   | 12,387                    |   |   | 160                         |   |   | (953                         | )      |   | 11,594                |   |
| Non-marketable equity                  |                     |   | 2,580                     |   |   | —                      |   |   | —                       |   |   | 2,580                 |   |
|                                        |
|                                   | Total available for sale |   | $                         | 89,565 |   | $                           | 895    |   | $                            | (4,487 | )      | $                     | 85,973 |   |
|                                        |
| **Securities held to maturity**        |                     |   |                      |   |   |                        |   |   |                         |   |   |                  |   |
| U.S. Government and agency debt        |                     | $      | 2,063                     |   | $      | 46                          |   | $      | (2                           | )      | $      | 2,107                 |   |
| U.S. Agency mortgage-backed debt       |                     |   | 2,747                     |   |   | 53                          |   |   | —                       |   |   | 2,800                 |   |
| Other mortgage-backed debt             |                     |   | 1,518                     |   |   | 32                          |   |   | —                        |   |   | 1,550                 |   |
| Other corporate debt                   |                     |   | 6,069                     |   |   | 56                          |   |   | (595                         | )      |   | 5,530                 |   |
|                                        |
|                                   | Total held to maturity   |   | $                         | 12,397 |   | $                           | 187    |   | $                            | (597   | )      | $                     | 11,987 |   |
|                                        |

As of January 1, 2001, in implementing the provisions  of SFAS No. 133, the Company redesignated securities from held to maturity to  available for sale. Securities with an amortized cost totaling $11.88 million,  net of a transfer adjustment of $1.57 million with a fair value totaling $11.59  million were transferred to available for sale from held to maturity. At the  same time as this transfer, the Company also decided to transfer $7.05 million  of available for sales securities to held to maturity; the net unrealized gain  on these securities was $0.1 million.

During the first nine months of 2002, three securities  with an amortized cost of $3.17 million and an unrealized loss of $1.16 million  were transferred from held to maturity to available for sale due to declines  in the issuers’ credit ratings.

8

----

**Back to Contents**

**Note 3.     Nonperforming  Loans**

| ***(in thousands)***                         |                                                                                 |                 | **September 30,        2002** |   |   | **December 31,        2001** |   |
|----------------------------------------------|--------------------------------------------------------------------------------------|----------------------|-------------------------------|--------|--------|------------------------------|--------|
|                                              |
| Total nonaccruing loans                      |                                                                                 | $                    | 3,249                         |   | $      | 2,149                        |   |
| Accruing loans past due 90 days      or more |                                                                                 |                 | —                        |   |   | —                       |   |
| Impaired loans:                              |                                                                                 |                 |                          |   |   |                         |   |
|                                         | Valuation allowance required                                                         |                 |                          | 1,397  |   |                         | 969    |   |
|                                         | No valuation allowance required                                                      |                 |                          | 2,987  |   |                         | 3,238  |   |
|                                              |
|                                         |                                                                                 | Total impaired loans |                          | $      | 4,384  |                         | $      | 4,207 |   |
|                                         | Total valuation allowance on impaired      loans                                     |                 |                          | 223    |   |                         | 129    |   |
|                                         | Commitments        to lend additional funds         to borrowers with impaired loans |                 |                          | — |   |                         | — |   |

**Note 4.     Allowance  for Loan Losses**

|                         |   | ** **               |     |   | **Nine Months Ended September      30,** |     |
|------------------------------|--------|--------------------------|----------|--------|------------------------------------------|----------|
| ***(in thousands)***         |   |                     | **2002** |   |                                     | **2001** |   |
|                              |
| Balance at beginning of year |   | $                        | 3,700    |   | $                                        | 3,400    |   |
| Charge-offs                  |   |                     | (47      | )      |                                     | (91      | ) |
| Recoveries                   |   |                     | 46       |   |                                     | 97       |   |
| Provision for loan losses    |   |                     | 301      |   |                                     | 209      |   |
|                              |
|                         |   | Balance at end of period |     | $      | 4,000                                    |     | $ | 3,615 |   |
|                              |

**Note 5.     New Accounting  Standards**

In July 2001, the Financial Accounting Standards  Board (“FASB”) issued statement of Financial Accounting Standard  (“SFAS”) No. 142, *Goodwill and Other Intangible Assets*, which  addresses financial accounting and reporting for acquired goodwill and other  intangible assets and supersedes APB Opinion No. 17, *Intangible Assets*.  SFAS No. 142 requires that goodwill no longer be amortized to earnings, but  instead be reviewed at least annually for impairment. Impairment losses would  be charged to earnings when they occur. SFAS No. 142 requires that intangible  assets other than goodwill (such as core deposit intangibles) continue to be  amortized to expense over their estimated useful lives. Alliance adopted SFAS  No. 142 on January 1, 2002. Alliance had intangible assets of $57,000 at December  31, 2001, representing $8,000 of mortgage servicing rights which will continue  to be amortized and $49,000 of goodwill which under SFAS 142 will not be amortized.

In August 2001, the FASB issued SFAS No. 143, *Accounting  for Asset Retirement Obligations*,which addresses financial accounting and  reporting for obligations associated with the retirement of tangible long–lived  assets and the associated asset retirement costs. SFAS No. 143 requires that  the fair value of a liability for an asset retirement obligation be recognized  in the period in which it is incurred if a reasonable estimate of fair value  can be made. The associated asset retirement costs are capitalized as part of  the carrying amount of the long–lived asset. SFAS No. 143 is effective  for financial statements issued for fiscal years beginning after June 15, 2002.  Earlier adoption is permitted. The Company does not expect that the adoption  of this statement will have a material impact on its consolidated financial  statements.

