---



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

__________________

FORM 10-Q

(Mark One)

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


For the quarterly period ended September 30, 2001

OR



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


For the transition period from ___________________ to __________________

Commission File Number 34-0-25158



BANCORP CONNECTICUT, INC.(Exact Name of Registrant as Specified in Its Charter)






Delaware

06-1394443(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)




121 Main Street, Southington, Connecticut

06489(Address of Principal Executive Offices)

(Zip Code)




Registrant's Telephone Number, Including Area Code (860) 628-0351



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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Common stock, $1.00 par value - 5,104,015 shares as of November 9, 2001






---



BANCORP CONNECTICUT, INC.

FORM 10-Q

INDEX



PART
I.
FINANCIAL INFORMATIONPageItem
1.

Financial StatementsConsolidated Condensed Statements of Condition as of September 30, 2001 (unaudited) and December 31, 2000
3Consolidated Condensed Statements of Income for the Three Months Ended September 30, 2001 and 2000 (unaudited)
4Consolidated Condensed Statements of Income for the Nine Months Ended September 30, 2001 and 2000 (unaudited)
5Consolidated Condensed Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2001 and 2000 (unaudited)
6Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 (unaudited)
7Notes to Consolidated Condensed Financial Statements (unaudited)
8Item
2.

Management's Discussion and Analysis of Financial Condition and Results of Operations
14Item
3.

Quantitative and Qualitative Disclosures About Market Risk
25PART
II.
OTHER INFORMATIONItem
1.

Legal Proceedings
26Item
2.

Changes in Securities and Use of Proceeds
26Item
3.

Defaults Upon Senior Securities
26Item
4.

Submission of Matters to a Vote of Security Holders
26Item
5.

Other Information
26Item
6.

Exhibits and Reports on Form 8-K
26Signatures


28






---



PART I.
FINANCIAL INFORMATIONItem 1.
Financial Statements


CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
BANCORP CONNECTICUT, INC.



|                                                                                                                          |  | September 30,   |  | December 31,    
|------------------------------------------------------------------------------------------------------------------------- |  | --------------- |  | ----------------
|(dollars in thousands, except per share data)                                                                             |  | 2001            |  | 2000            
|                                                                                                                          |  |                 |  |                 
|                                                                                                                          |  | (unaudited)     |  | (Note 1)        
|                                                                                                                          |  |                 |  |                 
|Assets                                                                                                                    |  |                 |  |                 
|Cash and due from banks                                                                                                   |  | $        13,716 |  | $         14,165
|Federal funds sold                                                                                                        |  | 4,100           |  | 9,025           
|                                                                                                                          |  |                 |  |                 
|Cash and cash equivalents                                                                                                 |  | 17,816          |  | 23,190          
|                                                                                                                          |  |                 |  |                 
|Securities available-for-sale (at market value)                                                                           |  | 253,596         |  | 270,357         
|Trading account securities                                                                                                |  | 203             |  | -               
|Federal Home Loan Bank stock                                                                                              |  | 4,660           |  | 6,817           
|Loans                                                                                                                     |  | 328,022         |  | 324,535         
|Less:                                                                                                                     |  |                 |  |                 
|Deferred loan fees                                                                                                        |  | (613)           |  | (661)           
|Allowance for loan losses                                                                                                 |  | (5,999)         |  | (6,019)         
|                                                                                                                          |  |                 |  |                 
|Net loans                                                                                                                 |  | 321,410         |  | 317,855         
|                                                                                                                          |  |                 |  |                 
|Accrued income receivable                                                                                                 |  | 4,007           |  | 4,207           
|Premises and equipment, net                                                                                               |  | 3,723           |  | 3,827           
|Deferred income taxes                                                                                                     |  | 3,494           |  | 5,470           
|Foreclosed real estate and repossessed property, net                                                                      |  | 10              |  | 89              
|Other assets                                                                                                              |  | 2,584           |  | 2,209           
|                                                                                                                          |  |                 |  |                 
|Total assets                                                                                                              |  | $   611,503     |  | $    634,021    
|                                                                                                                          |  |                 |  |                 
|                                                                                                                          |  |                 |  |                 
|Liabilities and Shareholders' Equity                                                                                      |  |                 |  |                 
|Liabilities:                                                                                                              |  |                 |  |                 
|Deposits                                                                                                                  |  | $   392,561     |  | $    383,698    
|Funds borrowed                                                                                                            |  | 151,216         |  | 180,550         
|Other liabilities                                                                                                         |  | 9,334           |  | 17,457          
|                                                                                                                          |  |                 |  |                 
|Total liabilities                                                                                                         |  | 553,111         |  | 581,705         
|                                                                                                                          |  |                 |  |                 
|                                                                                                                          |  |                 |  |                 
|Commitments and Contingencies                                                                                             |  | -               |  | -               
|                                                                                                                          |  |                 |  |                 
|Shareholders' equity:                                                                                                     |  |                 |  |                 
|Preferred stock, no par value: authorized 1,000,000 shares;
none issued and outstanding                                   |  | -               |  | -               
|Common stock, $1.00 par value: authorized 7,000,000 shares;  issued 6,008,521 shares in 2001 and
5,896,292 shares in 2000 |  | 6,009           |  | 5,896           
|Additional paid-in capital                                                                                                |  | 20,030          |  | 18,872          
|Retained earnings                                                                                                         |  | 45,490          |  | 41,699          
|Accumulated other comprehensive loss                                                                                      |  | (1,010)         |  | (5,278)         
|Treasury stock, at cost: 899,506 shares in 2001 and
 
720,836 shares in 2000                                              |  | (12,127)        |  | (8,873)         
|                                                                                                                          |  |                 |  |                 
|Total shareholders' equity                                                                                                |  | 58,392          |  | 52,316          
|                                                                                                                          |  |                 |  |                 
|Total liabilities and shareholders' equity                                                                                |  | $   611,503     |  | $    634,021    
|                                                                                                                          |  |                 |  |                 





The accompanying notes are an integral part of these consolidated condensed financial statements.



---



CONSOLIDATED CONDENSED STATEMENTS OF INCOME
BANCORP CONNECTICUT, INC.



|                                                    |  | Three Months Ended
|--------------------------------------------------- |  | ------------------
|                                                    |  | September 30,     
|                                                    |  |                   
|(dollars in thousands, except per share data)       |  | 2001              
|                                                    |  |                   
|                                                    |  | (unaudited)       
|                                                    |  |                   
|Interest income:                                    |  |                   
|Interest on loans, including fees                   |  | $         6,222   
|                                                    |  |                   
|Interest and dividends on investment securities:    |  |                   
|Interest income                                     |  | 3,784             
|Dividend income                                     |  | 415               
|                                                    |  |                   
|                                                    |  | 4,199             
|                                                    |  |                   
|Interest on federal funds sold                      |  | 15                
|Other interest and dividends                        |  | 65                
|                                                    |  |                   
|Total interest income                               |  | 10,501            
|                                                    |  |                   
|Interest expense:                                   |  |                   
|Savings deposits                                    |  | 539               
|Time deposits                                       |  | 2,190             
|NOW accounts                                        |  | 376               
|                                                    |  |                   
|                                                    |  | 3,105             
|Interest on borrowed money                          |  | 2,067             
|                                                    |  |                   
|Total interest expense                              |  | 5,172             
|                                                    |  |                   
|Net interest income                                 |  | 5,329             
|Provision for loan losses                           |  | -                 
|                                                    |  |                   
|Net interest income after provision for loan losses |  | 5,329             
|                                                    |  |                   
|Noninterest income:                                 |  |                   
|Net securities gains                                |  | 91                
|Net trading account gains (losses)                  |  | (6)               
|Service charges on deposit accounts                 |  | 282               
|Gains on sales of loans, originated for sale        |  | 149               
|Call options premiums                               |  | 125               
|Brokerage servicing fees                            |  | 84                
|Other                                               |  | 162               
|                                                    |  |                   
|Total noninterest income                            |  | 887               
|                                                    |  |                   
|Noninterest expense:                                |  |                   
|Salaries and employee benefits                      |  | 1,769             
|Furniture and equipment                             |  | 269               
|Net occupancy                                       |  | 162               
|Data processing                                     |  | 180               
|Advertising                                         |  | 138               
|Other                                               |  | 621               
|                                                    |  |                   
|Total noninterest expense                           |  | 3,139             
|                                                    |  |                   
|Income before income taxes                          |  | 3,077             
|Provision for income taxes                          |  | 941               
|                                                    |  |                   
|Net income                                          |  | $         2,136   
|                                                    |  |                   
|Average common shares outstanding:                  |  |                   
|Basic                                               |  | 5,118,534         
|Diluted                                             |  | 5,410,742         
|Net income per common share:                        |  |                   
|Basic                                               |  | $   0.42          
|Diluted                                             |  | $   0.39          
|                                                    |  |                   
|Cash dividend per share                             |  | $   0.19          



The accompanying notes are an integral part of these consolidated condensed financial statements.



