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UNITED STATES 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 June 30, 2003                          
|                                                                      
|or                                                                    
|                                                                      
|o                                                                      | 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 1-14671                                        
|                                                                      
|WORONOCO BANCORP, INC.                                                
|                                                                      
|(Exact name of registrant as specified in its charter)                



|Delaware                                                                           |  | 04-3444269                          
|---------------------------------------------------------------------------------- |  | ------------------------------------
|                                                                                   |  |                                     
|(State or other jurisdiction of incorporation or organization)                     |  | (I.R.S. Employer Identification No.)
|                                                                                   |  |                                     
|31 Court Street, Westfield, Massachusetts                                          |  | 01085                               
|                                                                                   |  |                                     
|(Address of principal executive offices)                                           |  | (Zip Code)                          
|                                                                                   |  |                                     
|(413) 568-9141                                                                    
|                                                                                  
|(Registrants telephone number, including area code)                              
|                                                                                  
|Not Applicable                                                                    
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)

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 o
|----- | ----

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|Yes x | No o
|----- | ----

The issuer had 3,611,602 shares of common stock, par value $0.01 per share, outstanding as of August 7, 2003.

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WORONOCO BANCORP, INC. FORM 10-Q

INDEX

|           |                                                                                                            | Page
|---------- | ---------------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                            |     
|PART I.    | FINANCIAL INFORMATION                                                                                      |     
|           |                                                                                                            |     
|Item 1.    | Financial Statements (unaudited)                                                                           |     
|           |                                                                                                            |     
|           | Consolidated Balance Sheets at June 30, 2003 and December 31, 2002.                                        | 1   
|           |                                                                                                            |     
|           | Consolidated Income Statements for the Three and Six Months Ended June 30, 2003 and 2002                   | 2   
|           |                                                                                                            |     
|           | Consolidated Statements of Changes in Stockholders Equity for the Six Months Ended June 30, 2003 and 2002 | 3   
|           |                                                                                                            |     
|           | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002                      | 4   
|           |                                                                                                            |     
|           | Notes to Unaudited Consolidated Financial Statements                                                       | 5   
|           |                                                                                                            |     
|Item 2.    | Managements Discussion and Analysis of Financial Condition and Results of Operations                      | 9   
|           |                                                                                                            |     
|Item 3.    | Quantitative and Qualitative Disclosures About Market Risk                                                 | 30  
|           |                                                                                                            |     
|Item 4.    | Controls and Procedures                                                                                    | 30  
|           |                                                                                                            |     
|PART II:   | OTHER INFORMATION                                                                                          |     
|           |                                                                                                            |     
|Item 1.    | Legal Proceedings                                                                                          | 31  
|Item 2.    | Changes in Securities and Use of Proceeds                                                                  | 31  
|Item 3.    | Defaults Upon Senior Securities                                                                            | 31  
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                        | 31  
|Item 5.    | Other Information                                                                                          | 31  
|Item 6.    | Exhibits and Reports on Form 8-K                                                                           | 32  
|           |                                                                                                            |     
|SIGNATURES | 33                                                                                                        



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PART I.  FINANCIAL INFORMATION

Item 1.     Financial Statements (unaudited)

WORONOCO BANCORP, INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Dollars In Thousands)

|                                                                                                                                                                                                                |  | Unaudited June 30, 2003 |         | December 31, 2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ----------------- | -
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Assets                                                                                                                                                                                                          |  |                         |         |                   |  
|Cash and due from banks                                                                                                                                                                                         |  | $                       | 19,832  |                   | $
|Interest-bearing balances                                                                                                                                                                                       |  |                         | 3,826   |                   |  
|Federal funds sold                                                                                                                                                                                              |  |                         | 7,785   |                   |  
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Total cash and cash equivalents                                                                                                                                                                                 |  |                         | 31,443  |                   |  
|Trading securities                                                                                                                                                                                              |  |                         | 7,221   |                   |  
|Securities available for sale, at fair value                                                                                                                                                                    |  |                         | 239,872 |                   |  
|Federal Home Loan Bank stock, at cost                                                                                                                                                                           |  |                         | 14,967  |                   |  
|Loans, net of allowance for loan losses ($3,221 at June 30, 2003 and $3,156 at December 31, 2002)                                                                                                               |  |                         | 479,850 |                   |  
|Premises and equipment, net                                                                                                                                                                                     |  |                         | 10,085  |                   |  
|Accrued interest receivable                                                                                                                                                                                     |  |                         | 3,238   |                   |  
|Goodwill and other intangible assets, net                                                                                                                                                                       |  |                         | 1,860   |                   |  
|Cash surrender value of life insurance                                                                                                                                                                          |  |                         | 2,632   |                   |  
|Other assets                                                                                                                                                                                                    |  |                         | 9,598   |                   |  
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Total assets                                                                                                                                                                                                    |  | $                       | 800,766 |                   | $
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Liabilities and Stockholders Equity                                                                                                                                                                            |  |                         |         |                   |  
|Deposits                                                                                                                                                                                                        |  | $                       | 415,155 |                   | $
|Mortgagors escrow accounts                                                                                                                                                                                     |  |                         | 1,466   |                   |  
|Short-term borrowings                                                                                                                                                                                           |  |                         | 72,912  |                   |  
|Long-term debt                                                                                                                                                                                                  |  |                         | 227,530 |                   |  
|Net deferred tax liability                                                                                                                                                                                      |  |                         | 738     |                   |  
|Accrued expenses and other liabilities                                                                                                                                                                          |  |                         | 5,353   |                   |  
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Total liabilities                                                                                                                                                                                               |  |                         | 723,154 |                   |  
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Commitments and contingencies                                                                                                                                                                                   |  |                         |         |                   |  
|Stockholders Equity:                                                                                                                                                                                           |  |                         |         |                   |  
|Preferred stock ($.01 par value; 2,000,000 shares authorized; no shares issued and outstanding)                                                                                                                 |  |                         |        |                   |  
|Common stock ($.01 par value; 16,000,000 shares authorized; shares issued: 5,998,860 at June 30, 2003 and December 31, 2002; shares outstanding:
3,605,885 at June 30, 2003 and 3,567,669 at December 31, 2002) |  |                         | 60      |                   |  
|Additional paid-in capital                                                                                                                                                                                      |  |                         | 59,405  |                   |  
|Unearned compensation                                                                                                                                                                                           |  |                         | (3,529  | )                 |  
|Retained earnings                                                                                                                                                                                               |  |                         | 46,758  |                   |  
|Accumulated other comprehensive income                                                                                                                                                                          |  |                         | 5,551   |                   |  
|Treasury stock, at cost (2,392,975 shares at June 30, 2003 and 2,431,191 shares at December 31, 2002)                                                                                                           |  |                         | (30,633 | )                 |  
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Total stockholders equity                                                                                                                                                                                      |  |                         | 77,612  |                   |  
|                                                                                                                                                                                                                |  |                         |         |                   |  
|Total liabilities and stockholders equity                                                                                                                                                                      |  | $                       | 800,766 |                   | $
|                                                                                                                                                                                                                |  |                         |         |                   |  

See accompanying notes to unaudited consolidated financial statements

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WORONOCO BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENTS (In Thousands Except Per Share Amounts)

|                                                                                       |  | Unaudited Three Months Ended June 30, |           | Unaudited Six Months Ended June 30, |  
|-------------------------------------------------------------------------------------- |  | ------------------------------------- | --------- | ----------------------------------- | -
|                                                                                       |  |                                       |           |                                     |  
|                                                                                       |  | 2003                                  |           | 2002                                |  
|                                                                                       |  |                                       |           |                                     |  
|Interest and dividend income:                                                          |  |                                       |           |                                     |  
|Loans, including fees                                                                  |  | $                                     | 7,229     |                                     | $
|Interest and dividends on securities:                                                  |  |                                       |           |                                     |  
|Taxable interest                                                                       |  |                                       | 1,659     |                                     |  
|Tax exempt interest                                                                    |  |                                       | 241       |                                     |  
|Dividends                                                                              |  |                                       | 427       |                                     |  
|Trading account securities                                                             |  |                                       | 143       |                                     |  
|Federal funds sold                                                                     |  |                                       | 20        |                                     |  
|Other                                                                                  |  |                                       | 5         |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Total interest and dividend income                                                     |  |                                       | 9,724     |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Interest expense:                                                                      |  |                                       |           |                                     |  
|Deposits                                                                               |  |                                       | 1,794     |                                     |  
|Borrowings                                                                             |  |                                       | 3,117     |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Total interest expense                                                                 |  |                                       | 4,911     |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Net interest income                                                                    |  |                                       | 4,813     |                                     |  
|Provision for loan losses                                                              |  |                                       | 76        |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Net interest income, after provision for loan losses                                   |  |                                       | 4,737     |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Non-interest income:                                                                   |  |                                       |           |                                     |  
|Fee income                                                                             |  |                                       | 793       |                                     |  
|Insurance commissions                                                                  |  |                                       | 292       |                                     |  
|Gain (loss) on sales, disposition and impairment of securities available for sale, net |  |                                       | 11        |                                     |  
|Net gain on trading account securities                                                 |  |                                       | 1,194     |                                     |  
|Gain on sales of loans, net                                                            |  |                                       | 382       |                                     |  
|Gain on sale of supermarket branch                                                     |  |                                       |          |                                     |  
|Penalty for prepayment of FHLB advances                                                |  |                                       |          |                                     |  
|(Loss) gain on derivative instruments and hedging activities                           |  |                                       | (5        | )                                   |  
|Other income                                                                           |  |                                       | 13        |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Total non-interest income                                                              |  |                                       | 2,680     |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Non-interest expenses:                                                                 |  |                                       |           |                                     |  
|Salaries and employee benefits                                                         |  |                                       | 2,449     |                                     |  
|Occupancy and equipment                                                                |  |                                       | 473       |                                     |  
|Marketing                                                                              |  |                                       | 220       |                                     |  
|Professional services                                                                  |  |                                       | 370       |                                     |  
|Data processing                                                                        |  |                                       | 259       |                                     |  
|Other general and administrative                                                       |  |                                       | 662       |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Total non-interest expenses                                                            |  |                                       | 4,433     |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Income before income tax expense                                                       |  |                                       | 2,984     |                                     |  
|Income tax expense                                                                     |  |                                       | 866       |                                     |  
|                                                                                       |  |                                       |           |                                     |  
|Net income                                                                             |  | $                                     | 2,118     |                                     | $
|                                                                                       |  |                                       |           |                                     |  
|Earnings per share:                                                                    |  |                                       |           |                                     |  
|Basic                                                                                  |  | $                                     | 0.64      |                                     | $
|Diluted                                                                                |  | $                                     | 0.59      |                                     | $
|Weighted average shares outstanding:                                                   |  |                                       |           |                                     |  
|Basic                                                                                  |  |                                       | 3,318,293 |                                     |  
|Diluted                                                                                |  |                                       | 3,565,859 |                                     |  

