<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
(Mark One)

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

                 For the quarterly period ended June 30, 1999

                                      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


                            WORONOCO BANCORP, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


                Delaware                                04-3444269
       ------------------------------               ------------------
      (State or other jurisdiction of               (I.R.S. Employer
       incorporation or organization)              Identification No.)


31 Court Street, Westfield, Massachusetts                 01085
-----------------------------------------           ------------------
(Address of principal executive offices)                (Zip Code)



                                (413) 568-9141
                                --------------
               (Issuer's telephone number, including area code)

                                Not Applicable
                                --------------
(Former name, former address and former fiscal year, if changes since last
                                    report)


     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

                     APPLICABLE ONLY TO CORPORATE ISSUERS

     State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: the Issuer had 5,998,860 shares
of common stock, par value $0.01 per share, outstanding as of August 9, 1999.
<PAGE>

                            WORONOCO BANCORP, INC.
                                   FORM 10-Q

                                     INDEX

<TABLE>
                                                                                                  Page
<S>                                                                                               <C>
PART I.        FINANCIAL INFORMATION

Item 1.    Financial Statements (unaudited)

           Consolidated Balance Sheets at
           June 30, 1999 and December 31, 1998.................................................    1

           Consolidated Statements of Operations for the Three
           And Six Months Ended June 30, 1999 and 1998.........................................    2

           Consolidated Statements of Changes in Stockholders' Equity
           for the Six Months Ended June 30, 1999 and 1998.....................................    3

           Consolidated Statements of Cash Flows for the
           Six Months Ended June 30, 1999 and 1998.............................................    4

           Notes to Unaudited Consolidated Financial Statements................................    5

Item 2.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations...............................................    6

Item 3.    Quantitative and Qualitative Disclosures About Market Risk..........................    30

PART II:       OTHER INFORMATION

Item 1.    Legal Proceedings...................................................................    31
Item 2.    Changes in Securities and Use of Proceeds...........................................    31
Item 3.    Defaults Upon Senior Securities.....................................................    31
Item 4.    Submission of Matters to a Vote of Security Holders.................................    31
Item 5.    Other Information ..................................................................    31
Item 6.    Exhibits and Reports on Form 8-K....................................................    32

SIGNATURES.....................................................................................    33
</TABLE>
<PAGE>

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements (unaudited)



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


<TABLE>
<CAPTION>
                                                                                     Unaudited
                                                                           June 30,              December 31,
                                                                             1999                    1998
Assets                                                               ------------------      ------------------
<S>                                                                  <C>                     <C>
Cash and due from banks                                                      $   11,496              $   10,371
Interest-bearing balances                                                         1,659                   1,607
                                                                     ------------------      ------------------
          Total cash and cash equivalents                                        13,155                  11,978

Securities available for sale                                                   114,123                 111,409
Federal Home Loan Bank stock, at cost                                             5,733                   5,648
Loans, net of allowance for loan losses ($2,281 at June 30, 1999
   and $2,166 at December 31, 1998)                                             293,574                 284,043
Other real estate owned, net                                                        211                     241
Banking premises and equipment, net                                               8,910                   8,290
Accrued interest receivable                                                       1,991                   1,748
Net deferred tax asset                                                            2,564                      55
Cash surrender value of life insurance                                            1,996                   1,917
Other assets                                                                        798                   1,497
                                                                     ------------------      ------------------
          Total assets                                                       $  443,055              $  426,826
                                                                     ==================      ==================
 Liabilities and Stockholders' Equity

Deposits                                                                     $  277,380              $  275,041
Federal Home Loan Bank advances                                                  75,000                 111,163
Repurchase agreements                                                               154                     100
Mortgagors' escrow accounts                                                         657                     645
Accrued expenses and other liabilities                                            2,942                   4,104
                                                                     ------------------      ------------------
          Total liabilities                                                     356,133                 391,053
                                                                     ------------------      ------------------
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 and outstanding:
      5,998,860 at June 30, 1999)                                                    60                       -
    Additional paid-in capital                                                   57,891                       -
    Unearned compensation - ESOP                                                 (4,473)                      -
    Retained earnings                                                            33,420                  34,060
    Accumulated other comprehensive income - net
      unrealized gain on securities available for sale,
      net of tax effects                                                             24                   1,713
                                                                     ------------------      ------------------
          Total stockholders' equity                                             86,922                  35,773
                                                                     ------------------      ------------------
          Total liabilities and stockholders' equity                         $  443,055              $  426,826
                                                                     ==================      ==================
 </TABLE>


   See accompanying Notes to the Unaudited Consolidated Financial Statements

                                       1
<PAGE>

                    WORONOCO BANCORP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (Dollars In Thousands Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                   Unaudited                         Unaudited
                                                               Three Months Ended                 Six Months Ended
                                                            June 30,          June 30,        June 30,         June 30,
                                                              1999             1998             1999             1998
                                                          ------------     ------------     ------------     ------------
<S>                                                      <C>               <C>              <C>            <C>
Interest and dividend income:
    Interest and fees on loans                                $  5,398         $  5,373        $  10,780        $  10,549
    Interest and dividends on investment securities:
      Interest                                                   1,310              595            2,798            1,270
      Dividends                                                    335              217              619              423
    Interest on federal funds sold                                  17                7              323               52
    Other interest income                                           10               32               24               57
                                                          ------------     ------------     ------------     ------------
          Total interest and dividend income                     7,070            6,224           14,544           12,351
                                                          ------------     ------------     ------------     ------------
Interest expense:
    Interest on deposits                                         2,343            2,596            4,729            5,163
    Interest on borrowings                                         839              722            2,186            1,412
                                                          ------------     ------------     ------------     ------------
          Total interest expense                                 3,182            3,318            6,915            6,575
                                                          ------------     ------------     ------------     ------------

Net interest income                                              3,888            2,906            7,629            5,776
Provision for loan losses                                           60               60              120              120
                                                          ------------     ------------     ------------     ------------
Net interest income, after provision for loan losses             3,828            2,846            7,509            5,656
                                                          ------------     ------------     ------------     ------------
Other income:
    Fee income                                                     478              407              920              763
    Gain on sales and disposition of securities, net               355              913              803            1,118
    Other income                                                    66               53               95               94
                                                          ------------     ------------     ------------     ------------
          Total other income                                       899            1,373            1,818            1,975
                                                          ------------     ------------     ------------     ------------
Other expenses:
    Salaries and employee benefits                               1,539            1,163            2,938            2,444
    Occupancy and equipment                                        430              342              880              701
    Marketing                                                      206              163              409              389
    Professional services                                          246              125              391              230
    Data processing                                                190              157              366              314
    Deposit insurance                                                9                8               25               24
    Contributions                                                    1              105            4,446              107
    Other general and administrative                               489              426              939              798
                                                          ------------     ------------     ------------     ------------
          Total other expenses                                   3,110            2,489           10,394            5,007
                                                          ------------     ------------     ------------     ------------

Income (loss) before income taxes                                1,617            1,730           (1,067)           2,624

Income tax expense (benefit)                                       609              597             (427)             891
                                                          ------------     ------------     ------------     ------------
          Net income (loss)                                   $  1,008         $  1,133            ($640)       $   1,733
                                                          ============     ============     ============     ============
Earnings per share:
     Basic                                                    $   0.18               NA               NA               NA
     Diluted                                                  $   0.18               NA               NA               NA

