|FORM 10-Q


United States Securities and
Exchange CommissionWashington, DC 20549Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934For the Quarterly Period Ended March 31, 2001
Commission File Number 001-13405


ALLIANCE
BANCORP OF NEW ENGLAND, INC.


Incorporated in the State
of DelawareIRS Employer Identification Number 06-1495617Address 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 May 10, 2001,
Alliance Bancorp of New England had 2,331,100 shares of common stock
outstanding.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|TABLE OF CONTENTS | Page
|----------------- | ----
|Table             |     
|Part I            |     
|Item 1            |     
|                  |     
|                  |     
|                  |     
|                  |     
|                  |     
|Item 2            |     
|                  |     
|                  |     
|Item 3            |     
|Part II           |     
|Table             |     
|Signatures        |     

|1
|-

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

|                                        | As of and for the three months ended March 31,
|--------------------------------------- | ----------------------------------------------
|
|                                       
|For the Quarter (in thousands)          |                                               
|Net interest income                     |                                               
|Provision for loan losses               |                                               
|Service charges and other income        |                                               
|Net gain on securities and other assets |                                               
|Non-interest expense                    |                                               
|Net income                              |                                               
|                                       
|Per Share                               |                                               
|Earnings - basic                        |                                               
|Earnings - diluted                      |                                               
|Dividends declared                      |                                               
|Book value                              |                                               
|Common stock price:                     |                                               
|High                                    |                                               
|Low                                     |                                               
|Close                                   |                                               
|                                       
|At Quarter End (in millions)            |                                               
|Total assets                            |                                               
|Total loans                             |                                               
|Other earning assets                    |                                               
|Deposits                                |                                               
|Borrowings                              |                                               
|Shareholders equity (a)                |                                               
|                                       
|Operating Ratios (in percent)           |                                               
|Return on average equity                |                                               
|Return on average assets                |                                               
|Net interest spread (b)                 |                                               
|Net interest margin (b)                 |                                               
|Dividend payout ratio                   |                                               
|Equity % total assets (period end)      |                                               
|                                       

|(a) Shareholders
equity includes accumulated other comprehensive income (loss), which consists of
unrealized gains (losses) on investment securities, net of taxes.(b) Ratio
expressed as fully taxable equivalent.

2
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Alliance
Bancorp of New England, Inc.Consolidated
Balance Sheets
|----------------------------------------------------------------

|(in thousands except share data)                     | March 31, 2001(Unaudited) | December 31, 2000(Audited)
|---------------------------------------------------- | ------------------------- | --------------------------
|                                                    
|Assets                                               |                           |                           
|Cash and due from banks                              |                           | $     9,260               
|Short-term investments                               |                           | 8,398                     
|                                                    
|Total cash and cash equivalents                      |                           | 17,658                    
|                                                     |                          
|Securities available for sale (at fair value)        |                           | 64,262                    
|                                                     |                          
|Securities held to maturity                          |                           | 16,562                    
|                                                     |                          
|Residential mortgage loans                           |                           | 61,544                    
|Commercial mortgage loans                            |                           | 75,913                    
|Other commercial loans                               |                           | 41,988                    
|Consumer loans                                       |                           | 36,524                    
|Government guaranteed loans                          |                           | 24,971                    
|                                                    
|Total loans                                          |                           | 240,940                   
|Less: Allowance for loan losses                      |                           | (3,500                    
|                                                    
|Net loans                                            |                           | 237,440                   
|                                                     |                          
|Premises and equipment, net                          |                           | 5,852                     
|Foreclosed assets, net                               |                           |                          
|Accrued interest income receivable                   |                           | 3,089                     
|Cash surrender value of life insurance               |                           | 2,784                     
|Other assets                                         |                           | 2,842                     
|                                                    
|Total assets                                         |                           | $ 350,489                 
|                                                    
|                                                     |                          
|Liabilities and Shareholders Equity                 |                          
|Demand deposits                                      |                           | $   29,332                
|NOW deposits                                         |                           | 31,267                    
|Money market deposits                                |                           | 41,175                    
|Savings deposits                                     |                           | 46,111                    
|Time deposits                                        |                           | 135,556                   
|                                                    
|Total deposits                                       |                           | 283,441                   
|                                                     |                          
|Borrowings                                           |                           | 45,500                    
|Other liabilities                                    |                           | 2,037                     
|                                                    
|Total liabilities                                    |                           | 330,978                   
|                                                     |                          
|Preferred stock, ( $.01 par value; 100,000 shares    |                          
|authorized, none issued)                             |                           |                          
|Common stock, ($.01 par value; authorized 4,000,000  |                          
|shares; issued 2,531,699 in 2001                     |                          
|and 2,531,699 in 2000; outstanding 2,331,100 in 2001 |                          
|and 2,331,100 in 2000)                               |                           | 25                        
|Additional paid-in capital                           |                           | 11,516                    
|Retained earnings                                    |                           | 14,850                    
|Accumulated other comprehensive loss, net            |                           | (3,771                    
|Treasury stock (200,599 shares)                      |                           | (3,109                    
|                                                    
|Total shareholders equity                           |                           | 19,511                    
|                                                    
|Total liabilities and shareholders equity           |                           | $ 350,489                 
|                                                    