In August 2001, the FASB issued SFAS No. 144, *Accounting  for the Impairment and Disposal of Long–Lived Asset*, which is effective  for financial statements issued for fiscal years beginning after December 15,  2001 and interim periods within those fiscal years. The provisions of this statement  are to be applied prospectively. The adoption of this statement did not affect  the Company’s consolidated financial statements.

In April 2002, the FASB issued SFAS No 145, *Rescission  of FASB statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and  Technical Corrections*, which updates, clarifies and simplifies several existing  accounting pronouncements. SFAS No. 4 required all gains and losses from extinguishments  of debt to be aggregated and, if material, classified as an extraordinary item,  net of related income tax effect. Other provisions of SFAS No. 145 are not pertinent  to the Company’s operations. SFAS No. 145 is effective for financial statements  issued on or after May 15, 2002 except that the provisions related to SFAS No.  4 and No. 64 are effective for fiscal years beginning after May 15, 2002. Early  adoption is encouraged. The adoption of this statement has not and is not expected  to have a material impact on its consolidated financial statements.

9

----

**Back to Contents**

In June 2002, the FASB issued SFAS No. 146,*Accounting for Costs Associated with Exit or Disposal Activities*, which  requires that a liability be recognized for these costs only where incurred,  while existing practice calls for recognition of a liability when an entity  commits to an exit plan. This statement is effective for exit or disposal activities  initiated after December 31, 2002, and is not expected to have a material impact  on the Company’s consolidated financial statements.

In October 2002, the FASB issued SFAS No. 147,  *“Acquisitions of Certain Financial Institutions an Amendment of FASB  Statements No. 72 and 144 and FASB Interpretation No. 9.”*SFAS No.  147 eliminates the requirement to amortize an intangible asset represented by  an excess of the fair value of liabilities assumed over the fair value of assets  acquired in certain acquisitions of financial institutions. In addition, this  statement amends SFAS No. 144 to include in its scope long–term customer–relationship  intangible assets of financial institutions. The adoption of SFAS No. 147 is  not expected to have a material impact on the Company’s financial statements.

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

**Special Note Regarding Forward–Looking  Statements**

This report contains certain “forward–looking  statements”. These forward–looking statements, which are included  in Management’s Discussion and Analysis, describe future plans or strategies  and include the Company’s expectations of future financial results. The  words “believe,” “expect,” “anticipate,”  “estimate,” “project” and similar expressions identify  forward–looking statements. The Company’s ability to predict results  or the effect of future plans or strategies or qualitative or quantitative changes  based on market risk exposure is inherently uncertain. Factors which could affect  actual results include but are not limited to change in general market interest  rates, general economic conditions, legislative/regulatory changes, fluctuations  of interest rates, changes in the quality or composition of the Company’s  loan and investment portfolios, deposit flows, competition, demand for financial  services in the Company’s markets, and changes in the accounting principles,  policies, and guidelines. These factors should be considered in evaluating the  forward–looking statements, and undue reliance should not be placed on  such statements. 

**Introduction**

Alliance Bancorp of New England, Inc. (“Alliance”  or the “Company”) is a Delaware corporation that was organized in  1997 as a holding company for Tolland Bank (the “Bank”), which is  its principal asset. The Bank is a Connecticut chartered savings bank which  was founded in 1841 and is headquartered in Vernon, as is Alliance. In 1986,  Tolland Bank converted from mutual to stock form. The Bank’s deposits  are insured up to applicable limits by the Federal Deposit Insurance Corporation.  The Bank operates nine offices in and around Tolland County, Connecticut, and  provides retail and commercial banking products and services in Tolland County  and surrounding towns. Retail activities include branch deposit services, and  home mortgage and consumer lending. Commercial activities include merchant deposit  services, business cash management, construction mortgages, permanent mortgages,  and working capital and equipment loans. Through third party relationships,  the Bank also provides investment products, insurance products, and electronic  payment services to retail and commercial customers.

10

----

**Back to Contents**

**SUMMARY**

Alliance reported 5% earnings growth for the third  quarter of 2002. Net income totaled $861 thousand ($.32 per share), compared  to $821 thousand ($.31 per share) a year earlier. Earnings grew by 4% for the  first nine months of the year. Net income totaled $2.58 million ($.95 per share),  compared to $2.47 million ($.93 per share) a year earlier. 

All per share data has been retroactively adjusted  in all periods to reflect the 10% stock split effected in the form of a stock  dividend distributed on May 21, 2002.

Alliance retained the quarterly cash dividend at  7.5 cents per share, payable on November 19, 2002 to shareholders of record  at the close of November 5, 2002. Alliance had announced a 10% stock split effected  as a stock dividend in the second quarter. By retaining the cash dividend at  7.5 cents per share, Alliance has increased its dividend payout by 10% in the  third quarter of 2002, compared to a year earlier.

Alliance achieved satisfying growth in business  volume in the most recent quarter, despite the challenging economic environment.  Total loans increased at a 22% annualized rate during the quarter. The consumer  and residential mortgage pipeline grew to a record level by the end of the quarter,  due to low interest rates and our competitive product offerings. Tolland Bank’s  Equity Select Advantage home equity line of credit and its ‘no–fee’  mortgage refinancing loan experienced strong demand during the quarter. Total  deposits increased at a 6% annualized rate during the third quarter, and grew  at a 10% annualized rate year–to–date (excluding short term municipal  accounts).