---



CONSOLIDATED CONDENSED STATEMENTS OF INCOME
BANCORP CONNECTICUT, INC.



|                                                          |  | Nine
      Months Ended
|--------------------------------------------------------- |  | -----------------------
|                                                          |  | September
      30,    
|                                                          |  |                        
|(dollars in
      thousands, except per share data)       |  | 2001                   
|                                                          |  |                        
|                                                          |  | (unaudited)            
|                                                          |  |                        
|Interest
      income:                                    |  |                        
|Interest
      on loans, including fees                   |  | $
      19,095         
|                                                          |  |                        
|Interest
      and dividends on investment securities:    |  |                        
|Interest
      income                                     |  | 12,125                 
|Dividend
      income                                     |  | 1,305                  
|Interest
      on trading account                         |  | 2                      
|                                                          |  |                        
|                                                          |  | 13,432                 
|                                                          |  |                        
|Interest
      on federal funds sold                      |  | 130                    
|Other
      interest and dividends                        |  | 280                    
|                                                          |  |                        
|Total
      interest income                               |  | 32,937                 
|                                                          |  |                        
|Interest
      expense:                                   |  |                        
|Savings
      deposits                                    |  | 1,644                  
|Time
      deposits                                       |  | 7,200                  
|NOW
      accounts                                        |  | 1,144                  
|                                                          |  |                        
|                                                          |  | 9,988                  
|Interest
      on borrowed money                          |  | 7,121                  
|                                                          |  |                        
|Total
      interest expense                              |  | 17,109                 
|                                                          |  |                        
|Net
      interest income                                 |  | 15,828                 
|Provision for loan
      losses                           |  | 110                    
|                                                          |  |                        
|Net
      interest income after provision for loan losses |  | 15,718                 
|                                                          |  |                        
|Noninterest
      income:                                 |  |                        
|Net
      securities gains                                |  | 466                    
|Net
      trading account gains (losses)                  |  | 88                     
|Service
      charges on deposit accounts                 |  | 793                    
|Call
      options premiums                               |  | 562                    
|Gains
      on sales of loans, originated for sale        |  | 483                    
|Brokerage
      servicing fees                            |  | 383                    
|Other                                                     |  | 495                    
|                                                          |  |                        
|Total
      noninterest income                            |  | 3,270                  
|                                                          |  |                        
|Noninterest
      expense:                                |  |                        
|Salaries
      and employee benefits                      |  | 5,298                  
|Furniture
      and equipment                             |  | 838                    
|Net
      occupancy                                       |  | 472                    
|Data
      processing                                     |  | 511                    
|Advertising                                               |  | 386                    
|Other                                                     |  | 1,872                  
|                                                          |  |                        
|Total
      noninterest expense                           |  | 9,377                  
|                                                          |  |                        
|Income
      before income taxes                          |  | 9,611                  
|Provision for income
      taxes                          |  | 2,939                  
|                                                          |  |                        
|Net
      income                                          |  | $
        6,672        
|                                                          |  |                        
|                                                          |  |                        
|Average
      common shares outstanding:                  |  |                        
|Basic                                                     |  | 5,139,662              
|Diluted                                                   |  | 5,425,582              
|Net
      income per common share:                        |  |                        
|Basic                                                     |  | $
        1.30         
|Diluted                                                   |  | $  
      1.23         
|                                                          |  |                        
|Cash
      dividend per share                             |  | $
      0.560          



The accompanying notes are an integral part of these consolidated condensed financial statements.



---



CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
BANCORP CONNECTICUT, INC.
(unaudited)



|(dollars in thousands, except per share data)                      |  | Common
Stock |  | Additional
Paid-In
Capital |  | Retained
Earnings |  | Accumulated
Other
Comprehensive
Loss
Unrealized
Gains(Losses) |  | Treasury
Stock   |  | Total
  Shareholders'
  Equity
|------------------------------------------------------------------ |  | ------------ |  | -------------------------- |  | ----------------- |  | ------------------------------------------------------------- |  | ---------------- |  | ------------------------------
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Balance, December 31, 1999                                         |  | $   5,831    |  | $   18,507                 |  | $  36,293         |  | $  (11,611)                                                   |  | $        (7,488) |  | $   41,532                    
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Net income                                                         |  | -            |  | -                          |  | 6,576             |  | -                                                             |  | -                |  | 6,576                         
|Decrease in net unrealized loss on securities
 
available-for-sale |  | -            |  | -                          |  | -                 |  | 1,182                                                         |  | -                |  | 1,182                         
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Total comprehensive income                                         |  |              |  |                            |  |                   |  |                                                               |  |                  |  | 7,758                         
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Stock options exercised (65,481 shares)                            |  | 65           |  | 269                        |  | -                 |  | -                                                             |  | -                |  | 334                           
|Cash dividends declared ($0.495 per share)                         |  | -            |  | -                          |  | (2,579)           |  | -                                                             |  | -                |  | (2,579)                       
|Treasury stock purchased (90,000 shares)                           |  | -            |  | -                          |  | -                 |  | -                                                             |  | (1,319)          |  | (1,319)                       
|Tax benefits related to common stock options
exercised             |  | -            |  | 96                         |  | -                 |  | -                                                             |  | -                |  | 96                            
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Balance, September 30, 2000                                        |  | $   5,896    |  | $   18,872                 |  | $  40,290         |  | $  (10,429)                                                   |  | $       (8,807)  |  | $       45,822                
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Balance, December 31, 2000                                         |  | $   5,896    |  | $   18,872                 |  | $  41,699         |  | $   (5,278)                                                   |  | $       (8,873)  |  | $   52,316                    
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Net income                                                         |  | -            |  | -                          |  | 6,672             |  | -                                                             |  | -                |  | 6,672                         
|Decrease in net unrealized loss on securities
 
available-for-sale |  | -            |  | -                          |  | -                 |  | 4,268                                                         |  | -                |  | 4,268                         
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Total comprehensive income                                         |  |              |  |                            |  |                   |  |                                                               |  |                  |  | 10,940                        
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Stock options exercised (112,229 shares)                           |  | 113          |  | 923                        |  | -                 |  | -                                                             |  | -                |  | 1,036                         
|Cash dividends declared ($0.560 per share)                         |  | -            |  | -                          |  | (2,881)           |  | -                                                             |  | -                |  | (2,881)                       
|Treasury stock purchased (178,670 shares)                          |  | -            |  | -                          |  | -                 |  | -                                                             |  | (3,254)          |  | (3,254)                       
|Tax benefits related to common stock options
 
exercised           |  | -            |  | 235                        |  | -                 |  | -                                                             |  | -                |  | 235                           
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               
|Balance, September 30, 2001                                        |  | $   6,009    |  | $   20,030                 |  | $  45,490         |  | $   (1,010)                                                   |  | $    (12,127)    |  | $   58,392                    
|                                                                   |  |              |  |                            |  |                   |  |                                                               |  |                  |  |                               



The accompanying notes are an integral part of these consolidated condensed financial statements.



---



CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
BANCORP CONNECTICUT, INC.



|                                                                                    |  | Nine Months Ended
September 30,
|----------------------------------------------------------------------------------- |  | -------------------------------
|                                                                                    | 
|                                                                                    |  |                                
|(in thousands)                                                                      |  | 2001                           
|                                                                                    |  |                                
|                                                                                    |  | (unaudited)                    
|                                                                                    |  |                                
|Cash flows from operating activities:                                               |  |                                
|Net income                                                                          |  | $              6,672           
|                                                                                    |  |                                
|Adjustments to reconcile net income to net cash provided by operating
  activities: |  |                                
|Amortization of bond premiums (accretion of discounts), net                         |  | (1,383)                        
|Deferred income tax benefit                                                         |  | (222)                          
|Provision for loan losses                                                           |  | 110                            
|Provision (credit) for foreclosed real estate losses                                |  | -                              
|Gain on sale of foreclosed real estate and repossessed property                     |  | (16)                           
|Gains on sales of loans, originated for sale                                        |  | (483)                          
|Proceeds from sales of loans, originated for sale                                   |  | 29,005                         
|Loans originated for sale                                                           |  | (29,052)                       
|Amortization of deferred loan points                                                |  | (75)                           
|Net securities gains                                                                |  | (466)                          
|Net trading account (gains) losses                                                  |  | (88)                           
|Depreciation and amortization                                                       |  | 607                            
|(Increase) decrease in trading account                                              |  | (115)                          
|Decrease (increase) in accrued income receivable                                    |  | 200                            
|(Increase) decrease in other assets                                                 |  | (143)                          
|Increase in other liabilities                                                       |  | 1,644                          
|                                                                                    |  |                                
|Total adjustments                                                                   |  | (477)                          
|                                                                                    |  |                                
|Net
  cash provided by operating activities                                         |  | 6,195                          
|                                                                                    |  |                                
|                                                                                    |  |                                
|Cash flows from investing activities:                                               |  |                                
|Purchases of securities available-for-sale                                          |  | (195,651)                      
|Proceeds from sales of securities available-for-sale                                |  | 179,882                        
|Proceeds from maturities of securities                                              |  | 500                            
|Paydowns on mortgage-backed securities                                              |  | 30,537                         
|Redemptions (purchases) of Federal Home Loan Bank stock, net                        |  | 2,157                          
|Originations of loans, net                                                          |  | (3,228)                        
|Purchases of premises and equipment, net                                            |  | (498)                          
|Proceeds from sale of trust operations                                              |  | 106                            
|Proceeds from sales of foreclosed real estate and repossessed property, net         |  | 196                            
|                                                                                    |  |                                
|Net cash provided by (used for) investing activities                                |  | 14,001                         
|                                                                                    |  |                                
|                                                                                    |  |                                
|Cash flows from financing activities:                                               |  |                                
|Net (decrease) increase in time deposits                                            |  | (9,878)                        
|Net increase (decrease) in other deposits                                           |  | 18,741                         
|Net increase (decrease) in Federal funds purchased and
repurchase agreements        |  | 22,196                         
|Proceeds
  from other borrowings                                                    |  | 33,800                         
|Repayment of  other borrowings                                                      |  | (85,330)                       
|Proceeds
  from exercise of stock options                                           |  | 1,036                          
|Repurchase of common stock                                                          |  | (3,254)                        
|Cash dividends paid                                                                 |  | (2,881)                        
|                                                                                    |  |                                
|Net cash (used for) provided by financing activities                                |  | (25,570)                       
|                                                                                    |  |                                
|                                                                                    |  |                                
|Net decrease in cash and cash equivalents                                           |  | (5,374)                        
|Cash and cash equivalents at beginning of period                                    |  | 23,190                         
|                                                                                    |  |                                
|                                                                                    |  |                                
|Cash and cash equivalents at end of period                                          |  | $         17,816               
|                                                                                    |  |                                
|Noncash Investing and Financing Activities:                                         |  |                                
|Decrease in net unrealized loss on securities available-for-sale                    |  | $              4,268           
|Transfer of loans to foreclosed real estate/repossessed property                    |  | 101                            



The accompanying notes are an integral part of these consolidated condensed financial statements.



