##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003



or



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



For the transition period from  to



Commission File Number 1-14671



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WORONOCO BANCORP, INC.

(Exact name of registrant as specified in its charter)



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|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)



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



Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes  x     No ̈



The issuer had 3,615,452 shares of common stock, par value $0.01 per share, outstanding as of November 6, 2003.



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##### Table of Contents

WORONOCO BANCORP, INC.



FORM 10-Q



INDEX



|                              |  |                                                                                                                  |  | Page
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|PART I. FINANCIAL INFORMATION |  |                                                                                                                 
|                              |  |                                                                                                                 
|Item 1.                       |  | Financial Statements (unaudited)                                                                                 |  |     
|                              |  |                                                                                                                 
|                              |  | Consolidated Balance Sheets at September 30, 2003 and December 31, 2002.                                         |  | 1   
|                              |  |                                                                                                                 
|                              |  | Consolidated Income Statements for the Three and Nine Months Ended September 30, 2003 and 2002                   |  | 2   
|                              |  |                                                                                                                 
|                              |  | Consolidated Statements of Changes in Stockholders Equity for the Nine Months Ended September 30, 2003 and 2002 |  | 3   
|                              |  |                                                                                                                 
|                              |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 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                                                                                          |  | 31  
|                              | 
|PART II: OTHER INFORMATION    |  |                                                                                                                 
|                              |  |                                                                                                                 
|Item 1.                       |  | Legal Proceedings                                                                                                |  | 32  
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                        |  | 32  
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                  |  | 32  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                              |  | 32  
|Item 5.                       |  | Other Information                                                                                                |  | 32  
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                 |  | 32  
|                              | 
|SIGNATURES                    |  | 33                                                                                                              





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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements (unaudited)



WORONOCO BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars In Thousands)



|                                                                                                                                                                                                                          |  | UnauditedSeptember 30,2003 |         |   | December 31,2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---------------- | -
|Assets                                                                                                                                                                                                                    |  |                            |         |   |                  |  
|                                                                                                                                                                                                                          |  |                           
|Cash and due from banks                                                                                                                                                                                                   |  | $                          | 21,616  |   |                  | $
|Interest-bearing balances                                                                                                                                                                                                 |  |                            | 1,844   |   |                  |  
|Federal funds sold                                                                                                                                                                                                        |  |                            | 2,185   |   |                  |  
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  
|Total cash and cash equivalents                                                                                                                                                                                           |  |                            | 25,645  |   |                  |  
|                                                                                                                                                                                                                          |  |                           
|Trading securities                                                                                                                                                                                                        |  |                            | 3,288   |   |                  |  
|Securities available for sale, at fair value                                                                                                                                                                              |  |                            | 240,575 |   |                  |  
|Federal Home Loan Bank stock, at cost                                                                                                                                                                                     |  |                            | 15,373  |   |                  |  
|Loans, net of allowance for loan losses ($3,222 at September 30, 2003 and $3,156 at December 31, 2002)                                                                                                                    |  |                            | 489,686 |   |                  |  
|Premises and equipment, net                                                                                                                                                                                               |  |                            | 10,067  |   |                  |  
|Accrued interest receivable                                                                                                                                                                                               |  |                            | 3,362   |   |                  |  
|Goodwill and other intangible assets, net                                                                                                                                                                                 |  |                            | 1,848   |   |                  |  
|Cash surrender value of life insurance                                                                                                                                                                                    |  |                            | 2,674   |   |                  |  
|Deferred tax asset                                                                                                                                                                                                        |  |                            | 60      |   |                  |  
|Other assets                                                                                                                                                                                                              |  |                            | 4,529   |   |                  |  
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  
|Total assets                                                                                                                                                                                                              |  | $                          | 797,107 |   |                  | $
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  
|Liabilities and Stockholders Equity                                                                                                                                                                                      |  |                            |         |   |                  |  
|                                                                                                                                                                                                                          |  |                           
|Deposits                                                                                                                                                                                                                  |  | $                          | 412,194 |   |                  | $
|Mortgagors escrow accounts                                                                                                                                                                                               |  |                            | 2,024   |   |                  |  
|Short-term borrowings                                                                                                                                                                                                     |  |                            | 74,170  |   |                  |  
|Long-term debt                                                                                                                                                                                                            |  |                            | 226,269 |   |                  |  
|Net deferred tax liability                                                                                                                                                                                                |  |                            |        |   |                  |  
|Accrued expenses and other liabilities                                                                                                                                                                                    |  |                            | 4,969   |   |                  |  
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  
|Total liabilities                                                                                                                                                                                                         |  |                            | 719,626 |   |                  |  
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  
|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 September 30, 2003 and December 31, 2002;
shares outstanding: 3,622,402 at September 30, 2003 and 3,567,669 at December 31, 2002) |  |                            | 60      |   |                  |  
|Additional paid-in capital                                                                                                                                                                                                |  |                            | 59,711  |   |                  |  
|Unearned compensation                                                                                                                                                                                                     |  |                            | (3,308  | ) |                  |  
|Retained earnings                                                                                                                                                                                                         |  |                            | 47,434  |   |                  |  
|Accumulated other comprehensive income                                                                                                                                                                                    |  |                            | 4,185   |   |                  |  
|Treasury stock, at cost (2,376,458 shares at September 30, 2003 and 2,431,191 shares at December 31, 2002)                                                                                                                |  |                            | (30,601 | ) |                  |  
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  
|Total stockholders equity                                                                                                                                                                                                |  |                            | 77,481  |   |                  |  
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  
|Total liabilities and stockholders equity                                                                                                                                                                                |  | $                          | 797,107 |   |                  | $
|                                                                                                                                                                                                                          |  |                            |         |   |                  |  

See accompanying notes to unaudited consolidated financial statements



1



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##### Table of Contents

WORONOCO BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(In Thousands Except Per Share Amounts)



|                                                                                       |  | Unaudited Three Months EndedSeptember 30, |           |   | Unaudited Nine Months EndedSeptember 30, |  
|-------------------------------------------------------------------------------------- |  | ----------------------------------------- | --------- | - | ---------------------------------------- | -
|                                                                                       |  | 2003                                      |           |   | 2002                                     |  
|Interest and dividend income:                                                          |  |                                           |           |   |                                          |  
|Loans, including fees                                                                  |  | $                                         | 7,028     |   |                                          | $
|Interest and dividends on securities:                                                  |  |                                           |           |   |                                          |  
|Taxable interest                                                                       |  |                                           | 1,908     |   |                                          |  
|Tax exempt interest                                                                    |  |                                           | 242       |   |                                          |  
|Dividends                                                                              |  |                                           | 493       |   |                                          |  
|Trading account securities                                                             |  |                                           | 114       |   |                                          |  
|Federal funds sold                                                                     |  |                                           | 8         |   |                                          |  
|Other                                                                                  |  |                                           | 5         |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Total interest and dividend income                                                     |  |                                           | 9,798     |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Interest expense:                                                                      |  |                                           |           |   |                                          |  
|Deposits                                                                               |  |                                           | 1,611     |   |                                          |  
|Borrowings                                                                             |  |                                           | 3,268     |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Total interest expense                                                                 |  |                                           | 4,879     |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Net interest income                                                                    |  |                                           | 4,919     |   |                                          |  
|Provision for loan losses                                                              |  |                                           | 28        |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Net interest income, after provision for loan losses                                   |  |                                           | 4,891     |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Non-interest income:                                                                   |  |                                           |           |   |                                          |  
|Fee income                                                                             |  |                                           | 916       |   |                                          |  
|Insurance commissions                                                                  |  |                                           | 294       |   |                                          |  
|Gain (loss) on sales, disposition and impairment of securities available for sale, net |  |                                           | 165       |   |                                          |  
|Net (loss) gain on trading account securities                                          |  |                                           | (118      | ) |                                          |  
|Gain on sales of loans, net                                                            |  |                                           | 154       |   |                                          |  
|Gain on sale of supermarket branch                                                     |  |                                           |          |   |                                          |  
|Penalty for prepayment of FHLB advances                                                |  |                                           |          |   |                                          |  
|(Loss) gain on derivative instruments and hedging activities                           |  |                                           |          |   |                                          |  
|Other income                                                                           |  |                                           |          |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Total non-interest income                                                              |  |                                           | 1,411     |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Non-interest expenses:                                                                 |  |                                           |           |   |                                          |  
|Salaries and employee benefits                                                         |  |                                           | 2,418     |   |                                          |  
|Occupancy and equipment                                                                |  |                                           | 505       |   |                                          |  
|Marketing                                                                              |  |                                           | 152       |   |                                          |  
|Professional services                                                                  |  |                                           | 363       |   |                                          |  
|Data processing                                                                        |  |                                           | 270       |   |                                          |  
|Other general and administrative                                                       |  |                                           | 715       |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Total non-interest expenses                                                            |  |                                           | 4,423     |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Income before income tax expense                                                       |  |                                           | 1,879     |   |                                          |  
|Income tax expense                                                                     |  |                                           | 557       |   |                                          |  
|                                                                                       |  |                                           |           |   |                                          |  
|Net income                                                                             |  | $                                         | 1,322     |   |                                          | $
|                                                                                       |  |                                           |           |   |                                          |  
|Earnings per share:                                                                    |  |                                           |           |   |                                          |  
|Basic                                                                                  |  | $                                         | 0.40      |   |                                          | $
|Diluted                                                                                |  | $                                         | 0.37      |   |                                          | $
|                                                                                       |  |                                           |           |  
|Weighted average shares outstanding:                                                   |  |                                           |           |   |                                          |  
|Basic                                                                                  |  |                                           | 3,322,306 |   |                                          |  
|Diluted                                                                                |  |                                           | 3,579,916 |   |                                          |  