Alliance has a strategic emphasis on fee based  services, and recorded a 79% increase in total service charge and other income  during the quarter. Major new sources of income this year included commissions  on insurance product sales and secondary market income on commercial loan originations.  These initiatives bolstered earnings, and provided a 15% return on shareholders’  equity year-to-date. The price of the common stock of Alliance reached a new  high of $15.70 per share during the quarter. 

The quarter saw progress on Tolland Bank’s  plans for its new Enfield office. Additionally, during the third quarter, the  Bank sold excess land adjacent to its Coventry office; anticipated new commercial  development there will add to the convenience and appeal of this attractive  branch location.

Net interest income increased by $116 thousand  (4%) in the third quarter and by $280 thousand (3%) in the first nine months,  compared to the prior year. Net interest income growth reflected a 12% annualized  growth rate in earning assets during the first nine months of this year. Most  asset growth was held in short term investments at quarter–end, and was  expected to be reinvested in loans and investment securities before year–end.  The net interest margin has declined due primarily to the higher balance and  lower yield on short term investments. The net interest margin declined to 3.31%  in the most recent quarter from 3.56% in the same quarter of 2001. For the first  nine months of 2002, the net interest margin was 3.44%, compared to 3.74% in  the same period of the prior year.

Service charges and other income increased by $329  thousand (79%) and by $603 thousand (51%) in the third quarter and first nine  months of 2002 compared to 2001. In addition to the new income sources commented  on above, income increased in all major loan and deposit fee income categories  due to higher volume, together with higher bank owned life insurance income.  During the most recent quarter, net securities losses of $111 thousand were  recorded, consisting of $877 thousand in losses (primarily on the writedown  of two debt securities) and $766 thousand in gains on the sale of debt securities.  For the year–to–date, net securities gains totaled $189 thousand and  gains on assets totaled $122 thousand, due to the sale of land parcels in the  most recent quarter.

Non–interest expense increased by $346 thousand  (16%) for the third quarter and by $943 thousand (14%) for the first nine months  of 2002 compared to 2001. The majority of expense growth was in compensation  expense. Salary expense increased by 14% in the third quarter of 2002 compared  to 2001, reflecting an 8% increase in the number of staff positions primarily  in sales and lending related areas, together with a $93 thousand increase in  commissions and incentives. Third quarter benefits expense increased by $81  thousand, due to higher pension and insurance related expenses. 

11

----

**Back to Contents**

Nonaccruing loans totaled $3.2 million (.78% of  assets) at quarter–end, compared to $2.1 million (.56% of assets) at the  prior year–end. The loan loss provision increased by $92 thousand for the  first nine months of the year due primarily to an increase in the reserve for  impaired loans in the first quarter of this year. Net loan chargeoffs have been  negligible for the year–to–date in 2002.

Shareholders’ equity totaling $23.7 million  at quarter–end measured 5.7% of total assets, which was unchanged from  year–end 2001. Book value per share was $9.16 at quarter–end. Return  on shareholders’ equity measured 14.5% during the third quarter and 15.0%  for the first nine months of 2002. The Company’s capital remained in excess  of all regulatory requirements.

Alliance was one of the 15 highest performing companies  among the 218 small public thrifts (excluding the 100 largest thrifts) in the  annual performance ranking by SNL Financial in its May, 2002 issue of Thrift  Investor.

**Net Interest Income:** Net interest income  increased by $116 thousand (4%) in the third quarter and by $280 thousand (3%)  in the first nine months, compared to the prior year. Growth in net interest  income has been produced by balance sheet growth, offset in part by a lower  net interest margin. Quarterly net interest income peaked in the first quarter  of 2002, decreased by $125 thousand in the second quarter, and increased by  $21 thousand in the third quarter. 

Total earning assets were $390 million at September  30, 2002, a $31 million (12% annualized) increase compared to $359 million at  year–end 2001. The total amount of the increase was held in short term  investments. A $16 million increase in total loans was offset by a $16 million  decrease in investment securities. The growth in earning assets was funded by  a $32 million increase in deposits, including about $10 million in short term  municipal balances. The Company plans to reinvest the majority of short term  investments during the fourth quarter into government agency securities with  fixed interest rates in the one to three year range, together with originations  of “no fee” mortgage refinance loans which the Company offers, with  fixed rates in the three to fifteen year range.

Most of the 25 basis point decrease in the third  quarter net interest margin was explainable by the higher balance of short term  investments (9 basis points impact on margin) and by the lower yield on short  term investments (8 basis points impact). The remaining 8 basis point decrease  was due to lower rates on loans and investment securities, with little reduction  in borrowing costs. The net interest margin began to increase during the third  quarter, due to new loan bookings and additional reductions in deposit interest  rates, including savings and transactions accounts which are not normally viewed  by the Company as interest sensitive. Changes in the net interest margin for  the year-to-date were also impacted by these factors.

During the first nine months of 2002, short term  treasury interest rates declined by about 15 basis points, while ten year rates  declined by about 150 basis points (primarily in the third quarter). The Bank  has an asset sensitive position for maturities under one year, which means that  net interest income may decrease when interest rates fall, depending on a number  of assumptions. Interest rate risk is further discussed in the later discussion  on Interest Rate Sensitivity. 