---



NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
BANCORP CONNECTICUT, INC.

Note 1 - Basis of Presentation

The consolidated condensed financial statements of Bancorp Connecticut, Inc. (the "Company") include the accounts of its wholly owned subsidiary, Southington Savings Bank (the "Bank"). The Bank operates four branches and a mortgage lending center in Southington, Connecticut, one branch in Wallingford, Connecticut, one branch in Cheshire, Connecticut, and one branch in Kensington, Connecticut. The Cheshire and Kensington branches were opened in April 2001. The Bank has three subsidiaries, BCI Financial Corporation ("BCIF"), SSB Mortgage Corporation ("SSBM") and SSB Insurance Services, Inc. ("SSBI"). BCIF is an indirect auto finance subsidiary located in Southington, Connecticut. SSBM is a passive investment company formed to take advantage of changes in Connecticut state tax statutes. SSBI, which commenced operations during the second quarter of 2000, earns commissions on consumer and business insurance coverage referrals through a joint marketing agreement with an insurance agency. The Bank's primary source of revenue is providing loans to commercial and consumer customers. In July 2001, the Bank effected the change of its charter from a savings bank to a commercial bank, as approved by the Connecticut Banking Commissioner on May 9, 2001. This change was made in order to more closely reflect how the Bank presently conducts its banking operations. All significant intercompany balances and transactions have been eliminated in consolidation.

The consolidated condensed statement of condition as of September 30, 2001, the consolidated condensed statements of income for the three and nine-month periods ended September 30, 2001 and 2000, and the consolidated condensed statements of changes in shareholders' equity and consolidated condensed statements of cash flows for the nine-month periods ended September 30, 2001 and 2000 have been prepared by the Company without audit. Certain amounts for prior periods have been reclassified to conform to the current period presentation.

In the opinion of management, the financial statements have been prepared in conformity with generally accepted accounting principles for interim financial statements and include all adjustments necessary to present fairly the financial position of the Company as of September 30, 2001 and the results of operations for the three and nine-month periods ended September 30, 2001 and 2000, and the changes in shareholders' equity and cash flows for the nine-month periods ended September 30, 2001 and 2000. Results of operations for the three and nine-month periods ended September 30, 2001 are not necessarily indicative of results for any other period.

The statement of condition as of December 31, 2000, which has been included for comparative purposes, has been condensed from the audited statements for the year then ended. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000.

As of January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires that all derivative instruments be recorded on the statement of condition at their fair value. Changes in the fair value of derivative instruments are to be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and further, on the type of hedge transaction. The adoption of SFAS 133 had no impact on the Company's results of operations or its financial position because the Company presently does not hold any derivative instruments.

Note 2 - Securities

The amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale were as follows:



|                                                      |  | September 30, 2001  
|----------------------------------------------------- |  | --------------------
|                                                      |  |                     
|                                                      |  | Amortized
      Cost
|                                                      |  |                     
|                                                      |  |                     
|                                                      |  |                     
|United
      States Government and agency obligations |  | $   
      24,881   
|Municipal
      bonds                                 |  | 8,120               
|Corporate
      bonds                                 |  | 9,847               
|Federal
      agency mortgage-backed securities       |  | 132,112             
|Capital
      trust preferreds                        |  | 28,808              
|Money
      market preferreds                         |  | 20,701              
|Marketable
      equity securities                    |  | 21,669              
|Mutual
      funds - broker                           |  | 8,780               
|Mutual
      funds - other                            |  | 209                 
|                                                      |  |                     
|                                                      |  | $ 255,127           
|                                                      |  |                     



|                                                      |  | December 31, 2000   
|----------------------------------------------------- |  | --------------------
|                                                      |  |                     
|                                                      |  | Amortized
      Cost
|                                                      |  |                     
|                                                      |  |                     
|                                                      |  |                     
|United
      States Government and agency obligations |  | $   
      66,573   
|Municipal
      bonds                                 |  | 5,708               
|Corporate
      bonds                                 |  | 39                  
|Federal
      agency mortgage-backed securities       |  | 125,197             
|Capital
      trust preferreds                        |  | 35,113              
|Money
      market preferreds                         |  | 24,000              
|Marketable
      equity securities                    |  | 20,893              
|Mutual
      funds                                    |  | 831                 
|                                                      |  |                     
|                                                      |  | $ 278,354           
|                                                      |  |                     

Note 3 - Loans

The composition of the loan portfolio was:



|                                |  | September 30,          |  | December 31,          
|------------------------------- |  | ---------------------- |  | ----------------------
|                                |  | 2001                   |  | 2000                  
|                                |  |                        |  |                       
|                                |  | (in thousands)        
|                                |  |                        |  |                       
|Commercial                      |  | $        
      80,674 |  | $ 
             72,920
|Commercial
      real estate    |  | 52,657                 |  | 53,865                
|Residential
      real estate   |  | 106,153                |  | 116,467               
|Real
      estate construction  |  | 3,115                  |  | 2,294                 
|Consumer                        |  | 85,423                 |  | 78,989                
|                                |  |                        |  |                       
|                                |  | 328,022                |  | 324,535               
|Less:                           |  |                        |  |                       
|Deferred
      loan fees        |  | (613)                  |  | (661)                 
|Allowance
      for loan losses |  | (5,999)                |  | (6,019)               
|                                |  |                        |  |                       
|Total
      loans               |  | $     
      321,410   |  | $
           317,855  
|                                |  |                        |  |                       

Note 4 - Allowance for Loan and Foreclosed Real Estate Losses

Changes in the allowances were:



|                                                   |  | Nine Months Ended
|-------------------------------------------------- |  | -----------------
|                                                   |  | September 30,    
|                                                   |  |                  
|                                                   |  | 2001             
|                                                   |  |                  
|                                                   |  | (in thousands)   
|Allowance
      for loan losses:                   |  |                  
|Balance,
      beginning of year                   |  | $           6,019
|Provision
      for loan losses                    |  | 110              
|Loans
      charged-off                            |  | (265)            
|Recoveries                                         |  | 135              
|                                                   |  |                  
|Balance,
      end of period                       |  | $          5,999 
|                                                   |  |                  
|                                                   |  |                  
|Allowance
      for foreclosed real estate losses: |  |                  
|Balance,
      beginning of year                   |  | $               -
|Provision
      (credit) for losses                |  | -                
|Write-downs,
      net                             |  | -                
|                                                   |  |                  
|Balance,
      end of period                       |  | $               -
|                                                   |  |                  



Note 5 - Nonperforming Assets

The balances of nonperforming assets were:



|                                                                              |  | September 30,                |  | December 31,       
|----------------------------------------------------------------------------- |  | ---------------------------- |  | -------------------
|                                                                              |  | 2001                         |  | 2000               
|                                                                              |  |                              |  |                    
|                                                                              |  | (dollars in
      thousands)
|Nonaccrual
      loans:                                                       |  |                              |  |                    
|Commercial                                                                    |  | $    
          55           |  | $        
      198
|Commercial
      real estate                                                  |  | 58                           |  | -                  
|Residential
      real estate                                                 |  | 228                          |  | 399                
|Consumer                                                                      |  | 18                           |  | 24                 
|                                                                              |  |                              |  |                    
|Total
      nonaccrual loans                                                  |  | 359                          |  | 621                
|Accruing
      loans past due 90 days or more                                 |  | -                            |  | -                  
|                                                                              |  |                              |  |                    
|Total
      nonperforming loans                                               |  | 359                          |  | 621                
|Foreclosed
      real estate, net                                             |  | -                            |  | 73                 
|Repossessed
      automobiles                                                 |  | 10                           |  | 16                 
|                                                                              |  |                              |  |                    
|Total
      nonperforming assets                                              |  | $      
        369          |  | $        
      710
|                                                                              |  |                              |  |                    
|Nonperforming
      loans as a percentage of total loans                      |  | 0.11%                        |  | 0.19%              
|                                                                              |  |                              |  |                    
|Nonperforming
      assets as a percentage of total assets                    |  | 0.06%                        |  | 0.11%              
|                                                                              |  |                              |  |                    
|Restructured
      loans in compliance with modified terms not included above |  | $      
        467          |  | $        
      489
|                                                                              |  |                              |  |                    