|See
accompanying notes to financial statements


3
|--------------------------------------------------

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

|                                                    | Three Months EndedMarch 31,
|--------------------------------------------------- | ---------------------------
|
|                                                   
|Interest Income                                     |                            
|Loans                                               |                            
|Debt securities                                     |                            
|Dividends on equity securities                      |                            
|Other earning assets                                |                            
|                                                   
|Total interest and dividend income                  |                            
|                                                   
|                                                    |                            
|Interest Expense                                    |                            
|Deposits                                            |                            
|Borrowings                                          |                            
|                                                   
|Total interest expense                              |                            
|                                                   
|                                                    |                            
|Net Interest Income                                 |                            
|                                                    |                            
|Provision For Loan Losses                           |                            
|                                                   
|Net interest income after provision for loan losses |                            
|                                                    |                            
|Non-Interest Income                                 |                            
|Service charges and other income                    |                            
|Net gain on securities                              |                            
|                                                   
|Total non-interest income                           |                            
|                                                    |                            
|Non-Interest Expense                                |                            
|Compensation and benefits                           |                            
|Occupancy                                           |                            
|Data processing services and equipment              |                            
|Office and insurance                                |                            
|Purchased services                                  |                            
|Other                                               |                            
|                                                   
|Total non-interest expense                          |                            
|                                                   
|Income before income taxes                          |                            
|Income tax expense                                  |                            
|                                                   
|Net Income                                          |                            
|                                                   
|                                                    |                            
|Per Share Data                                      |                            
|Basic earnings per share                            |                            
|                                                   
|Diluted earnings per share                          |                            
|                                                   
|Average basic shares outstanding                    |                            
|Average additional dilutive shares                  |                            
|                                                   
|Average diluted shares outstanding                  |                            
|                                                   

|See
accompanying notes to financial statements


4
|--------------------------------------------------

|Alliance
Bancorp of New England, Inc.Consolidated
Statements of Changes in Shareholders Equity (Unaudited)
|-----------------------------------------------------------------------------------------------------------

|                                           
|-------------------------------------------
|
|                                           
|                                           
|2000                                       
|Balance, December 31, 1999                 
|Comprehensive income                       
|Net income                                 
|Unrealized gain on securities,             
|net of reclassification adjustment         
|                                           
|Comprehensive loss                         
|Dividends declared ($0.06 per share)       
|                                           
|Balance, March 31, 2000                    
|                                           
|                                           
|                                           
|2001                                       
|Balance, December 31, 2000                 
|Comprehensive income                       
|Net income                                 
|Unrealized gains on securities,            
|net of reclassification adjustment         
|                                           
|Comprehensive income                       
|Dividends declared ($0.075 per share)      
|                                           
|Balance, March 31, 2001                    
|                                           
|                                           
|                                           
|Disclosure of reclassification amount      
|Three months ended March 31 (in thousands) 
|                                           
|Unrealized holding gain arising during     
|the period net of income tax expense       
|of $410 and $368, respectively             
|Less reclassification adjustment for       
|gains included in net income, net of income
|tax expense of $9 and $35, respectively    
|                                           
|Net unrealized gains on securities         
|                                           