**Provision for Loan Losses:** The provision  is made to maintain the allowance for loan losses at a level deemed adequate  by management. The provision was little changed in the second quarter. For the  first nine months, the provision increased by $92 thousand primarily due to  higher provisioning in the first quarter related mostly to growth in commercial  loans and to an increase in the impairment reserve on one loan. Please see the  later discussion on the Allowance for Loan Losses.

**Non–Interest Income:**Service charges  and other income increased by $329 thousand (79%) and by $603 thousand (51%)  in the third quarter and first nine months of 2002 compared to 2001. These increases  included higher volume across a range of loan and deposit services, and included  $122 thousand of additional income from bank owned life insurance contracts  in the first nine months. New sources of fee income for the first nine months  included $108 thousand in commissions on the sale of insurance annuities, $114  thousand in increased commercial and residential mortgage secondary market income,  and $75 thousand of other insurance commissions which are viewed as one–time  revenues. 

12

----

**Back to Contents**

During the first six months of 2002, net securities  gains of $300 thousand were recorded, primarily due to the sale of two utility  common equity securities due to favorable market conditions for these securities.  During the most recent quarter, net securities losses of $111 thousand were  recorded, consisting of $877 thousand in losses (primarily on the writedown  of two debt securities) and $766 thousand in gains on the sale of debt securities.  These gains and writedowns are discussed in the later section on Investment  Securities. Also during the third quarter, the Company recorded a $122 thousand  net gain on assets primarily due to the sale of two land parcels.

**Non–Interest Expense and Tax Expense:**  Non–interest expense increased by $346 thousand (16%) for the third quarter  and by $943 thousand (14%) for the first nine months of 2002 compared to 2001.  

The majority of expense growth was in compensation  expense, which increased by $227 thousand (19%) and $690 thousand (20%) for  the third quarter and year–to–date. Salary expense increased by 14%  and 17% in these periods. This reflected an 8% increase in the number of staff  positions (primarily in sales and lending related areas), together with an increase  in commissions and incentives. Benefits expense for the year–to–date  increased by $206 thousand (37%), primarily due to higher pension and insurance  related expenses. Pension costs have risen primarily due to lower capital markets  returns, which led to increased retirement benefit costs. 

All other non–compensation expense increased  by a total of $253 thousand (8.3%) for the year–to–date. Major components  of this increase were: a $107 thousand increase in problem assets expense due  to higher levels of nonperforming loans; an $84 thousand increase in audit/director/shareholder  expense due to tax work, real estate related transactions and increased corporate  governance related costs; and a $53 thousand increase in advertising expense  related to lending promotions. The effective income tax rate for the first nine  months increased to 30% from 29% due to growth of regularly taxable interest  and fee revenue. A decrease in dividends on equity securities was offset by  higher income on bank owned life insurance policies; these two income sources  have lower effective tax rates.

**Comprehensive Income:** Comprehensive income  includes changes (after tax) in the market valuation of investment securities  available for sale. Nine month comprehensive income was $2.05 million in 2002,  compared to $4.17 million in 2001. The net unrealized loss on securities increased  in 2002 due primarily to a decline in the value of the Company’s investment  in utility common equity securities. Please see the following discussion on  Investment Securities. 

**FINANCIAL CONDITION**

**Cash and Cash Equivalents:**Total cash and  equivalents increased by $31 million in 2002 due to unusually high commercial,  savings, and municipal short term deposit activity. The Company had relied on  the origination of loans and purchases of securities in the third quarter to  reinvest excess cash. However, due to the $11 million net reduction in investment  securities and additional deposit growth of $5 million in the third quarter,  total cash and equivalents increased by $6 million during the third quarter.  Excess cash was held in short term investments at the end of the quarter, and  the Company expected to reinvest these amounts in 1–3 year securities and  loan originations in the fourth quarter. 

**Investment Securities:** As noted previously,  total investment securities decreased by $11 million in the third quarter, due  to $16 million in security sales and $8 million in security calls. The calls  were mostly 1–3 year one time callable Federal Home Loan Bank securities  which were reinvested into similar securities. The securities sold included  about $7 million of corporate debt securities and $9 million of government agency  and mortgage backed securities. The corporate debt securities sales produced  $567 thousand in gains, while the agency produced a $133 thousand gain and the  mortgage backed securities sales produced a $23 thousand loss. These sales contributed  to the Company’s goal of reducing equity at risk in a rising rate environment.  

Securities purchased during the third quarter totaled  $16 million, consisting of a mix of callable Federal Home Loan Bank securities  noted above, together with other government and agency securities in the 1–3  year range, along with mortgage–backed securities with interest rate maturities  in the three year range. Additionally, the Company purchased $2.5 million in  mutual funds consisting of securities similar to the above. The $1.9 million  increase in other liabilities at September 30, 2002 represented two securities  which were purchased but not yet settled.

13

----

**Back to Contents**

For the year–to–date, the net effect  of securities transactions has primarily been a $14 million (28%) reduction  in corporate debt securities, primarily trust preferred securities. The fully  taxable equivalent yield on investment securities was 6.49% in the third quarter,  down from 7.29% in the fourth quarter of 2001 due to the sale of higher rate,  longer term securities, as well as lower rates on securities purchased this  year. The average life of the debt securities portfolio measured 13.2 years  at the end of the third quarter, down from 14.1 years at the prior year–end.

