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 June 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 August 8, 2002, Alliance
  Bancorp of New England had 2,586,035 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
|                        | Special Note Regarding
      Forward-Looking Statements          | 10
|Item 3                  | Quantitative
      and Qualitative Disclosures About Market Risk | 10
|Part II                 | Other Information                                                | 14
|Table                   | Average Balance
      Sheets and Interest Rates                  | 16
|Signatures              |                                                                  | 17

1

---

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

|****                                                                                                                                                                                         | **As
        of and for the three months
        ended June 30,** |       | **As
        of and for the six months
        ended June 30,**
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----- | ---------------------------------------------------------------
|                                                                                                                                                                                             |                                                                   |       |                                                                
|****                                                                                                                                                                                         | **2002**                                                          |       | **2001**                                                       
|                                                                                                                                                                                            
|For
      the Period (in thousands)                                                                                                                                                          |                                                                   |       |                                                                
|Net interest
      income                                                                                                                                                                    | $                                                                 | 3,069 |                                                                
|Provision
      for loan losses                                                                                                                                                              |                                                                   | 65    |                                                                
|Service
      charges and other income                                                                                                                                                       |                                                                   | 553   |                                                                
|Net gain
      (loss) on securities and other assets                                                                                                                                         |                                                                   | 131   |                                                                
|Non-interest
      expense                                                                                                                                                                   |                                                                   | 2,452 |                                                                
|Net income                                                                                                                                                                                   | $                                                                 | 865   |                                                                
|                                                                                                                                                                                            
|Per
      Share(a)                                                                                                                                                                           |                                                                   |       |                                                                
|Earnings
      - basic                                                                                                                                                                       | $                                                                 | 0.34  |                                                                
|Earnings
      - diluted                                                                                                                                                                     |                                                                   | 0.32  |                                                                
|Dividends
      declared                                                                                                                                                                     |                                                                   | 0.06  | 8                                                              
|Book
      value                                                                                                                                                                             |                                                                   | 8.96  |                                                                
|Common
      stock price:                                                                                                                                                                    |                                                                   |       |                                                                
|High                                                                                                                                                                                         |                                                                   | 15.45 |                                                                
|Low                                                                                                                                                                                          |                                                                   | 12.55 |                                                                
|Close                                                                                                                                                                                        |                                                                   | 13.77 |                                                                
|                                                                                                                                                                                            
|At
      Quarter End (in millions)                                                                                                                                                           |                                                                   |       |                                                                
|Total
      assets                                                                                                                                                                           | $                                                                 | 406.1 |                                                                
|Total
      loans                                                                                                                                                                            |                                                                   | 259.5 |                                                                
|Other
      earning assets                                                                                                                                                                   |                                                                   | 118.3 |                                                                
|Deposits                                                                                                                                                                                     |                                                                   | 330.6 |                                                                
|Borrowings                                                                                                                                                                                   |                                                                   | 48.5  |                                                                
|Shareholders’
      equity (b)                                                                                                                                                               |                                                                   | 23.2  |                                                                
|                                                                                                                                                                                            
|Operating
      Ratios (in percent)                                                                                                                                                          |                                                                   |       |                                                                
|Return
      on average equity, annualized                                                                                                                                                   |                                                                   | 15.40 | %                                                              
|Return
      on average assets, annualized                                                                                                                                                   |                                                                   | 0.87  |                                                                
|Net interest
      margin, annualized (c)                                                                                                                                                    |                                                                   | 3.37  |                                                                
|Equity
      % total assets (period end)                                                                                                                                                     |                                                                   | 5.71  |                                                                
|Dividend
      payout ratio                                                                                                                                                                  |                                                                   | 20.37 |                                                                
|                                                                                                                                                                                            
|Growth
      (in percent)                                                                                                                                                                    |                                                                   |       |                                                                
|Net income
      (d)                                                                                                                                                                         |                                                                   | 5.4   | %                                                              
|Regular
      loans (e)                                                                                                                                                                      |                                                                   | 3.0   |                                                                
|Deposits
      (e)                                                                                                                                                                           |                                                                   | 17.9  |                                                                
|                                                                                                                                                                                            
|                                                                                                                                                                                            
|(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)
      Shareholders’ equity includes net accumulated other comprehensive
      loss, which consists of unrealized losses on certain investment securities,
      net of taxes.           
|(c)
      Ratio expressed as fully taxable equivalent.                                                                                                                                      
|(d)
      Compared to same period in the preceding year.                                                                                                                                    
|(e)
      Compared to the prior year-end, annualized.                                                                                                                                       