|See
accompanying notes to financial statements


5
|--------------------------------------------------

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

|                                                     | Three Months EndedMarch 31,
|---------------------------------------------------- | ---------------------------
|
|                                                    
|Operating Activities:                                |                            
|Net income                                           |                            
|Adjustments to reconcile net income to               |                            
|net cash provided (used) by operating activities:    |                            
|Provision for loan losses                            |                            
|Depreciation and amortization                        |                            
|Net gain on securities                               |                            
|Decrease in loans held for sale                      |                            
|(Decrease) increase in other liabilities             |                            
|Decrease (increase) in other assets                  |                            
|                                                    
|Net cash provided by operating activities            |                            
|                                                     |                            
|Investing Activities:                                |                            
|Securities available for sale:                       |                            
|Proceeds from repayments and maturities              |                            
|Proceeds from sales of securities                    |                            
|Purchases of securities                              |                            
|Securities held to maturity:                         |                            
|Proceeds from amortization and maturities            |                            
|Net increase in loans                                |                            
|Proceeds from sales of foreclosed assets             |                            
|Purchases of premises and equipment                  |                            
|                                                    
|Net cash used in investing activities                |                            
|                                                     |                            
|Financing Activities:                                |                            
|Net increase in interest-bearing deposits            |                            
|Net (decrease) increase in demand deposits           |                            
|Net (decrease) increase in borrowings                |                            
|Cash dividends paid                                  |                            
|                                                    
|Net cash provided by financing activities            |                            
|                                                    
|Net Change in Cash and Cash Equivalents              |                            
|Cash and cash equivalents at beginning of the period |                            
|                                                    
|Cash and cash equivalents at end of the period       |                            
|                                                    
|                                                     |                            
|Supplemental Information on Cash Payments            |                            
|Interest expense                                     |                            
|Income tax expense                                   |                            
|                                                     |                            
|Supplemental Information On Non-cash Transactions    |                            
|Net loans transferred to foreclosed assets           |                            
|Securities transferred to held to maturity           |                            
|Securities transferred to available for sale         |                            

|See
accompanying notes to financial statements


5
|--------------------------------------------------

|Notes to
Consolidated Financial Statements (unaudited)


Note 1.  Basis of
Presentation and Principles of Business and Consolidation



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.


Alliance Bancorp of New
England, Inc. (Alliance or the Company) uses the accrual
method of accounting for all material items of income and expense. The Company
is required to make certain estimates and assumptions in preparing these
statements. The most significant estimates are those necessary in determining
the allowance for loan losses, the valuation of foreclosed assets, and the
determination of fair values of financial instruments. Factors affecting these
estimates include national economic conditions, the level and trend of interest
rates, local market conditions, and real estate trends and values.


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, 2000.


Alliance 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), a
Delaware chartered trust which was formed in 1999 and issued $3.5 million in
privately offered trust preferred securities. Proceeds from this issuance were
invested in subordinated notes issued by Alliance, which invested the note
proceeds in new common stock issued by the Bank. Alliance also wholly owns
Alliance Capital Trust II (Trust II), a Delaware chartered trust
which was formed in the first quarter of 2000 and issued $3.5 million in
privately offered trust preferred securities. Proceeds from the issuance of
Trust II were invested in subordinated notes issued by Alliance, which invested
the note proceeds in a capital contribution to the Bank.


Tolland Bank provides
consumer and commercial banking services from its nine offices located in and
around Tolland County, Connecticut. The Banks deposits are insured up to
the applicable limits by The Federal Deposit Insurance Corporation
(FDIC). Tolland Bank wholly owns Tolland Investment Corporation
(TIC), a passive investment corporation chartered in Connecticut in
1999 to own and service real estate secured loans purchased from the Bank. 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, Trust I,
Trust II, Tolland Bank, TIC, and ARS. All significant intercompany accounts and
transactions have been eliminated in consolidation.