Note 6 - Deposits

Deposits consisted of the following:



|                                                  |  | September 30,          |  | December 31,          
|------------------------------------------------- |  | ---------------------- |  | ----------------------
|                                                  |  | 2001                   |  | 2000                  
|                                                  |  |                        |  |                       
|                                                  |  | (in thousands)        
|                                                  |  |                        |  |                       
|Noninterest-bearing
      demand deposits         |  | $
              42,721 |  | $ 
             45,301
|NOW
      accounts                                |  | 63,601                 |  | 51,809                
|Regular
      savings                             |  | 72,895                 |  | 70,419                
|Money
      market savings                        |  | 34,172                 |  | 27,119                
|Certificates
      of deposit - under $100,000    |  | 139,973                |  | 143,392               
|Certificates
      of deposit - $100,000 and over |  | 38,395                 |  | 45,399                
|Club
      accounts                               |  | 804                    |  | 259                   
|                                                  |  |                        |  |                       
|Total
      deposits                              |  | $
            392,561  |  | $
            383,698 
|                                                  |  |                        |  |                       

Note 7 - Funds Borrowed

Funds borrowed consisted of the following:



|                                                       |  | September 30,                 |  | December 31,              
|------------------------------------------------------ |  | ----------------------------- |  | --------------------------
|                                                       |  | 2001                          |  | 2000                      
|                                                       |  |                               |  |                           
|                                                       |  | (in thousands)               
|                                                       |  |                               |  |                           
|Federal funds purchased                                |  | $                         325 |  | $                    2,500
|Securities sold under repurchase agreements - Broker   |  | 55,100                        |  | 31,500                    
|Securities sold under repurchase agreements - Customer |  | 10,991                        |  | 10,220                    
|Federal Home Loan Bank advances                        |  | 84,800                        |  | 136,330                   
|                                                       |  |                               |  |                           
|Total funds borrowed                                   |  | $    151,216                  |  | $    180,550              
|                                                       |  |                               |  |                           

Note 8 - Per Common Share Data

Basic earnings per share is computed using the weighted average common shares outstanding during the periods presented. The computation of diluted earnings per share is similar to the computation of basic earnings per share except the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. The shares used in the computations for the three and nine-month periods ended September 30, 2001 and 2000 were as follows:



|                                       |  | Three Months Ended |  | Nine Months Ended
|-------------------------------------- |  | ------------------ |  | -----------------
|                                       |  | September 30,      |  | September 30,    
|                                       |  |                    |  |                  
|                                       |  | 2001               |  | 2000             
|                                       |  |                    |  |                  
|                                       |  |                    |  |                  
|Basic                                  |  | 5,118,534          |  | 5,179,493        
|Effect
      of dilutive stock options |  | 292,208            |  | 224,360          
|                                       |  |                    |  |                  
|Diluted                                |  | 5,410,742          |  | 5,403,853        
|                                       |  |                    |  |                  

Note 9 - Shareholders' Equity

The following table presents the components and related tax effects allocated to other comprehensive loss for the nine-month period ended September 30, 2001:



|                                                                         |  | Before         |  |           |  | Net      
|------------------------------------------------------------------------ |  | -------------- |  | --------- |  | ---------
|                                                                         |  | Tax            |  | Tax       |  | of Tax   
|                                                                         |  | Amount         |  | Expense   |  | Amount   
|                                                                         |  |                |  |           |  |          
|                                                                         |  | (in thousands)
|                                                                         |  |                |  |           |  |          
|Net
      unrealized gains on securities arising during the period       |  | $   6,932      |  | $   2,356 |  | $   4,576
|Less:
      reclassification adjustment for gains realized in net income |  | 466            |  | 158       |  | 308      
|                                                                         |  |                |  |           |  |          
|Net
      unrealized gains on securities                                 |  | $   6,466      |  | $   2,198 |  | $   4,268
|                                                                         |  |                |  |           |  |          

The following table presents the components and related tax effects allocated to other comprehensive loss for the nine-month period ended September 30, 2000:



|                                                                   |  | Before           |  |                |  | Net             
|------------------------------------------------------------------ |  | ---------------- |  | -------------- |  | ----------------
|                                                                   |  | Tax              |  | Tax            |  | of Tax          
|                                                                   |  | Amount           |  | Expense        |  | Amount          
|                                                                   |  |                  |  |                |  |                 
|                                                                   |  | (in thousands)  
|                                                                   |  |                  |  |                |  |                 
|Net
      unrealized gains on securities arising during the period |  | $   
      2,391 |  | $   
      812 |  | $   
      1,579
|Less:
reclassification adjustment for gains realized in net income |  | 601              |  | 204            |  | 397             
|                                                                   |  |                  |  |                |  |                 
|Net
      unrealized gains on securities                           |  | $   
      1,790 |  | $   
      608 |  | $   
      1,182
|                                                                   |  |                  |  |                |  |                 

On April 21, 1999, the Company announced that it planned to repurchase up to 5% (260,000) of its outstanding common shares over the next twelve months. On April 20, 2000, this share buyback program was terminated. Pursuant to that program, the Company purchased 136,338 shares of its outstanding shares of common stock, or 2.6% of its outstanding shares as of April 21, 1999 and April 20, 2000.

On April 19, 2000, the Company's Board of Directors voted to authorize a new share buyback program of up to 5% (262,000) of its outstanding shares of common stock over the next year. On April 18, 2001, this share buyback program was terminated. Pursuant to that program, the Company purchased 101,000 shares of its outstanding shares of common stock, or 1.9% of its outstanding shares as of April 19, 2000 and April 18, 2001.

On April 18, 2001, the Company's Board of Directors voted to authorize a new share buyback program of up to 10% (515,000) of its outstanding shares of common stock over the next year. Purchases will be made from time to time in the open market and through negotiated private transactions. The timing and amount of these transactions, to be funded through available corporate funds, will depend upon market conditions and corporate requirements. Shares repurchased will be held in treasury for general corporate purposes including reissue to satisfy the exercise of outstanding stock options. Through November 9, 2001, the Company repurchased 147,670 shares at an average price of $18.64.

The following table presents a summary of the share buyback programs discussed above.



|               |  |           |  | Percent of |   |        
|-------------- |  | --------- |  | ---------- | - | -------
|Date           |  | Shares    |  | Shares     |   | Average
|Authorized     |  | Purchased |  | Retired    |   | Price  
|               |  |           |  |            |   |        
|               |  |          
|April 21, 1999 |  | 136,338   |  | 2.6        | % | $16.03 
|               |  |           |  |            |   |        
|April 19, 2000 |  | 101,000   |  | 1.9        |   | $15.24 
|               |  |           |  |            |   |        
|April 18, 2001 |  | 147,670   |  | 2.9        |   | $18.64 
|               |  |           |  |            |   |        
|               |  | 385,008   |  | 7.4        | % | $16.82 
|               |  |           |  |            |   |        

Note 10 - Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board approved Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") which are effective July 1, 2001 and January 1, 2002, respectively, for the Company. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001 will not be amortized. The Company will be required to test for impairment any goodwill and intangible assets subsequent to their initial recognition in accordance with the provisions of SFAS 142. Management anticipates that the impact of the adoption of SFAS 141 and 142 will not have a significant effect on the Company's results of operations or its financial position.





---



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



COMPARISON OF THE THREE AND NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 2001 AND 2000



The following discussion and analysis presents a review of the financial condition and results of operations of Bancorp Connecticut, Inc. (the "Company"). Since Southington Savings Bank (the "Bank") is the sole subsidiary of the Company, the Company's earnings and financial condition are predicated almost entirely on the performance of the Bank. This review should be read in conjunction with the consolidated condensed financial statements and other financial data presented elsewhere herein.

Changes in Financial Condition

Investments- Securities available-for-sale decreased $16,761,000 or 6.2% to $253,596,000 as of September 30, 2001 from $270,357,000 as of December 31, 2000 primarily as a result of higher paydowns on mortgage-backed securities as a result of the current lower interest rate environment. Net unrealized losses (excluding the effective income tax benefits) in the securities portfolio totaled $1,531,000 as of September 30, 2001, a decrease of $6,466,000, compared to unrealized losses of $7,997,000 as of December 31, 2000. This decrease in net unrealized losses of $6,466,000 was primarily a result of the lower interest rate environment as of September 30, 2001 compared to December 31, 2000 as well as a certain amount of restructuring with respect to the bond portfolio partially offset by the higher unrealized loss in the marketable equity securities portfolio reflecting in part the general deterioration in the stock market since December 31, 2000.

As of September 30, 2001, $20,701,000 of the securities portfolio was comprised of money market preferred stocks. These securities are highly liquid, generally reprice every 49 days and are subject to the tax advantages of the Federal dividends received deduction in 2001 and 2000. In addition, $8,780,000 of the securities portfolio consisted of U.S. Government and agency par value mutual funds that are available for withdrawal on a daily basis.

Loans- Loans increased $3,487,000 or 1.1% to $328,022,000 as of September 30, 2001 from $324,535,000 as of December 31, 2000. Although total loans reflected only a modest increase on a year-to-date basis due to the high level of residential loan prepayments, net loan growth amounted to $15,223,000 during the third quarter, which included a $7,052,000 increase in commercial loans. Residential real estate loans, which represented 32.4% of the loan portfolio as of quarter-end, decreased by $10,314,000 or 8.9% as the result of higher loan refinancings and prepayments in light of the current low interest rate environment. The Bank's primary focus with respect to residential real estate loans continues to be origination for sale, on a servicing released basis, or referral to third parties. Commercial loans and commercial real estate loans, which represented 40.6% of the loan portfolio as of September 30, 2001, increased $6,546,000 or 5.2% as compared to December 31, 2000, reflecting a resurgence of loan volume during the current quarter. Consumer loans increased $6,434,000 or 8.1% mainly due to loans closed by BCI Financial Corporation
("BCIF"), the Bank's auto loan financing subsidiary. Real estate construction loans increased by $821,000 or 35.8%.