Weighted average shares outstanding:
     Basic                                                   5,519,062               NA               NA               NA
     Diluted                                                 5,519,062               NA               NA               NA
</TABLE>

   See accompanying Notes to the Unaudited Consolidated Financial Statements

                                       2
<PAGE>

                    WORONOCO BANCORP, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
                                (In Thousands)

<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                              Additional                                     Other
                                                 Common        Paid-in         Unearned       Retained   Comprehensive
                                                  Stock        Capital       Compensation     Earnings      Income           Total
                                              -----------    ------------   -------------     --------   -------------   ---------
<S>                                           <C>            <C>            <C>               <C>        <C>             <C>
Balance at December 31, 1998                        $   -        $      -        $      -     $ 34,060         $ 1,713   $  35,773

Comprehensive income (loss):
Net loss                                                -               -               -         (640)             -         (640)
Change in net unrealized gain on securities
   available for sale, net of tax effects               -               -               -            -          (1,689)     (1,689)
                                                                                                                         ---------
           Total comprehensive loss                                                                                         (2,329)
                                                                                                                         ---------

Issuance of common stock in connection with
   Bank's conversion from mutual to stock-
   owned savings bank                                  60          57,891          (4,609)           -               -      53,342

Decrease in unearned compensation                       -               -             136            -               -         136
                                              -----------    ------------   -------------    ---------         -------   ---------
Balance at June 30, 1999                            $  60       $  57,891        $ (4,473)    $ 33,420         $    24   $  86,922
                                              ===========    ============   =============    =========         =======   =========

Balance at December 31, 1997                        $   -        $      -        $      -     $ 30,950         $ 2,382   $  33,332

Comprehensive income:
Net income                                              -               -               -        1,733               -       1,733
Change in net unrealized gain on securities
   available for sale, net of tax effects               -               -               -            -            (549)       (549)
                                                                                                                         ---------

           Total comprehensive income                                                                                        1,184
                                              -----------    ------------   -------------    ---------         -------   ---------
Balance at June 30, 1998                            $   -        $      -        $      -     $ 32,683         $ 1,833   $  34,516
                                              ===========    ============   =============    =========         =======   =========
</TABLE>

   See accompanying Notes to the Unaudited Consolidated Financial Statements

                                       3
<PAGE>

                    WORONOCO BANCORP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In Thousands)

<TABLE>
<CAPTION>
                                                                                            Unaudited
                                                                                         Six Months Ended
                                                                                   June 30,               June 30,
                                                                                    1999                   1998
                                                                              ----------------       -----------------
<S>                                                                           <C>                    <C>
Cash flows from operating activities:
 Net (loss) income                                                                       ($640)               $  1,733
 Adjustments to reconcile net (loss) income to net cash
  provided by operating activities:
    Provision for loan losses                                                              120                     120
    Charitable contribution in the form of equity securities                             4,444                     102
    Net amortization (accretion) of investments                                             36                      (8)
    Depreciation and amortization                                                          351                     327
    Employee stock ownership plan expense                                                  136                       -
    Deferred taxes                                                                      (1,511)                      -
    Gain on sales and disposition of securities, net                                      (803)                 (1,118)
    Changes in operating assets and liabilities:
      Accrued interest receivable                                                         (243)                    (93)
      Accrued expenses and other liabilities                                            (1,162)                   (131)
      Other, net                                                                           596                     178
                                                                              ----------------       -----------------
           Net cash provided by operating activities                                     1,324                   1,110
                                                                              ----------------       -----------------
 Cash flows from investing activities:
  Proceeds from sales of securities available for sale                                   6,200                   4,974
  Purchase of securities available for sale                                            (18,252)                (10,894)
  Proceeds from maturities of securities available for sale                                433                     300
  Principal payments on mortgage-backed investments                                      7,009                   4,917
  Purchase of Federal Home Loan Bank stock                                                 (85)                   (551)
  Loans originated, net of loan payments received                                       (9,702)                (17,202)
  Purchases of banking premises and equipment                                             (971)                 (1,576)
  Net change in other real estate owned                                                     81                      80
  Loan to fund employee stock ownership plan                                            (4,609)                      -
                                                                              ----------------       -----------------
           Net cash used in investing activities                                       (19,896)                (19,952)
                                                                              ----------------       -----------------
 Cash flows from financing activities:
  Net increase in deposits                                                               2,339                   4,100
  Net (decrease) increase in borrowings                                                (36,109)                 13,543
  Net increase (decrease) in escrow                                                         12                     (76)
  Net proceeds from initial public offering                                             53,507                       -
                                                                              ----------------       -----------------
           Net cash provided by financing activities                                    19,749                  17,567
                                                                              ----------------       -----------------

Net increase (decrease) in cash & cash equivalents                                       1,177                  (1,275)

Cash & cash equivalents at beginning of period                                          11,978                  11,686
                                                                              ----------------       -----------------
Cash & cash equivalents at end of period                                              $ 13,155                $ 10,411
                                                                              ================       =================
Supplemental cash flow information:
 Interest paid on deposits                                                            $  4,732                $  5,165
 Interest paid on borrowings                                                             2,279                   1,346
 Income taxes paid                                                                       1,094                     925
 Transfers from loans to other real estate owned                                            51                      22
 </TABLE>

                                       4
<PAGE>

                    WORONOCO BANCORP, INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements
                                 June 30, 1999
                (Dollars in thousands except per share amounts)

1.   Consolidated Financial Statements

The Consolidated Financial Statements of Woronoco Bancorp, Inc. and its
subsidiaries (the "Company") included herein are unaudited, and in the opinion
of management all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial condition, results of
operations and cash flows, as of and for the periods covered herein, have been
made.  Certain information and note disclosures normally included in the
Consolidated Financial Statements have been omitted as they are included in the
most recent Securities and Exchange Commission ("SEC") Form 10-K and
accompanying Notes to the Financial Statements (the "Form 10-K") filed by the
Company for the year ended December 31, 1998.  Management believes that the
disclosures contained herein are adequate to make a fair presentation.

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

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

2.   New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal years beginning
after June 15, 1999.  Subsequently, in June 1999, the FASB issued SFAS No. 137
which delays the effective date of SFAS No. 133 until fiscal quarters beginning
after June 15, 2000.  This Statement standardizes the accounting for derivative
instruments, including derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
balance sheet and measure them at fair value.  In specific circumstances, an
entity may elect to designate a derivative as follows:  (1) a hedge of the
exposure to changes in the fair market value of a recognized asset or liability,
or of an unrecognized firm commitment that is attributable to a particular risk;
(2) a hedge of the exposure to variability in the cash flows of a recognized
asset or liability, or of a forecasted transaction, that are attributable to a
particular risk; or (3) a hedge of the foreign currency exposure of an
unrecognized firm commitment, an available-for-sale security, a forecasted
transaction, or a net investment in a foreign operation.  This Statement
generally provides for matching the timing of a gain or loss recognition on the
hedging instrument with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or the
earnings effect of the hedged forecasted transaction.  The Company will adopt
the requirements of this statement during the year ended December 31, 2000, and
it is not expected to have a material impact on the Company.

3.   Earnings Per Share

Basic earnings per share represents income available to common stock 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 shares had been issued. At June 30, 1999,
the Company had no outstanding dilutive securities such as stock options or
restricted stock. Earnings per share data is not presented in these financial
statements for the six months ended June 30, 1999 and the three and six months
ended June 30, 1998 since shares of common stock were not issued until March 19,
1999.