7
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 2.   Securities
|--------------------

|March 31, 2001 (in thousands)    | AmortizedCost | UnrealizedGains | UnrealizedLosses | FairValue
|-------------------------------- | ------------- | --------------- | ---------------- | ---------
|                                
|Securities available for sale    |               |                 |                  |          
|U.S. Government and agency debt  |               | $  2,000        |                  | $  --    
|U.S. Agency mortgage-backed debt |               | 4,488           |                  |         
|Trust preferred                  |               | 27,598          |                  | 253      
|Other corporate debt             |               | 17,951          |                  | 214      
|Marketable equity                |               | 14,664          |                  | 97       
|Non-marketable equity            |               | 2,281           |                  |         
|                                
|Total available for sale         |               | $68,982         |                  | $564     
|                                
|Securities held to maturity      |              
|U.S. Government and agency debt  |               | $  3,059        |                  | $  65    
|U.S. Agency mortgage-backed debt |               | 5,140           |                  | 48       
|Other mortgage-backed debt       |               | 2,314           |                  | 34       
|Other corporate debt             |               | 6,049           |                  | 32       
|                                
|Total held to maturity           |               | $16,562         |                  | $179     
|                                

|December 31, 2000 (in thousands) | AmortizedCost | UnrealizedGains | UnrealizedLosses | FairValue
|-------------------------------- | ------------- | --------------- | ---------------- | ---------
|                                
|Securities available for sale    |               |                 |                  |          
|U.S. Government and agency debt  |               | $  5,000        |                  | $  73    
|U.S. Agency mortgage-backed debt |               | 3,457           |                  | 5        
|Other mortgage-backed debt       |               | 2,093           |                  | 10       
|Trust preferred                  |               | 24,122          |                  | 235      
|Other corporate debt             |               | 6,042           |                  | 27       
|Marketable equity                |               | 14,659          |                  | 186      
|Non-marketable equity            |               | 2,281           |                  |         
|                                
|Total available for sale         |               | $57,654         |                  | $536     
|                                
|Securities held to maturity      |              
|U.S. Government and agency debt  |               | $     986       |                  | $  16    
|U.S. Agency mortgage-backed debt |               | 3,850           |                  | 2        
|Other mortgage-backed debt       |               | 251             |                  | 4        
|Trust preferred                  |               | 3,098           |                  | 114      
|Other corporate debt             |               | 14,828          |                  | 223      
|                                
|Total held to maturity           |               | $23,013         |                  | $359     
|                                

|In June 1998, the FASB
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that companies
record all derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair value. The manner in which the companies are
to record gains and losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. For qualifying hedges, the recognition of changes in the value
of both the hedge and the hedged item are recorded in earnings in the same
period. Changes in the fair value of derivatives that do not qualify for hedge
accounting are included in earnings in the period of the change. SFAS 133 also
allows a one-time reclassification of held to maturity securities. As amended by
SFAS No. 137, this statement is effective for years beginning after June 15,
2000. This adoption did not have a material impact on the Companys
financial position or results of operations.



Note 3.   Nonperforming
Loans
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(in thousands)                                          | March 31,2001 | December 31,2000
|------------------------------------------------------- | ------------- | ----------------
|                                                       
|Total nonaccruing loans                                 |               | $1,538          
|Accruing loans past due 90 days or more                 |               |                
|Impaired loans:                                         |              
|Impaired loans - valuation allowance required           |               | 921             
|Impaired loans - no valuation allowance required        |               | 230             
|                                                       
|Total impaired loans                                    |               | $1,151          
|Total valuation allowance on impaired loans             |               | 198             
|Commitments to lend additional funds for impaired loans |               |                

|8
|-

|Note 4.   
Allowance for Loan Losses
|------------------------------------

|(in thousands)               | Three Months Ended March 31,2001 | Year EndedDecember 31,2000
|---------------------------- | -------------------------------- | --------------------------
|                            
|Balance at beginning of year |                                  | $ 3,400                   
|Charge-offs                  |                                  | (3                        
|Recoveries                   |                                  | 31                        
|Provision for loan losses    |                                  | 72                        
|                            
|Balance at end of year       |                                  | $ 3,500                   
|                            

|Note 5.   New
Accounting Standards


In September 2000, the FASB
issued SFAS 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. SFAS 140 replaces SFAS 125 which the
Company will adopt in 2001. Although SFAS 140 revises certain aspects of
accounting for securitizations and collateral, and requires certain new
disclosures, it carries over most provisions of SFAS 125 without revision. SFAS
140 is effective for transactions occurring after March 31, 2001 and its
provisions related to collateral and disclosures are effective for fiscal years
ending after December 15, 2000. The Companys present accounting practices
for mortgage loan sales, the related servicing rights and securities repurchased
agreements are not expected to change significantly under SFAS 140. Accordingly,
the adoption of the standard in 2001 is not expected to have a significant
effect on the Companys consolidated financial statements.