Deposits- Total deposits increased $8,863,000 or 2.3% to $392,561,000 as of September 30, 2001 from $383,698,000 as of December 31, 2000. Core deposit categories reflected a total increase of $18,741,000 or 9.6%, mainly due to higher NOW and money market savings account balances of $11,792,000 and $7,053,000, respectively. This core deposit increase was partially offset by a reduction in time deposits of $9,878,000.

Borrowings- Funds borrowed decreased from $180,550,000 as of December 31, 2000 to $151,216,000 as of September 30, 2001. Advances from the Federal Home Loan Bank of Boston (the
"FHLB") decreased by $51,530,000 or 37.8% to $84,800,000 as of September 30, 2001 compared to $136,330,000 as of year-end 2000. Securities sold under agreements to repurchase increased $24,371,000 or 58.4% to $66,091,000 as of quarter-end from $41,720,000 as of December 31, 2000. Federal funds purchased decreased $2,175,000 to $325,000 as of September 30, 2001. The resultant net decrease of $29,334,000 or 16.2% in borrowings was primarily funded by the Bank's reduced levels of Federal funds sold and securities available-for-sale and increases in deposits partially offset by the increase in loans and net of changes in other assets and other liabilities. As of September 30, 2001, broker/dealer repurchase agreements and retail repurchase agreements totaled $55,100,000 and $10,991,000, respectively.

Changes in Results of Operations

Earnings- Net income for the quarter ended September 30, 2001 was $2,136,000 or $0.39 per diluted share compared to $2,349,000 or $0.43 per diluted share for the third quarter of 2000, a decrease of 9.3% on a per share basis. The decrease in earnings is mainly the result of lower combined securities and trading account net gains and no provision for loan losses during the current quarter. The resultant annualized return on average assets for the quarter ended September 30, 2001 was 1.40% compared to 1.58% for the same quarter last year. The return on average equity was 15.06% compared to 21.70% the previous year. The decrease in the return on average equity was due to the previously mentioned decrease in net unrealized losses in the securities portfolio and the increase in retained earnings compared to the prior year quarter, which increased average equity, partially offset by the common stock purchases under the Company's share repurchase program, which reduced average equity.

Net income for the nine months ended September 30, 2001 was $6,672,000 or $1.23 per diluted share compared to $6,576,000 or $1.21 per diluted share for the same period in 2000, an increase of 1.7% on a per share basis. The annualized return on average assets was 1.45% for the nine months ended September 30, 2001 compared to 1.51% for the same period in 2000 while the return on average equity was 16.01% compared to 20.62% for the prior year period. The decrease in the return on average equity was due to the same factors as noted above for the comparisons of the quarterly periods.

Core earnings (earnings exclusive of net securities gains and net trading account gains (losses) ("securities transactions") and foreclosed real estate and repossessed property expense) for the quarter ended September 30, 2001 amounted to $2,083,000 compared to $2,080,000 for the third quarter of 2000. Modest growth in net interest income, continued strong asset quality and growth in noninterest income (exclusive of securities transactions) were offset by an increase in noninterest expense due to the branch openings during the second quarter of this year and a higher rate for income taxes in 2001.

Core earnings (earnings exclusive of securities transactions and foreclosed real estate and repossessed property expense) for the nine months ended September 30, 2001 amounted to $6,300,000 compared to $6,119,000 for the same period in 2000. A modest increase in net interest income, improved asset quality and a rise in noninterest sources of revenue (exclusive of securities transactions) partially offset by higher noninterest expense were the principal reasons for the increased earnings.

Net Interest Income- Net interest income, the difference between interest earned on interest-earning assets and interest expense incurred on interest-bearing liabilities, is a significant component of the Company's consolidated condensed statements of income. Net interest income is affected by changes in the volumes of and rates on interest-earning assets and interest-bearing liabilities, the volume of interest-earning assets funded with
noninterest-bearing deposits and shareholders' equity, and the level of nonperforming assets.

Average interest-earning assets remained relatively constant increasing by $2,447,000 or 0.4% to $591,605,000 for the three months ended September 30, 2001 from $589,158,000 for the same quarter in 2000.

For the three months ended September 30, 2001, net interest income of $5,507,000, on a tax equivalent basis, increased $71,000 or 1.3% compared to the $5,436,000 for the same period in 2000. An increase in the volume of taxable investment securities of $14,042,000 between the two quarterly periods had a positive affect on net interest income. A dramatic declining interest rate environment, which had a corresponding greater proportional affect on interest sensitive assets than sources of funds, also accelerated mortgage-backed security prepayments and residential loan refinancings partially offsetting the affects of the volume increase in investment securities, resulting in only a modest growth in net interest income. Average
noninterest-bearing demand deposits increased by $3,463,000 or 8.4% during the third quarter of 2001 compared to the same period in 2000 that helped reduce the average cost of funds and thus had a positive effect on net interest income.

The ratio of net interest income, on a tax equivalent basis, to average interest-earning assets (net interest margin) was 3.72% for the quarter ended September 30, 2001 compared to 3.69% for the same period in 2000. The interest rate spread, on a tax equivalent basis, was 3.10% in 2001 compared to 2.97% in 2000. Average yields on interest-earning assets and interest-bearing liabilities have declined between the two quarterly periods as a result of a dramatic decreasing interest rate environment during the first nine months of 2001. A greater decline in interest rates on sources of funds compared to yields on earning assets as well as an increase in average demand deposits, caused the increase in both the net interest margin and interest rate spread in 2001 compared to 2000. Average yields were computed on a tax equivalent basis using a Federal income tax rate of 34% for 2001 and 2000 and a state income tax rate of 0.0% for both periods, due to the formation of a passive investment company in 1999.

Average interest-earning assets increased by $22,864,000 or 4.0% to $597,338,000 for the nine months ended September 30, 2001 from $574,474,000 for the same period in 2000 primarily as a result of the Bank's leverage strategy.

For the nine months ended September 30, 2001, net interest income of $16,370,000, on a tax equivalent basis, increased $187,000 or 1.2% compared to the $16,183,000 for the same period in 2000. The effect of a higher level of average interest-earning assets of $22,864,000 for the nine months ended September 30, 2001 as compared to the same period in 2000 was mitigated by a lower net interest margin between the two nine-month periods. Average noninterest-bearing demand deposits increased by $3,236,000 or 8.3% during the nine-month period of 2001 compared to the same period in 2000 that helped reduce the average cost of funds and thus had a positive effect on net interest income.

The ratio of net interest income, on a tax equivalent basis, to average interest-earning assets (net interest margin) was 3.65% for the nine months ended September 30, 2001 compared to 3.76% for the same period in 2000. The interest rate spread, on a tax equivalent basis, was 2.99% in 2001 compared to 3.08% in 2000. Average yields on interest-earning assets declined 29 basis points while the overall interest rate on interest-bearing liabilities decreased 20 basis points between the two nine-month periods. A rapidly declining interest rate environment during the first nine months of 2001 affected interest sensitive assets more quickly than less sensitive sources of funds.

Provision for Loan Losses- For the three months ended September 30, 2001 and 2000, the provisions for loan losses were $0 and $118,000, respectively. Net loan charge-offs totaled $53,000 for the third quarter of 2001 compared to net loan recoveries of $110,000 for the same period in 2000. No provision for loan losses was provided during the third quarter of 2001 in light of both minimal loan growth and a decrease in loan delinquencies since year-end 2000 as well as a historically low level of nonperforming loans.

For the nine months ended September 30, 2001 and 2000, the provisions for loan losses were $110,000 and $354,000, respectively. Net loan charge-offs totaled $130,000 for the nine months ended September 30, 2001 compared to net loan recoveries of $21,000 during the same period in 2000. The allowance for loan losses was $5,999,000 or 1.83% of outstanding loans as of September 30, 2001 compared to $6,019,000 or 1.85% of outstanding loans as of December 31, 2000 and $6,056,000 or 1.87% of outstanding loans as of September 30, 2000. Nonperforming loans were $359,000 as of September 30, 2001, $621,000 as of December 31, 2000 and $741,000 as of September 30, 2000, representing .11%, .19% and .23%, respectively, of outstanding loans. The decrease in the allowance for loan losses from year-end 2000 was driven by nominal net charge-offs for the first nine months of 2001 in excess of the provision for loan losses.

Management regularly monitors and has established a formal process for determining the adequacy of the allowance for loan losses. This process results in allowance estimates that result from analyzing certain individual loans (including impaired loans), and specific loan types. The policy of the Bank is to review all commercial loans and delinquent consumer loans quarterly. Up to a total of nine risk rating classifications are used to describe the credit risk associated with commercial and consumer loans. Of these classifications, the problem loan categories are: "substandard," "doubtful" and "loss." Loans designated loss are charged-off quarterly. A risk factor is assigned by loan type to loans within each classification in determining the respective allowance. For loans that are analyzed individually, third-party information such as appraisals may be used to supplement management's analysis. For loans that are analyzed on a pool basis, such as residential mortgage loans (1-4 family), management's analysis consists of reviewing delinquency trends, historical charge-off experience, prevailing economic conditions, size and current composition of the loan portfolio, collateral value trends and other relevant factors. In addition to the assessment performed by management, the Bank's loan portfolio is subjected to an external credit review function and is examined by its regulators. The results of these examinations are incorporated into management's assessment of the allowance for loan losses.