See
accompanying notes to unaudited consolidated financial statements



2



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##### Table of Contents

WORONOCO BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Nine Months Ended September 30, 2003 and 2002

(Dollars In Thousands)

(Unaudited)



|                                                                                                                   |  | CommonStock |    | AdditionalPaid-inCapital |   | UnearnedCompensation |  |   | RetainedEarnings |   |  | AccumulatedOtherComprehensiveIncome |        |   | TreasuryStock |   |        | Total | 
|------------------------------------------------------------------------------------------------------------------ |  | ----------- | -- | ------------------------ | - | -------------------- |  | - | ---------------- | - |  | ----------------------------------- | ------ | - | ------------- | - | ------ | ----- | 
|Balance at December 31, 2002                                                                                       |  | $           | 60 |                          | $ | 59,020               |  | $ | (3,951           | ) |  | $                                   | 44,641 |   |               | $ | 5,222  |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Comprehensive income:                                                                                              |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Net income                                                                                                         |  |             |   |                          |   |                     |  |   |                 |   |  |                                     | 4,722  |   |               |   |       |       | 
|Change in net unrealized gain on securities available for sale, net of reclassification adjustment and tax effects |  |             |   |                          |   |                     |  |   |                 |   |  |                                     |       |   |               |   | (1,003 | )     | 
|Net gain on derivative instruments                                                                                 |  |             |   |                          |   |                     |  |   |                 |   |  |                                     |       |   |               |   | (34    | )     | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Total comprehensive income                                                                                         |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Decrease in unearned compensation                                                                                  |  |             |   |                          |   | 488                  |  |   | 643              |   |  |                                     |       |   |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Adjustment for tax benefit related to vesting of stock awards and stock option exercises                           |  |             |   |                          |   | 190                  |  |   |                 |   |  |                                     |       |   |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Treasury stock reissued in connection with stock option exercises (123,524 shares)                                 |  |             |   |                          |   | 13                   |  |   |                 |   |  |                                     | (362   | ) |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Cash dividends paid                                                                                                |  |             |   |                          |   |                     |  |   |                 |   |  |                                     | (1,567 | ) |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Treasury stock purchased (68,791 shares)                                                                           |  |             |   |                          |   |                     |  |   |                 |   |  |                                     |       |   |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Balance at September 30, 2003                                                                                      |  | $           | 60 |                          | $ | 59,711               |  | $ | (3,308           | ) |  | $                                   | 47,434 |   |               | $ | 4,185  |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Balance at December 31, 2001                                                                                       |  | $           | 60 |                          | $ | 58,294               |  | $ | (4,834           | ) |  | $                                   | 41,439 |   |               | $ | 1,497  |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Comprehensive income:                                                                                              |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Net income                                                                                                         |  |             |   |                          |   |                     |  |   |                 |   |  |                                     | 3,659  |   |               |   |       |       | 
|Change in net unrealized gain on securities available for sale, net of reclassification adjustment and tax effects |  |             |   |                          |   |                     |  |   |                 |   |  |                                     |       |   |               |   | 2,705  |       | 
|Net gain on derivative instruments                                                                                 |  |             |   |                          |   |                     |  |   |                 |   |  |                                     |       |   |               |   | 98     |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Total comprehensive income                                                                                         |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Decrease in unearned compensation                                                                                  |  |             |   |                          |   | 299                  |  |   | 667              |   |  |                                     |       |   |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Adjustment for tax benefit related to vesting of stock awards and stock option exercises                           |  |             |   |                          |   | 59                   |  |   |                 |   |  |                                     |       |   |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Treasury stock reissued in connection with stock option exercises (19,017 shares)                                  |  |             |   |                          |   | 12                   |  |   |                 |   |  |                                     | (38    | ) |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Cash dividends paid                                                                                                |  |             |   |                          |   |                     |  |   |                 |   |  |                                     | (1,159 | ) |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      | 
|Treasury stock purchased (39,300 shares)                                                                           |  |             |   |                          |   |                     |  |   |                 |   |  |                                     |       |   |               |   |       |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 
|Balance at September 30, 2002                                                                                      |  | $           | 60 |                          | $ | 58,664               |  | $ | (4,167           | ) |  | $                                   | 43,901 |   |               | $ | 4,300  |       | 
|                                                                                                                   |  |             |    |                          |   |                      |  |   |                  |   |  |                                     |        |   |               |   |        |       | 



See
accompanying notes to unaudited consolidated financial statements



3



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##### Table of Contents

WORONOCO BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                            |  | Nine Months EndedSeptember 30, |         
|------------------------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                                            |  | 2003                           |         
|                                                                                            |  | (In thousands)                 |         
|Cash flows from operating activities:                                                       |  |                                |         
|Net income                                                                                  |  | $                              | 4,722   
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                                |         
|Provision for loan losses                                                                   |  |                                | 104     
|Net amortization of investments                                                             |  |                                | 794     
|Depreciation and amortization                                                               |  |                                | 712     
|Amortization of goodwill and other intangible assets                                        |  |                                | 41      
|Amortization of mortgage servicing rights                                                   |  |                                | 168     
|Employee stock ownership plan expense                                                       |  |                                | 763     
|Stock-based incentive plan expense                                                          |  |                                | 368     
|(Gain) loss on sales, disposition and impairment of available-for-sale securities, net      |  |                                | (580    
|Net decrease in trading account securities                                                  |  |                                | 13,508  
|Net gain on trading activities                                                              |  |                                | (512    
|Gain on sales of loans, net                                                                 |  |                                | (939    
|Gain on sale of supermarket branch, net of expenses                                         |  |                                | (183    
|Changes in operating assets and liabilities:                                                |  |                                |         
|Accrued interest receivable                                                                 |  |                                | 23      
|Accrued expenses and other liabilities                                                      |  |                                | 5       
|Other, net                                                                                  |  |                                | (518    
|                                                                                            |  |                                |         
|Net cash provided by (used in) operating activities                                         |  |                                | 18,476  
|                                                                                            |  |                                |         
|Cash flows from investing activities:                                                       |  |                                |         
|Proceeds from sales of securities available for sale                                        |  |                                | 25,274  
|Purchases of securities available for sale                                                  |  |                                | (164,569
|Proceeds from maturities of securities available for sale                                   |  |                                | 2,503   
|Principal payments on mortgage-backed securities                                            |  |                                | 49,635  
|Purchases of Federal Home Loan Bank stock                                                   |  |                                | (1,578  
|Loans originations/purchases and principal collections, net                                 |  |                                | (45,745 
|Proceeds from sale of loans                                                                 |  |                                | 26,861  
|Additions to premises and equipment                                                         |  |                                | (524    
|Proceeds from sales of premises and equipment, net                                          |  |                                | 99      
|Proceeds from sales of foreclosed real estate                                               |  |                                |        
|                                                                                            |  |                                |         
|Net cash used in investing activities                                                       |  |                                | (108,044
|                                                                                            |  |                                |         
|Cash flows from financing activities:                                                       |  |                                |         
|Net increase in deposits, excluding deposits sold                                           |  |                                | 45,800  
|Sale of supermarket branch deposits, net of premium and expenses                            |  |                                | (4,084  
|Net increase (decrease) in short-term borrowings                                            |  |                                | 17,935  
|Proceeds from issuance of long-term debt                                                    |  |                                | 45,000  
|Repayments of long-term debt                                                                |  |                                | (15,731 
|Net increase in mortgagors escrow accounts                                                 |  |                                | 427     
|Cash dividends paid                                                                         |  |                                | (1,567  
|Treasury stock purchased                                                                    |  |                                | (1,589  
|Reissuance of treasury stock in connection with stock option exercises                      |  |                                | 1,221   
|                                                                                            |  |                                |         
|Net cash provided by financing activities                                                   |  |                                | 87,412  
|                                                                                            |  |                                |         
|Net decrease in cash and cash equivalents                                                   |  |                                | (2,156  
|Cash and cash equivalents at beginning of period                                            |  |                                | 27,801  
|                                                                                            |  |                                |         
|Cash and cash equivalents at end of period                                                  |  | $                              | 25,645  
|                                                                                            |  |                                |         
|Supplemental cash flow information:                                                         |  |                                |         
|Interest paid on deposits                                                                   |  | $                              | 6,019   
|Interest paid on borrowings                                                                 |  |                                | 9,462   
|Income taxes paid                                                                           |  |                                | 2,113   
|Transfer from loans to other real estate owned                                              |  |                                |        



