Alliance Bancorp of New England 10-Q 2002 Q1 Quarterly report

FORM 10-Q

United States Securities and Exchange Commission
Washington, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2002
Commission File Number 001-13405

ALLIANCE BANCORP OF NEW ENGLAND, INC.

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

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

Alliance Bancorp of New England (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

As of May 9, 2002, Alliance Bancorp of New England had 2,349,447 shares of common stock outstanding.

TABLE OF CONTENTS		Page
Table	Consolidated Selected Financial Data	2
Part I	Financial Information
Item 1	Financial Statements
	Consolidated Balance Sheets	3
	Consolidated Income Statements	4
	Consolidated Statements of Changes in Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis
	of Financial Condition and Results of Operations	10
	Special Note Regarding Forward-Looking Statements	10
Item 3	Quantitative and Qualitative Disclosures About Market Risk	13
Part II	Other Information	13
Table	Average Balance Sheet and Interest Rates	14
Signatures		15

1

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

	As of and for the three months ended March 31,
		2002			2001
For the Quarter (in thousands)
Net interest income	$	3,194		$	3,091
Provision for loan losses		172			72
Service charges and other income		493			312
Net gain on securities		172			36
Non-interest expense		2,467			2,201
Net income	$	850		$	827
Per Share
Earnings - basic	$	0.36		$	0.35
Earnings - diluted		0.35			0.35
Dividends declared		0.07	5		0.07	5
Book value		9.45			8.37
Common stock price:
High		14.51			9.38
Low		11.75			8.37
Close		14.25			9.25
At Quarter End (in millions)
Total assets	$	396.9		$	350.5
Total loans		261.3			240.9
Other earning assets		105.7			89.2
Deposits		324.2			283.4
Borrowings		48.5			45.5
Shareholders’ equity (a)		22.1			19.5
Operating Ratios (in percent)
Return on average equity, annualized		15.30	%		18.36	%
Return on average assets, annualized		0.90			0.97
Net interest margin, annualized (b)		3.67			3.95
Non performing assets/assets		0.45			0.44
Equity % total assets (period end)		5.57			5.57
Dividend payout ratio		20.63			21.15
Growth (in percent)
Net income (c)		2.8	%		7.3	%
Regular loans (d)		8.1			18.3
Deposits (d)		27.5			4.2

(a)	Shareholders’ equity includes net accumulated other comprehensive loss, which consists of unrealized losses on certain investment securities, net of taxes.
(b)	Ratio expressed as fully taxable equivalent.
(c)	Compared to same period in the preceding year.
(d)	Compared to the prior year-end, annualized.

2

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

(in thousands, except share data)	March 31, 2002			December 31, 2001
Assets
Cash and due from banks	$	16,848		$	12,723
Short-term investments		18,633			2,591
Total cash and cash equivalents		35,481			15,314
Securities available for sale (at fair value)		77,779			85,973
Securities held to maturity
(fair value of $9,266 in 2002 and $11,987 in 2001)		9,287			12,397
Residential mortgage loans		62,391			63,037
Commercial mortgage loans		88,179			87,485
Other commercial loans		41,688			37,658
Consumer loans		40,409			39,849
Government guaranteed loans		28,624			29,595
Total loans		261,291			257,624
Less: Allowance for loan losses		(3,850	)		(3,700	)
Net loans		257,441			253,924
Premises and equipment, net		5,367			5,458
Accrued interest income receivable		2,612			2,812
Cash surrender value of life insurance		4,449			4,391
Other assets		4,500			4,296
Total assets	$	396,916		$	384,565
Liabilities and Shareholders’ Equity
Demand deposits	$	35,679		$	33,647
NOW deposits		39,678			36,400
Money market deposits		41,265			41,223
Savings deposits		72,411			60,182
Time deposits		135,178			131,906
Total deposits		324,211			303,358
Borrowings		48,500			57,069
Other liabilities		2,090			2,049
Total liabilities		374,801			362,476
Preferred stock, ($0.01 par value; 100,000 shares
authorized, none issued)		–			–
Common stock, ($0.01 par value; authorized 4,000,000
shares; issued 2,540,846 in 2002 and 2,539,896 in 2001;
outstanding 2,340,247 in 2002 and 2,339,297 in 2001)		25			25
Additional paid-in capital		11,586			11,577
Retained earnings		17,148			16,473
Accumulated other comprehensive loss, net		(3,535	)		(2,877	)
Treasury stock (200,599 shares)		(3,109	)		(3,109	)
Total shareholders’ equity		22,115			22,089
Total liabilities and shareholders’ equity	$	396,916		$	384,565