                                       5
<PAGE>

The following table sets forth the calculation of basic and diluted earnings per
share for the periods indicated (dollars in thousands except per share amounts).


<TABLE>
<CAPTION>
                                                              Unaudited                               Unaudited
                                                          Three Months Ended                       Six Months Ended
                                                      June 30,            June 30,            June 30,            June 30,
                                                        1999                1998                1999                1998
                                                    -------------      ------------          -------------     -------------
<S>                                                 <C>                <C>                   <C>               <C>
Net income                                             $    1,008                NA                     NA                NA

Weighted average shares outstanding:
  Weighted average shares outstanding                   5,998,860                NA                     NA                NA
  Less: unearned ESOP shares                             (479,798)               NA                     NA                NA
                                                    -------------
     Basic                                              5,519,062                NA                     NA                NA

     Diluted                                            5,519,062                NA                     NA                NA

Net income per share:
    Basic                                              $     0.18                NA                     NA                NA
    Diluted                                            $     0.18                NA                     NA                NA
 </TABLE>



4.   Loan commitments
Outstanding commitments for all loans totaled $7.8 million at June 30, 1999
compared to $10.0 million at December 31, 1998.


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 at and for the three and six months ended June 30, 1999 and 1998,
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 report 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 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 which 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/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,

                                       6
<PAGE>

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. Examples of these
assumptions may be found in the discussion of Management Strategy, Classified
Assets, Nonperforming Assets and Impaired Loans, Provision for Loan Losses,
Liquidity and Capital Resources, Regulatory Capital and Year 2000 Compliance.
Further information concerning the Company and its business, including
additional factors that could materially affect the Company's financial results,
is included in the Company's other filings with the SEC.

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.

General

The Company was incorporated in October 1998 under Delaware law.  On March 19,
1999, the Company acquired Woronoco Savings Bank (the "Bank") as part of the
Bank's conversion from a Massachusetts-chartered mutual savings bank to a
Massachusetts-chartered stock savings bank (the "Conversion").  The Company
acquired the Bank for 50% of the net proceeds from the Conversion.  The Company
is currently a savings and loan holding company regulated by the Office of
Thrift Supervision ("OTS").  In connection with the Conversion, the Company
issued an aggregate of 5,998,860 shares of its common stock of which 5,554,500
shares were sold at a purchase price of $10 per share in a subscription offering
and 444,360 shares were issued to Woronoco Savings Charitable Foundation, a
charitable foundation established by the Company. The net proceeds resulting
from the offering totaled $53.5 million.

The Company does not transact any material business other than through its
wholly-owned subsidiary, Woronoco Savings Bank (the "Bank").  The Bank's results
of operations are dependent primarily on net interest income, which is the
difference between the interest income earned on the Bank's interest-earning
assets, such as loans and investments, and the interest expense on its interest-
bearing liabilities, such as deposits and borrowings.  The Bank also generates
non-interest income such as gains on sales of securities and loans, service
charges and other fees.  The Bank's non-interest expenses primarily consist of
employee compensation and benefits, occupancy and equipment expense, marketing
expenses, data processing, professional services and other general and
administrative expenses.  The Bank's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies.

Management Strategy

The Bank operates as a community-oriented savings bank, offering traditional
deposit and loan products to its customers.  In recent years, the Bank's
strategy has been to maintain profitability while managing its capital position
and limiting its credit and interest rate risk exposure.  To accomplish these
objectives, the Bank has sought to:

 .    Emphasize providing superior service and competitive rates to increase
     deposits, including commercial accounts

 .    Control credit risk by emphasizing the origination of single-family, owner-
     occupied residential mortgage loans and consumer loans, consisting
     primarily of home equity loans and lines of credit

                                       7
<PAGE>

 .    Invest funds in excess of loan demand primarily in mortgage-backed and
     investment grade equity securities

 .    Control interest rate risk by selectively utilizing off-balance sheet
     hedging transactions such as interest rate swaps, caps and floors

 .    Originate high quality, multi-family and commercial real estate and
     commercial business loans which increase the yields earned on its overall
     loan portfolio, without incurring unnecessary risk

 .    Expand its lending and deposit base through the establishment of full-
     service banking offices located inside supermarket/grocery stores

Beginning in 1994, the Bank began opening full-service banking offices in
supermarket/grocery stores operated by the regionally based Big Y Foods, Inc.
Since 1994, the Bank has established four such banking offices.  The Bank will
continue to seek attractive opportunities to expand its branching activities
through supermarket facilities as such opportunities arise.

Management intends to continue these operating strategies in an effort to
enhance the Company's long-term profitability while maintaining a reasonable
level of interest rate risk.  Management also intends to enhance the Company's
current operating strategy by expanding the products and services that it
offers, as necessary, to improve its market share in its primary market area.
In this regard, the Company has begun to offer new consumer and commercial
deposit products and customer improvement services, and it intends to expand its
trust services and invest in technological enhancements, such as PC banking, to
better serve its customers in the future. In addition, and consistent with its
plan to increase its loan portfolio, the Company has hired a loan originator and
an additional credit analyst, and it intends to hire an additional loan
originator as well as a commercial loan officer.  Finally, management will
continue to evaluate various alternatives to increase the Company's market share
and expand its core businesses.

Comparison of Financial Condition at June 30, 1999 and December 31, 1998

Total assets increased by $16.2 million, or 3.8%, to $443.1 million at June 30,
1999, from $426.8 million at December 31, 1998 due primarily to growth in net
loans and to a lesser extent to increases in securities available for sale and
net deferred tax assets. Net loans increased by $9.5 million or 3.4%, to $293.6
million at June 30, 1999, from $284.0 million at December 31, 1998, primarily as
a result of net new originations of one- to four-family residential real estate
loans.  Total stockholders' equity increased $51.1 million to $86.9 million at
June 30, 1999 from $35.8 million at December 31, 1998 reflecting the proceeds
from the Conversion.  These proceeds were used to pay down Federal Home Loan
Bank borrowings and to fund the Company's growth in total assets.

Investments

The Company generally invests funds not utilized for loan origination activity
in securities, as a method of maintaining liquidity at levels deemed appropriate
by management and as a method of managing interest rate risk and the gap
position.  The Company maintains an investment portfolio which consists
primarily of mortgage-backed and equity securities.   The Company purchases
mortgage-backed securities to (1) achieve positive interest rate spreads with
minimal administrative expense and (2) lower its credit risk as a result of
guarantees provided by Freddie Mac, Fannie Mae, and Ginnie Mae.  Although the
Company no longer invests in Real Estate Mortgage Investment Conduits
("REMICs"), the Company did maintain $7.4 million of such investments in its
securities portfolio at June 30, 1999.  Generally, REMICs hold commercial and/or

                                       8
<PAGE>

residential real estate mortgages in trust and issue securities representing an
undivided interest in such mortgages.

Investments in equity securities involve risk as they are not insured or
guaranteed investments and are affected by stock market fluctuations.  Such
investments are carried at their market value and can directly affect the
stockholders' equity of the Company.  The Company also utilizes, from time to
time, "covered" call options with respect to common stocks as a means to further
supplement its revenues associated with equity investments.  Such investment
activity is specifically authorized by both federal and Massachusetts law.