See
accompanying notes to unaudited consolidated financial statements



4



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##### Table of Contents

WORONOCO BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

At and for the Three and Nine Months Ended September 30, 2003



1. Unaudited Consolidated Financial Statements



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



2.
Recent Accounting Pronouncements



On 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.



5



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##### Table of Contents

3. Earnings Per Share



Basic 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 nine months ended
September 30, 2003 and 2002 have been computed based upon the following (dollars in thousands except per share amounts):



|                                                                                         |  | Unaudited Three Months Ended September 30, |           | Unaudited Nine Months EndedSeptember 30,
|---------------------------------------------------------------------------------------- |  | ------------------------------------------ | --------- | ----------------------------------------
|                                                                                         |  | 2003                                       |           | 2002                                    
|Net income                                                                               |  | $                                          | 1,322     |                                         
|                                                                                         |  |                                            |           |                                         
|Average number of common shares outstanding                                              |  |                                            | 3,322,306 |                                         
|Effect of dilutive stock options                                                         |  |                                            | 257,610   |                                         
|                                                                                         |  |                                            |           |                                         
|Average number of common shares outstanding used to calculate diluted earnings per share |  |                                            | 3,579,916 |                                         
|                                                                                         |  |                                            |           |                                         
|Net income per share:                                                                    |  |                                            |           |                                         
|Basic                                                                                    |  | $                                          | 0.40      |                                         
|Diluted                                                                                  |  | $                                          | 0.37      |                                         



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



4. Stock compensation plans



SFAS 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.



6



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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 EndedSeptember 30, |           |   | Nine Months EndedSeptember 30, |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ------------------------------ | -
|                                                                                                                                             |  | 2003                            |           |   | 2002                           |  
|Net income, as reported                                                                                                                      |  | $                               | 1,322     |   |                                | $
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all options, net of related
tax effects |  |                                 | (96       | ) |                                |  
|                                                                                                                                             |  |                                 |           |   |                                |  
|Pro forma net income                                                                                                                         |  | $                               | 1,226     |   |                                | $
|                                                                                                                                             |  |                                 |           |   |                                |  
|Earnings per share:                                                                                                                          |  |                                 |           |   |                                |  
|Basic-as reported                                                                                                                            |  | $                               | 0.40      |   |                                | $
|                                                                                                                                             |  |                                 |           |   |                                |  
|Basic-pro forma                                                                                                                              |  | $                               | 0.37      |   |                                | $
|                                                                                                                                             |  |                                 |           |   |                                |  
|Diluted-as reported                                                                                                                          |  | $                               | 0.37      |   |                                | $
|                                                                                                                                             |  |                                 |           |   |                                |  
|Diluted-pro forma                                                                                                                            |  | $                               | 0.34      |   |                                | $
|                                                                                                                                             |  |                                 |           |   |                                |  
|Basic shares outstanding                                                                                                                     |  |                                 | 3,322,306 |   |                                |  
|Diluted shares outstanding                                                                                                                   |  |                                 | 3,579,916 |   |                                |  



5. Dividends



On October 15, 2003, the Company declared a cash dividend of $0.1725 per share payable on
December 1, 2003 to shareholders of record as of the close of business on November 6, 2003.



6. Loan commitments



Outstanding loan
commitments totaled $20.0 million at September 30, 2003 compared to $15.8 million at December 31, 2002. At September 30, 2003 and December 31, 2002, the Company had no commitments to purchase loans.



7



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##### Table of Contents

7. Segment reporting



Information about reportable segments, and reconciliation of such information to the consolidated financial statements as of and for the nine months ended September 30,
follows:



|                                    |  | Banking        |         | Insurance |   |       | IntersegmentElimination |  |   | ConsolidatedTotals
|----------------------------------- |  | -------------- | ------- | --------- | - | ----- | ----------------------- |  | - | ------------------
|                                    |  | (In Thousands)
|2003                                |  |                |         |           |   |       |                         |  |   |                   
|                                    |  |                |         |          
|Net interest income                 |  | $              | 15,021  |           | $ |      |                         |  | $ |                  
|Other revenue - external customers  |  |                | 2,464   |           |   | 949   |                         |  |   |                  
|Other revenue - from other segments |  |                |        |           |   | 4     |                         |  |   | (4                
|Depreciation and amortization       |  |                | 688     |           |   | 24    |                         |  |   |                  
|Provision for loan losses           |  |                | 104     |           |   |      |                         |  |   |                  
|Profit                              |  |                | 4,616   |           |   | 106   |                         |  |   |                  
|Assets                              |  |                | 795,132 |           |   | 2,618 |                         |  |   | (643              
|                                    |  |                |         |          
|2002                                |  |                |         |           |   |       |                         |  |   |                   
|                                    |  |                |         |          
|Net interest income                 |  | $              | 15,618  |           | $ |      |                         |  | $ |                  
|Other revenue - external customers  |  |                | 1,849   |           |   | 516   |                         |  |   |                  
|Other revenue - from other segments |  |                |        |           |   | 2     |                         |  |   | (2                
|Depreciation and amortization       |  |                | 785     |           |   | 24    |                         |  |   |                  
|Provision for loan losses           |  |                | 465     |           |   |      |                         |  |   |                  
|Profit (loss)                       |  |                | 3,792   |           |   | (133  | )                       |  |   |                  
|Assets                              |  |                | 715,676 |           |   | 2,411 |                         |  |   | (428              



8



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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 nine months ended September 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 September 30, 2003 and December 31, 2002



The Companys assets expanded $91.5 million, or 13.0%, to $797.1 million at September
30, 2003 as compared to $705.6 million at December 31, 2002, largely due to purchases of available-for-sale securities totaling $164.6 million and an increase of $19.5 million in net loans. These items were partially offset by mortgage-backed
securities principal payments amounting to $49.6 million and proceeds from sales of available-for-sale and trading account securities aggregating $25.3 million and $13.5 million, respectively.



The balance sheet expansion was funded primarily by increases in deposits, short-term
borrowings and long-term debt. Total deposit balances rose $41.5 million, or 11.2%, to $412.2 million at September 30, 2003 from $370.7 million at December 31, 2002 reflecting the success of efforts to attract and retain full customer relationships
in the Companys traditional branches, 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 $17.9 million, or 31.9%, to $74.2 million at
September 30, 2003 and long-term debt expanded $29.3 million, or 14.9%, to $226.3 million at September 30, 2003 to fund purchases of investment securities.



Total stockholders equity was $77.5 million at September 30, 2003, an increase of $3.1 million, or 4.1%, compared to $74.4 million at December 31, 2002, primarily
due to net income of $4.7 million, treasury share reissuances totaling $1.2 million in connection with the exercise of stock options and a reduction of $1.1 million in unearned compensation resulting from continued vesting in stock benefit plans,
partially offset by cash dividends of $1.6 million, the repurchase of 68,791 shares of stock at a cost of $1.6 million and a reduction of $1.0 million in net unrealized gains on securities available for sale.