See accompanying notes to consolidated financial statements

3

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

	Three Months Ended March 31,
(in thousands, except share data)		2002		2001
Interest Income
Loans	$	4,520	$	4,835
Debt securities		1,337		1,276
Dividends on equity securities		185		270
Short-term investments		25		99
Total interest and dividend income		6,067		6,480
Interest Expense
Deposits		2,110		2,694
Borrowings		763		695
Total interest expense		2,873		3,389
Net Interest Income		3,194		3,091
Provision For Loan Losses		172		72
Net interest income after provision for loan losses		3,022		3,019
Non-Interest Income
Service charges and other income		493		312
Net gain on securities		172		36
Total non-interest income		665		348
Non-Interest Expense
Compensation and benefits		1,310		1,159
Occupancy		173		181
Data processing services and equipment		308		276
Office and insurance		163		136
Purchased services		314		271
Other		199		178
Total non-interest expense		2,467		2,201
Income before income taxes		1,220		1,166
Income tax expense		370		339
Net Income	$	850	$	827
Per Share Data
Basic earnings per share	$	0.36	$	0.35
Diluted earnings per share	$	0.35	$	0.35
Average basic shares outstanding		2,339,418		2,331,100
Average additional dilutive shares		100,031		45,263
Average diluted shares		2,439,449		2,376,363

See accompanying notes to consolidated financial statements

4

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

Three Months ended March 31 (in thousands, except share data)	Common stock		Additional paid-In capital		Retained earnings				Accumulated other comprehensive income (loss)		Treasury Stock			Total
2001
Balance, December 31, 2000	$	25	$	11,516	$	14,198		$	(4,515	)	$	(3,109	)	$	18,115
Comprehensive income
Net income						827									827
Unrealized gains on securities,
net of reclassification adjustment									744						744
Comprehensive income															1,571
Dividends declared ($0.075 per share)						(175	)								(175	)
Balance, March 31, 2001	$	25	$	11,516	$	14,850		$	(3,771	)	$	(3,109	)	$	19,511
2002
Balance, December 31, 2001	$	25	$	11,577	$	16,473		$	(2,877	)	$	(3,109	)	$	22,089
Comprehensive income
Net income						850									850
Unrealized losses on securities,
net of reclassification adjustment									(658	)					(658	)
Comprehensive income															192
Dividends declared ($0.075 per share)						(175	)								(175	)
Shares issued (exercise of options)				9											9
Balance, March 31, 2002	$	25	$	11,586	$	17,148		$	(3,535	)	$	(3,109	)	$	22,115
Disclosure of reclassification amount
Three months ended March 31 (in thousands)									2002						2001
Unrealized holding (losses) gains arising during  the period, net of income tax (benefit) expense of $(281) and $410, respectively
								$	(545	)				$	761
Less reclassification adjustment for
gains included in net income, net of income      tax expense of $59 and $9, respectively									(113	)					(17	)
Net unrealized (losses) gains on securities								$	(658	)				$	744

See accompanying notes to consolidated financial statements

5

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

	Three months ended March 31,
(in thousands)		2002			2001
Operating Activities:
Net income	$	850		$	827
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses		172			72
Depreciation and amortization		123			132
Net gain on securities and other assets		(172	)		(26	)
Loans originated for sale		(6,660	)		(5,668	)
Proceeds from loans sold		8,125			6,285
Increase (decrease) in other liabilities		41			(810	)
Decrease in accrued interest income receivable		199			230
Decrease in other assets		89			1,398
Net cash provided by operating activities		2,767			2,440
Investing Activities:
Securities available for sale:
Proceeds from repayments and maturities		1,570			33
Proceeds from sales		8,778			2,497
Proceeds from calls		1,000			–
Purchases of securities		(3,042	)		(7,423	)
Securities held to maturity:
Proceeds from amortization and maturities		1,153			695
Proceeds from calls		1,000			1,000
Net increase in loans (other than held for sale)		(5,154	)		(13,205	)
Purchases of premises and equipment		(24	)		(116	)
Net cash provided by (used in) investing activities		5,281			(16,519	)
Financing Activities:
Net increase in interest-bearing deposits		18,822			3,886
Net increase (decrease) in demand deposits		2,032			(961	)
Principal repayments of FHLBB advances		(6,469	)		–
Net decrease in other borrowings		(2,100	)		(1,200	)
Stock options exercised		9			–
Cash dividends paid		(175	)		(175	)
Net cash provided by financing activities		12,119			1,550
Net Change in Cash and Cash Equivalents		20,167			(12,529	)
Cash and cash equivalents at beginning of the period		15,314			30,187
Cash and cash equivalents at end of the period	$	35,481		$	17,658
Supplemental Information on Cash Payments
Interest	$	2,889		$	3,248
Income taxes		300			500
Supplemental Information on Non-cash Transactions
Securities transferred to held to maturity		–			7,045
Securities transferred to available for sale		1,057			11,883