Noninterest Income- Total noninterest income decreased $243,000 or 21.5% to $887,000 in the third quarter of 2001 as compared to $1,130,000 for the same period in 2000. Core noninterest income, as shown in the following table, increased by $38,000 or 5.0% to $802,000 in 2001 from $764,000 in 2000. The following table presents a comparison of the components of noninterest income.



|                                             |  | Three Months Ended |  | Increase    | 
|-------------------------------------------- |  | ------------------ |  | ----------- | 
|                                             |  | September 30,      |  | (Decrease)  | 
|                                             |  |                    |  |             | 
|                                             |  | 2001               |  | 2000        | 
|                                             |  |                    |  |             | 
|(dollars in thousands)                       |  |                    |  |             | 
|                                             |  |                    |  |             | 
|Service charges on deposit accounts          |  | $   282            |  | $    212    | 
|Gains on sales of loans, originated for sale |  | 149                |  | 107         | 
|Call options premiums                        |  | 125                |  | 116         | 
|Brokerage servicing fees                     |  | 84                 |  | 174         | 
|Other                                        |  | 162                |  | 155         | 
|                                             |  |                    |  |             | 
|Core noninterest income                      |  | 802                |  | 764         | 
|Net securities gains                         |  | 91                 |  | 324         | 
|Net trading account gains (losses)           |  | (6)                |  | 42          | 
|                                             |  |                    |  |             | 
|Total noninterest income                     |  | $   887            |  | $     1,130 | 
|                                             |  |                    |  |             | 

The rise in service charges on deposit accounts is primarily the result of a $15,000 volume increase in fees generated from the Bank's SSB ATM/Debit card product for its retail customers, $25,000 in ATM usage fees and a $18,000 rise in overdraft fees collected. The gains on sales of loans, originated for sale, increased $42,000 which was comprised of $51,000 in higher income from loans generated for sale into the secondary market by BCIF, the Bank's indirect auto finance company, partially offset by $9,000 of reduced revenue from sales of residential real estate loans. Brokerage servicing fees decreased $90,000 due to lower sales volume as a result of the current unsettled market conditions.

Total noninterest income increased $382,000 or 13.2% to $3,270,000 for the nine months ended September 30, 2001 as compared to $2,888,000 for the same period in 2000. Core noninterest income, as shown in the following table, increased by $427,000 or 18.7% to $2,716,000 in 2001 from $2,289,000 in 2000. The following table presents a comparison of the components of noninterest income.



|                                                   |  | Nine
      Months Ended |  | Increase   | 
|-------------------------------------------------- |  | ----------------------- |  | ---------- | 
|                                                   |  | September
      30,     |  | (Decrease) | 
|                                                   |  |                         |  |            | 
|                                                   |  | 2001                    |  | 2000       | 
|                                                   |  |                         |  |            | 
|(dollars
      in thousands)                       |  |                         |  |            | 
|                                                   |  |                         |  |            | 
|Service
      charges on deposit accounts          |  | $    793                |  | $    604   | 
|Call
      options premiums                        |  | 562                     |  | 438        | 
|Gains
      on sales of loans, originated for sale |  | 483                     |  | 403        | 
|Brokerage
      servicing fees                     |  | 383                     |  | 416        | 
|Other                                              |  | 495                     |  | 428        | 
|                                                   |  |                         |  |            | 
|Core
      noninterest income                      |  | 2,716                   |  | 2,289      | 
|Net
      securities gains                         |  | 466                     |  | 601        | 
|Net
      trading account gains (losses)           |  | 88                      |  | (2)        | 
|                                                   |  |                         |  |            | 
|Total
      noninterest income                     |  | $ 3,270                 |  | $ 2,888    | 
|                                                   |  |                         |  |            | 

The increase in service charges on deposit accounts is primarily the result of a $47,000 volume increase in fees generated from the Bank's SSB ATM/Debit card product for its retail customers, $67,000 in ATM usage fees, $19,000 in NOW/DDA fees and a $52,000 rise in overdraft fees collected. Call options premiums rose by $124,000 as a result of increased activity. The gains on sales of loans, originated for sale, increased $80,000 which was comprised of $104,000 of increased revenue from sales of residential real estate loans partially offset by $24,000 in reduced income from loans generated for sale into the secondary market by BCIF, the Bank's indirect auto finance company. Brokerage servicing fees decreased $33,000 due to lower sales volume as a result of the current unsettled market conditions. The increase in other income reflects higher servicing fees of $27,000 generated by BCIF, increased letter of credit fees of $24,000 and increased real estate referral fees to third parties of $17,000.

Management regularly reviews the Company's securities available-for-sale portfolio for individual securities that have significantly declined in fair value from their amortized cost basis for an extended period of time. Several factors are considered to determine whether the declines in fair value are "other than temporary", such as company-specific events, industry developments, general economic conditions, analysts' recommendations, earnings trends and estimates, credit ratings and other relevant factors. When a decline in fair value is deemed to be "other than temporary", the amortized cost basis of the individual security is written down to fair value. The amount of the write-down is included in earnings as a realized loss. Included in net securities gains for the three and nine months ended September 30, 2001 are $342,000 and $809,000, respectively, of losses resulting from the write-down of certain equity securities determined to have "other than temporary" declines in fair value.

Noninterest Expense- Operating expenses increased $255,000 or 8.8% to $3,139,000 in the third quarter of 2001 from $2,884,000 for the same period in 2000. The Company's efficiency ratio was 51.17% during the third quarter of 2001 compared to 48.55% for the same period in 2000.

Salaries and employee benefits were $37,000 or 2.1% higher in 2001 compared to 2000. This increase primarily reflects $71,000 related to higher staffing levels resulting from two new branch facilities opened in April 2001, scheduled employee annual salary increases partially offset by reduced commission salaries of $34,000 as a result of lower brokerage servicing fees and a decrease of $19,000 in other compensation expense.

Net occupancy expense increased $42,000 or 35.0% in 2001 compared to 2000. A decrease in temporary rental income of $27,000, increased building repairs expense of $8,000 and increased rental expense of $8,000 primarily related to the two new branch facilities were the primary reasons for this higher expense.

Data processing expense increased $34,000 or 23.3% to $180,000 in 2001 compared to $146,000 in 2000. This increase was mainly the result of higher proof of deposit processing charges in the amount of $7,000 related to the Bank's third party processor which were caused primarily by greater volume, an $10,000 increase in ATM processing charges due to volume and new services and a $10,000 increase in charges related to the Bank's in-house computer processing operations.

Advertising expense increased $31,000 or 29.0% to $138,000 for the third quarter of 2001 compared to $107,000 for the same period in 2000 primarily as a result of promotional advertising at BCIF, the Bank's indirect auto finance company, and additional advertising expenditures to promote the Bank's two new branch facilities.

The increase in other noninterest expenses of $118,000 includes net foreclosed real estate and repossessed property expenses of $5,000 in the third quarter of 2001 versus $41,000 of recoveries for the same period in 2000. Exclusive of net foreclosed real estate and repossessed property expenses and recoveries, the $72,000 or 13.2% increase reflects a net increase in a number of miscellaneous expense categories.

Operating expenses increased $644,000 or 7.4% to $9,377,000 for the nine months ended September 30, 2001 from $8,733,000 in 2000. The Company's efficiency ratio was 50.38% for the nine months ended September 30, 2001 compared to 49.43% for the same period in 2000.

Salaries and employee benefits increased $224,000 or 4.4% in 2001 compared to 2000. This increase primarily reflects $118,000 related to higher staffing levels resulting from the two new branch facilities opened in April 2001, higher 401(k) matching contributions of $32,000 mainly due to more participants and scheduled employee annual salary increases. These increases were partially offset by reduced utilization of temporary employees of $28,000, lower other compensation expense of $19,000 and decreased commission salaries of $14,000.

The expenses related to furniture and equipment totaled $838,000 for the nine months ended September 30, 2001 compared to $805,000 for the same period in 2000, an increase of $33,000 or 4.1%. Expenses of $28,000 related to the two new branch facilities in 2001 and increased computer maintenance costs of $27,000 were partially offset by reduced depreciation expense of $11,000 in 2001 and furniture and equipment write-offs totaling $13,000 in 2000.

Net occupancy expense increased $49,000 or 11.6% in 2001 compared to 2000. A decrease in rental income of $17,000, increases in building repairs, outside maintenance and utilities of $15,000, $17,000 and $15,000, respectively, were partially offset by reduced rental expense of $25,000.

Data processing expense increased $85,000 or 20.0% to $511,000 in 2001 compared to $426,000 in 2000. This increase was mainly the result of higher proof of deposit processing charges in the amount of $23,000 related to the Bank's third party processor which were caused primarily by greater volume, a $25,000 increase in ATM processing charges due to volume and new services, payroll conversion charges of $5,000 and a $22,000 increase in charges related to the Bank's in-house computer processing operations.

Advertising expense increased $49,000 or 14.5% to $386,000 for the nine months of 2001 compared to $337,000 for the same period in 2000 primarily as a result of additional advertising expenditures to promote the Bank's two new branch facilities and promotional advertising at BCIF, the Bank's indirect auto finance company.

The increase in other noninterest expenses of $204,000 includes net foreclosed real estate and repossessed property recoveries that amounted to $10,000 in the first nine months of 2001 versus $93,000 for the same period in 2000. Exclusive of net foreclosed real estate and repossessed property recoveries, the $121,000 or 6.9% increase reflects a net increase in a number of miscellaneous expense categories.

Provision for Income Taxes- The provision for income taxes for the three months ended September 30, 2001 and 2000 was $941,000 and $998,000, respectively, representing effective tax rates of 30.6% and 29.8%, respectively.