10



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##### Table of Contents

Investments



At September 30, 2003, the Companys trading account portfolio totaled $3.3 million, or 0.4% of assets, and the available-for-sale portfolio amounted to $240.6
million, or 30.2% of assets. The following table sets forth information regarding the amortized cost and market values of the Companys investment securities.



|                                        |  | September 30, 2003 |         | December 31, 2002
|--------------------------------------- |  | ------------------ | ------- | -----------------
|                                        |  | AmortizedCost      |         | Fair Value       
|                                        |  | (In Thousands)    
|Trading account securities:             |  |                    |         |                  
|Preferred stocks                        |  | $                  | 1,702   |                  
|Common stocks                           |  |                    | 1,586   |                  
|                                        |  |                    |         |                  
|Total trading account securities        |  | $                  | 3,288   |                  
|                                        |  |                    |         |                  
|Available-for-sale securities:          |  |                    |         |                  
|Equity securities:                      |  |                    |         |                  
|Mutual funds                            |  | $                  | 4,044   |                  
|Common stocks                           |  |                    | 115     |                  
|                                        |  |                    |         |                  
|Total equity securities                 |  |                    | 4,159   |                  
|                                        |  |                    |         |                  
|Debt securities:                        |  |                    |         |                  
|Mortgage-backed:                        |  |                    |         |                  
|Freddie Mac                             |  |                    | 71,870  |                  
|Fannie Mae                              |  |                    | 101,639 |                  
|Ginnie Mae                              |  |                    | 9,768   |                  
|REMIC                                   |  |                    | 104     |                  
|                                        |  |                    |         |                  
|Total mortgage-backed securities        |  |                    | 183,381 |                  
|                                        |  |                    |         |                  
|Other:                                  |  |                    |         |                  
|U.S. Agencies                           |  |                    | 5,089   |                  
|Municipal bonds                         |  |                    | 21,446  |                  
|Trust preferred                         |  |                    | 20,175  |                  
|                                        |  |                    |         |                  
|Total other debt securities             |  |                    | 46,710  |                  
|                                        |  |                    |         |                  
|Total debt securities                   |  |                    | 230,091 |                  
|                                        |  |                    |         |                  
|Total available-for-sale securities (1) |  | $                  | 234,250 |                  
|                                        |  |                    |         |                  

---

|(1) | Does not include $15.4 million and $13.8 million of FHLB stock held by the Company at September 30, 2003 and December 31, 2002, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



Trading account portfolio balances declined $13.0 million, or 79.8%, to $3.3 million at
September 30, 2003 from $16.3 million at December 31, 2002. During the first nine 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 $85.3 million, or 54.9%, to $240.6
million at September 30, 2003 primarily due to purchases of mortgage-backed and mutual fund securities totaling $156.0 million and $4.0 million, respectively. These purchases were offset by mortgage-backed security principal payments amounting to
$49.6 million and the sale of agency securities aggregating $20.6 million. 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 purchases of the mutual funds were in association with the establishment of a Rabbi Trust to fund the Companys Senior Executive Retirement Plans. The proceeds from the sale of agency securities were used to pay down certain
FHLB advances in an effort to improve net interest income.



11



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##### Table of Contents

Lending Activities



At September 30, 2003, the Companys net loan portfolio was $489.7 million, or 61.4% 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.



|                                |  | September 30, 2003     |         |   | December 31, 2002 |       
|------------------------------- |  | ---------------------- | ------- | - | ----------------- | ------
|                                |  | Amount                 |         |   | Percentof Total   |       
|                                |  | (Dollars In Thousands) |        
|Real estate loans               |  |                        |         |   |                   |       
|One- to four-family             |  | $                      | 279,954 |   |                   | 56.04 
|Multi-family                    |  |                        | 36,939  |   |                   | 7.40  
|Commercial                      |  |                        | 64,986  |   |                   | 13.01 
|Construction and development    |  |                        | 12,729  |   |                   | 2.55  
|                                |  |                        |         |   |                   |       
|Total real estate loans         |  |                        | 394,608 |   |                   | 79.00 
|                                |  |                        |         |   |                   |       
|Consumer loans                  |  |                        |         |   |                   |       
|Home equity loans               |  |                        | 80,461  |   |                   | 16.11 
|Automobile                      |  |                        | 7,402   |   |                   | 1.48  
|Other                           |  |                        | 2,794   |   |                   | 0.56  
|                                |  |                        |         |   |                   |       
|Total consumer loans            |  |                        | 90,657  |   |                   | 18.15 
|                                |  |                        |         |   |                   |       
|Commercial loans                |  |                        | 14,237  |   |                   | 2.85  
|                                |  |                        |         |   |                   |       
|Total loans                     |  |                        | 499,502 |   |                   | 100.00
|                                |  |                        |         |   |                   |       
|Less:                           |  |                        |         |   |                   |       
|Unadvanced loan funds (1)       |  |                        | (7,359  | ) |                   |       
|Deferred loan origination costs |  |                        | 765     |   |                   |       
|Allowance for loan losses       |  |                        | (3,222  | ) |                   |       
|                                |  |                        |         |   |                   |       
|Net loans                       |  | $                      | 489,686 |   |                   |       
|                                |  |                        |         |   |                   |       

---

|(1) | Includes committed but unadvanced loan amounts.
|--- | -----------------------------------------------



The Companys net loan portfolio grew $19.5 million, or 4.1%, during the first nine months of 2003 largely attributable to strong origination volume totaling $155.8
million and the purchase of $11.0 million in one- to-four-family adjustable-rate mortgages. 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. These factors were somewhat mitigated by refinancing and prepayment activity totaling $98.0 million, amortization of the existing portfolio amounting to $29.3 million and the
sale of $26.3 million of longer-term fixed rate one-to four-family residential loans. 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 Assets



The following table sets forth information regarding nonaccrual loans, real estate owned and restructured loans.



|                                                                                                  |  | September 30, 2003     |      |   | December 31, 2002 |  
|------------------------------------------------------------------------------------------------- |  | ---------------------- | ---- | - | ----------------- | -
|                                                                                                  |  | (Dollars in Thousands) |     
|Nonaccruing loans:                                                                                |  |                        |      |   |                   |  
|One- to four- family real estate                                                                  |  | $                      | 259  |   |                   | $
|Home equity loans                                                                                 |  |                        | 51   |   |                   |  
|Other consumer                                                                                    |  |                        | 31   |   |                   |  
|                                                                                                  |  |                        |      |   |                   |  
|Total                                                                                             |  |                        | 341  |   |                   |  
|Real estate owned, net (1)                                                                        |  |                        |     |   |                   |  
|                                                                                                  |  |                        |      |   |                   |  
|Total nonperforming assets                                                                        |  |                        | 341  |   |                   |  
|Troubled debt restructurings                                                                      |  |                        |     |   |                   |  
|                                                                                                  |  |                        |      |   |                   |  
|Troubled debt restructurings and total nonperforming assets                                       |  | $                      | 341  |   |                   | $
|                                                                                                  |  |                        |      |   |                   |  
|Total nonperforming loans and troubled debt restructurings as a percentage of total loans (2) (3) |  |                        | 0.07 | % |                   |  
|Total nonperforming assets and troubled debt restructurings as a percentage of total assets (3)   |  |                        | 0.04 | % |                   |  

---

|(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 $775,000 in one- to four- family residential real estate non-accrual loans during the nine months ended September 30, 2003 from
December 31, 2002 as several loans were paid in full or became current.



13



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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 and inherent risk, 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. 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. These factors are intended to reduce the difference between estimated and actual losses
and are designed to be self-correcting. 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.



14



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##### Table of Contents

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.