An investment portfolio of securities must be categorized as held-to-maturity,
available-for-sale or held-for-trading.  At June 30, 1999, the Company's
securities portfolio totaled $114.1 million, or 25.8% of assets, all of which
was categorized as available-for-sale.

The following table sets forth at the dates indicated information regarding the
amortized cost and market values of the Company's investment securities.

<TABLE>
<CAPTION>
                                                                   June 30, 1999                      December 31, 1998
                                                           --------------------------------     --------------------------------
                                                             Amortized           Fair            Amortized             Fair
                                                                Cost             Value              Cost              Value
                                                           --------------    --------------     --------------    --------------
                                                                                   (Dollars In Thousands)
<S>                                                        <C>               <C>                <C>               <C>
Equity securities:
    Preferred stock                                           $     3,646       $     3,633         $    3,754        $    3,815
    Trust preferred                                                 9,901             9,612                  -                 -
    Common stock                                                   18,049            20,372             15,438            17,436
    Mutual funds                                                    1,561             1,424              1,524             1,394
                                                           --------------    --------------     --------------    --------------
       Total equity securities                                     33,157            35,041             20,716            22,645
                                                           --------------    --------------     --------------    --------------
Mortgage-backed and mortgage-related securities:
    FHLMC                                                           4,140             4,157              5,459             5,546
    FNMA                                                           28,001            27,777             31,955            32,435
    GNMA                                                           41,692            39,763             42,726            42,670
    REMIC                                                           7,095             7,385              7,833             8,113
                                                           --------------    --------------     --------------    --------------
       Total mortgage-backed securities                            80,928            79,082             87,973            88,764
                                                           --------------    --------------     --------------    --------------
          Total securities (1)                                $   114,085       $   114,123         $  108,689        $  111,409
                                                           ==============    ==============     ==============    ==============
 </TABLE>

(1) Does not include $5.7 million and $5.6 million of FHLB-Boston stock held at
June 30, 1999 and December 31, 1998, respectively.

Lending Activities

Federal and state laws and regulations limit the types of loans that the Company
may originate.  The interest rates charged by the Company on loans are affected
principally by the Company's current asset/liability strategy, the demand for
such loans, the supply of money available for lending purposes and the rates
offered by its competitors.  These factors are, in turn, affected by general and
economic conditions, monetary

                                       9
<PAGE>

policies of the federal government, including the Federal Reserve Board ("FRB"),
legislative tax policies and governmental budgetary matters.

At June 30, 1999, the Company's total loan portfolio was $297.5 million, or
67.1%, 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 at the dates indicated.

<TABLE>
<CAPTION>
                                                  June 30, 1999               December 31, 1998
                                             ----------------------        -----------------------
                                                           Percent                        Percent
                                              Amount      of Total          Amount       of Total
                                             --------    ----------        --------     ----------
                                                            (Dollars In Thousands)
<S>                                          <C>         <C>               <C>          <C>
Real estate loans
  One- to four-family                        $167,031        56.15%        $157,698         54.95%
  Multi-family                                 24,223         8.14%          22,962          8.00%
  Commercial                                   22,370         7.52%          20,595          7.18%
  Construction and development                  2,278         0.77%           3,464          1.21%
                                             --------       -------        --------        -------
        Total real estate loans               215,902        72.58%         204,719         71.34%
                                             --------       -------        --------        -------

Consumer loans
  Home equity loans                            62,249        20.93%          64,705         22.55%
  Automobile                                    9,046         3.04%           9,460          3.30%
  Other                                         3,607         1.21%           3,454          1.20%
                                             --------       -------        --------        -------
        Total consumer loans                   74,902        25.18%          77,619         27.05%
                                             --------       -------        --------        -------

Commercial loans                                6,666         2.24%           4,613          1.61%
                                             --------                      --------        -------

        Total loans                           297,470       100.00%         286,951        100.00%
                                                            =======                        =======

Less:
  Unadvanced loan funds (1)                    (2,162)                       (1,453)
  Deferred loan origination costs                 547                           711
  Allowance for loan losses                    (2,281)                       (2,166)
                                             --------                      --------

        Net loans                            $293,574                      $284,043
                                             ========                      ========
</TABLE>

(1) Includes committed but unadvanced loan amounts.

One- to four-family residential real estate loans increased $9.3 million during
the six months ended June 30, 1999, reflecting new originations offset by
prepayments and amortization of the existing portfolio.

                                       10
<PAGE>

For the six months ended June 30, 1999, multi-family real estate, commercial
real estate and commercial loans increased $1.3 million, $1.8 million and $2.1
million, respectively, primarily due to new originations.

Home equity loans decreased $2.5 million  as a result of the amortization of the
existing portfolio partially offset by originations.

Classified Assets

Federal regulations and the Company's internal policies require that the Company
utilize an internal asset classification system as a means of reporting problem
and potential problem assets.  The Company currently classifies problem and
potential problem assets as "Substandard," "Doubtful" or "Loss" assets.  An
asset is considered Substandard if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any.  Substandard assets include those characterized by the distinct possibility
that the Company will sustain some loss if the deficiencies are not corrected.
Assets classified as Doubtful have all of the weaknesses inherent in those
classified Substandard with the added characteristic that the weaknesses present
make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, highly questionable and improbable.  Assets
classified as Loss are those considered uncollectible and of such little value
that their continuance as assets, without the establishment of a specific loss
reserve, is not warranted.  Assets which do not currently expose the Company to
a sufficient degree of risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"Special Mention."

When the Company classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for loan
losses in an amount deemed prudent by management unless the loss of principal
appears to be remote. When the Company classifies one or more assets, or
portions thereof, as Loss, it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified or
to charge off the loan in full.

At June 30, 1999, the Company had $2.7 million, or 0.6%, of assets designated as
Substandard, consisting of 17 one- to four-family loans, three commercial real
estate loans, four multi-family loans, nine home equity lines of credit , 16
consumer loans and three commercial business loans.  At such date, the Company
had no loans classified as Doubtful or Loss.   Also, at June 30, 1999, the
Company had $1.1 million or 0.2% of assets designated as Special Mention,
consisting of eight one- to four-family real estate loans, three commercial real
estate loans, three multi-family real estate loan, two home equity lines of
credit and three commercial business loans.  At June 30, 1999, all of these
classified assets represented 1.3% of total loans.

At June 30, 1999, the Company had two loans, each with balances of $500 thousand
or more, which had been adversely classified or identified as a problem credit.
The first, which is classified as substandard, was restructured in 1994 and is
secured by a blanket first mortgage on ten multi-family properties located in
Westfield, Massachusetts.  Currently, the borrower provides the Company with
monthly financial statements and the Company actively monitors the properties'
vacancy rates.  The borrower is current with respect to payments. The second
loan, which was originally restructured in 1992 and, more recently in December
1997, is classified as impaired.  This loan is secured by an office/retail
building located in Wilbraham, Massachusetts. The borrower is current with
respect to payments.  As of June 30, 1999, the aggregate outstanding carrying
balance of these loans was $1.4 million.