9
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


SUMMARY


Alliance reported a 7.3%
increase in earnings for the first quarter ended March 31, 2001. Net profit
totaled $827 thousand, compared to $771 thousand a year earlier. Quarterly
earnings per share increased to $.35 compared to $.33 last year, on a diluted basis.
Alliance declared a quarterly cash dividend of 7.5 cents per share, compared to
6.0 cents per share in the same quarter of 2000.


Total loans grew at a 22%
annualized rate during the most recent quarter, continuing the strong business
growth accomplished through last year-end. This growth was funded primarily from
short term investments, producing higher yielding fixed rate assets. Loan growth
was recorded in all major loan categories, reflecting favorable volume in both
the commercial and consumer loan markets.


Alliance continues to
carefully manage asset quality, pursuing its plan for controlled growth through
market share expansion. There were no foreclosed assets at March 31, 2001.
Nonaccruing loans totaled $1.5 million, compared to $1.1 million at year-end
2000. There were $28 thousand in net loan recoveries during the quarter.


Internally, the Company
implemented various sales and service initiatives during the quarter, and work
continued on developing improved avenues for customer convenience.


First quarter net interest
income grew by $283 thousand (10.1%) due to the strong loan growth, along with
securities purchases. Non-interest income declined by $66 thousand (15.9%) due
to higher securities gains recorded in the previous year. Non-interest expense
increased by $117 thousand (5.6%), including higher salaries and higher legal
and audit expense.


Total assets were $350.5
million at quarter-end, and total shareholders equity was $19.5 million,
measuring 5.6% of total assets, compared to 5.2% at year-end 2000. Book value
per share was $8.37 at March 31, 2001, increasing by 7.7% from $7.77 at year-end
2000. Shareholders equity included a $744 thousand net benefit due to a
decrease in net unrealized securities losses during the quarter. Return on
shareholders equity measured 18.4% during the first quarter, and the
Companys capital remained in excess of all regulatory requirements.


In the following
discussion, income statement comparisons are against the same period of the
previous year and balance sheet comparisons are against the previous fiscal
year-end, unless otherwise noted.


This discussion and
analysis updates, and should be read in conjunction with, Managements
Discussion and Analysis included in the 2000 Annual Report on Form 10-K filed by
Alliance on April 2, 2001.
10
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|RESULTS OF
OPERATIONS


Net Interest Income:
Net interest income grew by $283 thousand (10.1%) due to the strong loan growth,
along with securities purchases. The securities purchases were made in order to
replace variable rate short term investments with fixed rate long term
investments, mitigating the impact of declining short term interest rates. The
net interest margin of 3.95% was slightly below the margin of 3.97% in the first
quarter of 2000, and was slightly higher than the 3.92% margin in the fourth
quarter of 2000. Average earning assets increased by 10.2% from the first
quarter of 2000 to the same quarter of 2001, propelled by a 20.5% increase in
average loans. Loan growth was funded by 8.0% growth in average deposits,
together with funds generated by a 57.7% decrease in average short term
investments.


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 $72 thousand, compared to
$87 thousand in the same quarter of 2000. During the most recent quarter, the
allowance was increased from $3.40 million to $3.50 million due primarily to
growth in commercial loans.


Non-Interest Income:
Non-interest income declined by $66 thousand (15.9%) due to higher securities
gains recorded in the previous year. Total service charge and other income was
little changed, measuring $312 thousand in 2001.


Non-Interest Expense and
Tax Expense: Non-interest expense increased by $117 thousand (5.6%),
including higher salaries and higher legal and audit expense. The increase in
compensation and benefits totaled $42 thousand, including a $105 thousand
(14.8%) increase in full time salaries, offset by a $41 thousand (52.6%)
increase in salary deferrals related to loan originations. Most of the $108
thousand increase in purchased services expense was related to projects which
are not expected to recur. The effective tax rate increased to 29.1% from 26.6%
due to higher loan interest income in relation to tax advantaged investment
security income.