15



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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 Nine Months Ended September 30, |       
|------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------
|                                                                                      |  | 2003                                          |       
|                                                                                      |  | (Dollars in Thousands)                        |       
|Allowance for loan losses, beginning of period                                        |  | $                                             | 3,156 
|                                                                                      |  |                                              
|Charged-off loans:                                                                    |  |                                               |       
|Real estate                                                                           |  |                                               | 6     
|Consumer                                                                              |  |                                               | 107   
|                                                                                      |  |                                               |       
|Total charged-off loans                                                               |  |                                               | 113   
|                                                                                      |  |                                               |       
|Recoveries on loans previously charged-off:                                           |  |                                               |       
|Real estate                                                                           |  |                                               | 23    
|Commercial                                                                            |  |                                               | 6     
|Consumer                                                                              |  |                                               | 46    
|                                                                                      |  |                                               |       
|Total recoveries                                                                      |  |                                               | 75    
|                                                                                      |  |                                               |       
|Net loans charged-off                                                                 |  |                                               | 38    
|Provision for loan losses                                                             |  |                                               | 104   
|                                                                                      |  |                                               |       
|Allowance for loan losses, end of period                                              |  | $                                             | 3,222 
|                                                                                      |  |                                               |       
|Net loans charged-off to average loans, net                                           |  |                                               | 0.01  
|Allowance for loan losses to total loans (1)                                          |  |                                               | 0.65  
|Allowance for loan losses to nonperforming loans and troubled debt restructurings (2) |  |                                               | 944.87
|Net loans charged-off to allowance for loan losses                                    |  |                                               | 1.57  
|Recoveries to charge-offs                                                             |  |                                               | 66.37 

---

|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



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##### Table of Contents

Deposits



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



|                        |  | September 30, 2003     |         |                         | December 31, 2002 |  
|----------------------- |  | ---------------------- | ------- | ----------------------- | ----------------- | -
|                        |  | Balance                |         | Percentof TotalDeposits |                   |  
|                        |  | (Dollars In Thousands) |        
|Demand deposits         |  | $                      | 27,317  |                         | 6.63              | %
|Savings                 |  |                        | 83,513  |                         | 20.26             | %
|Money market            |  |                        | 62,315  |                         | 15.12             | %
|NOW                     |  |                        | 61,911  |                         | 15.02             | %
|Brokered deposits       |  |                        | 42,488  |                         | 10.31             | %
|Certificates of deposit |  |                        | 134,650 |                         | 32.66             | %
|                        |  |                        |         |                         |                   |  
|Total deposits          |  | $                      | 412,194 |                         | 100.00            | %
|                        |  |                        |         |                         |                   |  



Core deposits, which exclude brokered
deposits and certificates of deposit, increased $21.1 million, or 9.9%, to $235.1 million at September 30, 2003 from $214.0 million at December 31, 2002. The growth in core deposits reflects expanded marketing efforts, an enhanced focus on
traditional branching as a result of the sale of the Companys supermarket facilities and increased balances associated with relationship banking products. The reduction in NOW account balances of $5.0 million, or 7.5%, to $61.9 million at
September 30, 2003 reflects a shift from a premium investment checking account to a new tiered-rate money market account offered as part of the relationship banking packages. Certificates of deposit balances rose $21.2 million, or 18.6%, to $134.7
million at September 30, 2003 largely due to promotional rates offered in conjunction with the relationship banking packages.



17



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##### Table of Contents

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



General



Net income increased $206,000, or 18.5%, to $1.3 million for the quarter ended September 30, 2003 compared to $1.1 million for the same
quarter last year. Diluted earnings per share grew 19.4% to $0.37 for the three months ended September 30, 2003 from $0.31 for the same period in 2002. Several factors influenced the improved financial results in the third quarter of 2003 including
growth in average loans, investment securities and lower-costing core deposits, expansion in fee income, insurance commissions and gains on sales of securities and lower provisions for loan losses and non-interest expenses, somewhat offset by net
interest margin compression.



Analysis of Net Interest Income



Net 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.



18



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##### Table of Contents

|                                                                                  |  | For the Three Months Ended September 30, |        
|--------------------------------------------------------------------------------- |  | ---------------------------------------- | -------
|                                                                                  |  | 2003                                     |        
|                                                                                  |  | AverageBalance                           |        
|                                                                                  |  | (Dollars in Thousands)                   |        
|Interest-earning assets: (1)                                                      |  |                                          |        
|Available-for-sale investments:                                                   |  |                                          |        
|Mortgage-backed securities                                                        |  | $                                        | 176,183
|U.S. Government and agency securities                                             |  |                                          | 9,696  
|Equity securities                                                                 |  |                                          | 35,653 
|State and municipal securities (2)                                                |  |                                          | 21,836 
|Trading account securities                                                        |  |                                          | 5,509  
|Loans: (3)                                                                        |  |                                          |        
|Residential real estate loans                                                     |  |                                          | 303,619
|Commercial real estate loans                                                      |  |                                          | 73,996 
|Consumer loans                                                                    |  |                                          | 90,137 
|Commercial loans                                                                  |  |                                          | 13,967 
|                                                                                  |  |                                          |        
|Loans, net                                                                        |  |                                          | 481,719
|Other                                                                             |  |                                          | 6,209  
|                                                                                  |  |                                          |        
|Total interest-earning assets                                                     |  |                                          | 736,805
|                                                                                  |  |                                          |        
|Noninterest-earning assets                                                        |  |                                          | 49,471 
|                                                                                  |  |                                          |        
|Total assets                                                                      |  | $                                        | 786,276
|                                                                                  |  |                                          |        
|Interest-bearing liabilities:                                                     |  |                                          |        
|Deposits:                                                                         |  |                                          |        
|Money market accounts                                                             |  | $                                        | 60,722 
|Savings accounts (4)                                                              |  |                                          | 84,036 
|NOW accounts                                                                      |  |                                          | 62,983 
|Certificates of deposit (5)                                                       |  |                                          | 170,680
|                                                                                  |  |                                          |        
|Total interest-bearing deposits                                                   |  |                                          | 378,421
|Borrowings                                                                        |  |                                          | 301,720
|                                                                                  |  |                                          |        
|Total interest-bearing liabilities                                                |  |                                          | 680,141
|                                                                                  |  |                                          |        
|Demand deposits                                                                   |  |                                          | 25,865 
|Other noninterest-bearing liabilities                                             |  |                                          | 4,989  
|                                                                                  |  |                                          |        
|Total liabilities                                                                 |  |                                          | 710,995
|Total stockholders equity                                                        |  |                                          | 75,281 
|                                                                                  |  |                                          |        
|Total liabilities and stockholders equity                                        |  | $                                        | 786,276
|                                                                                  |  |                                          |        
|Net interest-earning assets                                                       |  | $                                        | 56,664 
|                                                                                  |  |                                          |        
|Tax equivalent net interest income/ interest rate spread (6)                      |  |                                          |        
|                                                                                  |  |                                          |        
|Tax equivalent net interest margin as a percentage of interest-earning assets (7) |  |                                          |        
|                                                                                  |  |                                          |        
|Ratio of interest-earning assets to interest-bearing liabilities                  |  |                                          |        
|                                                                                  |  |                                          |        
|Less: tax equivalent adjustment (2)                                               |  |                                          |        
|                                                                                  |  |                                          |        
|Net interest income as reported on income statement                               |  |                                          |        
|                                                                                  |  |                                          |        

---

|(1) | Includes related assets available-for-sale and unamortized discounts and premiums.
|--- | ----------------------------------------------------------------------------------

|(2) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Savings accounts include mortgagors escrow deposits.
|--- | -----------------------------------------------------

|(5) | Certificates of deposit include brokered deposits.
|--- | --------------------------------------------------

|(6) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Tax equivalent net interest margin represents tax equivalent net interest income divided by average interest-earning assets.
|--- | ----------------------------------------------------------------------------------------------------------------------------



19



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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 EndedSeptember 30, 2003 compared to 2002 |     
|---------------------------------------------- |  | ----------------------------------------------------- | ----
|                                               |  | Increase (Decrease) Due to                            |     
|                                               |  | Volume                                                |     
|                                               |  | (In Thousands)                                        |     
|Interest-earning assets:                       |  |                                                       |     
|Mortgage-backed securities                     |  | $                                                     | 951 
|U.S. Government and agency securities          |  |                                                       | (191
|Equity securities                              |  |                                                       | (219
|State and municipal securities (1)             |  |                                                       | 6   
|Trading account securities                     |  |                                                       | 57  
|Loans:                                         |  |                                                       |     
|Residential real estate loans                  |  |                                                       | 94  
|Commercial real estate loans                   |  |                                                       | 267 
|Consumer loans                                 |  |                                                       | (98 
|Commercial loans                               |  |                                                       | 38  
|                                               |  |                                                       |     
|Total loans                                    |  |                                                       | 301 
|Other                                          |  |                                                       | (2  
|                                               |  |                                                       |     
|Total interest-earning assets                  |  |                                                       | 903 
|                                               |  |                                                       |     
|Interest-bearing liabilities:                  |  |                                                       |     
|Deposits:                                      |  |                                                       |     
|Money market accounts                          |  |                                                       | 74  
|Savings accounts (2)                           |  |                                                       | 12  
|NOW accounts                                   |  |                                                       | (8  
|Certificates of deposit (3)                    |  |                                                       | 60  
|                                               |  |                                                       |     
|Total deposits                                 |  |                                                       | 138 
|Borrowings                                     |  |                                                       | 509 
|                                               |  |                                                       |     
|Total interest-bearing liabilities             |  |                                                       | 647 
|                                               |  |                                                       |     
|Increase (decrease) in net interest income (4) |  | $                                                     | 256 
|                                               |  |                                                       |     

---

|(1) | The changes in state and municipal income are reflected on a tax equivalent basis using a tax rate of 34%.
|--- | ----------------------------------------------------------------------------------------------------------

|(2) | Includes interest on mortgagors escrow deposits.
|--- | -------------------------------------------------

|(3) | Includes interest on brokered certificates of deposit.
|--- | ------------------------------------------------------

|(4) | The changes in net interest income are reflected on a tax equivalent basis and thus do not correspond to the income statement.
|--- | ------------------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

Net interest income, on a tax equivalent basis, decreased $432,000, or 7.9%, to $5.0 million for the three months ended
September 30, 2003 compared to $5.5 million for the same period in 2002, mainly driven by net interest margin contraction, partially offset by growth in average interest-earning assets. Net interest margin, on a tax equivalent basis, compressed 54
basis points to 2.74% for the third quarter of 2003 from the comparable period in 2002 primarily resulting from reduced yields on interest-earning assets, somewhat mitigated by a lower cost of funds.