See accompanying notes to unaudited consolidated financial statements

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WORONOCO BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Six Months Ended June 30, 2003 and 2002 (Dollars In Thousands) (Unaudited)

|                                                                                                                   |  | Common Stock |    | Additional Paid-in Capital |   | Unearned Compensation |  | Retained Earnings |        | Accumulated Other Comprehensive Income |   | Treasury Stock |   | Total |      
|------------------------------------------------------------------------------------------------------------------ |  | ------------ | -- | -------------------------- | - | --------------------- |  | ----------------- | ------ | -------------------------------------- | - | -------------- | - | ----- | -----
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Balance at December 31, 2002                                                                                       |  | $            | 60 |                            | $ | 59,020                |  | $                 | (3,951 | )                                      | $ | 44,641         |   | $     | 5,222
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Comprehensive income:                                                                                              |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Net income                                                                                                         |  |              |   |                            |   |                      |  |                   |       |                                        |   | 3,400          |   |       |     
|Change in net unrealized gain on securities available for sale, net of reclassification adjustment and tax effects |  |              |   |                            |   |                      |  |                   |       |                                        |   |               |   |       | 314  
|Net gain on derivative instruments                                                                                 |  |              |   |                            |   |                      |  |                   |       |                                        |   |               |   |       | 15   
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Total comprehensive income                                                                                         |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Decrease in unearned compensation                                                                                  |  |              |   |                            |   | 303                   |  |                   | 422    |                                        |   |               |   |       |     
|Adjustment for tax benefit related to vesting of stock awards and stock option exercises                           |  |              |   |                            |   | 82                    |  |                   |       |                                        |   |               |   |       |     
|Treasury stock reissued in connection with stock option exercises (94,207 shares)                                  |  |              |   |                            |   |                      |  |                   |       |                                        |   | (276           | ) |       |     
|Cash dividends paid                                                                                                |  |              |   |                            |   |                      |  |                   |       |                                        |   | (1,007         | ) |       |     
|Treasury stock purchased (55,991 shares)                                                                           |  |              |   |                            |   |                      |  |                   |       |                                        |   |               |   |       |     
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Balance at June 30, 2003                                                                                           |  | $            | 60 |                            | $ | 59,405                |  | $                 | (3,529 | )                                      | $ | 46,758         |   | $     | 5,551
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Balance at December 31, 2001                                                                                       |  | $            | 60 |                            | $ | 58,294                |  | $                 | (4,834 | )                                      | $ | 41,439         |   | $     | 1,497
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Comprehensive income:                                                                                              |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Net income                                                                                                         |  |              |   |                            |   |                      |  |                   |       |                                        |   | 2,543          |   |       |     
|Change in net unrealized gain on securities available for sale, net of reclassification adjustment and tax effects |  |              |   |                            |   |                      |  |                   |       |                                        |   |               |   |       | 1,369
|Net gain on derivative instruments                                                                                 |  |              |   |                            |   |                      |  |                   |       |                                        |   |               |   |       | 74   
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Total comprehensive income                                                                                         |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Decrease in unearned compensation                                                                                  |  |              |   |                            |   | 198                   |  |                   | 444    |                                        |   |               |   |       |     
|Adjustment for tax benefit related to vesting of stock awards and stock option exercises                           |  |              |   |                            |   | 10                    |  |                   |       |                                        |   |               |   |       |     
|Treasury stock reissued in connection with stock option exercises (10,393 shares)                                  |  |              |   |                            |   |                      |  |                   |       |                                        |   | (17            | ) |       |     
|Cash dividends paid                                                                                                |  |              |   |                            |   |                      |  |                   |       |                                        |   | (757           | ) |       |     
|Treasury stock purchased (39,300 shares)                                                                           |  |              |   |                            |   |                      |  |                   |       |                                        |   |               |   |       |     
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      
|Balance at June 30, 2002                                                                                           |  | $            | 60 |                            | $ | 58,502                |  | $                 | (4,390 | )                                      | $ | 43,208         |   | $     | 2,940
|                                                                                                                   |  |              |    |                            |   |                       |  |                   |        |                                        |   |                |   |       |      

See accompanying notes to unaudited consolidated financial statements

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WORONOCO BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                            |  | Six Months Ended June 30, |         
|------------------------------------------------------------------------------------------- |  | ------------------------- | --------
|                                                                                            |  |                           |         
|                                                                                            |  | 2003                      |         
|                                                                                            |  |                           |         
|                                                                                            |  | (In thousands)            |         
|Cash flows from operating activities:                                                       |  |                           |         
|Net income                                                                                  |  | $                         | 3,400   
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                           |         
|Provision for loan losses                                                                   |  |                           | 76      
|Net amortization of investments                                                             |  |                           | 330     
|Depreciation and amortization                                                               |  |                           | 475     
|Amortization of goodwill and other intangible assets                                        |  |                           | 29      
|Amortization of mortgage servicing rights                                                   |  |                           | 91      
|Employee stock ownership plan expense                                                       |  |                           | 478     
|Stock-based incentive plan expense                                                          |  |                           | 247     
|Gain on sales, disposition and impairment of available-for-sale securities, net             |  |                           | (415    
|Net decrease in trading account securities                                                  |  |                           | 9,693   
|Net gain on trading activities                                                              |  |                           | (630    
|Gain on sales of loans, net                                                                 |  |                           | (785    
|Gain on sale of supermarket branch, net of expenses                                         |  |                           | (183    
|Changes in operating assets and liabilities:                                                |  |                           |         
|Accrued interest receivable                                                                 |  |                           | 147     
|Accrued expenses and other liabilities                                                      |  |                           | 336     
|Other, net                                                                                  |  |                           | (995    
|                                                                                            |  |                           |         
|Net cash provided by (used in) operating activities                                         |  |                           | 12,294  
|                                                                                            |  |                           |         
|Cash flows from investing activities:                                                       |  |                           |         
|Proceeds from sales of securities available for sale                                        |  |                           | 20,110  
|Purchases of securities available for sale                                                  |  |                           | (133,690
|Principal payments on mortgage-backed securities                                            |  |                           | 29,506  
|Purchases of Federal Home Loan Bank stock                                                   |  |                           | (1,172  
|Loans originations/purchases and principal collections, net                                 |  |                           | (31,362 
|Proceeds from sale of loans                                                                 |  |                           | 22,237  
|Additions to premises and equipment                                                         |  |                           | (306    
|Proceeds from sales of premises and equipment, net                                          |  |                           | 100     
|Proceeds from sales of foreclosed real estate                                               |  |                           |        
|Contributions to Rabbi Trust                                                                |  |                           | (4,494  
|                                                                                            |  |                           |         
|Net cash used in investing activities                                                       |  |                           | (99,071 
|                                                                                            |  |                           |         
|Cash flows from financing activities:                                                       |  |                           |         
|Net increase in deposits, excluding deposits sold                                           |  |                           | 48,761  
|Sale of supermarket branch deposits, net of premium and expenses                            |  |                           | (4,084  
|Net increase (decrease) in short-term borrowings                                            |  |                           | 16,677  
|Proceeds from issuance of long-term debt                                                    |  |                           | 45,000  
|Repayments of long-term debt                                                                |  |                           | (14,470 
|Net decrease in mortgagors' escrow accounts                                                 |  |                           | (131    
|Cash dividends paid                                                                         |  |                           | (1,007  
|Treasury stock purchased                                                                    |  |                           | (1,244  
|Reissuance of treasury stock in connection with stock option exercises                      |  |                           | 917     
|                                                                                            |  |                           |         
|Net cash provided by financing activities                                                   |  |                           | 90,419  
|                                                                                            |  |                           |         
|Net increase in cash and cash equivalents                                                   |  |                           | 3,642   
|Cash and cash equivalents at beginning of period                                            |  |                           | 27,801  
|                                                                                            |  |                           |         
|Cash and cash equivalents at end of period                                                  |  | $                         | 31,443  
|                                                                                            |  |                           |         
|Supplemental cash flow information:                                                         |  |                           |         
|Interest paid on deposits                                                                   |  | $                         | 3,870   
|Interest paid on borrowings                                                                 |  |                           | 6,225   
|Income taxes paid                                                                           |  |                           | 2,081   
|Transfer from loans to other real estate owned                                              |  |                           |        

See accompanying notes to unaudited consolidated financial statements

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WORONOCO BANCORP, INC. AND SUBSIDIARIESNotes to Unaudited Consolidated Financial StatementsAt and for the Three and Six Months Ended June 30, 2003

1.     Unaudited
Consolidated Financial StatementsThe Consolidated Financial Statements of Woronoco Bancorp, Inc. and its subsidiaries (the Company) included herein are unaudited.  In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of the financial condition, results of operations and cash flows, as of and for the periods covered herein, have been made.  Certain information and note disclosures
normally included in the Consolidated Financial Statements have been omitted as they are included in the most recent Securities and Exchange Commission Form 10-K and accompanying Notes to the Consolidated Financial Statements (the Form
10-K) filed by the Company for the year ended December 31, 2002.  Management believes that the disclosures contained herein are adequate to make a fair presentation.

These consolidated
financial statements should be read in conjunction with the Form 10-K.

The results for the three- and six-month interim periods covered hereby are not necessarily indicative of the operating
results for a full year.

2.     Recent Accounting PronouncementsOn January 1, 2003, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires recognition of a liability, when incurred, for a cost associated with an exit or disposal activity. The liability shall be
recognized at fair value.  The adoption of this Statement did not have a material impact on the consolidated financial statements.

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3.     Earnings Per ShareBasic earnings per share represents net income divided by the weighted-average number of common shares
outstanding during the period.  Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued.  Potential common shares that may be issued by the Company
relate to outstanding stock options, and are determined using the treasury stock method.