See accompanying notes to consolidated financial statements

6

.

Notes to Consolidated Financial Statements (unaudited)

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

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

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

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

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

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

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

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

7

Note 2. Securities

	Amortized		Unrealized		Unrealized			Fair
March 31, 2002 (in thousands)	Cost		Gains		Losses				Value
Securities available for sale
U.S. Government and agency debt	$	10,124	$	34	$	(151	)	$	10,007
U.S. Agency mortgage-backed debt		16,281		43		(127	)		16,197
Trust preferred		19,933		297		(2,599	)		17,631
Other corporate debt		20,155		104		(1,381	)		18,878
Marketable equity		13,361		180		(1,055	)		12,486
Non-marketable equity		2,580		–		–			2,580
Total available for sale	$	82,434	$	658	$	(5,313	)	$	77,779
Securities held to maturity
U.S. Government and agency debt	$	1,061	$	7	$	–		$	1,068
U.S. Agency mortgage-backed debt		1,969		43		(10	)		2,002
Other mortgage-backed debt		1,133		13		(2	)		1,144
Other corporate debt		5,124		156		(228	)		5,052
Total held to maturity	$	9,287	$	219	$	(240	)	$	9,266
	Amortized		Unrealized		Unrealized				Fair
December 31, 2001 (in thousands)		Cost		Gains		Losses			Value
Securities available for sale
U.S. Government and agency debt	$	10,149	$	55	$	(99	)	$	10,105
U.S. Agency mortgage-backed debt		17,876		78		(120	)		17,834
Trust preferred		24,526		390		(2,464	)		22,452
Other corporate debt		22,047		212		(851	)		21,408
Marketable equity		12,387		160		(953	)		11,594
Non-marketable equity		2,580		–		–			2,580
Total available for sale	$	89,565	$	895	$	(4,487	)	$	85,973
Securities held to maturity
U.S. Government and agency debt	$	2,063	$	46	$	(2	)	$	2,107
U.S. Agency mortgage-backed debt		2,747		53		–			2,800
Other mortgage-backed debt		1,518		32		–			1,550
Other corporate debt		6,069		56		(595	)		5,530
Total held to maturity	$	12,397	$	187	$	(597	)	$	11,987

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

8

Note 3. Nonperforming Loans

	March 31, 2002		December 31, 2001
(in thousands)
Total nonaccruing loans	$	1,797	$	2,149
Accruing loans past due 90 days or more		–		–
Impaired loans:
Valuation allowance required	$	1,346	$	969
No valuation allowance required		2,826		3,238
Total impaired loans	$	4,172	$	4,207
Total valuation allowance on impaired loans	$	160	$	129
Commitments to lend additional funds
to borrowers with impaired loans		–		–

Note 4. Allowance for Loan Losses

	Three Months Ended March 31, 2002			Three Months Ended March 31, 2001
(in thousands)
Balance at beginning of period	$	3,700		$	3,200
Charge-offs		(37	)		(214	)
Recoveries		15			79
Provision for loan losses		172			335
Balance at end of period	$	3,850		$	3,400

Note 5. Recent Statements of Accounting Standards

In July 2001, the Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed at least annually for impairment. Impairment losses would be charged to earnings when they occur. SFAS No. 142 requires that intangible assets other than goodwill (such as core deposit intangibles) continue to be amortized to expense over their estimated useful lives. Alliance adopted SFAS No. 142 on January 1, 2002. Alliance had intangible assets of $57,000 at December 31, 2001 which it will continue to amortize and, accordingly, its adoption of SFAS No. 142 did not affect the consolidated financial statements.

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

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

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections updates, clarifies and simplifies several existing accounting pronouncements. SFAS No. 4 required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Other provisions of SFAS No. 145 are not pertinent to the Company’s operations.