Interest and dividend income, on a tax equivalent basis, fell $761,000, or 7.1%, to $9.9
million for the three months ended September 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 1.00% to 5.39% for the three months ended September 30, 2003, principally as a result of lower market rates of interest. The lower interest rate environment led to significant levels of
loan prepayments and refinancings as well as accelerated cash flows and premium amortization in the existing mortgage-backed securities portfolio. The proceeds from these activities were used to support loan growth and to purchase investment
securities at lower yields. In addition, a portion of the Companys existing interest-sensitive assets repriced to reduced rates. Average interest-earning assets totaled $736.8 million for the third quarter of 2003 compared to $668.6 million
for the same period last year, an increase of $68.2 million, or 10.2%. Average mortgage-backed securities rose $79.5 million, or 82.2%, mainly attributable to additional purchases, somewhat offset by principal payments. Average loans increased $17.8
million, or 3.8%, primarily due to strong origination and refinancing volume and purchases of one- to-four-family adjustable-rate mortgages, somewhat mitigated by significant amortization and prepayments of existing loans and sales of longer-term,
fixed-rate residential mortgages. The higher levels of refinancing and prepayment activity were due in large 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. The reduction of $19.2 million, or 66.5%, in U.S. government and agency securities is mainly the result of sales in 2003.



Total interest expense declined $329,000, or 6.3%, to $4.9 million for the three months ended September 30, 2003 from $5.2 million for the
same period in 2002, resulting primarily from reduced rates paid on average interest-bearing liabilities, partially offset by growth in average interest-bearing liabilities. Rates paid on average interest-bearing liabilities fell 55 basis points to
2.85% for the third quarter of 2003, largely reflecting a significant reduction in market interest rates. The lower market interest rate environment led to a decrease in rates paid for new deposits and borrowings as well as the repricing of a
portion of the Companys outstanding deposits and borrowings. Average interest-bearing liabilities rose $72.8 million, or 12.0%, to $680.1 million for the three months ended September 30, 2003 from $607.3 million for the comparable period in
2002 reflecting solid growth in interest-bearing deposits and an increase in FHLB advances to fund balance sheet expansion.



Provision for Loan Losses



The provision for loan losses declined $85,000 to $28,000 for the third quarter of 2003 from $113,000 for the same period in 2002. The primary factors contributing to the
lower provision in 2003 include a larger reduction in non-performing loans in 2003 compared to 2002 and continued low levels of net charge-offs, partially offset by growth in net loans. The allowance for loan losses is maintained through provisions
for loan losses.



Non-interest Income



Total non-interest income rose $501,000, or 55.1%, to $1.4 million for the third quarter of
2003 compared to $910,000 for the same period in 2002. This increase was attributable to several factors including growth in fee income and insurance commissions. Fee income increased $256,000, or 38.8%, to $916,000 in the third quarter of 2003 from
$660,000 for the comparable period in 2002 reflecting expansion in core deposits and



21



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##### Table of Contents

the impact of a new deposit service introduced in 2003. Insurance commissions totaled $294,000 for the three months ended September 30, 2003 compared to
$223,000 in the third quarter of 2002, an increase of $71,000, or 31.8%, 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. The increase in the gain from
available-for-sale securities of $356,000 to $165,000 for the third quarter of 2003 was largely due to write-downs of certain equity securities totaling $297,000 recognized in the third quarter of 2002. The net trading loss of $118,000 in the third
quarter of 2003 was associated with sales of certain securities and the valuation adjustment for the remaining portfolio. The gains from loan sales realized in both periods are indicative of the Companys strategy to sell longer-term, lower
coupon, fixed-rate mortgages.



Non-interest Expenses



Non-interest expenses declined $93,000, or 2.1%, to $4.4 million for the three months
ended September 30, 2003 compared to $4.5 million in the third quarter of 2002 mainly due to lower salaries and benefits, occupancy and equipment and marketing costs. These reductions were offset by increases in professional services and data
processing expenses. Salaries and benefits expenses decreased $37,000, or 1.5%, to $2.4 million for third quarter of 2003 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. Occupancy and equipment expenses fell $56,000, or 10.0%, to $505,000 for the three months ended September 30, 2003 principally attributed to the sale of the supermarket
branches. Marketing costs declined $82,000, or 35.0%, to $152,000 in the third quarter of 2003 primarily due to less promotional activities. Professional services expenses expanded $43,000, or 13.4%, to $363,000 for the three months ended September
30, 2003 largely resulting from consulting costs associated with an information technology audit and the new deposit service introduced in the second quarter of 2003. Data processing costs rose $30,000, or 12.5%, to $270,000 for the quarter ended
September 30, 2003 principally associated with loan and deposit growth.



Income Taxes



The Companys income tax expense
increased $43,000, or 8.4%, to $557,000 for the third quarter of 2003 compared to $514,000 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 29.6% for the third quarter of 2003 from 31.5% in 2002.



22



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##### Table of Contents

Comparison of Operating Results for the Nine Months Ended September 30, 2003 and 2002



General



The Company reported net income of $4.7 million, or $1.34 per diluted share, for the nine months ended September 30, 2003 compared to net
income of $3.7 million, or $1.01 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 lower-costing 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 nine months of 2003 also include gains of $939,000 from loan
sales, net gains of $580,000 from the sale of available-for-sale securities, $512,000 from trading account activities and $183,000 from the sale of a supermarket branch, as well as a $539,000 penalty for the prepayment of FHLB advances. In
comparison, the 2002 results included gains of $644,000 from the termination of the Companys defined benefit pension plan and $206,000 from loan sales as well as write-downs of certain available-for-sale equity securities totaling $468,000.



Analysis of Net Interest Income



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.



23



---

##### Table of Contents

|                                                                                  |  | For the Nine Months Ended September 30, |        
|--------------------------------------------------------------------------------- |  | --------------------------------------- | -------
|                                                                                  |  | 2003                                    |        
|                                                                                  |  | AverageBalance                          |        
|                                                                                  |  | (Dollars in Thousands)                  |        
|Interest-earning assets: (1)                                                      |  |                                         |        
|Available-for-sale investments:                                                   |  |                                         |        
|Mortgage-backed securities                                                        |  | $                                       | 142,453
|U.S. Government and agency securities                                             |  |                                         | 12,213 
|Equity securities                                                                 |  |                                         | 34,425 
|State and municipal securities (3)                                                |  |                                         | 22,045 
|Trading account securities                                                        |  |                                         | 9,993  
|Loans: (4)                                                                        |  |                                         |        
|Residential real estate loans                                                     |  |                                         | 301,071
|Commercial real estate loans                                                      |  |                                         | 69,685 
|Consumer loans                                                                    |  |                                         | 91,054 
|Commercial loans                                                                  |  |                                         | 12,437 
|                                                                                  |  |                                         |        
|Loans, net                                                                        |  |                                         | 474,247
|Other                                                                             |  |                                         | 8,086  
|                                                                                  |  |                                         |        
|Total interest-earning assets                                                     |  |                                         | 703,462
|                                                                                  |  |                                         |        
|Noninterest-earning assets                                                        |  |                                         | 42,458 
|                                                                                  |  |                                         |        
|Total assets                                                                      |  | $                                       | 745,920
|                                                                                  |  |                                         |        
|Interest-bearing liabilities:                                                     |  |                                         |        
|Deposits:                                                                         |  |                                         |        
|Money market accounts                                                             |  | $                                       | 55,488 
|Savings accounts (5)                                                              |  |                                         | 81,324 
|NOW accounts                                                                      |  |                                         | 63,258 
|Certificates of deposit (6)                                                       |  |                                         | 170,742
|                                                                                  |  |                                         |        
|Total interest-bearing deposits                                                   |  |                                         | 370,812
|Borrowings                                                                        |  |                                         | 269,196
|                                                                                  |  |                                         |        
|Total interest-bearing liabilities                                                |  |                                         | 640,008
|                                                                                  |  |                                         |        
|Demand deposits                                                                   |  |                                         | 24,966 
|Other noninterest-bearing liabilities                                             |  |                                         | 5,054  
|                                                                                  |  |                                         |        
|Total liabilities                                                                 |  |                                         | 670,028
|Total stockholders equity                                                        |  |                                         | 75,892 
|                                                                                  |  |                                         |        
|Total liabilities and stockholders equity                                        |  | $                                       | 745,920
|                                                                                  |  |                                         |        
|Net interest-earning assets                                                       |  | $                                       | 63,454 
|                                                                                  |  |                                         |        
|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.
|--- | ----------------------------------------------------------------------------------------------------------------------------