Earnings per common share for the three and six months ended June 30, 2003 and 2002 have been computed
based upon the following (dollars in thousands except per share amounts):

|                                                                                         |  | Unaudited Three Months Ended June 30, |           | Unaudited Six Months Ended June 30, |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------- | --------- | ----------------------------------- | -
|                                                                                         |  |                                       |           |                                     |  
|                                                                                         |  | 2003                                  |           | 2002                                |  
|                                                                                         |  |                                       |           |                                     |  
|Net income                                                                               |  | $                                     | 2,118     |                                     | $
|                                                                                         |  |                                       |           |                                     |  
|Average number of common shares outstanding                                              |  |                                       | 3,318,293 |                                     |  
|Effect of dilutive stock options                                                         |  |                                       | 247,566   |                                     |  
|                                                                                         |  |                                       |           |                                     |  
|Average number of common shares outstanding used to calculate diluted earnings per share |  |                                       | 3,565,859 |                                     |  
|                                                                                         |  |                                       |           |                                     |  
|Net income per share:                                                                    |  |                                       |           |                                     |  
|Basic                                                                                    |  | $                                     | 0.64      |                                     | $
|Diluted                                                                                  |  | $                                     | 0.59      |                                     | $

For the three and six months ended June 30, 2003, there were no options granted which were anti-dilutive
and therefore not included in the earnings per share calculation.

4.     Stock compensation plansSFAS No. 123, Accounting for Stock-Based
Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period.  However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock.  Stock options issued under the Companys stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them.

The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share, as if the fair value based method
of accounting had been applied.

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##### Table of Contents

The following table illustrates the effect on net income and earnings per share if the Company has applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation.

|                                                                                                                                             |  | Three Months Ended June 30,             |           | Six Months Ended June 30, |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | --------- | ------------------------- | -
|                                                                                                                                             |  |                                         |           |                           |  
|                                                                                                                                             |  | 2003                                    |           | 2002                      |  
|                                                                                                                                             |  |                                         |           |                           |  
|                                                                                                                                             |  | (In Thousands Except Per Share Amounts) |          
|Net income, as reported                                                                                                                      |  | $                                       | 2,118     |                           | $
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all options, net of related tax
effects |  |                                         | (188      | )                         |  
|                                                                                                                                             |  |                                         |           |                           |  
|Pro forma net income                                                                                                                         |  | $                                       | 1,930     |                           | $
|                                                                                                                                             |  |                                         |           |                           |  
|Earnings per share:                                                                                                                          |  |                                         |           |                           |  
|Basic-as reported                                                                                                                            |  | $                                       | 0.64      |                           | $
|                                                                                                                                             |  |                                         |           |                           |  
|Basic-pro forma                                                                                                                              |  | $                                       | 0.58      |                           | $
|                                                                                                                                             |  |                                         |           |                           |  
|Diluted-as reported                                                                                                                          |  | $                                       | 0.59      |                           | $
|                                                                                                                                             |  |                                         |           |                           |  
|Diluted-pro forma                                                                                                                            |  | $                                       | 0.54      |                           | $
|                                                                                                                                             |  |                                         |           |                           |  
|Basic shares outstanding                                                                                                                     |  |                                         | 3,318,293 |                           |  
|Diluted shares outstanding                                                                                                                   |  |                                         | 3,565,859 |                           |  

5.     DividendsOn July 16, 2003, the Company declared a cash
dividend of $0.17 per share payable on August 28, 2003 to shareholders of record as of the close of business on August 7, 2003.

6.     Loan commitmentsOutstanding loan commitments totaled $27.2 million at June 30, 2003 compared to $15.8 million at December 31, 2002.  At June 30, 2003 and December 31, 2002, the Company had no commitments to purchase loans.

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##### Table of Contents

7.     Segment reportingInformation about reportable segments, and reconciliation of such information to the consolidated financial
statements as of and for the six months ended June 30, follows:

|                                    |  | Banking        |         | Insurance |   | Intersegment Elimination |   | Consolidated Totals |     
|----------------------------------- |  | -------------- | ------- | --------- | - | ------------------------ | - | ------------------- | ----
|                                    |  |                |         |           |   |                          |   |                     |     
|                                    |  | (In Thousands) |        
|2003                                |  |                |         |           |   |                          |   |                     |     
|Net interest income                 |  | $              | 10,102  |           | $ |                         |   | $                   |    
|Other revenue - external customers  |  |                | 1,548   |           |   | 655                      |   |                     |    
|Other revenue - from other segments |  |                |        |           |   | 3                        |   |                     | (3  
|Depreciation and amortization       |  |                | 459     |           |   | 16                       |   |                     |    
|Provision for loan losses           |  |                | 76      |           |   |                         |   |                     |    
|Profit                              |  |                | 3,325   |           |   | 75                       |   |                     |    
|Assets                              |  |                | 798,794 |           |   | 2,412                    |   |                     | (440
|2002                                |  |                |         |           |   |                          |   |                     |     
|Net interest income                 |  | $              | 10,269  |           | $ |                         |   | $                   |    
|Other revenue - external customers  |  |                | 1,189   |           |   | 293                      |   |                     |    
|Other revenue - from other segments |  |                |        |           |   | 3                        |   |                     | (3  
|Depreciation and amortization       |  |                | 531     |           |   | 15                       |   |                     |    
|Provision for loan losses           |  |                | 352     |           |   |                         |   |                     |    
|Profit (loss)                       |  |                | 2,662   |           |   | (119                     | ) |                     |    
|Assets                              |  |                | 707,987 |           |   | 2,363                    |   |                     | (235

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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

The following
analysis discusses changes in the financial condition and results of operations of the Company at and for the three and six months ended June 30, 2003 and 2002, and should be read in conjunction with the Companys Unaudited Consolidated
Financial Statements and the notes thereto, appearing in Part I, Item 1 of this document.

Forward-Looking Statements

This Form 10-Q
contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identified by use of the words believe, expect, intend, anticipate,
estimate, project or similar expressions. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the
operations of the Company include, but are not limited to: changes in interest rates, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Companys market area and accounting principles and
guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

The Company does not undertake
 and specifically disclaims any obligation  to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.

9



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##### Table of Contents

Comparison of Financial Condition at June 30, 2003 and December 31, 2002

The Companys assets expanded $95.2
million, or 13.5%, to $800.8 million at June 30, 2003 as compared to $705.6 million at December 31, 2002, largely due to purchases of mortgage-backed securities totaling $133.7 million, an increase of $9.6 million in net loans and contributions of
$4.5 million to a Rabbi Trust established in connection with the Companys Senior Executive Retirement Plans.  These items were partially offset by mortgage-backed securities principal payments amounting to $29.5 million and sales of
available-for-sale and trading account securities aggregating $19.7 million and $9.3 million, respectively.

The balance sheet expansion was funded primarily by increases in deposits, short-term
borrowings and long-term debt.  Deposits grew $44.5 million, or 12.0%, to $415.2 million at June 30, 2003 from $370.7 million at December 31, 2002 as a result of an increase in core deposits and the net issuance of approximately $9.5 million of
additional brokered deposits. These increases were partially offset by the sale of approximately $4.3 million of deposits in conjunction with the sale of a supermarket branch.  Short-term borrowings increased $16.7 million, or 29.7%, to $72.9
million at June 30, 2003 to fund the security purchases.  Long-term debt expanded $30.5 million, or 15.5%, to $227.5 million at June 30, 2003 to fund purchases of investment securities.

Total
stockholders equity was $77.6 million at June 30, 2003, an increase of $3.2 million, or 4.3%, compared to $74.4 million at December 31, 2002, primarily due to net income of $3.4 million, $917,000 of treasury stock reissuances in connection
with the exercise of stock options and a reduction of $725,000 in unearned compensation, partially offset by cash dividends of $1.0 million and the repurchase of 55,991 shares of stock at a cost of $1.2 million.

10



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##### Table of Contents

InvestmentsAt June 30, 2003, the Companys trading account portfolio totaled $7.2 million, or 0.9% of assets, and the available-for-sale portfolio amounted to
$239.9 million, or 30.0% of assets.  The following table sets forth information regarding the amortized cost and market values of the Companys investment securities.

|                                        |  | June 30, 2003  |         | December 31, 2002 |  
|--------------------------------------- |  | -------------- | ------- | ----------------- | -
|                                        |  |                |         |                   |  
|                                        |  | Amortized Cost |         | Fair Value        |  
|                                        |  |                |         |                   |  
|                                        |  | (In Thousands) |        
|Trading account securities:             |  |                |         |                   |  
|Preferred stocks                        |  | $              | 3,749   |                   | $
|Common stocks                           |  |                | 3,472   |                   |  
|                                        |  |                |         |                   |  
|Total trading account securities        |  | $              | 7,221   |                   | $
|                                        |  |                |         |                   |  
|Available-for-sale securities:          |  |                |         |                   |  
|Equity securities:                      |  |                |         |                   |  
|Common stocks                           |  | $              | 115     |                   | $
|                                        |  |                |         |                   |  
|Total equity securities                 |  |                | 115     |                   |  
|                                        |  |                |         |                   |  
|Debt securities:                        |  |                |         |                   |  
|Mortgage-backed:                        |  |                |         |                   |  
|Freddie Mac                             |  |                | 64,665  |                   |  
|Fannie Mae                              |  |                | 106,066 |                   |  
|Ginnie Mae                              |  |                | 12,630  |                   |  
|REMIC                                   |  |                | 719     |                   |  
|                                        |  |                |         |                   |  
|Total mortgage-backed securities        |  |                | 184,080 |                   |  
|                                        |  |                |         |                   |  
|Other:                                  |  |                |         |                   |  
|U.S. Agencies                           |  |                | 10,096  |                   |  
|Municipal bonds                         |  |                | 21,449  |                   |  
|Trust preferred                         |  |                | 15,727  |                   |  
|                                        |  |                |         |                   |  
|Total other debt securities             |  |                | 47,272  |                   |  
|                                        |  |                |         |                   |  
|Total debt securities                   |  |                | 231,352 |                   |  
|                                        |  |                |         |                   |  
|Total available-for-sale securities (1) |  | $              | 231,467 |                   | $
|                                        |  |                |         |                   |  

|(1) | Does not include $15.0 million and $13.8 million of FHLB stock held by the Company at June 30, 2003 and December 31, 2002, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

Trading account portfolio balances declined $9.1 million, or 55.7%, to $7.2 million at June 30, 2003 from $16.3 million at December 31, 2002.  During the first six months of 2003, the Company sold equity
securities in conjunction with its strategy to significantly reduce the equity portfolio when conditions are favorable.

Securities available-for-sale increased $84.6 million, or 54.5%, to $239.9
million at June 30, 2003 primarily due to purchases of mortgage-backed securities totaling $133.7 million, partially offset by mortgage-backed security principal payments amounting to $29.5 million and sales of agency and trust preferred securities
aggregating $15.6 million and $4.1 million, respectively.  The Company purchased mortgage-backed securities in response to and in anticipation of accelerated cash flows from existing securities.  Management believes these securities will
enhance net interest income as a result of positive interest rate spreads and improve liquidity as these securities can be used as collateral for certain borrowings.  These securities also offer minimal extension risk and reasonable call
protection.  The proceeds from the sale of agency and trust preferred securities were used to pay down certain FHLB advances in an effort to improve net interest income.