9

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

Special Note Regarding Forward-Looking Statements

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

SUMMARY

Alliance reported 3% earnings growth for the first quarter of 2002. Net income totaled $850 thousand, compared to $827 thousand a year earlier. Quarterly earnings per share were unchanged at $.35 in both periods due to the increase in dilutive shares, reflecting the impact on outstanding options of the 43% increase in the average price of Alliance’s stock.

Alliance announced an eleven-for-ten split of the common stock, to be effected as a 10% stock dividend payable on May 21, 2002 to shareholders of record as of May 7, 2002. Alliance also retained the quarterly dividend at 7.5 cents per share also payable on May 21, 2002 to shareholders of record as of May 7, 2002. All share and per share data in this report are based on shares prior to the 10% stock dividend.

Total assets increased at a 13% annualized rate in the first quarter, reflecting strong deposit and loan growth. The local economy remained healthy and the Company is implementing several sales and marketing initiatives to take advantage of bank consolidations in its markets.

First quarter net interest income increased by 3% from the same quarter of last year. The first quarter net interest margin measured 3.67%, compared to 3.95% in the first quarter of last year. The margin rebounded from a low of 3.56% in the third quarter of 2001, after declining for the first three quarters of last year as a result of falling interest rates. First quarter service charges and other income grew by 58% from the first quarter of last year, with increases in all major categories. Gains on the sale of securities increased by $136 thousand. Non-interest expenses grew by 12% over the same period, with increases in most categories generally reflecting the Bank’s growth. The loan loss provision increased by $100 thousand.

Total assets were $397 million at March 31, 2002. Total regular loans increased at an 8% annualized rate and total deposits jumped at a 27% annualized rate during the quarter. Deposit growth included commercial and municipal deposits, some of which were anticipated to be short term in nature. Nonperforming assets totaled $1.8 million at March 31, 2002, measuring 0.45% of total assets. Net loan chargeoffs measured a negligible ...03% of average loans during the quarter. The loan loss allowance measured 214% of nonperforming loans at the end of the quarter.

Shareholders’ equity totaling $22.1 million at quarter-end measured 5.6% of total assets, which was unchanged from the same time last year. Book value per share was $9.45 at quarter-end. Return on shareholders’ equity measured 15.3% during the first quarter. The Company’s capital remained in excess of all regulatory requirements.

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

10

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

Net Interest Income: The $103 thousand (3%) growth in net interest income was due to 10% growth in average earning assets, which offset the lower net interest margin. Earning asset growth was recorded in all major categories except for short term investments, which were used to fund other assets.

Net interest income increased at a 7% annualized rate from the fourth quarter of 2001 to the first quarter of 2002. Average earning assets were flat, while the net interest spread increased by .13% during this interval. The cost of liabilities decreased by .29% due to the time deposit repricings, while the yield on assets decreased by .17% due primarily to prime rate decreases in the fourth quarter of 2001 and sales of investment securities in the most recent quarter.

The net interest margin improved by .04% during the above interval. At the end of 2001, the Company entered into contracts for the purchase of an additional $3 million of bank owned life insurance. This shifted income from net interest income to other non-interest income, reducing the net interest margin by about .05%. Also, the Bank had an additional $2 million in average due from banks and $2 million less in average demand deposit balances in the most recent quarter, which together reduced the margin by about .04%.

Provision for Loan Losses: The provision is made to maintain the allowance for loan losses at a level deemed adequate by management. The provision was $172 thousand, compared to $72 thousand in the same quarter of 2001. During the most recent quarter, the allowance was increased from $3.70 million to $3.85 million due mostly to growth in commercial loans and to an increase in the impairment reserve on one loan.

Non-Interest Income: First quarter service charges and other income grew by $181 thousand (58%) from the first quarter of last year, with increases in all major categories. These increases primarily resulted from higher volume across a range of loan and deposit services, and included $40 thousand of additional income from the above-mentioned life insurance contracts. Net gains on the sale of securities increased by $136 thousand, primarily due to the sale of two utility common equity securities due to favorable market conditions for these securities.

Non-Interest Expense and Tax Expense: Non-interest expense increased by $266 thousand (12%). Expenses increased in most categories due to the growth of the Bank. The effective tax rate increased to 30% from 29% due to the lower proportionate contribution of tax advantaged investment security income as a result of sales and calls of equity securities.