24



---

##### 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.



|                                                   |  | Nine Months Ended September 30,2003 compared to 2002 |      
|-------------------------------------------------- |  | ---------------------------------------------------- | -----
|                                                   |  | Increase (Decrease) Due to                           |      
|                                                   |  | Volume                                               |      
|                                                   |  | (In Thousands)                                       |      
|Interest-earning assets:                           |  |                                                      |      
|Mortgage-backed securities (1)                     |  | $                                                    | 1,619
|U.S. Government and agency securities              |  |                                                      | (401 
|Equity securities                                  |  |                                                      | (690 
|State and municipal securities (2)                 |  |                                                      | 70   
|Trading account securities                         |  |                                                      | 223  
|Loans:                                             |  |                                                      |      
|Residential real estate loans                      |  |                                                      | 579  
|Commercial real estate loans                       |  |                                                      | 971  
|Consumer loans                                     |  |                                                      | (256 
|Commercial loans                                   |  |                                                      | 68   
|                                                   |  |                                                      |      
|Total loans                                        |  |                                                      | 1,362
|Other                                              |  |                                                      | (16  
|                                                   |  |                                                      |      
|Total interest-earning assets (1)                  |  |                                                      | 2,167
|                                                   |  |                                                      |      
|Interest-bearing liabilities:                      |  |                                                      |      
|Deposits:                                          |  |                                                      |      
|Money market accounts                              |  |                                                      | 208  
|Savings accounts (3)                               |  |                                                      | 39   
|NOW accounts                                       |  |                                                      | (10  
|Certificates of deposit (4)                        |  |                                                      | 159  
|                                                   |  |                                                      |      
|Total deposits                                     |  |                                                      | 396  
|Borrowings                                         |  |                                                      | 545  
|                                                   |  |                                                      |      
|Total interest-bearing liabilities                 |  |                                                      | 941  
|                                                   |  |                                                      |      
|Increase (decrease) in net interest income (1) (5) |  | $                                                    | 1,226
|                                                   |  |                                                      |      

---

|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------



25



---

##### Table of Contents

Net interest income, on a tax equivalent basis, totaled $15.6 million for the nine months ended September 30, 2003, a
decrease of $402,000, or 2.5%, compared to $16.0 million for the same period in 2002, mainly driven by net interest margin contraction, somewhat mitigated by growth in average interest-earning assets. Net interest margin, on a tax equivalent basis,
compressed 28 basis points to 2.96% for the first nine 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 $1.6 million, or 4.9%, to $30.1 million for the nine months ended September 30, 2003 compared to $31.7 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 71 basis points to 5.71% for the nine months ended September 30, 2003, principally as a
result of lower market rates of interest. The lower interest rate environment led to significant levels of loan prepayments and refinancings as well as accelerated cash flows and premium amortization in the existing mortgage-backed securities
portfolio. The proceeds from these activities were used to support loan growth and to purchase investment securities at lower yields. In addition, a portion of the Companys existing interest-sensitive assets repriced to reduced rates. Average
interest-earning assets totaled $703.5 million for the first nine months of 2003 compared to $658.0 million for the same period last year, an increase of $45.5 million, or 6.9%. Average loans increased $26.1 million, or 5.8%, primarily due to strong
origination and refinancing volume and purchases of one- to-four-family adjustable-rate mortgages, somewhat mitigated by significant amortization and prepayments of existing loans and loan sales. The higher levels of refinancing and prepayment
activity were due in large part to the lower market interest rate environment. Average mortgage-backed securities rose $39.6 million, or 38.5%, mainly attributable to additional purchases, 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. The reduction of $13.7 million, or 53.0%, in U.S. government and agency securities is mainly the result of sales in 2003.



Total interest expense declined $1.2 million, or 7.3%, to $14.5 million for
the nine months ended September 30, 2003 from $15.7 million for the comparable period in 2002, resulting primarily from reduced rates paid on average interest-bearing liabilities, partially offset by growth in average interest-bearing liabilities.
Rates paid on average interest-bearing liabilities fell 46 basis points to 3.04% for the first nine months of 2003, largely reflecting a significant reduction in market interest rates and growth in lower-costing core deposits. The lower market
interest rate environment led to a decrease in rates paid for new deposits and borrowings as well as the repricing of a portion of the Companys outstanding deposits and borrowings. Average interest-bearing liabilities rose $41.0 million, or
6.8%, to $640.0 million for the nine months ended September 30, 2003 from $599.0 million for the same period in 2002 reflecting strong growth in core deposits and an increase in FHLB advances to support asset expansion.



Provision for Loan Losses



The provision for loan losses declined $361,000 to $104,000 for the first nine months of
2003 from $465,000 for the same period in 2002. The primary factors contributing to the lower provision in 2003 include an increase in the amount of loan sales in 2003 compared to 2002, a large reduction in non-performing loans for the first nine
months of 2003 compared to an increase in 2002, a decrease in net loan growth and continued low levels of net charge-offs. The allowance for loan losses is maintained through provisions for loan losses.



Non-interest Income



Total non-interest income was $5.1 million for the first nine months of 2003 compared to
$2.5 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 $615,000, or 33.3%, to $2.5 million in the first nine months



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of 2003 from $1.8 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 $949,000 for the nine months ended September 30, 2003, an increase of $433,000 compared to $516,000 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, 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 $580,000 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 nine months of 2003 also includes gains of $939,000 from loan sales and net gains of $512,000 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 $26.3 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 Expenses



Non-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 $287,000, or 2.2%, to $13.4 million for the nine months ended September 30, 2003 compared to $13.1 million in the comparable 2002 period mainly due to
increases in professional services 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 $7.3 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
$373,000, or 49.7%, 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. Data processing expenses expanded $80,000, or 11.3%, to $786,000 for the nine months ended September 30, 2003 mainly associated with loan and deposit account growth. Occupancy and equipment expenses fell $143,000, or 8.5%, to $1.5
million for the first nine months of 2003 principally attributable to the sale of the supermarket branches.



Income Taxes



The Companys
income tax expense increased $332,000, or 21.0%, to $1.9 million for the first nine months of 2003 compared to $1.6 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 28.9% for the first nine months of 2003 from 30.2% in 2002.



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Liquidity



Liquidity and funding strategies are the responsibility of the Bank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 Banks ability to raise cash within 30 days at a reasonable cost and with a minimum of loss. The Bank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 Bank are the origination of loans as well as investments in mortgage-backed, other debt and equity securities. During the nine months ended September 30, 2003, the Banks
loan originations totaled $155.8 million. At September 30, 2003, the Banks investments in trading account and available-for-sale securities totaled $3.3 million and $240.6 million, respectively. During the nine months ended September 30, 2003,
total deposits increased $41.5 million. The Bank closely monitors its liquidity position on a daily basis. If the Bank requires funds beyond its ability to generate them internally, additional sources of funds are available through FHLB advances. At
September 30, 2003, the Bank had $291.8 million of FHLB borrowings.



Outstanding loan commitments totaled $20.0 million at September 30, 2003. Management of the Bank 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 September 30, 2003, totaled $100.1 million. The Bank relies primarily on competitive rates, customer service, and long-standing relationships with customers to retain deposits. From time to time, the Bank will also
offer competitive special products to its customers to increase retention and to attract new deposits. Based upon the Bank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 Bank.