2

---

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

|**(in
        thousands, except share data)**                                                                                                                                                              |   | **June
        30, 2002** |   |   | **December
        31, 2001** |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------- | - | - | ----------------------------- | -
|                                                                                                                                                                                                          
|Assets                                                                                                                                                                                                     |   |                           |   |   |                               |  
|Cash
      and due from banks                                                                                                                                                                              | $ | 15,802                    |   | $ | 12,723                        |  
|Short-term
      investments                                                                                                                                                                               |   | 24,571                    |   |   | 2,591                         |  
|                                                                                                                                                                                                          
|Total
      cash and cash equivalents                                                                                                                                                                      |   | 40,373                    |   |   | 15,314                        |  
|                                                                                                                                                                                                           |   |                           |   |   |                               |  
|Securities
      available for sale (at fair value)                                                                                                                                                        |   | 84,903                    |   |   | 85,973                        |  
|                                                                                                                                                                                                           |   |                           |   |   |                               |  
|Securities
      held to maturity
            (fair value of $8,947 in 2002 and $11,987
      in 2001)                                                                                                     |   | 8,793                     |   |   | 12,397                        |  
|                                                                                                                                                                                                           |   |                           |   |   |                               |  
|Residential
      mortgage loans                                                                                                                                                                           |   | 63,521                    |   |   | 63,037                        |  
|Commercial
      mortgage loans                                                                                                                                                                            |   | 89,241                    |   |   | 87,485                        |  
|Other
      commercial loans                                                                                                                                                                               |   | 38,470                    |   |   | 37,658                        |  
|Consumer
      loans                                                                                                                                                                                       |   | 40,267                    |   |   | 39,849                        |  
|Government
      guaranteed loans                                                                                                                                                                          |   | 28,048                    |   |   | 29,595                        |  
|                                                                                                                                                                                                          
|Total
      loans                                                                                                                                                                                          |   | 259,547                   |   |   | 257,624                       |  
|Less:
      Allowance for loan losses                                                                                                                                                                      |   | (3,925                    | ) |   | (3,700                        | )
|                                                                                                                                                                                                          
|Net
      loans                                                                                                                                                                                            |   | 255,622                   |   |   | 253,924                       |  
|                                                                                                                                                                                                           |   |                           |   |   |                               |  
|Premises
      and equipment, net                                                                                                                                                                          |   | 5,285                     |   |   | 5,458                         |  
|Accrued
      interest income receivable                                                                                                                                                                   |   | 2,724                     |   |   | 2,812                         |  
|Cash
      surrender value of life insurance                                                                                                                                                               |   | 6,048                     |   |   | 4,391                         |  
|Other
      assets                                                                                                                                                                                         |   | 2,334                     |   |   | 4,296                         |  
|                                                                                                                                                                                                          
|Total
      assets                                                                                                                                                                                         | $ | 406,082                   |   | $ | 384,565                       |  
|                                                                                                                                                                                                          
|                                                                                                                                                                                                           |   |                           |   |   |                               |  
|Liabilities
      and Shareholders’ Equity                                                                                                                                                                 |   |                           |   |   |                               |  
|Demand
      deposits                                                                                                                                                                                      | $ | 33,827                    |   | $ | 33,647                        |  
|NOW
      deposits                                                                                                                                                                                         |   | 38,578                    |   |   | 36,400                        |  
|Money
      market deposits                                                                                                                                                                                |   | 46,021                    |   |   | 41,223                        |  
|Savings
      deposits                                                                                                                                                                                     |   | 71,782                    |   |   | 60,182                        |  
|Time
      deposits                                                                                                                                                                                        |   | 140,370                   |   |   | 131,906                       |  
|                                                                                                                                                                                                          
|Total
      deposits                                                                                                                                                                                       |   | 330,578                   |   |   | 303,358                       |  
|                                                                                                                                                                                                           |   |                           |   |   |                               |  
|Borrowings                                                                                                                                                                                                 |   | 48,500                    |   |   | 57,069                        |  
|Other
      liabilities                                                                                                                                                                                    |   | 3,827                     |   |   | 2,049                         |  
|                                                                                                                                                                                                          
|Total
      liabilities                                                                                                                                                                                    |   | 382,905                   |   |   | 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 2,786,259 in 2002 and 2,539,896
      in 2001;
           outstanding 2,585,660 in 2002 and 2,339,297
      in 2001) |   | 28                        |   |   | 25                            |  
|Additional
      paid-in capital                                                                                                                                                                           |   | 11,686                    |   |   | 11,577                        |  
|Retained
      earnings                                                                                                                                                                                    |   | 17,829                    |   |   | 16,473                        |  
|Accumulated
      other comprehensive loss, net                                                                                                                                                            |   | (3,257                    | ) |   | (2,877                        | )
|Treasury
      stock (200,599 shares)                                                                                                                                                                      |   | (3,109                    | ) |   | (3,109                        | )
|                                                                                                                                                                                                          
|Total
      shareholders’ equity                                                                                                                                                                           |   | 23,177                    |   |   | 22,089                        |  
|                                                                                                                                                                                                          
|Total
      liabilities and shareholders’ equity                                                                                                                                                           | $ | 406,082                   |   | $ | 384,565                       |  
|                                                                                                                                                                                                          