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##### Table of Contents

Lending ActivitiesAt June 30, 2003, the Companys net loan portfolio was $479.9 million, or 59.9% of total assets. The following table sets forth the
composition of the Companys loan portfolio in dollar amounts and as a percentage of the respective portfolio.

|                                |  | June 30, 2003          |         | December 31, 2002 | 
|------------------------------- |  | ---------------------- | ------- | ----------------- | 
|                                |  |                        |         |                   | 
|                                |  | Amount                 |         | Percent of Total  | 
|                                |  |                        |         |                   | 
|                                |  | (Dollars In Thousands) |        
|Real estate loans               |  |                        |         |                   | 
|One- to four-family             |  | $                      | 273,164 |                   | 
|Multi-family                    |  |                        | 35,148  |                   | 
|Commercial                      |  |                        | 64,612  |                   | 
|Construction and development    |  |                        | 13,109  |                   | 
|                                |  |                        |         |                   | 
|Total real estate loans         |  |                        | 386,033 |                   | 
|                                |  |                        |         |                   | 
|Consumer loans                  |  |                        |         |                   | 
|Home equity loans               |  |                        | 80,991  |                   | 
|Automobile                      |  |                        | 7,403   |                   | 
|Other                           |  |                        | 2,407   |                   | 
|                                |  |                        |         |                   | 
|Total consumer loans            |  |                        | 90,801  |                   | 
|                                |  |                        |         |                   | 
|Commercial loans                |  |                        | 13,170  |                   | 
|                                |  |                        |         |                   | 
|Total loans                     |  |                        | 490,004 |                   | 
|                                |  |                        |         |                   | 
|Less:                           |  |                        |         |                   | 
|Unadvanced loan funds (1)       |  |                        | (7,712  | )                 | 
|Deferred loan origination costs |  |                        | 779     |                   | 
|Allowance for loan losses       |  |                        | (3,221  | )                 | 
|                                |  |                        |         |                   | 
|Net loans                       |  | $                      | 479,850 |                   | 
|                                |  |                        |         |                   | 

(1) Includes committed but unadvanced loan amounts.

The Companys net loan portfolio grew $9.6 million, or 2.0%, during the first six months of 2003 largely attributable to origination volume totaling $95.7 million and the purchase of $11.0 million in one- to-four family
adjustable-rate mortgages, partially offset by prepayments and amortization of the existing portfolio and the sale of $21.7 million of longer-term fixed rate one-to four-family residential loans.  The continued strength in the Companys
level of loan closings was due to several factors including promotional and sales activities, a strong housing market, a favorable interest rate environment and a stable local economy.  The loan sales should help reduce the Companys
exposure to interest rate risk while improving liquidity.  The Company will continue to evaluate the sale of additional longer-term, lower coupon, fixed rate mortgages during the remainder of 2003.

12



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##### Table of Contents

Non-performing AssetsThe following table sets forth information regarding nonaccrual loans, real estate owned and restructured loans.

|                                                                                                  |  | June 30, 2003          |      | December 31, 2002 |  
|------------------------------------------------------------------------------------------------- |  | ---------------------- | ---- | ----------------- | -
|                                                                                                  |  |                        |      |                   |  
|                                                                                                  |  | (Dollars in Thousands) |     
|Nonaccruing loans:                                                                                |  |                        |      |                   |  
|One- to four- family real estate                                                                  |  | $                      | 676  |                   | $
|Home equity loans                                                                                 |  |                        | 51   |                   |  
|Other consumer                                                                                    |  |                        |     |                   |  
|                                                                                                  |  |                        |      |                   |  
|Total                                                                                             |  |                        | 727  |                   |  
|Real estate owned, net (1)                                                                        |  |                        |     |                   |  
|                                                                                                  |  |                        |      |                   |  
|Total nonperforming assets                                                                        |  |                        | 727  |                   |  
|Troubled debt restructurings                                                                      |  |                        |     |                   |  
|                                                                                                  |  |                        |      |                   |  
|Troubled debt restructurings and total nonperforming assets                                       |  | $                      | 727  |                   | $
|                                                                                                  |  |                        |      |                   |  
|Total nonperforming loans and troubled debt restructurings as a percentage of total loans (2) (3) |  |                        | 0.15 | %                 |  
|Total nonperforming assets and troubled debt restructurings as a percentage of total assets (3)   |  |                        | 0.09 | %                 |  

|(1) | Real estate owned balances are shown net of related loss allowances.                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Total loans includes loans, less unadvanced loan funds, plus net deferred loan costs.                                                                                                                             
|(3) | Nonperforming assets consist of nonperforming loans and real estate owned, net.                                                                                                                                   
|    | Nonperforming loans consist of all loans 90 days or more past due and other loans which have been identified by the Company as presenting uncertainty with respect to the collectibility of
interest or principal.

The Company experienced a decrease of $358,000 in one- to four- family residential real estate non-accrual loans during the six months ended June 30,
2003 from December 31, 2002 as several loans were paid in full or became current.

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##### Table of Contents

Allowance for Loan Losses

Management prepares a loan loss sufficiency analysis on a quarterly basis based upon the
loan portfolio composition, asset classifications, loan-to-value ratios of the loans in portfolio, impairments in the loan portfolio, historical loan loss experience and other relevant factors.  This analysis is compared to actual losses, peer
group data and economic trends and conditions. The allowance for loan losses is maintained through the provision for loan losses, which is charged to operations.

The allowance for loan losses is
maintained at an amount that management considers adequate to cover estimated losses in the loan portfolio based on managements on-going evaluation of the risks inherent in the loan portfolio, consideration of local and regional trends in
delinquency and impaired loans, the amount of charge-offs and recoveries, the volume of loans, changes in risk selection, credit concentrations, national and regional economies and the real estate market in the Companys primary lending
area.  Management believes that the current allowance for loan losses accurately reflects the level of risk in the current loan portfolio.  The Companys loan loss allowance determinations also incorporate factors and analyses which
consider the principal loss associated with the loan. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The loan loss allowance consists of a specific allowance for identified problem and impaired loans and a general allowance for current performing loans.  All loans are considered in the evaluation, whether on an
individual or group basis. Changes in the balances of problem and impaired loans affect the specific reserve, while changes in volume and concentrations of current performing loans affect the general reserve and the allocation of the allowance of
the loan losses among loan types.

The specific allowance incorporates the results of measuring impairment for specifically identified non-homogeneous problem loans.  In accordance with SFAS
No. 114, the specific allowance reduces the carrying amount of the impaired loans to their estimated fair value.  A loan is recognized as impaired when, based on current information and events, it is probable that the Company will be unable to
collect all interest and principal payments due according to the contractual terms of the loan agreement.  A loan is not deemed to be impaired if there is a short delay in receipt of payment or if, during a longer period of delay, the Company
expects to collect all amounts due including interest accrued at the contractual rate during the period of delay. Impairment can be measured based on present value of the expected future principal and interest cash flows discounted at the
loans effective interest rate or the Company may measure impairment based on a loans observable market price or the fair market value of the collateral, if the loan is collateral dependent.  Larger groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment, such as residential real estate mortgages, home equity loans and consumer and installment loans, are not included within the scope of SFAS No. 114.

The general allowance is calculated by applying reserve percentages to outstanding loans by type, excluding loans for which a specific allowance has been determined.  As part of this analysis, each quarter management
prepares an allowance for loan losses summary worksheet in which the loan portfolio is categorized by risk characteristics such as loan type and loan grade.  Changes in the mix of loans and the internal loan grades affect the amount of the
general allowance. Reserve percentages are assigned to each category based on the Companys assessment of each categorys inherent risk.  In determining the reserve percentages to apply to each loan category, management considers
historical losses, peer group comparisons, industry data and loss percentages used by banking regulators for similarly graded loans. Reserve percentages may be adjusted for qualitative factors that, in managements judgement, affect the
collectibility of the portfolio as of the evaluation date.

Performing loan loss reserve percentages are based on actual losses for the previous three years adjusted for qualitative factors, such
as new loan products, credit quality trends (including trends in non-performing loans expected to result from existing conditions), collateral values, loan volumes and concentrations and specific industry conditions within portfolio segments that
exist at the balance sheet date.  The reserve percentages are applied to outstanding loans by loan type.

14



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##### Table of Contents

The Companys methodologies include several factors that are intended to reduce the difference between estimated and actual losses. The reserve percentages that are used
to establish the allowance for current performing loans are designed to be self-correcting by taking into account changes in loan classification, loan concentrations and loan volumes and by permitting adjustments based on managements
judgements of qualitative factors as of the evaluation date.  Similarly, by basing the current performing loan reserve percentages on loss experience over the prior three years, the methodology is designed to take the Companys recent loss
experience into account.

The Companys allowance methodology has been applied on a consistent basis.  Based on this methodology, it believes that it has established and maintained the
allowance for loan losses at adequate levels. However, future adjustments to the allowance for loan losses may be necessary if economic, real estate, loan growth and portfolio diversification and other conditions differ substantially from the
current operating environment, resulting in estimated and actual losses differing substantially.

The Company determines the classification of its assets and the amount of its valuation
allowances.  These determinations can be reviewed by the Federal Deposit Insurance Corporation (FDIC) and the Commissioner of Banks for the Massachusetts Department of Banking, which can order the establishment of additional
specific or general loss allowances.  The FDIC, in conjunction with the other federal banking agencies, maintains an interagency policy statement on the allowance for loan and lease losses.  The policy statement provides guidance for
financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. 
Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management has analyzed all significant factors that affect the collectibility of the
portfolio in a reasonable manner; and that management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement.  While the Company believes that it has established an adequate
allowance for loan losses, there can be no assurance that regulators, in reviewing the Companys loan portfolio, will not request the Company to materially increase its allowance for loan losses, thereby negatively affecting the Companys
financial condition and earnings.