Comprehensive Income: Comprehensive income includes changes (after tax) in the market valuation of investment securities available for sale. Comprehensive income was $192 thousand in the most recent quarter, compared to $1.57 million in the same quarter of last year. The net unrealized loss on securities improved last year due to lower interest rates, while the loss increased this year due to higher interest rates and wider market spreads. Please see the following discussion on investment securities.

FINANCIAL CONDITION

Cash and Cash Equivalents: Total cash and equivalents increased by $20 million during the quarter due to unusually high commercial and municipal short term deposit activity. Securities sales also contributed to this increase, with proceeds being held in anticipation of higher interest rates for reinvestments later in the year.

Investment Securities: Total investment securities decreased by $11 million during the quarter primarily due to sales of $9 million in securities, comprised primarily of longer maturity debt securities sold in order to reduce the average life of the portfolio. Alliance purchased $3 million of utility common stocks during the quarter. At March 31, 2002, the total net unrealized loss on available for sale securities (before tax) measured 6% of amortized cost, compared to 4% at year-end 2001, due primarily to higher long term rates and to wider market spreads. During the first quarter, one security with an amortized cost of $1.1 million and an unrealized loss of $351 thousand, as of March 31, 2002, was transferred from held to maturity to available for sale due to a decline in the issuer’s credit rating. This security

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was issued by an insurance company, which reported operating losses, exacerbated by claims related to World Trade Center attacks. At quarter-end, the Company owned seven securities with ratings/rankings below investment grade. The total net amortized cost of these securities was $5.6 million, with a net unrealized loss of $2.0 million, unchanged from year-end 2001. The individual unrealized losses ranged from 21 - 53% of amortized cost, which were judged to be temporary declines in value of debt securities which are expected to continue to perform in accordance with their terms. The fully taxable equivalent yield on investment securities was 6.90% in the first quarter, down from 7.29% in the fourth quarter of 2001 due to the sale of higher rate, longer term securities.

Total Loans: Total loans increased by $4 million (6% annualized) during the quarter, with regular loans increasing at an 8% annualized rate. Total commercial loans increased at a 15% annualized rate, continuing the strong growth rate recorded last year. New loan applications slackened during the current quarter as a result of a rebound in long term interest rates from lows reached in the previous quarter. Due to further anticipated rate increases, Alliance sold a higher proportion of residential mortgage originations into the secondary market, and reduced purchases of government guaranteed loans. The yield on total loans decreased to 7.09% in the most recent quarter from 7.24% in the last quarter of 2001 due to the continuing effects of prime rate decreases in the previous quarter and to ongoing refinancings. Average loans increased at an 8% annualized rate compared to the prior quarter.

Nonperforming Assets: There were no foreclosed assets at March 31, 2002. Nonaccruing loans totaled $1.8 million, compared to $2.1 million at year-end 2001. Nonperforming assets were 0.45% of total assets at March 31, 2002.

Allowance for Loan Losses: The allowance totaled $3.85 million (1.47% of total loans) at March 31, 2002, compared to $3.70 million (1.44% of total loans) at year-end 2001. During the quarter, gross chargeoffs were $37 thousand and gross recoveries were $15 thousand. The allowance measured 214% of nonaccruing loans at quarter-end.

Deposits and Borrowings: Total deposits increased by $21 million (27% annualized) during the quarter, with increases in all categories. Savings account growth was the strongest, providing $12 million of lower cost funds. As noted in the Summary, deposit growth included commercial and municipal activity that was expected to be short term in nature. During the quarter, Alliance promoted longer term time accounts in order to fund loan growth and in anticipation of higher interest rates. Short term borrowings outstanding at year-end 2001 were repaid from deposit funds. The cost of interest bearing liabilities declined to 3.58% during the quarter, from 3.87% in the previous quarter, reflecting the ongoing benefit of time account repricings, together with the benefit of other account repricings resulting from decreases in the Federal Funds rate in the previous quarter. The total average balance of deposits increased by 6% annualized in the current quarter compared to the previous quarter.

Interest Rate Sensitivity: The Company estimates that there have been no significant changes in interest rate sensitivity since year-end 2001. Equity at risk is expected to have improved slightly due to the sale of longer maturity investment securities. Alliance expects to be within policy limits for its interest rate risk, as further described in the 2001 annual report. The Company’s income is expected to increase in a rising rate environment and to decrease in a decreasing rate environment, primarily due to its portfolio of prime based commercial and consumer loans. With interest rates at comparatively low levels and a steep current yield curve, the Company generally is cautious toward the acquisition of new long term fixed rate assets in order to control equity at risk in a rising rate environment.