See accompanying
  notes to consolidated financial statements

3

---

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

|****                                                      | **Three
        Months Ended 
        June 30,** |           | **Six
        Months Ended 
        June 30,**
|--------------------------------------------------------- | ------------------------------------------------ | --------- | ----------------------------------------------
|                                                          |                                                 
|**(in thousands, except share data)**                     |                                                  | **2002**  |                                               
|                                                         
|Interest
      Income                                     |                                                  |           |                                               
|Loans                                                     | $                                                | 4,444     |                                               
|Debt
      securities                                     |                                                  | 1,255     |                                               
|Dividends
      on equity securities                      |                                                  | 206       |                                               
|Short-term
      investments                              |                                                  | 107       |                                               
|                                                         
|Total
      interest and dividend income                  |                                                  | 6,012     |                                               
|                                                         
|Interest Expense                                          |                                                  |           |                                               
|Deposits                                                  |                                                  | 2,186     |                                               
|Borrowings                                                |                                                  | 757       |                                               
|                                                         
|Total
      interest expense                              |                                                  | 2,943     |                                               
|                                                         
|                                                         
|Net
      Interest Income                                 |                                                  | 3,069     |                                               
|                                                         
|Provision For Loan Losses                                 |                                                  | 65        |                                               
|                                                         
|Net
      interest income after provision for loan losses |                                                  | 3,004     |                                               
|Non-Interest Income                                       |                                                  |           |                                               
|Service
      charges and other income                    |                                                  | 553       |                                               
|Net
      gain (loss) on securities                       |                                                  | 128       |                                               
|Net
      gain on assets                                  |                                                  | 3         |                                               
|                                                         
|Total
      non-interest income                           |                                                  | 684       |                                               
|Non-Interest Expense                                      |                                                  |           |                                               
|Compensation
      and benefits                           |                                                  | 1,442     |                                               
|Occupancy                                                 |                                                  | 164       |                                               
|Data
      processing services and equipment              |                                                  | 312       |                                               
|Office
      and insurance                                |                                                  | 128       |                                               
|Purchased
      services                                  |                                                  | 219       |                                               
|Other                                                     |                                                  | 187       |                                               
|                                                         
|Total
      non-interest expense                          |                                                  | 2,452     |                                               
|                                                         
|Income
      before income taxes                          |                                                  | 1,236     |                                               
|Income
      tax expense                                  |                                                  | 371       |                                               
|                                                         
|Net
      Income                                          | $                                                | 865       |                                               
|                                                         
|Per Share Data                                            |                                                  |           |                                               
|Basic
      earnings per share                            | $                                                | 0.34      |                                               
|                                                         
|Diluted
      earnings per share                          | $                                                | 0.32      |                                               
|                                                         
|                                                         
|Average
      basic shares outstanding                    |                                                  | 2,580,784 |                                               
|Average
      additional dilutive shares                  |                                                  | 137,657   |                                               
|                                                         
|Average
      diluted shares                              |                                                  | 2,718,441 |                                               
|                                                         

See accompanying
  notes to consolidated financial statements

4

---

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

|**Six Months ended June 30
      (in thousands, except share data)**                |   | **Common
        stock** |  |   | **Additional
        paid-In
        capital** |  |   | **Retained
        earnings** |   |   | **Accumulated
        other comprehensive loss** |   |   | **Treasury
        stock** |   |  | **Total**        |  
|----------------------------------------------------------------------------------- | - | ------------------------ |  | - | ---------------------------------------------- |  | - | ----------------------------- | - | - | ------------------------------------------------ | - | - | -------------------------- | - |  | ---------------- | -
|                                                                                   
|2001
      Balance, December 31, 2000                                               | $ | 25                       |  | $ | 11,516                                         |  | $ | 14,198                        |   | $ | (4,515                                           | ) | $ | (3,109                     | ) |  | $
        18,115 |  
|Comprehensive
      income                                                          |   |                          |  |   |                                                |  |   |                               |   |   |                                                  |   |   |                            |   |  |                  |  
|Net
      income                                                                    |   |                          |  |   |                                                |  |   | 1,647                         |   |   |                                                  |   |   |                            |   |  | 1,647            |  
|Unrealized
      gain on securities,
            net of reclassification adjustment |   |                          |  |   |                                                |  |   |                               |   |   | 1,728                                            |   |   |                            |   |  | 1,728            |  
|                                                                                    |   |                          |  |   |                                                |  |   |                               |   |   |                                                  |   |   |                            |   |  |                 
|Comprehensive
      income                                                          |   |                          |  |   |                                                |  |   |                               |   |   |                                                  |   |   |                            |   |  | 3,375            |  
|Dividends
      declared ($0.136 per share)                                         |   |                          |  |   |                                                |  |   | (349                          | ) |   |                                                  |   |   |                            |   |  | (349             | )
|                                                                                   
|Balance,
      June 30, 2001                                                        | $ | 25                       |  | $ | 11,516                                         |  | $ | 15,496                        |   | $ | (2,787                                           | ) | $ | (3,109                     | ) |  | $
        21,141 |  
|                                                                                   
|2002
      Balance, December 31, 2001                                               | $ | 25                       |  | $ | 11,577                                         |  | $ | 16,473                        |   | $ | (2,877                                           | ) | $ | (3,109                     | ) |  | $
        22,089 |  
|Comprehensive
      income                                                          |   |                          |  |   |                                                |  |   |                               |   |   |                                                  |   |   |                            |   |  |                  |  
|Net
      income                                                                    |   |                          |  |   |                                                |  |   | 1,715                         |   |   |                                                  |   |   |                            |   |  | 1,715            |  
|Unrealized
      loss on securities,
            net of reclassification adjustment |   |                          |  |   |                                                |  |   |                               |   |   | (380                                             | ) |   |                            |   |  | (380             | )
|                                                                                    |   |                          |  |   |                                                |  |   |                               |   |   |                                                  |   |   |                            |   |  |                 
|Comprehensive
      income                                                          |   |                          |  |   |                                                |  |   |                               |   |   |                                                  |   |   |                            |   |  | 1,335            |  
|Dividends
      declared ($0.136 per share)                                         |   |                          |  |   |                                                |  |   | (349                          | ) |   |                                                  |   |   |                            |   |  | (349             | )
|Stock
      split (10%)                                                             |   | 3                        |  |   |                                                |  |   | (3                            | ) |   |                                                  |   |   |                            |   |  |                 |  
|Cash
      paid for fractional shares                                               |   |                          |  |   |                                                |  |   | (7                            | ) |   |                                                  |   |   |                            |   |  | (7               | )
|Shares
      issued (exercise of options)                                           |   |                          |  |   | 109                                            |  |   |                               |   |   |                                                  |   |   |                            |   |  | 109              |  
|                                                                                   
|Balance,
      June 30, 2002                                                        | $ | 28                       |  | $ | 11,686                                         |  | $ | 17,829                        |   | $ | (3,257                                           | ) | $ | (3,109                     | ) |  | $
        23,177 |  
|                                                                                   