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##### Table of Contents

The following table sets forth activity in the allowance for loan losses for the periods set forth.

|                                                                                      |  | At or for the Six Months Ended June 30, |       
|------------------------------------------------------------------------------------- |  | --------------------------------------- | ------
|                                                                                      |  |                                         |       
|                                                                                      |  | 2003                                    |       
|                                                                                      |  |                                         |       
|                                                                                      |  | (Dollars in Thousands)                  |       
|Allowance for loan losses, beginning of period                                        |  | $                                       | 3,156 
|Charged-off loans:                                                                    |  |                                         |       
|Real estate                                                                           |  |                                         | 6     
|Consumer                                                                              |  |                                         | 59    
|                                                                                      |  |                                         |       
|Total charged-off loans                                                               |  |                                         | 65    
|                                                                                      |  |                                         |       
|Recoveries on loans previously charged-off:                                           |  |                                         |       
|Real estate                                                                           |  |                                         | 17    
|Commercial                                                                            |  |                                         | 6     
|Consumer                                                                              |  |                                         | 31    
|                                                                                      |  |                                         |       
|Total recoveries                                                                      |  |                                         | 54    
|                                                                                      |  |                                         |       
|Net loans charged-off                                                                 |  |                                         | 11    
|Provision for loan losses                                                             |  |                                         | 76    
|                                                                                      |  |                                         |       
|Allowance for loan losses, end of period                                              |  | $                                       | 3,221 
|                                                                                      |  |                                         |       
|Net loans charged-off to average loans, net                                           |  |                                         | 0.00  
|Allowance for loan losses to total loans (1)                                          |  |                                         | 0.67  
|Allowance for loan losses to nonperforming loans and troubled debt restructurings (2) |  |                                         | 443.05
|Net loans charged-off to allowance for loan losses                                    |  |                                         | 0.68  
|Recoveries to charge-offs                                                             |  |                                         | 83.08 

|(1) | Total loans includes loans, less unadvanced loan funds, plus net deferred loan costs.                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Nonperforming loans consist of all loans 90 days or more past due and other loans which have been identified by the Company as presenting uncertainty with respect to the collectibility of
interest or principal.

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##### Table of Contents

DepositsThe following table sets forth the distribution of deposit accounts for the periods indicated.

|                        |  | June 30, 2003          |         | December 31, 2002         | 
|----------------------- |  | ---------------------- | ------- | ------------------------- | 
|                        |  |                        |         |                           | 
|                        |  | Balance                |         | Percent of Total Deposits | 
|                        |  |                        |         |                           | 
|                        |  | (Dollars In Thousands) |        
|Demand deposits         |  | $                      | 25,572  |                           | 
|Savings                 |  |                        | 81,233  |                           | 
|Money market            |  |                        | 60,090  |                           | 
|NOW                     |  |                        | 64,874  |                           | 
|Brokered deposits       |  |                        | 52,738  |                           | 
|Certificates of deposit |  |                        | 130,648 |                           | 
|                        |  |                        |         |                           | 
|Total deposits          |  | $                      | 415,155 |                           | 
|                        |  |                        |         |                           | 

Core deposits, which exclude brokered deposits and certificates of deposit, increased $17.8 million, or
8.3%, to $231.8 million at June 30, 2003 from $214.0 million at December 31, 2002.  The growth in core deposits reflects expanded marketing efforts, an enhanced focus on traditional markets as a result of the sale of the Companys
supermarket branches and the response to new relationship banking products introduced in the fall of 2002.  Brokered deposits grew $9.5 million, or 22.1%, to $52.7 million at June 30, 2003. The Company utilizes brokered certificates of deposit
to support asset growth when such instruments bear an attractive rate as compared to alternative funding sources.  Certificates of deposit balances rose $17.2 million, or 15.1%, to $130.6 million at June 30, 2003 largely due to the new
relationship banking products.

17



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##### Table of Contents

Comparison of Operating Results for the Three Months Ended June 30, 2003 and 2002

GeneralThe
Company reported net income of $2.1 million, or $0.59 per diluted share, for the quarter ended June 30, 2003 compared to net income of $1.5 million, or $0.40 per diluted share, for the same period in 2002.  The improvement in earnings was due
to growth in average loan, investment securities and core deposit balances, significant expansion in fee income and insurance commissions and lower provisions for loan losses, somewhat offset by net interest margin compression and higher
non-interest expenses. The 2003 results include net gains of $1.2 million from trading activities and gains totaling $382,000 from loan sales.  In comparison, the earnings for the second quarter of 2002 included a $644,000 gain from the
termination of the Companys defined benefit pension plan and write-downs of certain available-for-sale equity securities totaling $171,000.

Analysis of Net Interest IncomeNet interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities.  Net interest income depends on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.

The following table sets forth, for the periods indicated, average balances, interest income and expense and yields earned or rates paid on
the major categories of assets and liabilities.  The average yields and costs are derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods
shown.  The yields and costs are annualized.  Average balances are derived from average daily balances. The yields and costs include fees which are considered adjustments to yields.  Loan interest and yield data does not include any
accrued interest from nonaccruing loans.

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|                                                                                  |  | For the Three Months Ended June 30, |        
|--------------------------------------------------------------------------------- |  | ----------------------------------- | -------
|                                                                                  |  |                                     |        
|                                                                                  |  | 2003                                |        
|                                                                                  |  |                                     |        
|                                                                                  |  | Average Balance                     |        
|                                                                                  |  |                                     |        
|                                                                                  |  | (Dollars in Thousands)              |        
|Interest-earning assets: (1)                                                      |  |                                     |        
|Available-for-sale investments:                                                   |  |                                     |        
|Mortgage-backed securities                                                        |  | $                                   | 144,550
|U.S. Government and agency securities                                             |  |                                     | 10,694 
|Equity securities                                                                 |  |                                     | 32,247 
|State and municipal securities (3)                                                |  |                                     | 22,364 
|Trading account securities                                                        |  |                                     | 9,594  
|Loans: (4)                                                                        |  |                                     |        
|Residential real estate loans                                                     |  |                                     | 300,813
|Commercial real estate loans                                                      |  |                                     | 70,086 
|Consumer loans                                                                    |  |                                     | 90,552 
|Commercial loans                                                                  |  |                                     | 11,925 
|                                                                                  |  |                                     |        
|Loans, net                                                                        |  |                                     | 473,376
|Other                                                                             |  |                                     | 11,376 
|                                                                                  |  |                                     |        
|Total interest-earning assets                                                     |  |                                     | 704,201
|                                                                                  |  |                                     |        
|Noninterest-earning assets                                                        |  |                                     | 40,835 
|                                                                                  |  |                                     |        
|Total assets                                                                      |  | $                                   | 745,036
|                                                                                  |  |                                     |        
|Interest-bearing liabilities:                                                     |  |                                     |        
|Deposits:                                                                         |  |                                     |        
|Money market accounts                                                             |  | $                                   | 56,222 
|Savings accounts (5)                                                              |  |                                     | 82,472 
|NOW accounts                                                                      |  |                                     | 63,251 
|Certificates of deposit (6)                                                       |  |                                     | 177,504
|                                                                                  |  |                                     |        
|Total interest-bearing deposits                                                   |  |                                     | 379,449
|Borrowings                                                                        |  |                                     | 257,276
|                                                                                  |  |                                     |        
|Total interest-bearing liabilities                                                |  |                                     | 636,725
|Demand deposits                                                                   |  |                                     | 25,347 
|Other noninterest-bearing liabilities                                             |  |                                     | 5,876  
|                                                                                  |  |                                     |        
|Total liabilities                                                                 |  |                                     | 667,948
|Total stockholders' equity                                                        |  |                                     | 77,088 
|                                                                                  |  |                                     |        
|Total liabilities and stockholders' equity                                        |  | $                                   | 745,036
|                                                                                  |  |                                     |        
|Net interest-earning assets                                                       |  | $                                   | 67,476 
|                                                                                  |  |                                     |        
|Tax equivalent net interest income/interest rate spread (7)                       |  |                                     |        
|                                                                                  |  |                                     |        
|Tax equivalent net interest margin as a percentage of interest-earning assets (8) |  |                                     |        
|                                                                                  |  |                                     |        
|Ratio of interest-earning assets to interest-bearing liabilities                  |  |                                     |        
|                                                                                  |  |                                     |        
|Less: tax equivalent adjustment (3)                                               |  |                                     |        
|                                                                                  |  |                                     |        
|Net interest income as reported on income statement                               |  |                                     |        
|                                                                                  |  |                                     |        

|(1) | Includes related assets available-for-sale and unamortized discounts and premiums.                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Excludes effect of negative adjustment to mortgage-backed securities interest income of $197,000.                                                                                                                                                                        
|(3) | State and municipal securities income and net interest income are presented on a tax equivalent basis using a tax rate of 34%. The tax equivalent adjustment is deducted from tax equivalent
net interest income to agree to the amount reported in the income statement.
|(4) | Amount is net of deferred loan origination costs, unadvanced loan funds, allowance for loan losses and includes nonaccrual loans.  The Company records interest income on nonaccruing
loans on a cash basis.                                                             
|(5) | Savings accounts include mortgagors' escrow deposits.                                                                                                                                                                                                                    
|(6) | Certificates of deposit include brokered deposits.                                                                                                                                                                                                                       
|(7) | Tax equivalent net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing
liabilities.                                                                           
|(8) | Tax equivalent net interest margin represents tax equivalent net interest income divided by average interest-earning assets.                                                                                                                                             

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##### Table of Contents

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected
the Companys tax equivalent interest income and interest expense during the periods indicated.  Information is provided in each category with respect to:  (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change.  The changes attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.

|                                                   |  | Three Months Ended June 30,  2003 compared to 2002 |     
|-------------------------------------------------- |  | -------------------------------------------------- | ----
|                                                   |  |                                                    |     
|                                                   |  | Increase (Decrease)  Due to                        |     
|                                                   |  |                                                    |     
|                                                   |  | Volume                                             |     
|                                                   |  |                                                    |     
|                                                   |  | (In Thousands)                                     |     
|Interest-earning assets:                           |  |                                                    |     
|Mortgage-backed securities (1)                     |  | $                                                  | 581 
|U.S. Government and agency securities              |  |                                                    | (180
|Equity securities                                  |  |                                                    | (258
|State and municipal securities (2)                 |  |                                                    | 28  
|Trading account securities                         |  |                                                    | 71  
|Loans:                                             |  |                                                    |     
|Residential real estate loans                      |  |                                                    | 183 
|Commercial real estate loans                       |  |                                                    | 336 
|Consumer loans                                     |  |                                                    | (88 
|Commercial loans                                   |  |                                                    | 14  
|                                                   |  |                                                    |     
|Total loans                                        |  |                                                    | 445 
|Other                                              |  |                                                    | (2  
|                                                   |  |                                                    |     
|Total interest-earning assets (1)                  |  |                                                    | 685 
|                                                   |  |                                                    |     
|Interest-bearing liabilities:                      |  |                                                    |     
|Deposits:                                          |  |                                                    |     
|Money market accounts                              |  |                                                    | 75  
|Savings accounts (3)                               |  |                                                    | 15  
|NOW accounts                                       |  |                                                    | (5  
|Certificates of deposit (4)                        |  |                                                    | 22  
|                                                   |  |                                                    |     
|Total deposits                                     |  |                                                    | 107 
|Borrowings                                         |  |                                                    | 132 
|                                                   |  |                                                    |     
|Total interest-bearing liabilities                 |  |                                                    | 239 
|                                                   |  |                                                    |     
|Increase (decrease) in net interest income (1) (5) |  | $                                                  | 446 
|                                                   |  |                                                    |     

|(1) | Excludes effect of negative adjustment to mortgage-backed securities interest income of $197,000.                             
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(2) | The changes in state and municipal income are reflected on a tax equivalent basis using a tax rate of 34%.                    
|(3) | Includes interest on mortgagors escrow deposits.                                                                             
|(4) | Includes interest on brokered certificates of deposit.                                                                        
|(5) | The changes in net interest income are reflected on a tax equivalent basis and thus do not correspond to the income statement.