Comprehensive
Income: Comprehensive income includes changes (after tax) in the market
valuation of investment securities available for sale. Comprehensive income was
$1.57 million in the most recent quarter, compared to $1.42 million in the same
quarter of last year. During both years, comprehensive income benefited from
improved values of available for sale securities. Please see the following
discussion on investment securities.


FINANCIAL
CONDITION


Cash and Cash
Equivalents:Total cash and equivalents decreased by $12.5 million during
the first quarter, as excess liquidity was reinvested in loans and investment
securities. Short term investments totaling $8.4 million at March 31, 2001 were
expected to be similarly reinvested during the second quarter.


Investment Securities: Total
investment securities increased by $4.4 million during the first quarter, due to
purchases of medium term corporate bonds.


As of January 1, 2001, in
implementing the provisions of FAS 133, the Company redesignated securities from
held to maturity to available for sale. Securities with amortized cost totaling
$11.88 million, net of a transfer adjustment of $1.57 million and with a fair
value totaling $11.59 million were transferred to available for sale from held
to maturity. Securities that were transferred were chosen primarily due to an
expectation of increasing valuations with the anticipated decline in interest
rates. At the same time, securities with an amortized cost totaling $7.04
million and a fair value totaling $7.13 million were transferred to held to
maturity from available for sale. The net impact on accumulated other
comprehensive loss was an increase of $196 thousand. Also under the provisions
of FAS 133 changes in the fair value of the Companys interest rate swap maturing in June, 2001
were reflected in the first quarter income statement, increasing non-interest
income by $10 thousand.


At March 31, 2001, the
total net unrealized loss on available for sale securities (before tax) was
$4.72 million, compared to $4.26 million at year-end 2000. The net unamortized
transfer loss on held to maturity securities (before tax) was $384 thousand,
compared to $2.04 million at year-end 2000. The unrealized loss on the
preponderance of the Companys debt securities declined during the quarter
due to improved prices on fixed income corporate debt instruments resulting from
interest rate reductions by the Federal Reserve Bank.
11
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The fully taxable
equivalent yield on investment securities was 7.81% in the most recent quarter,
compared to 8.00% in the fourth quarter of 2000, primarily reflecting the lower
yields on recently purchased securities.


Total Loans: Total
loans increased by $12.6 million (5.5%) during the quarter. Commercial loan
growth reflected a continuing strong pipeline. Consumer loan demand improved
during the quarter, and more residential mortgage originations were retained in
portfolio due to anticipated rate decreases. The yield on total loans declined
to 8.35% during the quarter, compared to 8.45% in the previous quarter, due
primarily to prime rate decreases.


Nonperforming
Assets: There were no foreclosed assets at March 31, 2001. Nonaccruing loans
totaled $1.5 million, compared to $1.1 million at year-end 2000. Nonperforming
assets were 0.44% of total assets atMarch 31, 2001.


Allowance for Loan
Losses: The allowance totaled $3.50 million (1.45% of total loans) at March
31, 2001, compared to $3.40 million (1.49% of total loans) at year-end 2000.
During the quarter, gross chargeoffs were $3 thousand and gross recoveries were
$31 thousand. The allowance measured 228% of nonaccruing loans at quarter-end.


Deposits and
Borrowings: Total deposits increased by $2.9 million (1.0%) during the
quarter due to growth in money market and time accounts. The cost of interest
bearing liabilities declined to 4.67% during the quarter, from 4.74% in the
previous quarter, reflecting the decrease in money market account cost to 4.36%
from 4.71% due to the decrease in interest rates.


Interest Rate
Sensitivity:The one year interest rate gap at March 31, 2001 approximated
($15 million), or (4.5%) of total earning assets. This negative gap reflects a
liability sensitive position in the one year range and is at the level targeted
by management at quarter-end due to the prospect of falling interest rates.


During the first quarter,
short term interest rates decreased by about 1.50%. Ten year interest rates
declined by about 0.35%, but then rebounded by about 0.10% at quarter-end.
Alliance has had a positive interest rate sensitivity in maturities under one
year, due mainly to its prime based commercial and consumer loans. By
reinvesting the majority of short term investments into loans and investment
securities during the first quarter, the Company offset the immediate impact of
declining interest rates on the net interest margin.