|                                                                                                                                                                                          |   |          |   |   |          | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------- | - | - | -------- | 
|Disclosure
      of reclassification amount                                                                                                                                               |   |          |   |   |          | 
|                                                                                                                                                                                          |   |          |   |   |          | 
|**Six
      months ended June 30 (in thousands)**                                                                                                                                         |   | **2002** |   |   | **2001** | 
|                                                                                                                                                                                         
|Unrealized
      holding (loss) gain arising duringthe period, net of income
      tax (benefit) expense
            of ($98) and $899, respectively                                      | $ | (182     | ) | $ | 1,670    | 
|Less
      reclassification adjustment for net (gain)loss included in net
      income, net of 
            income tax expense (benefit) of $102
      and $(9),
            respectively |   | (198     | ) |   | 58       | 
|                                                                                                                                                                                         
|Net unrealized
      (loss) gain on securities                                                                                                                                            | $ | (380     | ) | $ | 1,728    | 
|                                                                                                                                                                                         

See accompanying
  notes to consolidated financial statements

5

---

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

|****                                                                                             | **Six
      months ended June 30,**
|------------------------------------------------------------------------------------------------ | -----------------------------------
|                                                                                                 |                                    
|**(in
        thousands)**                                                                       | **2002**                           
|                                                                                                
|Operating
      Activities:                                                                      |                                    
|Net
      income                                                                                 | $                                  
|Adjustments
      to reconcile net income to
         net cash provided by operating activities: |                                    
|Provision
      for loan losses                                                                  |                                    
|Depreciation
      and amortization                                                              |                                    
|Net
      (gain) loss on securities and other assets                                             |                                    
|Loans
      originated for sale                                                                  |                                    
|Proceeds
      from loans sold                                                                   |                                    
|Increase
      (decrease) in other liabilities                                                   |                                    
|Decrease
      in accrued interest income receivable                                             |                                    
|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                                                          |                                    
|Proceeds
      from calls                                                                        |                                    
|Purchases
      of securities                                                                    |                                    
|Securities
      held to maturity:                                                               |                                    
|Proceeds
      from amortization and maturities                                                  |                                    
|Proceeds
      from calls                                                                        |                                    
|Net
      increase in loans (other than held for sale)                                           |                                    
|Proceeds
      from the sale of premises and equipment                                           |                                    
|Purchases
      of premises and equipment                                                        |                                    
|                                                                                                
|Net
      cash provided by (used in) investing activities                                        |                                    
|Financing Activities:                                                                            |                                    
|Net
      increase in interest-bearing deposits                                                  |                                    
|Net
      increase in demand deposits                                                            |                                    
|Principal
      repayments of FHLBB advances                                                     |                                    
|Net
      decrease in other borrowings                                                           |                                    
|Stock
      options exercised                                                                    |                                    
|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                                                                                         | $                                  
|Income
      taxes                                                                               |                                    
|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 consolidated financial statements

6

---

Notes to Consolidated
  Financial Statements (unaudited)



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

Principles
  of Business and 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.

Stock Split.On April 23, 2002, the Company declared an eleven-for-ten common stock split
  effected as a 10.0% stock dividend which was distributed on May 21, 2002. The
  financial statements as of June 30, 2002 include the effects of this split,
  and all per share information has been retroactively adjusted to reflect the
  stock dividend for all periods in the statements. The stock dividend was recorded
  based on the $.01 par value of the common stock.

7

---

Note 2.   Securities

|**June 30, 2002 (in thousands)**       |   | **Amortized
        Cost** |  |   | **Unrealized
        Gains** |  |   | **Unrealized
        Losses** |   |   | **Fair
        Value** | 
|-------------------------------------- | - | -------------------------- |  | - | ---------------------------- |  | - | ----------------------------- | - | - | ---------------------- | 
|                                      
|Securities
      available for sale    |   |                            |  |   |                              |  |   |                               |   |   |                        | 
|U.S.
      Government and agency debt  | $ | 13,109                     |  | $ | 27                           |  | $ |                              |   | $ | 13,136                 | 
|U.S.
      Agency mortgage-backed debt |   | 21,041                     |  |   | 202                          |  |   | (17                           | ) |   | 21,226                 | 
|Trust
      preferred                  |   | 19,927                     |  |   | 461                          |  |   | (1,885                        | ) |   | 18,503                 | 
|Other
      corporate debt             |   | 18,676                     |  |   | 440                          |  |   | (1,063                        | ) |   | 18,053                 | 
|Marketable
      equity                |   | 13,278                     |  |   | 48                           |  |   | (1,921                        | ) |   | 11,405                 | 
|Non-marketable
      equity            |   | 2,580                      |  |   |                             |  |   |                              |   |   | 2,580                  | 
|                                      
|Total
      available for sale         | $ | 88,611                     |  | $ | 1,178                        |  | $ | (4,886                        | ) | $ | 84,903                 | 
|                                      
|Securities
      held to maturity      |   |                            |  |   |                              |  |   |                               |   |   |                        | 
|U.S.
      Government and agency debt  | $ | 1,050                      |  | $ | 53                           |  | $ |                              |   | $ | 1,103                  | 
|U.S.
      Agency mortgage-backed debt |   | 1,811                      |  |   | 41                           |  |   |                              |   |   | 1,852                  | 
|Other
      mortgage-backed debt       |   | 802                        |  |   | 23                           |  |   | (8                            | ) |   | 817                    | 
|Other
      corporate debt             |   | 5,130                      |  |   | 361                          |  |   | (316                          | ) |   | 5,175                  | 
|                                      
|Total
      held to maturity           | $ | 8,793                      |  | $ | 478                          |  | $ | (324                          | ) | $ | 8,947                  | 
|                                      