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Net interest income, on a tax equivalent basis, decreased $205,000, or 3.8%, to $5.1 million for the three months ended June 30, 2003 compared to $5.3 million for the same
period in 2002, mainly driven by net interest margin contraction, offset by growth in average interest-earning assets.  Net interest margin, on a tax equivalent basis, compressed 30 basis points to 2.92% for the second quarter of 2003 from the
comparable period in 2002 primarily resulting from reduced yields on interest-earning assets, somewhat mitigated by the lower cost of funds due to the declining market interest rate environment and an increase in lower-cost core deposits.

Interest and dividend income, on a tax equivalent basis, fell $640,000, or 6.0%, to $10.0 million for the three months ended June 30, 2003 compared to $10.7 million for the same period last year,
largely reflecting a decrease in the yield on average interest-earning assets partially offset by growth in average interest-earning assets.  The yield on average interest-earning assets declined 74 basis points to 5.71% in the three months
ended June 30, 2003, principally as a result of lower market rates of interest.  The lower interest rate environment has led to significant levels of loan prepayments and refinancings and accelerated cash flows from existing mortgage-backed
securities.  The proceeds from these activities were used to support loan growth and investment purchases at lower yields.  In addition, a portion of the Companys existing interest-sensitive assets repriced to reduced rates. 
Average interest-earning assets totaled $704.2 million for the second quarter of 2003 compared to $663.1 million for the same period last year, an increase of $41.1 million, or 6.2%.  Average loans increased $24.5 million, or 5.5%, primarily
due to strong one-to four-family residential real estate and commercial real estate loan origination and refinancing volume, somewhat mitigated by amortization and prepayments of the existing portfolio and loan sales.  The higher levels of
refinancing and prepayment activity were due in part to the lower market interest rate environment. Average mortgage-backed securities rose $42.2 million, or 41.3%, mainly attributable to purchases of additional bonds, somewhat offset by principal
payments.  The changes in the average balance of equity securities available-for-sale and trading account securities were principally due to the reclassification of certain securities from available-for-sale to trading in the fourth quarter of
2002.  The average balance of trading account securities was also affected by sales of securities in 2003 as a result of favorable market conditions.

Total interest expense declined $435,000,
or 8.1%, to $4.9 million for the three months ended June 30, 2003 from $5.3 million for the same period in 2002, resulting primarily from reduced rates paid on average interest-bearing deposits, partially offset by growth in average interest-bearing
liabilities. Rates paid on average interest-bearing deposits fell 61 basis points to 1.90% for the second quarter of 2003, largely reflecting a significant reduction in market interest rates and a greater reliance on core deposits to fund the
balance sheet. The lower market interest rate environment led to a decrease in rates paid for new deposits as well as the repricing of a portion of the Companys outstanding deposits. Average interest-bearing liabilities rose $32.9 million, or
5.5%, to $636.7 million for the three months ended June 30, 2003 from $603.8 million for the comparable period in 2002 reflecting strong growth in interest-bearing deposits and an increase in FHLB advances to fund balance sheet expansion.

Provision for Loan LossesThe provision for loan losses declined $167,000 to $76,000 for the second quarter of 2003 from $243,000 for the same period in 2002.  The primary factors
contributing to the lower provision in 2003 include loan sales totaling $10.6 million, a large reduction in non-performing loans and continued low levels of net charge-offs. The allowance for loan losses is maintained through provisions for loan
losses.

Non-interest IncomeTotal non-interest income was $2.7 million for the second quarter of 2003 compared to $751,000 for the same period in 2002.  This increase was
attributable to several factors including growth in fee income and insurance commissions.  Fee income increased $189,000, or 31.3%, to $793,000 in the second quarter of 2003 from $604,000 for the comparable period in 2002 reflecting expansion
in core deposits, the impact of a new deposit service introduced in 2003 and sales of non-deposit investment products.  Insurance commissions totaled

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$292,000 for the three months ended June 30, 2003, an increase of $133,000 compared to $159,000 in the second quarter of 2002 mainly resulting from new customers gained as a
result of successful marketing and business development efforts and a change in the accounting method used to record income. The 2002 results for Keyes, Mattson & Agan Insurance Agency, Inc. were affected by the recognition of commissions on an
accrual basis rather than the cash basis the agency had utilized prior to being acquired.  In connection with the recovery in stock prices in 2003, the Company realized net trading gains of $1.2 million related to sales of certain securities
and a positive valuation adjustment for the remaining portfolio.  The gains from loan sales totaling $382,000 were realized as a result of the sale of $10.6 million in longer-term, lower coupon, fixed-rate mortgages and the retention of the
mortgage servicing rights.  The 2002 period included write-downs of certain available-for-sale equity securities totaling $171,000.

Non-interest ExpensesNon-interest
expenses for the second quarter of 2002 included a $644,000 gain from the termination of the Companys defined benefit pension plan.  Excluding this gain, non-interest expenses rose $182,000, or 4.3%, to $4.4 million for the three months
ended June 30, 2003 compared to $4.3 million in the second quarter of 2002 mainly due to increases in professional services and marketing costs, somewhat mitigated by lower occupancy and equipment expenses.  Salaries and benefits expenses,
exclusive of the pension termination gain of $644,000 recognized in 2002, totaled $2.4 million for both periods reflecting lower staffing costs as a result of the sale of three supermarket branches, offset by increased benefit costs associated with
the Companys higher stock price in 2003 compared to 2002.  Professional services expenses expanded $170,000, or 85.0%, to $370,000 for the three months ended June 30, 2003 largely resulting from consulting costs associated with employee
benefit plans, an information technology audit and the new deposit service introduced in the second quarter of 2003, as well as increased expenses related to the directors retirement plan.  Marketing costs rose $88,000, or 66.7%, to
$220,000 in the second quarter of 2003 primarily due to expanded promotional activities associated with the introduction of new relationship banking products.  Occupancy and equipment expenses fell $88,000, or 15.7%, to $473,000 for the three
months ended June 30, 2003 principally attributable to the sale of the supermarket branches.

Income TaxesThe Companys income tax expense increased $222,000, or 34.5%, to
$866,000 for the second quarter of 2003 compared to $644,000 in 2002.  The increase in income taxes was primarily attributable to higher income before taxes, somewhat mitigated by a reduced effective tax rate.  The Companys effective
tax rate fell to 29.0% for the second quarter of 2003 from 30.5% in 2002.

22



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##### Table of Contents

Comparison of Operating Results for the Six Months Ended June 30, 2003 and 2002

GeneralThe
Company reported net income of $3.4 million, or $0.96 per diluted share, for the six months ended June 30, 2003 compared to net income of $2.5 million, or $0.70 per diluted share, for the same period in 2002.  The expansion in earnings per
share was achieved through growth in average loan, investment securities and core deposit balances, significant expansion in fee income and insurance commissions, and lower provisions for loan losses, somewhat offset by net interest margin
compression and higher non-interest expenses. The results for the first six months of 2003 also include gains of $785,000 from loan sales, net gains of $630,000 from trading account activities, $415,000 from the sale of available-for-sale securities
and $183,000 from the sale of a supermarket branch and a $539,000 penalty for the prepayment of FHLB advances.  In comparison, the 2002 results included a pension termination gain of $644,000 and write-downs of certain available-for-sale equity
securities totaling $171,000.

Analysis of Net Interest IncomeNet interest income represents the difference between income on interest-earning assets and expense on
interest-bearing liabilities.  Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.

The following table sets forth, for the periods indicated, average balances, interest income and expense and yields earned or rates paid on the major categories of assets and liabilities.  The average yields and costs are
derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown.  The yields and costs are annualized.  Average balances are derived from
average daily balances. The yields and costs include fees which are considered adjustments to yields.  Loan interest and yield data does not include any accrued interest from nonaccruing loans.