At quarter–end, the Company owned seven securities  which had ratings/ranking below investment grade. These securities had a total  amortized cost of $7.0 million and a net unrealized loss of $2.4 million. During  the third quarter, two securities were added and two were removed from this  group. The two that were added were a mutual insurance company downgraded due  to higher reserving and an industrial company downgraded following a leveraged  buyout. Both of these were existing securities which had originally been purchased  with investment grade ratings, and were transferred from held to maturity to  available for sale following their downgrades in the third quarter. The two  securities which were removed from this group in the third quarter included  one insurance company security which was written off following an announcement  of plans for a debt restructuring, and a REIT security which was upgraded to  investment grade. The writedowns in the third quarter totaling $789 thousand  included the above insurance company security and a writedown on another insurance  company security which was affected by higher casualty losses. The quarter–end  individual unrealized losses ranged from 16% to 58% of amortized cost, which  were judged to be temporary declines in value of debt securities which were  expected to continue to perform in accordance with their terms.

At September 30, 2002, the net unrealized loss  on total investment securities measured 3% of amortized cost, which was improved  from 4% at year–end 2001. In addition to the securities noted above, the  other main component of the unrealized loss was $2.2 million (21% of cost) due  to lower market values of utility common equity securities reflecting market  factors. Excluding these common stocks and the non–investment grade securities  above, all other investment securities had a net unrealized gain measuring 2%  of cost at September 30, 2002.

**Total Loans:**Total loans increased by $14  million in the third quarter, including $10 million of residential mortgages  and $5 million of commercial mortgages and commercial loans. Residential mortgage  growth included a $3 million increase in the balance of loans held for sale,  together with growth in permanent mortgages including the Company’s popular  “no fee” refinancing mortgage. Loan demand increased significantly  in the third quarter due to a sharp decrease in long term interest rates to  generational lows. Commercial loan demand also reflected continued strong residential  construction activity, and other commercial development opportunities. Information  published recently in local media showed that home price appreciation in towns  with Tolland Bank branches compared favorably with averages for other capital  area towns. This demonstrated the relative favorable real estate conditions  in many of the Company's markets.

Total loans increased at a 22% annualized rate  in the third quarter and at an 8% annualized rate for the year–to–date.  Due to the low prevailing interest rates, the Company has sold most of its conforming  fixed rate residential mortgage originations to the secondary market. Also,  the Company has curtailed purchases of fixed rate government guaranteed loans.  The yield on total loans decreased to 6.70% in the most recent quarter from  7.24% in the last quarter of 2001 due to the continuing effects of prime rate  decreases in the previous quarter and to ongoing refinancings and rate resets.

**Nonperforming Assets:** There were no foreclosed  assets at September 30, 2002. Nonaccruing loans totaled $3.2 million, compared  to $2.1 million at year–end 2001. About half of this increase was in loans  secured by 1–4 family residential properties, and about half of the increase  was in other commercial real estate secured loans. Nonperforming assets were  0.78% of total assets at September 30, 2002. At that date, nonaccruing loans  included $1.0 million in residential mortgages, a $0.8 million current commercial  mortgage, a $0.6 million SBA guaranteed loan, and $0.8 million in all other  nonaccruing loans. 

14

----

**Back to Contents**

**Allowance for Loan Losses:** The allowance  totaled $4.0 million (1.46% of total loans) at September 30, 2002, compared  to $3.70 million (1.44% of total loans) at year–end 2001. For the year–to–date,  gross loan chargeoffs have totaled $47 thousand and gross loan recoveries have  totaled $46 thousand. The allowance measured 123% of nonaccruing loans at quarter–end.  

**Deposits and Borrowings:**Total deposits  increased by $5 million during the quarter and by $32 million (14% annualized)  since year–end 2001. Most of this growth has been in savings and time deposits,  with an additional $5 million of growth in money market deposits due to short  term municipal balances. Money market account balances at quarter–end included  about $8 million in short–term municipal balances which were expected to  be withdrawn within 9 months. The $14 million increase in savings deposits represented  unusual growth and was viewed by the Company as potentially related to conditions  in the equity markets and was therefore potentially more susceptible to future  outflow in response to changing market and interest rate conditions. The $7  million growth in time accounts was primarily due to promotions of time accounts  with maturities in the two to five year range, as the Company raised funds in  the first half of the year in anticipation of higher interest rates and future  loan bookings. Short term borrowings totaling $6.5 million at year–end  2001 were repaid from deposit funds. The cost of interest bearing liabilities  declined to 3.34% during the third quarter, from 3.87% in the fourth quarter  of 2001, reflecting the ongoing benefit of time account repricings, together  with selective reductions in other deposit account interest rates. 

**Interest Rate Sensitivity:** The Company uses  interest rate risk models to estimate earnings at risk and equity at risk, as  further described in the 2001 annual report. The Company’s income and  equity are expected to increase in a rising rate environment and to decrease  in a decreasing rate environment, primarily due to its portfolio of prime based  commercial and consumer loans. With interest rates at comparatively low levels  and a steep current yield curve, the Company generally is cautious about the  acquisition of net new long term fixed rate assets in order to control equity  at risk in a rising rate environment.