|**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                 | 
|                                      

During the
  first quarter, one corporate debt security with an amortized cost of $1.1 million
  was transferred to available for sale from held to maturity due to evidence
  of significant deterioration in the issuer’s credit worthiness. The transfer
  resulted in an additional unrealized loss of $206 thousand (net of income taxes
  of $143 thousand) which was recorded as an increase in the accumulated other
  comprehensive loss.

8

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Note 3.   Nonperforming
  Loans

|**(in
      thousands)**                                                                                |  |   | **June
      30,
      2002** |  |   | **December
      31,
      2001** | 
|------------------------------------------------------------------------------------------------------- |  | - | ----------------------------- |  | - | --------------------------------- | 
|                                                                                                       
|Total
      nonaccruing loans                                                                           |  | $ | 2,832                         |  | $ | 2,149                             | 
|Accruing
      loans past due 90 days or more                                                           |  |   |                              |  |   |                                  | 
|Impaired
      loans:                                                                                   |  |   |                               |  |   |                                   | 
|Valuation
      allowance required                                                                      |  |   | 1,317                         |  |   | 969                               | 
|No
      valuation allowance required                                                                   |  |   | 2,688                         |  |   | 3,238                             | 
|                                                                                                       
|Total
      impaired loans                                                                              |  | $ | 4,005                         |  | $ | 4,207                             | 
|Total
      valuation allowance on impaired loans                                                       |  |   | 131                           |  |   | 129                               | 
|Commitments
      to lend additional funds
                      to
      borrowers with impaired loans |  |   |                              |  |   |                                  | 

Note 4.   Allowance
  for Loan Losses

|**(in
        thousands)**         |  |   | **Six
        Months Ended
        June 30,
        2002** |   |   | **Six
        Months Ended
        June 30,
        2001** |  
|---------------------------------- |  | - | ---------------------------------------------------------- | - | - | ---------------------------------------------------------- | -
|                                  
|Balance
      at beginning of year |  | $ | 3,700                                                      |   | $ | 3,400                                                      |  
|Charge-offs                        |  |   | (47                                                        | ) |   | (39                                                        | )
|Recoveries                         |  |   | 35                                                         |   |   | 55                                                         |  
|Provision
      for loan losses    |  |   | 237                                                        |   |   | 134                                                        |  
|                                  
|Balance
      at end of period     |  | $ | 3,925                                                      |   | $ | 3,550                                                      |  
|                                  

Note 5.   Recent
  Statements of Accounting Standards

In July 2001,
  the Financial Accounting Standards Board (“FASB”) issued statement
  of Financial Accounting Standards (“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 of which $8,000 of intangible mortgage servicing rights
  will continue to amortize 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. This statement 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 Assets,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.

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 when 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.

9

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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
  5% earnings growth for the second quarter of 2002. Net income totaled $865 thousand
  ($.32 per share), compared to $821 thousand ($.31 per share) a year earlier.
  Earnings grew by 4% for the first half of the year. Net income totaled $1.715
  million ($.63 per share), compared to $1.647 million ($.63 per share) a year
  earlier.

Alliance retained
  the quarterly cash dividend at 7.5 cents per share, payable on August 20, 2002
  to shareholders of record as of August 6, 2002. In May, 2002, Alliance completed
  a 10% stock split effected as a stock dividend. By retaining the cash dividend
  at 7.5 cents per share after the split, the Company has increased its cash dividend
  payout by 10%, beginning in August.

The increased
  dividend payout reflects the continued operating growth produced by Alliance.
  Quarter-end total assets exceeded $400 million for the first time due to ongoing
  deposit growth this year and last year. Alliance recently announced plans to
  open a new full service office in Enfield at the intersection of Hazard Avenue
  (Route 190) and Palomba Drive. Planned for a Spring 2003 opening, this office
  will serve the Company’s expanding customer base in this important town,
  adjacent to its existing Tolland County market. With new offices in South Windsor
  and Enfield, Tolland Bank will have a major presence along both interstate highways
  (I-84 and I-91) serving northeastern Connecticut.

Alliance was
  recently ranked among the 15 highest performers nationally in its peer group,
  based on profitability, growth, efficiency, and loan quality. This annual performance
  ranking was published by SNL Financial in its May, 2002 issue of Thrift Investor
  based on the 218 smaller public thrifts (excluding the 100 largest thrifts).
  Loan performance remained good, with no net chargeoffs in the most recent quarter
  and only $12 thousand in net chargeoffs for the first half of 2002. Despite
  the impact of low interest rates, return on equity remained above 15%, and Alliance
  was positioned to benefit from any future increase in interest rates. New account
  activity has been strong for the Company’s competitive home equity lines
  of credit and its time deposit account promotions.