The provision for income taxes for the nine months ended September 30, 2001 and 2000 was $2,939,000 and $2,794,000, respectively, representing effective tax rates of 30.6% and 29.8%, respectively.

The increase in the effective tax rates for 2001 are due to reduced equity investment income available for the dividends received deduction as a result of a lower volume and reduced income yields due to a lower interest rate environment. The effective income tax rates noted above are below statutory rates primarily as a result of the dividends received deduction and the establishment of the passive investment company.

Liquidity- The liquidity of a banking institution reflects its ability to provide funds to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. Funding of loan requests, providing for liability outflows and management of interest rate fluctuations require continuous analysis in order to match the maturities of specific categories of short-term loans and investments with specific types of deposits and borrowings. Bank liquidity is thus normally considered in terms of the nature and mix of a banking institution's sources and uses of funds. The Bank's Asset Liability Committee is responsible for implementing the policies and guidelines for the maintenance of prudent levels of liquidity. Management believes, as of September 30, 2001, that liquidity as measured by the Company is well in excess of its minimum guidelines.

The Bank's principal sources of funds for operations are cash flows generated from earnings, deposits, loan repayments, borrowings from the Federal Home Loan Bank of Boston (the "FHLB") and securities sold under repurchase agreements. Such sources are supplemented by Federal funds sold and unencumbered securities available-for-sale. Brokered deposits were not utilized as a source of funds during 2001 or 2000, and none were outstanding as of September 30, 2001.

The Bank is a member of the FHLB, which makes substantial borrowings available to its members. The Bank is eligible to borrow against its assets in an amount not to exceed collateral as defined by the FHLB. As of September 30, 2001, the Bank's potential borrowing capacity totaled $142,218,000. The Bank's actual borrowings on that date were $84,800,000.

The inflow and outflow of funds is detailed in the consolidated condensed statements of cash flows for the nine months ended September 30, 2001 and 2000 and is summarized below.

During the current period, cash and cash equivalents decreased by $5,374,000, as net cash used for financing activities of $25,570,000 exceeded the net cash provided by operating and investing activities of $20,196,000.

Net cash provided by investing activities was $14,001,000 for the nine months ended September 30, 2001. During this period, the Company experienced a reduction in investment in securities in the amount of $15,268,000 and net redemptions of FHLB stock of $2,157,000 partially offset by net originations of loans totaling $3,228,000.

The net cash used for financing activities of $25,570,000 for the nine months ended September 30, 2001 primarily reflected a net decrease in funds borrowed from the FHLB of $51,530,000 and repurchases of the Company's common stock of $3,254,000 partially offset by an increase in Federal funds purchased and repurchase agreements of $22,196,000 and a net increase in deposits of $8,863,000.

Closely related to the concept of liquidity is the management of interest-earning assets and interest-bearing liabilities, which focuses on maintaining stability in the interest rate spread, an important factor in earnings growth and stability. Emphasis is placed on maintaining a controlled rate sensitivity position to avoid wide swings in interest rate spreads and to minimize risk due to changes in interest rates. An asset or liability is considered rate sensitive within a specified period when it matures or could be repriced within such period in accordance with its contractual terms. Management establishes overall policy and interest rate risk tolerance levels which are administered by the Bank's Asset Liability Committee on a monthly basis.

Capital Resources- The Bank is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to quantitative judgements by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined) to risk weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2001, that the Bank meets all capital adequacy requirements to which it is subject.

To be categorized as well capitalized, the Bank must maintain the ratios set forth in the table below. Management believes that there are no events or conditions that have occurred that would change its category. The Bank's actual capital amounts and ratios were (dollars in thousands):



|                                               |  | Actual         |  | To Be Well Capitalized
      Under Prompt Corrective
      Action Provisions
|---------------------------------------------- |  | -------------- |  | ----------------------------------------------------------------------------
|                                               |  |                |  |                                                                             
|                                               |  | Amount         |  | Ratio                                                                       
|                                               |  |                |  |                                                                             
|As
      of September 30, 2001:                |  |                |  |                                                                             
|Total
      Capital (to Risk Weighted Assets)  |  | $
      62,263 |  | 15.30                                                                       
|Tier
      1 Capital (to Risk Weighted Assets) |  | 57,165         |  | 14.05                                                                       
|Tier
      1 Capital (to Average Assets)       |  | 57,165         |  | 9.39                                                                        

On July 18, 2001, the Board of Directors of the Company declared a cash dividend of $0.19 per common share that was paid on August 15, 2001 to shareholders of record on August 1, 2001. Subsequent to September 30, 2001, the Board of Directors of the Company declared a cash dividend of $0.19 per common share payable on November 15, 2001 to shareholders of record on November 1, 2001.

On April 21, 1999, the Company announced that it planned to repurchase up to 5% (260,000) of its outstanding common shares over the next twelve months. On April 20, 2000, this share buyback program was terminated. Pursuant to that program, the Company purchased 136,338 shares of its outstanding shares of common stock, or 2.6% of its outstanding shares as of April 21, 1999 and April 20, 2000.

On April 19, 2000, the Company's Board of Directors voted to authorize a new share buyback program of up to 5% (262,000) of its outstanding shares of common stock over the next year. On April 18, 2001, this share buyback program was terminated. Pursuant to that program, the Company purchased 101,000 shares of its outstanding shares of common stock, or 1.9% of its outstanding shares as of April 19, 2000 and April 18, 2001.

On April 18, 2001, the Company's Board of Directors voted to authorize a new share buyback program of up to 10% (515,000) of its outstanding shares of common stock over the next year. Purchases will be made from time to time in the open market and through negotiated private transactions. The timing and amount of these transactions, to be funded through available corporate funds, will depend upon market conditions and corporate requirements. Shares repurchased will be held in treasury for general corporate purposes including reissue to satisfy the exercise of outstanding stock options. Through November 9, 2001, the Company repurchased 147,670 shares at an average price of $18.64.

The per share market value of the Company common stock as of September 30, 2001 was $18.50 or 162% of its book value of $11.43 per share. As of December 31, 2000, the per share market value was $13.25 or 131% of its book value of $10.11 per share. The common stock closed at $18.80 per share on November 9, 2001.



Average Statements of Condition, Net Interest Income and Interest Rates (a)



|                                                        |  | Three Months Ended September 30, | 
|------------------------------------------------------- |  | -------------------------------- | 
|                                                        |  |                                  | 
|                                                        |  | 2001                             | 
|                                                        |  |                                  | 
|(dollars
      in thousands)                            |  | Average
      Balance            | 
|                                                        |  |                                  | 
|                                                        |  |                                  | 
|Assets                                                  |  |                                  | 
|Interest-earning
      assets:                          |  |                                  | 
|Loans(b)                                                |  | $
      319,887                  | 
|Taxable
      investment securities(c)                  |  | 258,333                          | 
|Municipal
      bonds - tax exempt(c)                   |  | 6,704                            | 
|Federal
      funds sold                                |  | 1,916                            | 
|Other
      interest-earning assets                     |  | 4,765                            | 
|                                                        |  |                                  | 
|Total
      interest-earning assets                     |  | 591,605                          | 
|                                                        |  |                                  | 
|Noninterest-earning
      assets                        |  | 18,068                           | 
|                                                        |  |                                  | 
|Total
      Assets                                      |  | $
      609,673                  | 
|                                                        |  |                                  | 
|                                                        |  |                                  | 
|Liabilities
      and Equity                            |  |                                  | 
|Interest-bearing
      liabilities:                     |  |                                  | 
|NOW
      and savings deposits                          |  | $
      168,589                  | 
|Time
      deposits                                     |  | 179,082                          | 
|Federal
      funds purchased and repurchase agreements |  | 67,446                           | 
|Other
      borrowings                                  |  | 86,852                           | 
|                                                        |  |                                  | 
|Total
      interest-bearing liabilities                |  | 501,969                          | 
|                                                        |  |                                  | 
|Noninterest-bearing
      liabilities:                  |  |                                  | 
|Demand
      deposits                                   |  | 44,744                           | 
|Other                                                   |  | 6,239                            | 
|Shareholders'
      equity                              |  | 56,721                           | 
|                                                        |  |                                  | 
|Total
      Liabilities and Shareholders' Equity        |  | $
      609,673                  | 
|                                                        |  |                                  | 
|Net
      interest income on a tax equivalent basis(c)  |  |                                  | 
|Tax
      equivalent adjustment                         |  |                                  | 
|                                                        |  |                                  | 
|Net
      interest income                               |  |                                  | 
|                                                        |  |                                  | 
|Net
      interest spread (tax equivalent basis)        |  |                                  | 
|                                                        |  |                                  | 
|Net
      interest margin (tax equivalent basis)        |  |                                  | 
|                                                        |  |                                  | 



(a)
Computed on an annualized basis.(b)
Average balances for loans include nonaccrual and renegotiated balances.(c)
Yields/Rates are computed on a tax equivalent basis using a Federal income tax rate of 34% and a state income tax rate of 0% in 2001 and 2000, respectively.