During the third quarter, the Company modified  its interest rate risk modeling process. The Company estimated that about $20  million of $75 million in total savings account balances may be related to stock  market conditions and could be short term in nature if stock market or other  capital market conditions change. Accordingly, this amount was classified as  under one year. Additionally, due to the low interest rate conditions, the Company  limited its analysis of a falling rate scenario to 150 basis points, rather  than 200 basis points.

At September 30, 2002, the Company estimated that  its one year interest rate gap was about $38 million, or about 10% of total  earning assets. The Company expected the one year gap to decline to $20 million  (5% of earning assets) in October due to the reinvestment of short term investments  into loans and investment securities. Measures of earnings at risk and equity  at risk were expected to be within policy limits as of that date, with the 150  basis point limitation and a 15% decrease in equity in a downward environment.

Since year–end 2001, total assets have grown  about $30 million. Cash and equivalents have increased by $31 million, funded  by $32 million of deposit growth, most of which is modeled as under one year  in rate sensitivity. The one year gap increased from 3% to 10% of earning assets  due primarily to higher anticipated loan prepayments due to low interest rates,  together with a lengthening of time deposit maturities due to promotions of  2–5 year time accounts in the first half of the year when the Company anticipated  that rates would be rising. The gap is expected to decrease to 5% of earning  assets in October. The Company expects that its income at risk will have increased  to near its 10% policy guideline. Similarly, equity at risk will also have increased  within guidelines. The uncertainty of the modeling process has increased due  to capital markets conditions.

**Liquidity and Cash Flows:** The Bank’s  primary uses of funds have been the origination of new loans, purchases of investment  securities, and the repayment of short term borrowings. The primary sources  of funds were deposit growth and the liquidation of securities available for  sale. Due to the strong deposit growth in 2002, sources of funds exceeded uses  of funds, and short term investments therefore increased. These short term investments  were the primary sources of liquidity for additional loan originations and investment  purchases. Borrowings and time deposits were additional sources of liquidity,  along with investment securities and government guaranteed loans. The newly  announced Enfield office is expected to provide additional deposit funds in  2003. The Company’s primary source of funds is dividends received from  the Bank, and its primary use of funds is dividends paid to shareholders and  to trust preferred security holders. 

15

----

**Back to Contents**

**Capital Resources:** Shareholders’ equity  increased by $1.6 million (7%) for the first nine months of 2002 primarily due  to retained earnings. Total equity was 5.7% of assets at September 30, 2002,  which was unchanged from year–end 2001. At quarter–end, both Alliance  and Tolland Bank continued to be capitalized in accordance with the “well  capitalized” regulatory classification. Return on shareholders’  equity measured 14.5% and 15.0% during the third quarter and for the first nine  months of 2002, respectively. Excluding accumulated other comprehensive loss,  return on equity measured 12.7% and 13.2%, respectively. 

**ITEM 3.     QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

See discussion and analysis of quantitative and  qualitative disclosures about market risk provided in the Company’s Annual  Report on Form 10–K for the year ended December 31, 2001 filed April 2,  2002. See also the discussion of Interest Rate Sensitivity in Item 2 of this  Form 10–Q.

**ITEM 4.     CONTROLS  AND PROCEDURES**

Based on their evaluation as of a date within 90  days of the filing of this Form 10–Q, the Company’s Chief Executive  Officer, Joseph H. Rossi, and Chief Financial Officer, David H. Gonci, have  concluded the Company’s disclosure controls and procedures are effective  to ensure that information required to be disclosed in the reports that the  Company files or submits under the Securities Exchange Act of 1934 is recorded,  processed, summarized and reported within the time periods specified in the  Securities and Exchange Commission’s rules and forms. There have been  no significant changes in the Company’s internal controls or in other  factors that could significantly affect those controls subsequent to the date  of their evaluation.

**PART II   OTHER INFORMATION**

| **Item 1.** | **LEGAL PROCEEDINGS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        | From time to time, the Company and the Bank are parties        to, or otherwise involved in legal proceedings arising in the normal course        of our business. We do not believe that there is any pending or threatened        proceeding against the Company or the Bank which, if determined adversely,        would have a material effect on our business, results of operations or        financial condition.

                                                                                                                                 |
| **Item 2.** | **CHANGES IN SECURITIES AND USE OF PROCEEDS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        | None.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **Item 3.** | **DEFAULTS UPON SENIOR SECURITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        | None.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **Item 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        | None.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **Item 5.** | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **Item 6.** | **EXHIBITS AND REPORTS ON FORM 8–K**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        | (a) Exhibit index        None.
(b) Reports        on Form 8–K filed during the quarter ended September 30, 2002.        i. On July 31, 2002, the Company filed a Form 8–K reporting, under        Item 5, the announcement of an agreement to purchase property in Enfield,        Connecticut for a new branch office of the subsidiary, Tolland Bank.        ii. On August 14, 2002, the Company filed a Form 8–K reporting, under        Item 9, certifications pursuant to Section 906 of the Sarbanes–Oxley        Act of 2002.
  |

 