                                       11
<PAGE>

Non-performing Assets and Impaired Loans

The following table sets forth information regarding nonaccrual loans, real
estate owned ("REO") and restructured loans.  Interest on loans is recognized on
a simple interest basis and is generally not accrued on loans which are
identified as impaired or loans which are ninety days or more past due.
Interest income previously accrued on such loans is reversed against current
period interest income.  Interest income on all nonaccrual loans is recognized
only to the extent of interest payments received.  If interest payments on all
nonaccrual loans for the six months ended June 30, 1999 and 1998 had been made
in accordance with original loan agreements, interest income of $8 thousand and
$9 thousand respectively, would have been recognized.  On January 1, 1995, the
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 114
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118.
At June 30, 1999, the Company had a $1.2 million recorded investment in impaired
loans which had specific allowances of $285 thousand.  At December 31, 1998,
there were $1.2 million of impaired loans with specific loan loss allowances of
$283 thousand.

<TABLE>
<CAPTION>
                                                     June 30,          December 31,
                                                       1999               1998
                                                  --------------      --------------
                                                         (Dollars in Thousands)
<S>                                               <C>                 <C>
Nonaccruing loans:
  Real estate:
    One- to four- family                          $           25      $          167
    Commercial                                                46                 109
  Home equity loans and lines of credit                       45                  30
  Commercial                                                  48                   -
                                                  --------------      --------------
    Total                                                    164                 306
Real estate owned (REO), net (1)                             211                 241
                                                  --------------      --------------
  Total nonperforming assets                                 375                 547
Troubled debt restructurings                                 758                 773
                                                  --------------      --------------
Troubled debt restructurings and
  total nonperforming assets                      $        1,133      $        1,320
                                                  ==============      ==============
Total nonperforming loans and
  troubled debt restructurings as a
  percentage of total loans (2) (3)                         0.31%               0.38%
Total nonperforming assets and
  troubled debt restructurings as a
  percentage of total assets (3)                            0.26%               0.31%
</TABLE>

(1) Real estate owned balances are shown net of related allowances.
(2) Total loans includes loans, less unadvanced loan funds, plus deferred loan
    costs (fees), net.
(3) Nonperforming assets consist of nonperforming loans and REO. Nonperforming
    loans consist of nonaccruing loans and 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.

                                       12
<PAGE>

Allowance for Loan Losses

The allowance for loan losses is maintained through provisions for loan losses
based on management's on-going evaluation of the risks inherent in the Company's
loan portfolio, consideration of the trends in the Company's loan portfolio,
national and regional economies and the real estate market in the Company's
primary lending area. The allowance for loan losses is maintained at an amount
management considers adequate to cover losses in the Company's loan portfolio
which are deemed probable and estimable based on information currently known to
management. The Company's loan loss allowance determinations also incorporate
factors and analyses which consider the potential principal loss associated with
the loan, costs of acquiring the property securing the loan through foreclosure
or deed in lieu thereof, the periods of time involved with the acquisition and
sale of such property, and costs and expenses associated with maintaining and
holding the property until sale.

Management calculates a loan loss allowance sufficiency analysis on a monthly
basis based upon the loan portfolio composition, asset classifications, loan-to-
value ratios, potential impairments in the loan portfolio and other factors.
The analysis is compared to actual losses, peer group comparisons and economic
conditions.   Management believes that, based on information available at June
30, 1999, the Company's allowance for loan losses was sufficient to cover losses
inherent in the Company's loan portfolio at that time. Based upon the Company's
plan to increase its emphasis on non-one- to four-family mortgage lending, the
Company may further increase its allowance for loan losses over future periods
as conditions dictate.  However, no assurances can be given that the Company's
level of allowance for loan losses will be sufficient to cover future loan
losses incurred by the Company or that further future adjustments to the
allowance for loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for loan losses. In addition,
the Federal Deposit Insurance Corporation ("FDIC") and the Commissioner of Banks
for the Commonwealth of Massachusetts ("Commissioner"), as an integral part of
their examination processes, periodically review the Company's allowance for
loan losses.  Such agencies may require the Company to make additional
provisions for estimated loan losses based upon judgments different from those
of management.

                                       13
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         Six Months Ended
                                                                             June 30,
                                                                      -----------------------
                                                                        1999           1998
                                                                      --------       --------
                                                                       (Dollars in Thousands)
<S>                                                                   <C>            <C>
Allowance for loan losses, beginning of period                         $2,166         $1,952

Charged-off loans:
  Real estate                                                               7              -
  Consumer                                                                 23             31
                                                                      --------       --------
      Total charged-off loans                                              30             31

Recoveries on loans previously charged-off:
  Real estate                                                               9              -
  Consumer                                                                 16             11
                                                                      --------       --------
      Total recoveries                                                     25             11
                                                                      --------       --------
Net loans charged off                                                       5             20
Provision for loan losses                                                 120            120
                                                                      --------       --------
Allowance for loan losses, end of period                               $2,281         $2,052
                                                                      ========       ========
Net loans charged-off to average
  interest-earning loans                                                    -           0.01%
Allowance for loan losses to total loans (1)                             0.77%          0.73%
Allowance for loan losses to nonperforming
  loans and troubled debt restructurings (2)                           247.40%        223.29%
Net loans charged-off to allowance for loan losses                       0.44%          1.95%
Recoveries to charge-offs                                               83.33%         35.48%
</TABLE>

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

                                       14
<PAGE>

The following table sets forth the percent of allowance for loan losses to total
allowances and the percent of loans to total loans in each of the categories
listed at the dates indicated.  Management believes that the allowance can be
allocated by category only on an approximate basis.  These allocations are not
necessarily indicative of future losses and do not restrict the use of the
allowance to absorb losses in any other loan category.

<TABLE>
<CAPTION>
                                                    June 30, 1999                            December 31, 1998
                                       ----------------------------------------     --------------------------------------
                                                      Percent of       Percent                   Percent of       Percent
                                                       Allowance      of Loans                    Allowance      of Loans
                                                        in each        in each                     in each        in each
                                                       Category       Category                     Category      Category
                                                       to Total       to Total                     to Total      to Total
                                         Amount       Allowance        Loans          Amount      Allowance        Loans
                                       ----------    -----------     ----------     ----------   -----------    ----------
                                                                      (Dollars in Thousands)
<S>                                    <C>           <C>             <C>            <C>          <C>            <C>
Real estate loans                      $    1,545         67.73%         72.58%     $    1,543        71.24%        71.34%
Consumer loans                                638         27.97%         25.18%            525        24.24%        27.05%
Commercial loans                               98          4.30%          2.24%             98         4.52%         1.61%
                                       ----------    -----------     ----------     ----------   -----------    ----------

  Total allowance for loan losses      $    2,281        100.00%        100.00%     $    2,166       100.00%       100.00%
                                       ==========    ===========     ==========     ==========   ===========    ==========
</TABLE>

Deposits

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

<TABLE>
<CAPTION>
                                            June 30, 1999                 December 31, 1998
                                       -----------------------         -----------------------
                                                      Percent                         Percent
                                                     of Total                        of Total
                                        Balance      Deposits           Balance      Deposits
                                       ---------    ----------         ---------    ----------
                                                          (Dollars In Thousands)
<S>                                    <C>          <C>                <C>          <C>
Demand deposits                         $ 11,479         4.14%         $ 10,382          3.77%
Savings accounts                          69,571        25.08%           66,774         24.28%
Money market accounts                     28,804        10.38%           27,176          9.88%
NOW accounts                              34,265        12.35%           32,305         11.75%
Certificates of deposit                  133,261        48.05%          138,404         50.32%
                                        --------       -------         --------        -------
  Total deposits                        $277,380       100.00%         $275,041        100.00%
                                        ========       =======         ========        =======
</TABLE>

The Company's core deposits, consisting of demand, savings, money market and NOW
accounts, increased $7.5 million, or 5.5%, reflecting the active promotion of
these products as well as increased deposits due to full service banking offices
opened during 1998 and 1999.