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##### Table of Contents

|                                                                                  |  | For the Six Months Ended June 30, |        
|--------------------------------------------------------------------------------- |  | --------------------------------- | -------
|                                                                                  |  |                                   |        
|                                                                                  |  | 2003                              |        
|                                                                                  |  |                                   |        
|                                                                                  |  | Average Balance                   |        
|                                                                                  |  |                                   |        
|                                                                                  |  | (Dollars in Thousands)            |        
|Interest-earning assets: (1)                                                      |  |                                   |        
|Available-for-sale investments:                                                   |  |                                   |        
|Mortgage-backed securities                                                        |  | $                                 | 125,307
|U.S. Government and agency securities                                             |  |                                   | 13,493 
|Equity securities                                                                 |  |                                   | 33,801 
|State and municipal securities (3)                                                |  |                                   | 22,152 
|Trading account securities                                                        |  |                                   | 12,272 
|Loans: (4)                                                                        |  |                                   |        
|Residential real estate loans                                                     |  |                                   | 299,624
|Commercial real estate loans                                                      |  |                                   | 67,643 
|Consumer loans                                                                    |  |                                   | 91,522 
|Commercial loans                                                                  |  |                                   | 11,659 
|                                                                                  |  |                                   |        
|Loans, net                                                                        |  |                                   | 470,448
|Other                                                                             |  |                                   | 9,040  
|                                                                                  |  |                                   |        
|Total interest-earning assets                                                     |  |                                   | 686,513
|                                                                                  |  |                                   |        
|Noninterest-earning assets                                                        |  |                                   | 39,360 
|                                                                                  |  |                                   |        
|Total assets                                                                      |  | $                                 | 725,873
|                                                                                  |  |                                   |        
|Interest-bearing liabilities:                                                     |  |                                   |        
|Deposits:                                                                         |  |                                   |        
|Money market accounts                                                             |  | $                                 | 52,827 
|Savings accounts (5)                                                              |  |                                   | 79,945 
|NOW accounts                                                                      |  |                                   | 63,398 
|Certificates of deposit (6)                                                       |  |                                   | 170,774
|                                                                                  |  |                                   |        
|Total interest-bearing deposits                                                   |  |                                   | 366,944
|Borrowings                                                                        |  |                                   | 252,664
|                                                                                  |  |                                   |        
|Total interest-bearing liabilities                                                |  |                                   | 619,608
|                                                                                  |  |                                   |        
|Demand deposits                                                                   |  |                                   | 24,509 
|Other noninterest-bearing liabilities                                             |  |                                   | 5,554  
|                                                                                  |  |                                   |        
|Total liabilities                                                                 |  |                                   | 649,671
|Total stockholders equity                                                        |  |                                   | 76,202 
|                                                                                  |  |                                   |        
|Total liabilities and stockholders equity                                        |  | $                                 | 725,873
|                                                                                  |  |                                   |        
|Net interest-earning assets                                                       |  | $                                 | 66,905 
|                                                                                  |  |                                   |        
|                                                                                  |  |                                   |        
|Tax equivalent net interest income/interest rate spread (7)                       |  |                                   |        
|                                                                                  |  |                                   |        
|Tax equivalent net interest margin as a percentage of interest-earning assets (8) |  |                                   |        
|                                                                                  |  |                                   |        
|Ratio of interest-earning assets to interest-bearing liabilities                  |  |                                   |        
|                                                                                  |  |                                   |        
|Less: tax equivalent adjustment (3)                                               |  |                                   |        
|                                                                                  |  |                                   |        
|Net interest income as reported on income statement                               |  |                                   |        
|                                                                                  |  |                                   |        

|(1) | Includes related assets available-for-sale and unamortized discounts and premiums.                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Excludes effect of negative adjustment to mortgage-backed securities interest income of $197,000.                                                                                                                                                                        
|(3) | State and municipal securities income and net interest income are presented on a tax equivalent basis using a tax rate of 34%. The tax equivalent adjustment is deducted from tax equivalent
net interest income to agree to the amount reported in the income statement.
|(4) | Amount is net of deferred loan origination costs, unadvanced loan funds, allowance for loan losses and includes nonaccrual loans.  The Company records interest income on nonaccruing
loans on a cash basis.                                                             
|(5) | Savings accounts include mortgagors escrow deposits.                                                                                                                                                                                                                    
|(6) | Certificates of deposit include brokered deposits.                                                                                                                                                                                                                       
|(7) | Tax equivalent net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing
liabilities.                                                                           
|(8) | Tax equivalent net interest margin represents tax equivalent net interest income divided by average interest-earning assets.                                                                                                                                             

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##### Table of Contents

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected
the Companys tax equivalent interest income and interest expense during the periods indicated.  Information is provided in each category with respect to:  (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) the net change.  The changes attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.

|                                                   |  | Six Months Ended June 30,  2003 compared to 2002 |      
|-------------------------------------------------- |  | ------------------------------------------------ | -----
|                                                   |  |                                                  |      
|                                                   |  | Increase (Decrease)  Due to                      |      
|                                                   |  |                                                  |      
|                                                   |  | Volume                                           |      
|                                                   |  |                                                  |      
|                                                   |  | (In Thousands)                                   |      
|Interest-earning assets:                           |  |                                                  |      
|Mortgage-backed securities (1)                     |  | $                                                | 570  
|U.S. Government and agency securities              |  |                                                  | (209 
|Equity securities                                  |  |                                                  | (472 
|State and municipal securities (2)                 |  |                                                  | 65   
|Trading account securities                         |  |                                                  | 166  
|Loans:                                             |  |                                                  |      
|Residential real estate loans                      |  |                                                  | 477  
|Commercial real estate loans                       |  |                                                  | 729  
|Consumer loans                                     |  |                                                  | (158 
|Commercial loans                                   |  |                                                  | 28   
|                                                   |  |                                                  |      
|Total loans                                        |  |                                                  | 1,076
|Other                                              |  |                                                  | (15  
|                                                   |  |                                                  |      
|Total interest-earning assets (1)                  |  |                                                  | 1,181
|                                                   |  |                                                  |      
|Interest-bearing liabilities:                      |  |                                                  |      
|Deposits:                                          |  |                                                  |      
|Money market accounts                              |  |                                                  | 133  
|Savings accounts (3)                               |  |                                                  | 26   
|NOW accounts                                       |  |                                                  | (2   
|Certificates of deposit (4)                        |  |                                                  | 100  
|                                                   |  |                                                  |      
|Total deposits                                     |  |                                                  | 257  
|Borrowings                                         |  |                                                  | 9    
|                                                   |  |                                                  |      
|Total interest-bearing liabilities                 |  |                                                  | 266  
|                                                   |  |                                                  |      
|Increase (decrease) in net interest income (1) (5) |  | $                                                | 915  
|                                                   |  |                                                  |      

|(1) | Excludes effect of negative adjustment to mortgage-backed securities interest income of $197,000.                             
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(2) | The changes in state and municipal income are reflected on a tax equivalent basis using a tax rate of 34%.                    
|(3) | Includes interest on mortgagors escrow deposits.                                                                             
|(4) | Includes interest on brokered certificates of deposit.                                                                        
|(5) | The changes in net interest income are reflected on a tax equivalent basis and thus do not correspond to the income statement.

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##### Table of Contents

Net interest income, on a tax equivalent basis, totaled $10.6 million for the six months ended June 30, 2003, an increase of $30,000, or 0.3%, compared to $10.5 million for
the same period in 2002, mainly driven by growth in average interest-earning assets, mitigated by net interest margin compression.  Net interest margin, on a tax equivalent basis, compressed 15 basis points to 3.07% for the first six months of
2003 from the comparable period in 2002 primarily resulting from reduced yields on interest-earning assets, partially offset by the lower cost of funds due to the declining market interest rate environment and an increase in lower-cost core
deposits.

Interest and dividend income, on a tax equivalent basis, fell $790,000, or 3.8%, to $20.2 million for the six months ended June 30, 2003 compared to $21.0 million for the same period
last year, mainly reflecting a decrease in the yield on average interest-earning assets partially offset by growth in average interest-earning assets. The yield on average interest-earning assets declined 55 basis points to 5.89% in the six months
ended June 30, 2003, principally as a result of lower market rates of interest.  The lower interest rate environment has led to significant levels of loan prepayments and refinancings and accelerated cash flows from existing mortgage-backed
securities.  The proceeds from these activities were used to support loan growth and investment purchases at lower yields.  In addition, a portion of the Companys existing interest-sensitive assets repriced to reduced rates. 
Average interest-earning assets totaled $686.5 million for the first six months of 2003 compared to $652.5 million for the same period last year, an increase of $34.0 million, or 5.2%.  Average loans increased $30.3 million, or 6.9%, primarily
due to strong one-to four-family residential real estate and commercial real estate loan origination and refinancing volume, somewhat mitigated by amortization and prepayments of the existing portfolio and loan sales.  The higher levels of
refinancing and prepayment activity were due in part to the lower market interest rate environment. The changes in the average balance of equity securities available-for-sale and trading account securities were principally due to the
reclassification of certain securities from available-for-sale to trading in the fourth quarter of 2002.  The average balance of trading account securities was also affected by sales of securities in 2003 as a result of favorable market
conditions.

Total interest expense declined $820,000, or 7.8%, to $9.7 million for the six months ended June 30, 2003 from $10.5 million for the comparable period in 2002, resulting primarily from
reduced rates paid on average interest-bearing deposits, partially offset by growth in average interest-bearing deposits. Rates paid on average interest-bearing deposits fell 58 basis points to 1.92% for the first six months of 2003, largely
reflecting a significant reduction in market interest rates and a greater reliance on core deposits to fund the balance sheet. The lower market interest rate environment led to a decrease in rates paid for new deposits as well as the repricing of a
portion of the Companys outstanding deposits. Average interest-bearing deposits rose $24.4 million, or 7.1%, to $366.9 million for the six months ended June 30, 2003 from $342.5 million for the same period in 2002 reflecting strong growth in
core deposits.

Provision for Loan LossesThe provision for loan losses declined $276,000 to $76,000 for the first six months of 2003 from $352,000 for the same period in
2002.  The primary factors contributing to the lower provision in 2003 include loan sales totaling $21.7 million, a large reduction in non-performing loans and continued low levels of net charge-offs. The allowance for loan losses is maintained
through provisions for loan losses.

Non-interest IncomeTotal non-interest income was $3.7 million for the first six months of 2003 compared to $1.6 million for the same period
in 2002.  This increase was attributable to several factors including growth in fee income and insurance commissions.  Fee income increased $359,000, or 30.2%, to $1.5 million in the first six months of 2003 from $1.2 million for the same
period in 2002 reflecting expansion in core deposits, the introduction of a new deposit service in 2003 and sales of non-deposit investment products.   Insurance commissions totaled $655,000 for the six months ended June 30, 2003, an
increase of $362,000 compared to $293,000 in the same period of 2002 mainly resulting from new customers gained as a result of successful marketing and business development efforts and a change in the accounting method used to record income. The
2002 results for Keyes,

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Mattson & Agan Insurance Agency, Inc. were affected by the recognition of commissions on an accrual basis rather than the cash basis the agency had utilized prior to being
acquired. The results for 2003 include gains of $415,000 from the sale of available-for-sale securities and a $539,000 penalty for the prepayment of FHLB advances.  The Company elected to sell several agency securities and prepay certain FHLB
advances to enhance net interest income.    Non-interest income for the first six months of 2003 also includes gains of $785,000 from loan sales and net gains of $630,000 from trading account activities and $183,000 from the sale of a
supermarket branch.  The gains on loan sales were realized as a result of the sale of $21.7 million in longer-term, lower coupon, fixed-rate mortgages and the retention of the mortgage servicing rights.  The net trading gains are
associated with sales of certain securities and the positive mark-to-market adjustment for the remaining portfolio in connection with the recovery in stock prices in 2003.