At March 31, 2001, Alliance
expected to be within policy limits for its interest rate risk, as further
described in the most recent Form 10K. As a result of the reinvestments
described above, the Company expects that its earnings at risk in a downward
environment has been significantly reduced from the level measured at
year-end 2000. Also, equity at risk in a downward environment was above policy
limits at year-end 2000, but it was expected to be within the policy limit at
quarter-end as a result of the reinvestments.


Liquidity and Cash
Flows: The Banks primary use of funds has been the origination of new
loans. The primary sources of funds were the liquidation of short term
investments, together with deposit growth. Borrowings, time deposits, and money
market accounts are the primary sources of liquidity for additional balance
sheet growth. Short term investments, securities available for sale, and
government guaranteed loan certificates provide additional sources of liquidity.
The Companys primary source of funds is dividends from the Bank, and its
primary use of funds is dividends to shareholders and to trust preferred
security holders.


Capital Resources:
During the most recent quarter, shareholders equity increased by $1.4
million (7.7%), reflecting the contribution of retained earnings and other
comprehensive income. Excluding accumulated other comprehensive income, return
on average equity measured 14.41% during the quarter. Total equity measured
5.57% of total assets at quarter-end, compared to 5.20% at year-end 2000. At
quarter-end, both Alliance and Tolland Bank continued to report regulatory
capital ratios consistent with the well capitalized regulatory
classification.
12
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


See the 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,
2000 filed on April 2, 2001. See also the discussion of Interest Rate
Sensitivity in Item 2 of this Form 10Q.


13
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|PART II |  | OTHER INFORMATION
|------- |  | -----------------

|Item 1. |  | LEGAL PROCEEDINGS
|------- |  | -----------------

| | The
Company is not involved in any material legal proceedings other than ordinary routine
litigation incidental to its business.
| | --------------------------------------------------------------------------------------------------------------------------------

|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
|------ |  | --------------------------------

| | Reports on Form 8-K filed during the quarter ended March 31, 2001.
| | ------------------------------------------------------------------

| | The
Company did not file any reports on Form 8-K during the quarter ended March 31, 2001.
| | -----------------------------------------------------------------------------------------

|14
|--

|Average Balance Sheet
and Interest Rates - Fully Taxable Equivalent (FTE)
|-------------------------------------------------------------------------

|(dollars in thousands)        | Average Balance |          | Rate (FTE Basis) |         
|----------------------------- | --------------- | -------- | ---------------- | --------
|                             
|
|                             
|Loans                         |                 | $233,099 |                  | $193,510
|Securities available for sale |                 | 68,006   |                  | 56,901  
|Securities held to maturity   |                 | 17,539   |                  | 27,551  
|Other earning assets          |                 | 7,607    |                  | 17,996  
|                             
|Total earning assets          |                 | 326,251  |                  | 295,958 
|Other assets                  |                 | 20,308   |                  | 20,190  
|                             
|Total assets                  |                 | $346,559 |                  | $316,148
|                             
|Interest bearing deposits     |                 | $248,483 |                  | $227,966
|Borrowings                    |                 | 45,651   |                  | 39,855  
|                             
|Interest bearing liabilities  |                 | 294,134  |                  | 267,821 
|Other liabilities             |                 | 34,165   |                  | 33,289  
|Shareholders equity          |                 | 18,260   |                  | 15,038  
|                             
|Total liabilities and equity  |                 | $346,559 |                  | $316,148
|                             
|Net Interest Spread           |                 |          |                  |         
|Net Interest Margin           |                 |          |                  |         

|15
|--

|Signatures
|----------

| | Pursuant
to the requirements to Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | ALLIANCE BANCORP OF NEW ENGLAND, INC.
| |  | -------------------------------------

|Date:  May 11, 2001 |  | /s/ Joseph H. Rossi
Joseph H. RossiPresident/CEO
|------------------- |  | --------------------------------------------------------------

|Date:  May 11, 2001 |  | /s/ David H. Gonci
David H. GonciSenior Vice President/CFO
|------------------- |  | ------------------------------------------------------------------------

|16
|--