Certificates of deposit balances declined $5.1 million, or 3.7%, primarily due
to the maturing of previously offered "specials" that the Company did not
actively seek to retain.

                                       15
<PAGE>

Comparison of Operating Results for the Three Months Ended June 30, 1999 and
1998

General

The Company reported net income of $1.0 million for the three months ended June
30, 1999 compared to net income of $1.1 million for the same period in 1998.
This decrease was primarily due to lower gains on sales of securities and higher
other expenses, partially offset by growth in net interest income.

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 income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods shown and reflect
annualized yields and costs.  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.

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                             For the Three Months Ended June 30,
                                                         --------------------------------------------------------------------------
                                                                       1999                                     1998
                                                         ----------------------------------  --------------------------------------
                                                                                 Average                                   Average
                                                          Average                 Yield/      Average                       Yield/
                                                          Balance    Interest      Rate       Balance         Interest       Rate
                                                         --------    --------   ----------   --------         --------     --------
                                                                                 (Dollars in Thousands)
<S>                                                      <C>         <C>        <C>          <C>              <C>          <C>
Interest-earning assets: (1)
    Investments:
       Mortgage-backed securities                        $  82,329    $ 1,310      6.36%     $  36,688         $   595       6.49%
       Equity securities                                    23,695        245      4.14%        20,736             174       3.36%
    FHLB stock                                               5,733         90      6.28%         2,939              43       5.85%
    Loans: (2)
       Residential real estate loans                       186,766      3,382      7.24%       169,708           3,334       7.86%
       Commercial real estate loans                         22,051        504      9.14%        21,210             494       9.32%
       Consumer loans                                       75,737      1,390      7.44%        77,644           1,442       7.53%
       Commercial loans                                      6,597        122      7.40%         5,533             103       7.45%
                                                         ---------    -------                ---------         -------
         Loans, net                                        291,151      5,398      7.44%       274,095           5,373       7.87%
    Other                                                    3,109         27      3.47%         3,587              39       4.35%
                                                         ---------    -------                ---------         -------
         Total interest-earning assets                     406,017      7,070      6.98%       338,045           6,224       7.39%
                                                                      -------                                  -------

Noninterest-earning assets                                  27,089                              19,640
                                                         ---------                           ---------

         Total assets                                    $ 433,106                           $ 357,685
                                                         =========                           =========

Interest-bearing liabilities:
    Deposits:
       Money market accounts                             $  28,487    $   217      3.09%     $  23,404         $   204       3.54%
       Savings accounts (3)                                 69,452        350      2.04%        66,959             384       2.33%
       NOW accounts                                         33,711         88      1.06%        31,177              75       0.98%
       Certificates of deposit                             134,343      1,688      5.10%       139,269           1,933       5.63%
                                                         ---------    -------                ---------         -------
         Total interest-bearing deposits                   265,993      2,343      3.57%       260,809           2,596       4.04%
    Borrowings                                              68,115        839      4.93%        52,447             722       5.51%
                                                         ---------    -------                ---------         -------

         Total interest-bearing liabilities                334,108      3,182      3.85%       313,256           3,318       4.28%
                                                                      -------    ------                        -------     ------

    Demand deposits                                          8,278                               7,477
    Other noninterest-bearing liabilities                    3,114                               1,783
                                                         ---------                           ---------

         Total liabilities                                 345,500                             322,516
    Total stockholders' equity                              87,606                              35,169
                                                         ---------                           ---------

         Total liabilities and stockholders' equity      $ 433,106                           $ 357,685
                                                         =========                           =========

    Net interest-earning assets                          $  71,909                           $  24,789
                                                         =========                           =========
    Net interest income/interest
       rate spread (4)                                                $ 3,888      3.13%                       $ 2,906       3.11%
                                                                      =======    ======                        =======     ======
    Net interest margin as a percentage
       of interest-earning assets (5)                                              3.83%                                     3.44%
                                                                                 ======                                    ======
    Ratio of interest earning assets
       to interest-bearing liabilities                                           121.52%                                   107.91%
                                                                                 ======                                    ======
</TABLE>

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

(2)  Amount is net of deferred loan origination fees, unadvanced loan funds,
     allowance for loan losses and includes nonaccrual loans. The Company
     records interest income on nonaccruing loans on a cash basis.

(3)  Savings accounts include mortgagors' escrow deposits.

(4)  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.

(5)  Net interest margin represents net interest income divided by average
     interest-earning assets.

                                       17
<PAGE>

Net interest income totaled $3.9 million for the three months ended June 30,
1999 compared to $2.9 million for the same period in 1998, representing an
increase of $1.0 million, or 33.8%. This increase was primarily due to a $68.0
million increase in average interest-earning assets and a 41 basis points
increase in the net interest margin. This significant increase in the net
interest margin primarily reflects the use of conversion proceeds to fund a
portion of the Company's asset growth.

Interest and dividend income increased $846 thousand, or 13.6%, to $7.1 million
for the three months ended June 30, 1999. This increase was attributable to
higher levels of interest-earning assets offset by lower yields on
interest-earning assets. Interest-earning assets totaled $406.0 million for the
quarter ended June 30, 1999 compared to $338.0 million for the same period last
year, an increase of $68.0 million, or 20.1%. Average investments increased
$48.6 million, or 84.6%, resulting from the use of conversion proceeds to fund
the purchase of mortgage-backed securities and the securitization of $19.1
million of fixed rate one-to four-family residential mortgage loans in the third
quarter of 1998. Average loans increased $17.1 million, or 6.2%, primarily due
to new originations of residential real estate loans, offset by amortization and
prepayments of the existing loan portfolio and the loan securitization. Yields
on interest-earning assets declined 41 basis points due to a lower interest rate
environment, the refinancing of existing loans, and an increase in lower
yielding mortgage-backed securities.

Total interest expense decreased $136 thousand, or 4.1%, to $3.2 million for the
three months ended June 30, 1999 resulting primarily from lower rates paid on
interest-bearing liabilities, offset by an increase in balances on such
liabilities. Rates paid on interest-bearing liabilities declined 43 basis points
reflecting a lower interest rate environment and the maturing of previously
offered, specially priced certificates of deposits. The average balance of
interest-bearing liabilities was $334.1 million for the quarter ended June 30,
1999 as compared to $313.3 million for the same period last year, reflecting an
increase of $20.9 million, or 6.7%. This was primarily due to an increase of
$15.7 million in average borrowings resulting from management's decision to
increase its utilization of borrowings to fund asset growth. The growth in
average interest-bearing liabilities was also due to an increase of $5.2
million, or 2.0%, in average interest-bearing deposits reflecting growth in
money market, savings and NOW account deposits as a result of the Company's
active promotion of these products, partially offset by the maturity of
specially priced certificates of deposits which the Bank did not seek to retain.

                                       18
<PAGE>

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 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.