Average Statements of Condition, Net Interest Income and Interest Rates (a)



|                                                        |  | Nine Months Ended September 30, | 
|------------------------------------------------------- |  | ------------------------------- | 
|                                                        |  |                                 | 
|                                                        |  | 2001                            | 
|                                                        |  |                                 | 
|                                                        |  | Average                         | 
|(dollars in thousands)                                  |  | Balance                         | 
|                                                        |  |                                 | 
|                                                        |  |                                 | 
|Assets                                                  |  |                                 | 
|Interest-earning
      assets:                          |  |                                 | 
|Loans(b)                                                |  | $ 316,415                       | 
|Taxable
      investment securities(c)                  |  | 265,558                         | 
|Municipal
      bonds - tax exempt(c)                   |  | 5,981                           | 
|Federal
      funds sold                                |  | 3,357                           | 
|Other
      interest-earning assets                     |  | 6,027                           | 
|                                                        |  |                                 | 
|Total
      interest-earning assets                     |  | 597,338                         | 
|                                                        |  |                                 | 
|Noninterest-earning
      assets                        |  | 16,211                          | 
|                                                        |  |                                 | 
|Total
      Assets                                      |  | $ 613,549                       | 
|                                                        |  |                                 | 
|                                                        |  |                                 | 
|Liabilities
      and Equity                            |  |                                 | 
|Interest-bearing
      liabilities:                     |  |                                 | 
|NOW
      and savings deposits                          |  | $ 158,361                       | 
|Time
      deposits                                     |  | 183,006                         | 
|Federal
      funds purchased and repurchase agreements |  | 65,555                          | 
|Other
      borrowings                                  |  | 102,729                         | 
|                                                        |  |                                 | 
|Total
      interest-bearing liabilities                |  | 509,651                         | 
|                                                        |  |                                 | 
|Noninterest-bearing
      liabilities:                  |  |                                 | 
|Demand
      deposits                                   |  | 42,003                          | 
|Other                                                   |  | 6,347                           | 
|Shareholders'
      equity                              |  | 55,548                          | 
|                                                        |  |                                 | 
|Total
      Liabilities and Shareholders' Equity        |  | $ 613,549                       | 
|                                                        |  |                                 | 
|Net
      interest income on a tax equivalent basis(c)  |  |                                 | 
|Tax
      equivalent adjustment                         |  |                                 | 
|                                                        |  |                                 | 
|Net
      interest income                               |  |                                 | 
|                                                        |  |                                 | 
|Net
      interest spread (tax equivalent basis)        |  |                                 | 
|                                                        |  |                                 | 
|Net
      interest margin (tax equivalent basis)        |  |                                 | 
|                                                        |  |                                 | 



|(a) | Computed on an annualized basis.                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Average balances for loans include nonaccrual and renegotiated balances.                                                                                    
|(c) | Yields/Rates are computed on a tax equivalent basis using a Federal income tax rate of 34% and a state income tax rate of 0% in 2001 and 2000, respectively.

Rate/Volume Analysis



|                                                        |  | Three Months Ended
      September 30, 2001 |  | Nine Months Ended
      September 30, 2001
|------------------------------------------------------- |  | ------------------------------------------- |  | ------------------------------------------
|                                                        |  | Compared to 2000                            |  | Compared to 2000                          
|                                                        |  |                                             |  |                                           
|                                                        |  | Increase
      (Decrease)                   |  |                                           
|                                                        |  | Due to                                      |  |                                           
|                                                        |  |                                             |  |                                           
|(in
      thousands)                                    |  | Volume                                      |  | Rate                                      
|                                                        |  |                                             |  |                                           
|Interest
      earned on:                               |  |                                             |  |                                           
|Loans                                                   |  | $    
      (40)                            |  | $   (516)                                 
|Taxable
      investment securities                     |  | 247                                         |  | (465)                                     
|Municipal
      bonds - tax exempt                      |  | 21                                          |  | (2)                                       
|Federal
      funds sold                                |  | (104)                                       |  | (63)                                      
|Other
      interest-earning assets                     |  | (23)                                        |  | (31)                                      
|                                                        |  |                                             |  |                                           
|Total
      interest income                             |  | 101                                         |  | (1,077)                                   
|                                                        |  |                                             |  |                                           
|Interest
      paid on:                                 |  |                                             |  |                                           
|NOW
      and savings deposits                          |  | 109                                         |  | (175)                                     
|Time
      deposits                                     |  | (142)                                       |  | (367)                                     
|Federal
      funds purchased and repurchase agreements |  | 158                                         |  | (144)                                     
|Other
      borrowings                                  |  | (311)                                       |  | (175)                                     
|                                                        |  |                                             |  |                                           
|Total
      interest expense                            |  | (186)                                       |  | (861)                                     
|                                                        |  |                                             |  |                                           
|Change
      in net interest income                     |  | $     
      287                            |  | $   (216)                                 
|                                                        |  |                                             |  |                                           

(1) The change in interest due to both tax equivalent rate and volume has been allocated to changes due to volume and changes due to tax equivalent rate in proportion to the relationship of the absolute dollar amounts of the change in each.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of the Company and the Bank to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the general risks associated with the delivery of financial products and services, fluctuating investment returns, rapid technological changes, competition, as well as other risks that are described from time to time in the Company's filings with the Securities and Exchange Commission. The Company assumes no obligations to update these forward-looking statements.



---



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which the Bank is exposed is interest rate risk. The majority of the Bank's interest rate risk arises from the instruments, positions and transactions entered into for purposes other than trading. They include loans, securities available-for-sale, deposit liabilities, short-term borrowings and long-term debt. Interest rate risk occurs when assets and liabilities reprice at different times as interest rates change.

The Bank manages interest rate risk through an Asset Liability Committee comprised of certain directors and certain members of senior management. The committee monitors exposure to interest rate risk on a quarterly basis using both a traditional gap analysis and simulation analysis. Traditional gap analysis identifies short and long-term interest rate positions or exposure. Simulation analysis measures the amount of short-term earnings at risk under both rising and falling rate scenarios. The Bank's interest rate risk as of September 30, 2001 and December 31, 2000 utilizing a simulation model to measure the estimated percentage change in net interest income due to an increase or decrease in market interest rates of up to 200 basis points, spread evenly over the next twelve months, is within the Bank's established 10% of net interest income tolerance limit.

The Company's market risk also includes equity price risk. The Company's marketable equity securities portfolio had unrealized net losses of $1,632,000, consisting of $2,113,000 of losses and $481,000 of gains, as of September 30, 2001 which is included, net of taxes, in accumulated other comprehensive loss, a separate component of the Company's shareholders' equity. If equity security prices decline due to unfavorable market conditions or other factors, the Company's shareholders' equity would decrease as a result of unrealized losses and or potential write-downs of certain equity securities due to declines in fair value deemed to be "other than temporary".





---





|PART II. | OTHER INFORMATION                                                                   
|-------- | ------------------------------------------------------------------------------------
|         |                                                                                     
|Item 1.  | Legal Proceedings                                                                   
|         |                                                                                     
|         | Not applicable                                                                      
|         |                                                                                     
|         |                                                                                     
|Item 2.  | Changes in Securities and Use of Proceeds                                           
|         |                                                                                     
|         | Not applicable                                                                      
|         |                                                                                     
|         |                                                                                     
|Item 3.  | Defaults Upon Senior Securities                                                     
|         |                                                                                     
|         | Not applicable                                                                      
|         |                                                                                     
|         |                                                                                     
|Item 4.  | Submission of Matters to a Vote of Security Holders                                 
|         |                                                                                     
|         | Not applicable                                                                      
|         |                                                                                     
|         |                                                                                     
|Item 5.  | Other Information                                                                   
|         |                                                                                     
|         | Not applicable.                                                                     
|         |                                                                                     
|         |                                                                                     
|Item 6.  | Exhibits and Reports on Form 8-K                                                    
|         |                                                                                     
|(a)      | Exhibits required by Item 601 of Regulation S-K                                     
|         |                                                                                     
|         | Exhibit No.                                                                         
|         |                                                                                     
|         | 3.1                                                                                 
|         |                                                                                     
|         | 3.2                                                                                 
|         |                                                                                     
|         | 3.3                                                                                 
|         |                                                                                     
|         | 4.1                                                                                 
|         |                                                                                     
|         | 4.2                                                                                 
|         |                                                                                     
|         | 10.1                                                                                
|         |                                                                                     
|         | 10.2                                                                                
|         |                                                                                     
|         | 10.3                                                                                
|         |                                                                                     
|         | 10.4                                                                                
|         |                                                                                     
|         | 10.5                                                                                
|         |                                                                                     
|         | 10.6                                                                                
|         |                                                                                     
|         | 10.7                                                                                
|         |                                                                                     
|         | 10.8                                                                                
|         |                                                                                     
|(b)      | Reports on Form 8-K                                                                 
|         |                                                                                     
|         | The registrant did not file any Report on Form 8-K during the third quarter of 2001.





---



SIGNATURES

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



|                        |  | Bancorp Connecticut, Inc.     
|----------------------- |  | ------------------------------
|                        |  | (Registrant)                  
|                        |  |                               
|                        |  |                               
|                        |  |                               
|                        |  |                               
|Date:  November 9, 2001 |  | /s/  Robert D. Morton         
|                        |  | Robert D. Morton              
|                        |  | Chairman, President and Chief 
|                        |  | Executive Officer             
|                        |  | (Principal Executive Officer) 
|                        |  |                               
|                        |  |                               
|                        |  |                               
|Date:  November 9, 2001 |  | /s/  Phillip J. Mucha         
|                        |  | Phillip J. Mucha              
|                        |  | Chief Financial Officer       
|                        |  | And Treasurer/Secretary       
|                        |  | (Principal Accounting Officer)







---



|EXHIBIT INDEX
|-------------
|             
|Exhibit No.  
|             
|3.1          
|             
|3.2          
|             
|3.3          
|             
|4.1          
|             
|4.2          
|             
|10.1         
|             
|10.2         
|             
|10.3         
|             
|10.4         
|             
|10.5         
|             
|10.6         
|             
|10.7         
|             
|10.8         





---