16

----

**Back to Contents**

**Average Balance Sheets and Interest Rates  – Fully Taxable Equivalent (FTE)**

| ***(dollars in thousands)***              | ** Average        Balance** |     | **Rate (FTE        Basis)** |
|-------------------------------------------|----------------------------------|----------|-----------------------------|
|                                           |
| ***Quarters ended September      30***    |                             | **2002** |                        |   | **2001** |   | **2002** |   |   | **2001** |   |
|                                           |
| Residential mortgage loans                | $                                | 66,600   |                        | $ | 62,771 |   | 6.71 | % |   | 7.29 | % |
| Commercial mortgage loans                 |                             | 90,868   |                        |   | 77,066 |   | 7.65 |   |   | 8.55 |   |
| Other commercial loans                    |                             | 38,696   |                        |   | 41,310 |   | 6.49 |   |   | 7.81 |   |
| Consumer loans                            |                             | 41,088   |                        |   | 38,350 |   | 4.99 |   |   | 6.41 |   |
| Government guaranteed loans               |                             | 26,845   |                        |   | 27,213 |   | 6.44 |   |   | 7.05 |   |
|                                           |
|                                      | Total loans                      |     | 264,097                     |   |   | 246,710 |   | 6.70 |   |   | 7.61 |   |
| Securities                                |                             | 96,033   |                        |   | 83,235 |   | 6.49 |   |   | 7.65 |   |
| Other earning assets                      |                             | 25,894   |                        |   | 16,703 |   | 1.82 |   |   | 3.69 |   |
|                                           |
|                                      | Total earning assets             |     | 386,024                     |   |   | 346,648 |   | 6.32 |   |   | 7.43 |   |
| Other assets                              |                             | 23,921   |                        |   | 20,884 |   |   |   |   |   |   |
|                                           |
|                                      | Total assets                     | $        | 409,945                     |   | $ | 367,532 |   |   |   |   |   |   |
|                                           |
|                                      |                             |     |                        |   |   |   |   |   |   |   |   |   |
| NOW deposits                              | $                                | 35,105   |                        | $ | 32,393 |   | 0.91 | % |   | 1.64 | % |
| Money market deposits                     |                             | 49,800   |                        |   | 42,446 |   | 2.02 |   |   | 3.39 |   |
| Savings deposits                          |                             | 72,535   |                        |   | 50,738 |   | 1.92 |   |   | 2.41 |   |
| Time deposits                             |                             | 139,597  |                        |   | 136,943 |   | 4.15 |   |   | 5.27 |   |
|                                           |
|                                      | Total interest bearing deposits  |     | 297,037                     |   |   | 262,520 |   | 2.86 |   |   | 3.97 |   |
| Borrowings                                |                             | 50,674   |                        |   | 48,338 |   | 6.16 |   |   | 6.23 |   |
|                                           |
| Interest bearing liabilities              |                             | 347,711  |                        |   | 310,858 |   | 3.34 |   |   | 4.32 |   |
| Other liabilities                         |                             | 36,652   |                        |   | 33,005 |   |   |   |   |   |   |
| Shareholder’s equity                |                             | 25,582   |                        |   | 23,669 |   |   |   |   |   |   |
|                                           |
|                                      | Total liabilities and equity     | $        | 409,945                     |   | $ | 367,532 |   |   |   |   |   |   |
|                                           |
| Net Interest Spread                       |                             |     |                        |   |   |   | 2.98 | % |   | 3.11 | % |
| Net Interest Margin                       |                             |     |                        |   |   |   | 3.31 | % |   | 3.56 | % |
|                                      |                             |     |                        |
|                                           |
| ***Nine months ended September      30*** |                             | **2002** |                        |   | **2001** |   | **2002** |   |   | **2001** |   |
|                                           |
| Residential mortgage loans                | $                                | 63,710   |                        | $ | 61,724 |   | 6.90 | % |   | 7.49 | % |
| Commercial mortgage loans                 |                             | 89,100   |                        |   | 70,893 |   | 7.79 |   |   | 8.54 |   |
| Other commercial loans                    |                             | 38,887   |                        |   | 46,678 |   | 6.57 |   |   | 8.54 |   |
| Consumer loans                            |                             | 40,530   |                        |   | 37,218 |   | 5.23 |   |   | 7.12 |   |
| Government guaranteed loans               |                             | 28,160   |                        |   | 25,060 |   | 6.66 |   |   | 7.31 |   |
|                                           |
|                                      | Total loans                      |     | 260,387                     |   |   | 241,573 |   | 6.87 |   |   | 7.93 |   |
| Securities                                |                             | 89,091   |                        |   | 83,932 |   | 7.05 |   |   | 7.79 |   |
| Other earning assets                      |                             | 19,015   |                        |   | 10,207 |   | 1.77 |   |   | 4.42 |   |
|                                           |
|                                      | Total earning assets             |     | 368,493                     |   |   | 335,712 |   | 6.58 |   |   | 7.78 |   |
| Other assets                              |                             | 29,586   |                        |   | 20,713 |   |   |   |   |   |   |
|                                           |
|                                      | Total assets                     | $        | 398,079                     |   | $ | 356,425 |   |   |   |   |   |   |
|                                           |
| NOW deposits                              | $                                | 35,755   |                        | $ | 31,296 |   | 0.93 | % |   | 1.73 | % |
| Money market deposits                     |                             | 44,484   |                        |   | 40,471 |   | 2.07 |   |   | 3.83 |   |
| Savings deposits                          |                             | 70,716   |                        |   | 47,927 |   | 1.99 |   |   | 2.47 |   |
| Time deposits                             |                             | 137,104  |                        |   | 135,249 |   | 4.34 |   |   | 5.47 |   |
|                                           |
|                                      | Total interest bearing deposits  |     | 288,059                     |   |   | 254,943 |   | 2.99 |   |   | 4.19 |   |
| Borrowings                                |                             | 50,004   |                        |   | 46,514 |   | 6.17 |   |   | 6.24 |   |
|                                           |
| Interest bearing liabilities              |                             | 338,063  |                        |   | 301,457 |   | 3.46 |   |   | 4.50 |   |
| Other liabilities                         |                             | 34,672   |                        |   | 32,047 |   |   |   |   |   |   |
| Shareholder’s equity                |                             | 25,344   |                        |   | 22,921 |   |   |   |   |   |   |
|                                           |
|                                      | Total liabilities and equity     | $        | 398,079                     |   | $ | 356,425 |   |   |   |   |   |   |
|                                           |
| Net Interest Spread                       |                             |     |                        |   |   |   | 3.12 | % |   | 3.28 | % |
| Net Interest Margin                       |                             |     |                        |   |   |   | 3.44 | % |   | 3.74 | % |