<TABLE>
<CAPTION>
                                                                   Three Months Ended June 30,
                                                                      1999 compared to 1998
                                                          ---------------------------------------------
                                                               Increase (Decrease)
                                                                     Due to
                                                          ---------------------------------------------
                                                              Volume           Rate              Net
                                                          --------------  --------------   ------------
                                                                      (Dollars in Thousands)
<S>                                                       <C>             <C>              <C>
Interest-earning assets:
     Mortgage-backed securities                               $   726        $    (11)          $  715
     Equity securities                                             31              40               71
     FHLB stock                                                    44               3               47
     Loans:
         Residential real estate loans                            309            (261)              48
         Commercial real estate loans                              19              (9)              10
         Consumer loans                                           (35)            (17)             (52)
         Commercial loans                                          20              (1)              19
                                                              -------        --------           ------
               Total loans                                        313            (288)              25
     Other                                                         20             (32)             (12)
                                                              -------        --------           ------
               Total interest-earning assets                  $ 1,134        $   (288)          $  846
                                                              -------        --------           ------

Interest-bearing liabilities:
     Deposits:
         Money market accounts                                $    39        $    (26)          $   13
         Savings accounts (1)                                      13             (47)             (34)
         NOW accounts                                               7               6               13
         Certificates of deposit                                  (62)           (183)            (245)
                                                              -------        --------           ------
               Total deposits                                      (3)           (250)            (253)
     Borrowings                                                   144             (27)             117
                                                              -------        --------           ------
               Total interest-bearing liabilities                 141            (277)            (136)
                                                              -------        --------           ------
Increase (decrease) in net interest income                    $   993        $    (11)          $  982
                                                              =======        ========           ======
</TABLE>

(1)  Includes interest on mortgagors' escrow deposits.

                                       19
<PAGE>

Provision for Loan Losses

The Company's provision for loan losses amounted to $60 thousand for each of the
quarters ended June 30, 1999 and 1998. The allowance for loan losses is
maintained through provisions for loan losses based on management's on-going
evaluation of the risks inherent in the Company's loan portfolio, consideration
of the trends in the Company's loan portfolio, national and regional economies
and the real estate market in the Company's primary lending area. The allowance
for loan losses is maintained at an amount management considers adequate to
cover losses in its loan portfolio which are deemed probable and estimable based
on information currently known to management.

Other Income

Total other income decreased $474 thousand, or 34.5%, to $899 thousand for the
quarter ended June 30, 1999 from $1.4 million in the comparable 1998 period as a
result of lower gains on sales of securities, partially offset by growth in fee
income. Fee income increased $71 thousand, or 17.4%, for the three months ended
June 30, 1999, reflecting an increase in fees associated with the Company's
larger deposit base as well as higher servicing income due to the securitization
of $19.1 million of residential mortgages in the third quarter of 1998.

Other Expenses

Total other expense increased $621 thousand, or 24.9%, to $3.1 million for the
quarter ended June 30, 1999 compared to $2.5 million for the same period in
1998. Salaries and benefits increased $376 thousand, or 32.3%, reflecting
expenses related to the Bank's employee stock ownership plan ("ESOP") which was
established in 1999, additional staff required to support the Company's expanded
branch network and growth and standard wage increases. Occupancy and equipment
expenses increased $88 thousand, or 25.7%, resulting from the opening of a new,
full service banking office as well as the expansion and renovation of the
Company's headquarters. Professional expenses increased $121 thousand, or 96.8%,
due to increased expenses related to the additional requirements of being a
public company and expenses associated with achieving year 2000 compliance.

                                       20
<PAGE>

Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998

General

The Company reported a net loss of $640 thousand for the six months ended June
30, 1999 compared to net income of $1.7 million for the same period in 1998. The
results for the first six months of 1999 were affected by the Company's
contribution of $4.4 million to fund the Woronoco Savings Charitable Foundation
in connection with the Bank's conversion to stock form and the related tax
effect of $1.5 million. Excluding these items, the Company would have earned
$2.3 million for the six months ended June 30, 1999 representing an increase of
$560 thousand or 32.3% from the same period last year. This increase was
primarily due to growth in net interest income, partially offset by lower other
income and an increase in other expenses.

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 income or expense by the average balance of interest-earning assets
or interest-bearing liabilities, respectively, for the periods shown and reflect
annualized yields and costs. 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.

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                      For the Six Months Ended June 30,
                                                   -------------------------------------------------------------------------
                                                                  1999                                 1998
                                                   ---------------------------------    ------------------------------------
                                                                             Average                                Average
                                                     Average                  Yield/      Average                    Yield/
                                                     Balance      Interest    Rate        Balance      Interest      Rate
                                                   ------------  ----------  -------    -----------    ---------    --------
                                                                              (Dollars in Thousands)
<S>                                                <C>           <C>         <C>        <C>            <C>          <C>
Interest-earning assets:(1)
    Investments:
       Mortgage-backed securities                   $    84,543    $  2,798    6.62%      $  37,928     $  1,270       6.70%
       Equity securities                                 22,860         474    4.15%         18,338          340       3.71%
    FHLB stock                                            5,719         145    5.07%          2,772           83       5.99%
    Loans:(2)
       Residential real estate loans                    183,946       6,744    7.33%        166,508        6,505       7.81%
       Commercial real estate loans                      22,100         983    8.90%         19,985          995       9.96%
       Consumer loans                                    76,383       2,802    7.40%         77,293        2,835       7.40%
       Commercial loans                                   6,727         251    7.42%          5,669          214       7.51%
                                                   ------------  ----------             -----------    ---------
         Loans, net                                     289,156      10,780    7.47%        269,455       10,549       7.85%
    Other                                                15,851         347    4.35%          4,795          109       4.52%
                                                   ------------  ----------             -----------    ---------
         Total interest-earning assets                  418,129      14,544    6.97%        333,288       12,351       7.42%
                                                                 ----------                            ---------

Noninterest-earning assets                               27,538                              19,610
                                                   ------------                         -----------

       Total assets                                 $   445,667                           $ 352,898
                                                   ============                         ===========

Interest-bearing liabilities:
    Deposits:
       Money market accounts                        $    28,058     $    425   3.05%      $  23,204     $    395       3.43%
       Savings accounts (3)                              85,014          680   1.61%         66,110          754       2.30%
       NOW accounts                                      32,412          165   1.03%         29,905          141       0.95%
       Certificates of deposit                          136,175        3,459   5.12%        139,914        3,873       5.58%
                                                   ------------  -----------             ----------     --------
       Total interest-bearing deposits                  281,659        4,729   3.39%        259,133        5,163       4.02%
    Borrowings                                           86,213        2,186   5.04%         50,590        1,412       5.55%
                                                   ------------  -----------             ----------     --------

       Total interest-bearing liabilities               367,872        6,915   3.77%        309,723        6,575       4.27%
                                                                 ----------- -------                    --------    --------

    Demand deposits                                       9,058                               6,760
    Other noninterest-bearing liabilities                 3,068                               1,779
                                                   ------------                         -----------

       Total liabilities                                379,998                             318,262
    Total stockholders' equity                           65,669                              34,636
                                                   ------------                         -----------

       Total liabilities and stockholders equity    $   445,667                           $ 352,898
                                                   ============                         ===========

    Net interest-earning assets                     $    50,257                           $  23,565
                                                   ============                          ==========
    Net interest income/interest
       rate spread (4)                                             $   7,629   3.20%                    $  5,776       3.15%
                                                                ============ =======                    ========    ========
    Net interest margin as a percentage
       of interest-earning assets (5)                                          3.65%                                   3.47%
                                                                             =======                                ========
    Ratio of interest earning assets
       to interest-bearing liabilities                                       113.66%                                 107.61%
                                                                             =======                                ========
</TABLE>

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

 (2)   Amount is net of deferred loan origination fees, unadvanced loan funds,
       allowance for loan losses and includes nonaccrual loans. The Company
       records interest income on nonaccruing loans on a cash basis.