10

---

Net interest
  income increased by $60 thousand (2%) in the second quarter and by $164 thousand
  (3%) in the first half, compared to the prior year. Net interest income growth
  reflected an 11% annualized growth rate in earning assets during the first six
  months of this year. Most asset growth was held in short term investments at
  quarter-end. Due primarily to the comparatively lower yield on short term investments,
  the net interest margin declined to 3.37% in the most recent quarter from 3.63%
  in the fourth quarter of 2001. For the first six months of 2002, the net interest
  margin was 3.52%, compared to 3.84% in the same period of the prior year.

Service charges
  and other income increased by $118 thousand (27%) and by $282 thousand (37%)
  in the second quarter and first six months of 2002 compared to 2001. Income
  increased in all major loan and deposit fee income categories due to higher
  volume, together with higher bank owned life insurance income. Net securities
  gains of $300 thousand were recorded in the first six months of 2002 due to
  sales of equity securities which were viewed as fully valued.

Non-interest
  expense increased by $356 thousand (17%) in the second quarter and by $605 thousand
  (14%) in the first half of 2002 compared to 2001. Compensation expense grew
  by 20% for the first six months, reflecting staff and salary increases, together
  with higher pension and benefits expense. Other expense increases were generally
  related to higher business volumes.

Total regular
  loans (excluding government guaranteed loans) increased at a 3% annualized rate
  during the most recent six months and total deposits increased at an 18% annualized
  rate. Deposit growth was recorded in all major categories, and was concentrated
  in short term municipal deposits, personal savings accounts, and time accounts
  reflecting promotions of medium term maturities. Average transactions accounts
  increased at a 10% annualized rate from the fourth quarter of 2001 to the second
  quarter of 2002, providing the additional benefit of these low cost funds.

Nonperforming
  assets totaled $2.8 million at June 30, 2002, measuring .70% of total assets.
  The loan loss allowance measured 1.70% of total regular loans and 139% of nonperforming
  loans at the end of the quarter, compared to 1.62% and 172% at year-end 2001,
  respectively. The higher allowance resulted in a $237 thousand first half loan
  loss provision, compared to $134 thousand in the first half of 2001.

Shareholders’
  equity totaling $23.2 million at quarter-end measured 5.7% of total assets,
  which was unchanged from year-end 2001. Book value per share was $8.96 at quarter-end.
  Return on shareholders’ equity measured 15.4% during the second quarter
  and first half of 2002. The Company’s capital remained in excess of all
  regulatory requirements at June 30, 2002.

This discussion
  and analysis updates, and should be read in conjunction with, Management’s
  Discussion and Analysis included in the 2001 Annual Report on Form 10-K filed
  by Alliance on March 6, 2002. 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.

Net Interest
  Income: As noted above, growth in net interest income has been produced
  by balance sheet growth. Higher income in the first half of 2002 includes the
  benefit of loan growth booked in the second half of 2001. Quarterly net interest
  income peaked in the first quarter of 2002, and decreased by $125 thousand in
  the most recent quarter.

The net interest
  margin decreased to 3.37% in the most recent quarter, down substantially from
  the margin in the prior five quarters. Since the fourth quarter of 2001, the
  yield on earning assets has decreased by .58%, while the cost of funds has decreased
  by .41%. The interest rates on virtually all categories of interest bearing
  assets and deposits have decreased, reflecting the impact of securities sales,
  loan refinancings, rate adjustments, and competitive market conditions. Additionally,
  average short term investments were unusually high in the most recent quarter.
  Due to the steep yield curve, these investments earned a comparatively low 1.75%
  in the most recent quarter. At the end of 2001, the Company entered into contracts
  for the purchase of an additional $3 million of bank owned life insurance. This
  shifted income from net interest income to other non-interest income, reducing
  the net interest margin by about .05%.



11

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At June 30,
  2002, Alliance held $25 million in short term investments. The Company plans
  to reinvest the majority of these funds in government agency and mortgage-backed
  securities with fixed interest rates in the two to five year range, together
  with originations of “free refinance” loans which the Company offers,
  with fixed rates in the three to fifteen year range.

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 six months, the provision increased by
  $103 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: Second quarter service charges and other income grew by $118 thousand
  (27%), and six month results increased by $282 thousand (37%), with increases
  in all major categories. These increases primarily resulted from higher volume
  across a range of loan and deposit services, and included $81 thousand of additional
  income from the above-mentioned life insurance contracts in the first six months.
  Net gains on the sale of securities were recorded in both the first and second
  quarters of 2002, providing $300 thousand in net securities gains for the first
  six months. These gains were primarily due to the sale of two utility common
  equity securities due to favorable market conditions for these securities.

Non-Interest
  Expense and Tax Expense: Non-interest expense increased by $356 thousand
  (17%) and by $605 thousand (14%) for the second quarter and year-to-date, respectively.
  More than 75% of this increase was in compensation and benefits; all other non-staff
  related expenses grew by 7% for the first six months due primarily to volume
  increases. Year-to-date salary expense grew by $337 thousand (18%), including
  10% growth in full time equivalent staff (for the twelve months ended June 30,
  2002), 4% merit related increases, and 5% growth due to changes in bonuses and
  salary deferrals. Staff growth has been primarily related to initiatives to
  improve sales and service. Year-to-date benefits expense increased by $126 thousand,
  including $75 thousand in higher pension related expenses primarily reflecting
  the effect of capital market conditions on the value of plan assets.