17

----

**Back to Contents**

**Signatures**

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

|                     | ALLIANCE BANCORP OF      NEW ENGLAND, INC                            |
|--------------------------|----------------------------------------------------------------------|
|                     |                                                                 |
| Dated: November 12, 2002 | By: */s/ Joseph H. Rossi*Joseph H. Rossi      President/CEO          |
|                     |                                                                 |
|                     |                                                                 |
|                     |                                                                 |
| Dated: November 12, 2002 | By:*/s/ David H. Gonci*David H. Gonci      Senior Vice President/CFO |

18

----

**Back to Contents**

**Form 10–Q Certification**

I, Joseph H. Rossi, certify that:

1. I have reviewed this quarterly report on Form 10–Q    of Alliance Bancorp of New England, Inc.;

 2. Based on my knowledge, this quarterly report does not    contain any untrue statement of a material fact or omit to state a material    fact necessary to make the statements made, in light of the circumstances    under which such statements were made, not misleading with respect to the    period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other    financial information included in this quarterly report, fairly present in    all material respects the financial condition, results of operations and cash    flows of the registrant as of and for, the periods presented in this quarterly    report;

4. The registrant’s other certifying officer and I are    responsible for establishing and maintaining disclosure controls and procedures    (as defined in Exchange Act Rules 13a–14 and 15d–14) for the registrant    and we have:

a. designed such disclosure controls and procedures to ensure    that material information relating to the registrant, including its consolidated    subsidiaries, is made known to us by others within those entities, particularly    during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure    controls and procedures as of a date within 90 days prior to the filing date    of this quarterly report (the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about    the effectiveness of the disclosure controls and procedures based on our evaluation    as of the Evaluation Date;

5. The registrant’s other certifying officer and I have    disclosed, based on our most recent evaluation, to the registrant’s    auditors and the audit committee of registrant’s board of directors    (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation    of internal controls which could adversely affect the registrant’s ability    to record, process, summarize and report financial data and have identified    for the registrant’s auditors any material weakness in internal controls;    and
b. any fraud, whether or not material, that involves management    or other employees who have a significant role in the registrant’s internal    controls; and
6. The registrant’s other certifying officer and I have    indicated in this quarterly report whether or not there were significant changes    in internal controls or in other factors that could significantly affect internal    controls subsequent to the date of our most recent evaluation, including any    corrective actions with regard to significant deficiencies and material weaknesses.
 
Date:November 12, 2002*/s/ Joseph H. Ross*Joseph H. Rossi      President/CEO   
19

**Back to Contents**

**Form 10–Q Certification**

I, David H. Gonci, certify that:

1. I have reviewed this quarterly report on Form 10–Q    of Alliance Bancorp of New England, Inc.;

2. Based on my knowledge, this quarterly report does not contain    any untrue statement of a material fact or omit to state a material fact necessary    to make the statements made, in light of the circumstances under which such    statements were made, not misleading with respect to the period covered by    this quarterly report;

3. Based on my knowledge, the financial statements, and other    financial information included in this quarterly report, fairly present in    all material respects the financial condition, results of operations and cash    flows of the registrant as of and for, the periods presented in this quarterly    report;

4. The registrant’s other certifying officer and I are    responsible for establishing and maintaining disclosure controls and procedures    (as defined in Exchange Act Rules 13a–14 and 15d–14) for the registrant    and we have:

a. designed such disclosure controls and procedures to ensure    that material information relating to the registrant, including its consolidated    subsidiaries, is made known to us by others within those entities, particularly    during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant’s disclosure    controls and procedures as of a date within 90 days prior to the filing date    of this quarterly report (the “Evaluation Date”); and

c. presented in this quarterly report our conclusions about    the effectiveness of the disclosure controls and procedures based on our evaluation    as of the Evaluation Date;

5. The registrant’s other certifying officer and I have    disclosed, based on our most recent evaluation, to the registrant’s    auditors and the audit committee of registrant’s board of directors    (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation    of internal controls which could adversely affect the registrant’s ability    to record, process, summarize and report financial data and have identified    for the registrant’s auditors any material weakness in internal controls;    and

b. any fraud, whether or not material, that involves management    or other employees who have a significant role in the registrant’s internal    controls; and

6. The registrant’s other certifying officer and I have    indicated in this quarterly report whether or not there were significant changes    in internal controls or in other factors that could significantly affect internal    controls subsequent to the date of our most recent evaluation, including any    corrective actions with regard to significant deficiencies and material weaknesses.
Date:November 12, 2002*/s/ David H. Gonci*David H. Gonci      Senior Vice President/CFO   
20