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 Woronoco Bancorp 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, which are otherwise permissible by regulation, for safety and soundness reasons.



Regulatory Capital



The Bank is subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the 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. Savings and loan
holding companies are not subject to capital requirements.



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 September 30, 2003 and December 31, 2002, that the Bank met all capital adequacy requirements to which it was subject.



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As of September 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 September 30, 2003 and December 31, 2002 are presented in the table.



|                                       |  | Actual         |        |       | Minimum forCapitalAdequacyPurposes |   |        | Minimum to beWell CapitalizedUnder PromptCorrective ActionProvisions |       
|-------------------------------------- |  | -------------- | ------ | ----- | ---------------------------------- | - | ------ | -------------------------------------------------------------------- | ------
|                                       |  | Amount         |        | Ratio |                                    |   | Amount |                                                                      | Ratio 
|                                       |  | (In Thousands) |       
|As of September 30, 2003:              |  |                |        |       |                                    |   |        |                                                                      |       
|                                       |  |                |        |       |                                    |  
|Total Capital to Risk Weighted Assets  |  |                |        |       |                                    |   |        |                                                                      |       
|Company                                |  | $              | 74,599 |       | 15.6                               | % |        |                                                                      | N/A   
|Bank                                   |  | $              | 62,576 |       | 13.1                               | % |        | $                                                                    | 38,281
|                                       |  |                |        |       |                                    |  
|Tier 1 Capital to Risk Weighted Assets |  |                |        |       |                                    |   |        |                                                                      |       
|Company                                |  | $              | 71,377 |       | 14.9                               | % |        |                                                                      | N/A   
|Bank                                   |  | $              | 59,354 |       | 12.4                               | % |        | $                                                                    | 19,141
|                                       |  |                |        |       |                                    |  
|Tier 1 Capital to Average Assets       |  |                |        |       |                                    |   |        |                                                                      |       
|Company                                |  | $              | 71,377 |       | 9.1                                | % |        |                                                                      | N/A   
|Bank                                   |  | $              | 59,354 |       | 7.6                                | % |        | $                                                                    | 31,199
|                                       |  |                |        |       |                                    |  
|As of December 31, 2002:               |  |                |        |       |                                    |   |        |                                                                      |       
|                                       |  |                |        |       |                                    |  
|Total Capital to Risk Weighted Assets  |  |                |        |       |                                    |   |        |                                                                      |       
|Company                                |  | $              | 70,403 |       | 15.8                               | % |        |                                                                      | N/A   
|Bank                                   |  | $              | 63,074 |       | 14.1                               | % |        | $                                                                    | 35,671
|                                       |  |                |        |       |                                    |  
|Tier 1 Capital to Risk Weighted Assets |  |                |        |       |                                    |   |        |                                                                      |       
|Company                                |  | $              | 67,247 |       | 15.1                               | % |        |                                                                      | N/A   
|Bank                                   |  | $              | 59,918 |       | 13.4                               | % |        | $                                                                    | 17,836
|                                       |  |                |        |       |                                    |  
|Tier 1 Capital to Average Assets       |  |                |        |       |                                    |   |        |                                                                      |       
|Company                                |  | $              | 67,247 |       | 9.6                                | % |        |                                                                      | N/A   
|Bank                                   |  | $              | 59,918 |       | 8.6                                | % |        | $                                                                    | 27,882



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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. Following is
a discussion of material changes since December 31, 2002.



Income
simulation analysis. The Company uses income simulation modeling in order to analyze its interest rate risk under various scenarios. The income simulation model is designed to measure the performance of the Companys net interest income
based upon potential changes in interest rates over a select period of time. The model consists of current data related to cash flow characteristics, repricing opportunities, maturities and current rates for all interest-earning assets and
interest-bearing liabilities. In addition, management makes certain assumptions associated with prepayment speeds, maturities for non-certificate deposits, pricing decisions on loans and deposits, and reinvestment/replacement of asset and liability
cash flows. The model does not include assumptions about future changes to the structure of the balance sheet or actions the Company may take to mitigate projected risks. The income simulation model is produced for several interest rate environments
including a flat rate scenario (i.e. no change in current interest rates) over a twelve month period. A second and third model are produced in which a gradual increase of 200 basis points and a decrease of 100 basis points occurs over a twelve month
period. Other models are produced, as appropriate, to simulate the flattening or steepening of the yield curve. Under these scenarios, assets subject to repricing or prepayment are adjusted to account for faster or slower prepayment assumptions. The
resultant changes in net interest income are then measured against the flat rate scenario. As of September 30, 2003, the model projects an increase of 0.12% in net interest income in the down 100 basis points scenario during the next twelve months
compared to a reduction of 1.48% at December 31, 2002. In an up 200 basis points environment, the model forecasts net interest income contraction of 5.05% and 1.06%, respectively, as of September 30, 2003 and December 31, 2002. The variability
calculated in these models is well within the guidelines established by the Companys interest rate risk policy.



The preceding income simulation analysis does not represent a forecast of net interest income and should not be relied upon as being indicative of expected operating
results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including the yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans
and deposits, reinvestment/replacement of asset and liability cash flows, and others. Also, as market conditions vary from those assumed in the income simulation models, the actual results will differ reflecting prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate changes on caps and floors embedded in adjustable rate loans, early withdrawal of deposits, changes in product preferences, and other internal/external variables.



Gap analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are interest rate sensitive and by monitoring a banks interest rate sensitivity gap. An asset or liability is said to be interest rate sensitive within a
specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same time period. At September 30, 2003, the Companys one-year gap position, the difference between the amount of interest-earning assets maturing or repricing within one
year and interest-bearing liabilities maturing or repricing within one year, was negative 0.04% compared to a positive gap of 9.16% at December 31, 2002. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. Accordingly, during a period of falling interest rates, an
institution with a negative gap would tend to have its interest bearing liabilities repricing downward at a faster rate than its interest-earning assets as compared to an institution with a positive gap which, consequently, may tend to positively
affect the growth of its net interest income. Conversely, during a period of rising interest rates, an institution with a negative gap position would be in a less favorable position to invest in higher yielding assets which, consequently, may result
in the yield on interest-earning assets increasing at a slower rate than its cost of its interest-bearing liabilities than if it had a positive gap.



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Item 4. Controls and Procedures



The
Companys management, including the Companys principal executive officer and principal financial officer, have evaluated the effectiveness of the Companys disclosure controls and procedures, as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange Act). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the
period covered by this report, the Companys disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act
with the Securities and Exchange Commission (the SEC) (1) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and (2) is accumulated and communicated to the Companys
management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Companys internal control over
financial reporting occurred during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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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.



None



Item 5. Other Information.



None.



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



| | (a) | Exhibits
| | --- | --------



| | 3.1 | Certificate of Incorporation of Woronoco Bancorp, Inc. (1)
| | --- | ----------------------------------------------------------

| | 3.2 | Amended Bylaws of Woronoco Bancorp, Inc. (2)
| | --- | --------------------------------------------

| | 4.0 | Stock Certificate of Woronoco Bancorp, Inc. (1)
| | --- | -----------------------------------------------

| | 11.0 | Statement Re: Computation of Per Share Earnings (Incorporated Herein By Reference to Part 1  Earnings Per Share)
| | ---- | -----------------------------------------------------------------------------------------------------------------

| | 31.0 | Certifications pursuant to Rule 13a-14(a)/15d-14(a)
| | ---- | ---------------------------------------------------

| | 32.0 | Certifications pursuant to 18 U.S.C. Section 1350
| | ---- | -------------------------------------------------

---

| | (1) | Incorporated by reference into this document from the Exhibits filed with the Registration Statement on Form S-1, and any amendments thereto, Registration No. 333-67255.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated by reference into this document from the Exhibits filed with the 10-Q of November 14, 2002.
| | --- | --------------------------------------------------------------------------------------------------------



| | (b) | Reports on Form 8-K
| | --- | -------------------



On July 17, 2003, Woronoco Bancorp, Inc. furnished a Form 8-K in which it announced the financial results for the three and six months ended June 30,
2003. The press release announcing the financial results for the three and six months ended June 30, 2003 is filed as Exhibit 99.1 and incorporated herein by reference.



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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: November 14, 2003 |  | By:                   
|                         |  |                       
|                         |  |                       
|                         |  |                       
|                         |  |                       
|                         |  |                       
|Dated: November 14, 2003 |  | By:                   
|                         |  |                       
|                         |  |                       
|                         |  |                       
|                         |  |                       



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