Non-interest ExpensesNon-interest expenses in 2002 included a $644,000 gain from the termination of the Companys defined benefit pension plan.  Excluding this gain, non-interest expenses rose
$380,000, or 4.4%, to $9.0 million for the six months ended June 30, 2003 compared to $8.6 million in the comparable 2002 period mainly due to increases in professional services, marketing and data processing costs, partially offset by lower
occupancy and equipment expenses.  Salaries and benefits expenses, exclusive of the pension termination gain of $644,000 recognized in 2002, totaled $4.9 million for both periods reflecting lower staffing costs as a result of the sale of three
supermarket branches, offset by increased benefit costs associated with the Companys higher stock price in 2003 compared to 2002.  Professional service costs grew $330,000, or 76.6%, largely resulting from consulting costs associated with
employee benefit plans, an information technology audit and the new deposit service introduced in 2003, as well as increased expenses related to the directors retirement plan. Marketing costs rose $73,000, or 24.3%, to $373,000 for the first
six months of 2003 primarily due to expanded promotional activities associated with the introduction of new relationship banking products.  Data processing expenses expanded $50,000, or 10.7%, to $516,000 for the six months ended June 30, 2003
mainly associated with strong loan and deposit account growth.  Occupancy and equipment expenses fell $87,000, or 7.8%, to $1.0 million for the first six months of 2003 principally attributable to the sale of the supermarket
branches.

Income TaxesThe Companys income tax expense increased $289,000, or 27.0%, to $1.4 million for the first six months of 2003 compared to $1.1
million in 2002.  The increase in income taxes was primarily attributable to higher income before taxes, somewhat mitigated by a reduced effective tax rate.  The Companys effective tax rate fell to 28.6% for the first six months of
2003 from 29.6% in 2002.

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LiquidityLiquidity and funding strategies are the responsibility of the Companys Asset/Liability Management Committee (the ALCO).  The ALCO
is responsible for establishing liquidity targets and implementing strategies to meet desired goals.  Liquidity is measured by the Companys ability to raise cash within 30 days at a reasonable cost and with a minimum of loss.  The
Companys primary sources of funds are deposits, principal and interest payments on loans and investment securities and borrowings from the FHLB-Boston. While maturities and scheduled amortization of loans and securities are predictable sources
of funds, deposit outflows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The primary investing activities of the Company are the
origination of one-to four-family mortgage loans and consumer loans, mainly home equity loans and lines of credit, and, to a lesser extent, the origination of multi-family and commercial real estate loans, construction and development loans,
commercial business loans, and other types of consumer loans, as well as investments in mortgage-backed, other debt and equity securities. During the six months ended June 30, 2003, the Companys loan originations totaled $95.7 million. At June
30, 2003, the Companys investments in trading account and available-for-sale securities totaled $7.2 million and $239.9 million, respectively.  During the six months ended June 30, 2003, total deposits increased $44.5 million, including
the net issuance of approximately $9.5 million of brokered certificates of deposit.  The Company closely monitors its liquidity position on a daily basis. If the Company requires funds beyond its ability to generate them internally, additional
sources of funds are available through FHLB advances.  At June 30, 2003, the Company had $296.9 million of FHLB borrowings.

Outstanding loan commitments totaled $27.2 million at June 30,
2003.  Management of the Company anticipates that it will have sufficient funds available to meet its current loan commitments. Certificates of deposit, which are scheduled to mature in one year or less from June 30, 2003, totaled $94.7
million. The Company relies primarily on competitive rates, customer service, and long-standing relationships with customers to retain deposits.  From time to time, the Company will also offer competitive special products to its customers to
increase retention and to attract new deposits. Based upon the Companys experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon
renewal, a significant portion of such deposits will remain with the Company.

The primary source of funding for Woronoco Bancorp is dividend payments from Woronoco Savings Bank (the
Bank). These funds have been used to pay dividends and fund stock repurchase programs.  The Banks ability to pay dividends and other capital distributions to the Woronoco Bancorp, Inc. is generally limited by Massachusetts
banking regulations and regulations of the Federal Deposit Insurance Corporation.  Additionally, the Massachusetts Banking Commissioner and Federal Deposit Insurance Corporation may prohibit the payment of dividends by the Bank to Woronoco
Bancorp, Inc., which are otherwise permissible by regulation, for safety and soundness reasons.

Regulatory CapitalThe 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
Companys consolidated 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 capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings
and other factors.  Prompt corrective action provisions are not applicable to savings and loan holding companies.

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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 in the regulations) to risk weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of June 30, 2003 and December 31, 2002, that the Bank met all capital
adequacy requirements to which it was subject.

As of June 30, 2003, the most recent notification from the Federal Deposit Insurance Company categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables.  There are
no conditions or events since that notification that management believes have changed the Banks category.

The Companys and Banks actual capital amounts and ratios as of June 30,
2003 and December 31, 2002 are presented in the table.

|                                       |  | Actual         |        | Minimum for Capital  Adequacy Purposes |  | Minimum to be Well  Capitalized Under  Prompt Corrective Action Provisions |  
|-------------------------------------- |  | -------------- | ------ | -------------------------------------- |  | -------------------------------------------------------------------------- | -
|                                       |  |                |        |                                        |  |                                                                            |  
|                                       |  | Amount         |        | Ratio                                  |  | Amount                                                                     |  
|                                       |  |                |        |                                        |  |                                                                            |  
|                                       |  | (In Thousands) |       
|As of June 30, 2003:                   |  |                |        |                                        |  |                                                                            |  
|Total Capital to Risk Weighted Assets  |  |                |        |                                        |  |                                                                            |  
|Company                                |  | $              | 73,358 |                                        |  | 15.5                                                                       | %
|Bank                                   |  | $              | 60,674 |                                        |  | 12.8                                                                       | %
|Tier 1 Capital to Risk Weighted Assets |  |                |        |                                        |  |                                                                            |  
|Company                                |  | $              | 70,137 |                                        |  | 14.8                                                                       | %
|Bank                                   |  | $              | 57,453 |                                        |  | 12.1                                                                       | %
|Tier 1 Capital to Average Assets       |  |                |        |                                        |  |                                                                            |  
|Company                                |  | $              | 70,137 |                                        |  | 9.5                                                                        | %
|Bank                                   |  | $              | 57,453 |                                        |  | 7.8                                                                        | %
|As of December 31, 2002:               |  |                |        |                                        |  |                                                                            |  
|Total Capital to Risk Weighted Assets  |  |                |        |                                        |  |                                                                            |  
|Company                                |  | $              | 70,403 |                                        |  | 15.8                                                                       | %
|Bank                                   |  | $              | 63,074 |                                        |  | 14.1                                                                       | %
|Tier 1 Capital to Risk Weighted Assets |  |                |        |                                        |  |                                                                            |  
|Company                                |  | $              | 67,247 |                                        |  | 15.1                                                                       | %
|Bank                                   |  | $              | 59,918 |                                        |  | 13.4                                                                       | %
|Tier 1 Capital to Average Assets       |  |                |        |                                        |  |                                                                            |  
|Company                                |  | $              | 67,247 |                                        |  | 9.6                                                                        | %
|Bank                                   |  | $              | 59,918 |                                        |  | 8.6                                                                        | %

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##### Table of Contents

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Information regarding quantitative and
qualitative disclosure about market risk is presented in the Securities and Exchange Commission Form 10-K filed by the Company for the year ended December 31, 2002.  There have been no material changes in the Companys market risk since
December 31, 2002.

Item 4.  Controls and Procedures

(a)  Evaluation of disclosure controls and procedures.  The Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and
Exchange Commission.  Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive officer and the chief financial officer of the Company concluded that the
Companys disclosure controls and procedures were adequate.

(b)  Changes in internal controls.  The Company
made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of evaluation of those controls by the chief executive officer and chief financial officer.

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##### Table of Contents

PART II.  OTHER INFORMATION

|Item 1.                                                                                                                                                                                                                                                                                                             | Legal Proceedings.                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------
|                                                                                                                                                                                                                                                                                                                    |                                                     
|The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business.  Such routine legal
proceedings, in the aggregate, are believed by management to be immaterial to the financial condition and results of operations of the Company.
|                                                                                                                                                                                                                                                                                                                    |                                                     
|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.                                                  
|                                                                                                                                                                                                                                                                                                                    |                                                     
|                                                                                                                                                                                                                                                                                                                    | b.                                                  
|                                                                                                                                                                                                                                                                                                                    |                                                     
|                                                                                                                                                                                                                                                                                                                    | c.                                                  
|                                                                                                                                                                                                                                                                                                                    |                                                     
|                                                                                                                                                                                                                                                                                                                    |                                                     

|Director Nominees Elected For Three Year Term: |  | For |           | Withheld | 
|---------------------------------------------- |  | --- | --------- | -------- | 
|                                               |  |     |           |          | 
|Francis J. Ehrhardt                            |  |     | 3,274,458 |          | 
|Cornelius D. Mahoney                           |  |     | 3,272,339 |          | 
|D. Jeffrey Templeton                           |  |     | 3,274,706 |          | 

| |  | 2. | The ratification of the appointment of Wolf & Company, P.C. as independent auditors of the Company for the fiscal year ending December 31, 2003.
| |  | -- | ------------------------------------------------------------------------------------------------------------------------------------------------

|For       |  | Against |       | Abstain | 
|--------- |  | ------- | ----- | ------- | 
|          |  |         |       |         | 
|3,270,593 |  |         | 3,405 |         | 

|Item 5. | Other Information.
|------- | ------------------
|        |                   
|None.   |                   

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##### Table of Contents

|Item 6. | Exhibits and Reports on Form 8-K (§249.308 of this Chapter).
|------- | ------------------------------------------------------------
|        |                                                             
|        | (a)                                                         
|        |                                                             
|        |                                                             
|        |                                                             
|        |                                                             
|        |                                                             
|        |                                                             
|        |                                                             
|       
|       
|        |                                                             
|        |                                                             
|        |                                                             
|        | (b)                                                         
|        |                                                             
|        |                                                             

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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.

|                         | WORONOCO BANCORP, INC. |                                                                                                                   
|------------------------ | ---------------------- | ------------------------------------------------------------------------------------------------------------------
|                         |                        |                                                                                                                   
|                         |                        |                                                                                                                   
|Dated:   August 14, 2003 | By:                    | /s/ CORNELIUS D. MAHONEY                                                                                          
|                         |                        |                                                                                                                   
|                         |                        | Cornelius D. Mahoney  Chairman of the Board, President and  Chief Executive Officer (principal executive officer) 
|                         |                        |                                                                                                                   
|                         |                        |                                                                                                                   
|Dated:   August 14, 2003 | By:                    | /s/ DEBRA L. MURPHY                                                                                               
|                         |                        |                                                                                                                   
|                         |                        | Debra L. Murphy Executive Vice President and  Chief Financial Officer (principal financial and accounting officer)

33