Comprehensive
  Income: Comprehensive income includes changes (after tax) in the market
  valuation of investment securities available for sale. Six month comprehensive
  income was $1.34 million in 2002, compared to $3.38 million in 2001. The net
  unrealized loss on securities increased in 2002 due primarily to the transfer
  of one security from held to maturity to available for sale. Please see the
  following discussion on investment securities.

FINANCIAL CONDITION

Cash and
  Cash Equivalents:Total cash and equivalents increased by $25 million in
  2002 due to unusually high commercial, savings, and municipal short term deposit
  activity. These funds were held in short term investments during the second
  quarter in anticipation of higher interest rates. Due to a moderation in forecasts
  of higher interest rates, the Company established plans to invest the majority
  of these funds into higher yielding investments in the third quarter.

Investment
  Securities: Total investment securities increased by $7 million in the second
  quarter due to purchases of government agency and mortgage backed securities
  with fixed interest rates in the two to three year range. Investment securities
  decreased by $11 million during the previous quarter primarily due to sales
  of $9 million in securities, comprised mainly of longer maturity debt securities
  sold in order to reduce the average life of the portfolio. Alliance also purchased
  $3 million of utility common stocks during the first quarter. The fully taxable
  equivalent yield on investment securities was 6.81% in the second quarter, down
  from 7.29% in the fourth quarter of 2001 due to the sale of higher rate, longer
  term securities.



12

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At June 30,
  2002, the total net unrealized loss on available for sale securities (before
  tax) measured 4% of amortized cost, unchanged from year-end 2001. An improvement
  in the unrealized loss on debt securities was offset by an increase in the unrealized
  loss on equity securities due to stock market conditions. During the first quarter,
  one security with an amortized cost of $1.1 million and an unrealized loss of
  $351 thousand, as of March 31, 2002, was transferred from held to maturity to
  available for sale due to a decline in the issuer’s credit rating. This
  security was issued by an insurance company, which reported operating losses,
  exacerbated by claims related to World Trade Center attacks. At June 30, 2002,
  the Company owned seven securities with ratings/rankings below investment grade.
  The total net amortized cost of these securities was $5.6 million, with a net
  unrealized loss of $1.8 million, which was an improvement of $.2 million compared
  to year-end 2001. The individual unrealized losses ranged from 21% to 65% 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.

Total Loans:
  Total loans decreased by $2 million in the second quarter, after increasing
  by $4 million in the first quarter. This was the first quarterly decrease in
  many quarters, resulting from commercial loan refinancings and a decline in
  loan originations due to lesser demand. Due to anticipated rate increases, Alliance
  sold a higher proportion of residential mortgage originations into the secondary
  market, and reduced purchases of government guaranteed loans. The yield on total
  loans decreased to 6.86% 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. Average loans increased
  at a 3% annualized rate compared to the prior quarter and at an 8% annualized
  rate compared to the fourth quarter of 2001.

Nonperforming
  Assets: There were no foreclosed assets at June 30, 2002. Nonaccruing loans
  totaled $2.8 million, compared to $2.1 million at year-end 2001. Nonperforming
  assets were 0.70% of total assets at June 30, 2002. The increase in nonaccruing
  loans included $422 thousand in residential mortgages and a $259 thousand commercial
  mortgage. At June 30, 2002, nonaccruing loans included $0.8 million in residential
  mortgages, a $0.8 million current commercial mortgage, and a $0.6 million SBA
  guaranteed loan.

Allowance
  for Loan Losses: The allowance totaled $3.93 million (1.51% of total loans)
  at June 30, 2002, compared to $3.70 million (1.44% of total loans) at year-end
  2001. During the quarter, gross chargeoffs were $10 thousand and gross recoveries
  were $20 thousand. The allowance measured 139% of nonaccruing loans at quarter-end.

Deposits
  and Borrowings: Total deposits increased by $6 million during the quarter
  and by $27 million (18% 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. The $12 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 $8 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 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 3.46% during the second quarter, from
  3.87% in the fourth quarter of 2001, reflecting the ongoing benefit of time
  account repricings. The total average balance of deposits increased by 25% annualized
  in the second current quarter compared to the previous quarter, and by 16% annualized
  since the fourth quarter of 2001.

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.

13

---

The Company
  estimates that earnings at risk had increased due to the increase in the one
  year interest rate gap to an estimated 11% of earning assets at June 30, 2002.
  The Company estimates that its earnings at risk in a downward 2.00% interest
  rate environment measured 12%, exceeding the policy limit of 10%. Earnings were
  estimated to increase by 9% in the event of a 2.00% increase in interest rates.
  Throughout the second quarter, most forecasts followed by the Company projected
  interest rate increases. These forecasts were in the process of being adjusted
  downward at the end of the second quarter due to unanticipated economic weakness.

Equity at
  risk was estimated to be near or slightly above the 15% policy limit in a downward
  environment. Equity at risk in this environment had improved due to the sale
  of longer dated securities in the first quarter, but this improvement was offset
  by the growth in savings accounts deployed into short term investments. Interest
  rates were near forty year lows at June 30, 2002, and the potential for a further
  2.00% decrease was highly unlikely. Interest sensitivity measures were expected
  to come back within policy limits in the third quarter based on plans for investments
  and loans.

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 are the primary sources of liquidity
  for additional loan originations and investment purchases. Borrowings and time
  deposits are 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.