Liquidity and Cash Flows: The Bank’s primary uses of funds have been the origination of new loans and the repayment of short term borrowings. The primary sources of funds were deposit growth and the liquidation of securities available for sale. Due to the strong deposit growth in the most recent quarter, sources of funds exceeded uses of funds, and short term investments therefore increased. Borrowings and time deposits are the primary sources of liquidity for additional balance sheet growth. Short term investments, securities available for sale, and government guaranteed loan certificates provide additional sources of liquidity. The Company’s primary source of funds is dividends received from the Bank, and its primary use of funds is dividends paid to shareholders and to trust preferred security holders.

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Capital Resources: Shareholders’ equity was flat during the quarter, with the contribution from comprehensive income offset by dividends declared. Total equity measured 5.6% of assets at quarter-end, which was unchanged from a year ago and decreased from 5.7% at year-end 2001 due to the asset growth during the quarter. At quarter-end, both Alliance and Tolland Bank continued to be capitalized in accordance with the “well capitalized” regulatory classification. Return on shareholders’ equity measured 15.3% during the quarter; excluding accumulated other comprehensive loss, return on equity measured 13.8%.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the discussion and analysis of quantitative and qualitative disclosures about market risk provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 filed on March 6, 2002. See also the discussion of Interest Rate Sensitivity in Item 2 of this Form 10-Q.

PART II OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings other than ordinary routine litigation incidental to its business.
Item 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS None.
Item 3.	DEFAULTS UPON SENIOR SECURITIES None.
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	(a)	The Annual Meeting of Shareholders was held on March 27, 2002.
	(b)	Proposal I. The following current directors were re-elected to continue to serve for three-year terms and until their successors are elected and qualified: D. Anthony Guglielmo, Douglas J. Moser, Matthew L. Reiser and Joseph H. Rossi. Each of the persons nominated for director received at least 96.0% of the votes for his election, representing a majority of the total of 1,913,957 voted or withheld.
	(c)	Proposal II. A total of 1,810,316 shares were voted in favor of Proposal II regarding the adjournment of the Annual Meeting. 96,861 shares were voted against and 6,700 shares were abstained. Proposal II would have adjourned the meeting in the event that there were not sufficient votes to approve Proposal I, in order to permit further solicitation of proxies. Since Proposal I was approved, adjournment was not necessary.
Item 5.	OTHER INFORMATION None.
Item 6	EXHIBITS AND REPORTS ON FORM 8-K Reports on Form 8-K filed during the quarter ended March 31, 2002. On February 26, 2002, the Company filed a Form 8-K reporting, under Item 5, the resignation of William E. Dowty, Jr., one of the Company’s directors.

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

(dollars in thousands)	Average Balance				Rate (FTE Basis)
Quarters ended March 31	2002		2001		2002		2001
Residential mortgage loans	$	61,820	$	58,982	7.08	%	7.72	%
Commercial mortgage loans		87,721		64,543	7.95		8.52
Other commercial loans		38,827		50,927	6.96		9.40
Consumer loans		39,894		35,947	5.48		8.02
Government guaranteed loans		29,427		22,700	6.55		7.69
Total loans		257,689		233,099	7.09		8.35
Securities		94,080		85,545	6.90		7.81
Other earning assets		6,077		7,607	1.94		6.03
Total earning assets		357,846		326,251	6.92		8.16
Other assets		25,459		20,308
Total assets	$	383,305	$	346,559
NOW deposits	$	35,020	$	29,590	0.96	%	1.78	%
Money market deposits		42,139		39,967	2.26		4.36
Savings deposits		64,830		45,502	1.99		2.56
Time deposits		132,269		133,424	4.52		5.62
Total interest bearing deposits		274,258		248,483	3.12		4.40
Borrowings		50,839		45,651	6.08		6.17
Interest bearing liabilities		325,097		294,134	3.58		4.67
Other liabilities		35,674		34,165
Shareholders’ equity		22,534		18,260
Total liabilities and equity	$	383,305	$	346,559
Net Interest Spread					3.34	%	3.49	%
Net Interest Margin					3.67	%	3.95	%

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Signatures

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

		ALLIANCE BANCORP OF NEW ENGLAND, INC.
Date:	May 10, 2002	/s/ Joseph H. Rossi
		Joseph H. Rossi
		President/CEO
Date:	May 10, 2002	/s/ David H. Gonci
		David H. Gonci
		Senior Vice President/CFO

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