Capital
  Resources: Shareholders’ equity increased by $1 million (5%) for the
  first six months of 2002 primarily due to retained earnings. Total equity was
  5.7% of assets at June 30, 2002, which was unchanged from year-end 2001 due
  to the 11% annualized asset growth in 2002. 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 15.4% during the second quarter and for the first six months
  of 2002. Excluding accumulated other comprehensive loss, return on equity measured
  13.6% and 13.7%, respectively.

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, 2001 filed on March 6, 2002. See also the discussion of Interest Rate Sensitivity
  in Item 2 of this Form 10-Q.

14

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PART II OTHER INFORMATION

|Item
      1. | LEGAL
      PROCEEDINGSThe
      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 PROCEEDSNone.                                                                                                               
|              |                                                                                                                                                                    
|Item
      3. | DEFAULTS
      UPON SENIOR SECURITIESNone.                                                                                                                         
|              |                                                                                                                                                                    
|Item
      4. | SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERSNone.                                                                                                     
|              |                                                                                                                                                                    
|Item
      5. | OTHER
      INFORMATIONNone.                                                                                                                                       
|              |                                                                                                                                                                    
|Item
      6  | EXHIBITS
      AND REPORTS ON FORM 8-K                                                                                                                             

| |  | (a) | Reports
      on Form 8-K filed during the quarter ended June 30, 2002.On May 6, 2002, the Company filed a Form 8-K
      reporting, under Item 5, the declaration of a 10% stock split in the
           form of a stock dividend.
| |  | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (b) | Exhibit
      indexNone.                                                                                                                                                                                                           

15

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

|(dollars
      in thousands)          | Average
        Balance |         | Rate
        (FTE Basis) |  
|------------------------------------- | ----------------------- | ------- | ------------------------ | -
|                                     
|Quarters
      ended June 30          |                         | 2002    |                          |  
|                                     
|Residential mortgage
      loans      | $                       | 62,657  |                          | $
|Commercial mortgage
      loans       |                         | 88,677  |                          |  
|Other commercial loans                |                         | 39,140  |                          |  
|Consumer loans                        |                         | 40,593  |                          |  
|Government guaranteed
      loans     |                         | 28,235  |                          |  
|                                     
|Total
      loans                     |                         | 259,302 |                          |  
|Securities                            |                         | 91,776  |                          |  
|Other earning assets                  |                         | 24,858  |                          |  
|                                     
|Total
      earning assets            |                         | 375,936 |                          |  
|Other assets                          |                         | 24,667  |                          |  
|                                     
|Total
      assets                    | $                       | 400,603 |                          | $
|                                     
|NOW deposits                          | $                       | 37,140  |                          | $
|Money market deposits                 |                         | 41,428  |                          |  
|Savings deposits                      |                         | 74,697  |                          |  
|Time deposits                         |                         | 139,367 |                          |  
|                                     
|Total
      interest bearing deposits |                         | 292,632 |                          |  
|Borrowings                            |                         | 48,500  |                          |  
|                                     
|Interest bearing liabilities          |                         | 341,132 |                          |  
|Other liabilities                     |                         | 36,941  |                          |  
|Shareholders equity                  |                         | 22,530  |                          |  
|                                     
|Total
      liabilities and equity    | $                       | 400,603 |                          | $
|                                     
|Net Interest Spread                   |                         |         |                          |  
|Net Interest Margin                   |                         |         |                          |  



|(dollars
        in thousands)        | Average
        Balance |         | Rate
        (FTE Basis) |  
|------------------------------------- | ----------------------- | ------- | ------------------------ | -
|                                     
|Six
        months ended June 30      |                         | 2002    |                          |  
|                                     
|Residential mortgage
      loans      | $                       | 62,241  |                          | $
|Commercial mortgage
      loans       |                         | 88,202  |                          |  
|Other commercial loans                |                         | 38,984  |                          |  
|Consumer loans                        |                         | 40,246  |                          |  
|Government guaranteed
      loans     |                         | 28,828  |                          |  
|                                     
|Total
      loans                     |                         | 258,501 |                          |  
|Securities                            |                         | 92,922  |                          |  
|Other earning assets                  |                         | 15,518  |                          |  
|                                     
|Total
      earning assets            |                         | 366,941 |                          |  
|Other assets                          |                         | 25,061  |                          |  
|                                     
|Total
      assets                    | $                       | 392,002 |                          | $
|                                     
|                                      |                         |         |                          |  
|NOW deposits                          | $                       | 36,086  |                          | $
|Money market deposits                 |                         | 41,782  |                          |  
|Savings deposits                      |                         | 69,791  |                          |  
|Time deposits                         |                         | 135,837 |                          |  
|                                     
|Total
      interest bearing deposits |                         | 283,496 |                          |  
|Borrowings                            |                         | 49,663  |                          |  
|                                     
|Interest bearing liabilities          |                         | 333,159 |                          |  
|Other liabilities                     |                         | 36,311  |                          |  
|Shareholders equity                  |                         | 22,532  |                          |  
|                                     
|Total
      liabilities and equity    | $                       | 392,002 |                          | $
|                                     
|Net Interest Spread                   |                         |         |                          |  
|Net Interest Margin                   |                         |         |                          |  

16

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Signatures

Pursuant to the requirements
  of 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: | August 8,
      2002                       
|      |                                            
|      |                                            
|      |                                            
|      |                                            
|      |                                            
|      |                                            
|Date: | August 8, 2002                             
|      |                                            
|      |                                            
|      |                                            



17

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