 (3)   Savings accounts include mortgagors' escrow deposits.

 (4)   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.

 (5)   Net interest margin represents net interest income divided by average
       interest-earning assets.

                                       22
<PAGE>

Net interest income totaled $7.6 million for the six months ended June 30, 1999
compared to $5.8 million for the same period in 1998, representing an increase
of $1.9 million, or 32.1%. This increase was primarily due to a $84.8 million
increase in average interest-earning assets and an 18 basis points increase in
the net interest margin. This increase in the net interest margin primarily
reflects the use of conversion proceeds to fund a portion of the Company's asset
growth.

Interest and dividend income increased $2.2 million, or 17.8%, to $14.5 million
for the six months ended June 30, 1999. This increase was attributable to higher
levels of interest-earning assets offset by lower yields on interest-earning
assets. Interest-earning assets totaled $418.1 million for the six months ended
June 30, 1999 compared to $333.3 million for the same period last year, an
increase of $84.8 million, or 25.4%. Average investments increased $51.1
million, or 90.9%, as the Company utilized borrowings and conversion proceeds to
purchase mortgage-backed securities. The growth in average investments also
reflects the securitization of $19.1 million of fixed rate one-to four-family
residential mortgage loans in the third quarter of 1998. Average loans increased
$19.7 million, or 7.3%, primarily due to new originations of residential real
estate loans, offset by amortization and prepayments of the existing loan
portfolio and the loan securitization. Other interest-earning assets increased
$11.1 million as a result of higher federal funds sold. This increase in federal
funds sold reflects the receipt of subscriptions from potential investors as
part of the Conversion. Yields on interest-earning assets declined 45 basis
points due to a lower interest rate environment, the refinancing of existing
loans and increases in lower yielding mortgage-backed securities and federal
funds sold balances.

Total interest expense increased $340 thousand, or 5.2%, to $6.9 million for the
six months ended June 30, 1999 resulting from an increase in interest-bearing
liabilities offset by lower rates paid on such liabilities. Total interest-
bearing liabilities were $367.9 million for the six months ended June 30, 1999
as compared to $309.7 million for the same period last year, reflecting an
increase of $58.1 million, or 18.8%. This was primarily due to an increase of
$35.6 million in average borrowings resulting from management's decision to
increase its utilization of borrowings to fund a portion of the Company's asset
growth. The growth in the average balance of total interest-bearing liabilities
was also due an increase of $22.5 million, or 8.7%, in average interest-bearing
deposits primarily reflecting the receipt of subscription proceeds from
potential investors as part of the Conversion. Rates paid on interest-bearing
liabilities declined 50 basis points reflecting a lower interest rate
environment as well as the effect of the subscription receipts.

                                       23
<PAGE>

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 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.

<TABLE>
<CAPTION>
                                                                    Six Months Ended June 30,
                                                                      1999 compared to 1998
                                                        ----------------------------------------------
                                                             Increase (Decrease)
                                                                   Due to
                                                        ----------------------------------------------
                                                           Volume           Rate             Net
                                                        -------------   ------------   ---------------
<S>                                                     <C>             <C>            <C>
Interest-earning assets:
     Mortgage-backed securities                              $  1,543        $   (15)         $  1,528
     Equity securities                                             94             40               134
     FHLB stock                                                    75            (13)               62
     Loans:
         Residential real estate loans                            639           (400)              239
         Commercial real estate loans                              94           (106)              (12)
         Consumer loans                                           (33)             0               (33)
         Commercial loans                                          39             (2)               37
                                                        -------------  -------------   ---------------
               Total loans                                        739           (508)              231
     Other                                                        244             (6)              238
                                                        --------------  ------------   ---------------
               Total interest-earning assets                 $  2,695        $  (502)         $  2,193
                                                        --------------  ------------   ---------------

Interest-bearing liabilities:
     Deposits:
         Money market accounts                                 $   74        $   (44)         $    30
         Savings account (1)                                      150           (224)             (74)
         NOW accounts                                              13             11               24
         Certificates of deposit                                  (95)          (319)            (414)
                                                        -------------   ------------   --------------
               Total deposits                                     142           (576)            (434)
     Borrowings                                                   825            (51)             774
                                                        -------------   ------------   --------------
               Total interest-bearing liabilities                 967           (627)             340
                                                        -------------   ------------   ---------------
Increase in net interest income                              $  1,728         $  125          $ 1,853
                                                        =============   =============  ===============
</TABLE>

 (1)  Includes interest on mortgagors' escrow deposits.

                                       24
<PAGE>

Provision for Loan Losses

The Company's provision for loan losses totaled $120 thousand for each of the
six months ended June 30, 1999 and 1998. The allowance for loan losses is
maintained through provisions for loan losses based on management's on-going
evaluation of the risks inherent in the Company's loan portfolio, consideration
of the trends in the Company's loan portfolio, national and regional economies
and the real estate market in the Company's primary lending area. The allowance
for loan losses is maintained at an amount management considers adequate to
cover losses in its loan portfolio which are deemed probable and estimable based
on information currently known to management.

Other Income

Total other income decreased $157 thousand, or 7.9%, to $1.8 million for the six
months ended June 30, 1999 from $2.0 million in the 1998 period as a result of
lower gains on sales of securities, partially offset by growth in fee income.
Fee income increased $157 thousand, or 20.6%, for the six months ended June 30,
1999, reflecting an increase in fees associated with the Company's larger
deposit base as well as higher servicing income due to the securitization of
$19.1 million of residential mortgages in the third quarter of 1998.

Other Expenses

Other expenses totaled $10.4 million for the six months ended June 30, 1999
compared to $5.0 million for the 1998 period. Excluding the $4.4 million
contribution to the Woronoco Savings Charitable Foundation, other expenses for
the six months ended June 30, 1999 increased $943 thousand, or 18.8%, from the
comparable 1998 period primarily due to ESOP expense, the opening of a new, full
service banking office, additional staff required to support the Company's
expanded branch network and growth, investor related expenses and year 2000
expenses.

Income Taxes

The Company recorded an income tax benefit of $427 thousand for the six months
ended June 30, 1999 compared to income tax expense of $891 thousand for the same
period last year. Excluding the tax effect of $1.5 million related to the
Company's contribution to establish the Woronoco Savings Charitable Foundation,
the Company's total provision for income taxes would have been $1.1 million for
the first six months of 1999.


Liquidity and Capital Resources

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

The primary investing activities of the Company are the origination of
residential one-to four-family mortgage loans and consumer loans, primarily home
equity loans and lines of credit, and, to a lesser extent, multi-family and
commercial real estate loans, construction and development loans, commercial
business loans, other types of consumer loans and the investment in mortgage-
backed and equity securities. These

                                       25
<PAGE>

activities are funded primarily by principal and interest payments on loans and
investment securities, deposit growth and the utilization of FHLB advances.
During the six months ended June 30, 1999, the Company's loan originations
totaled $42.0 million. At June 30, 1999, the Company's investments in mortgage-
backed and equity securities totaled $114.1 million. The Company experienced a
net increase in total deposits of $2.3 million for the six months ended June 30,
1999. Deposit flows are affected by the overall level of interest rates, the
interest rates and products offered by the Company and its local competitors and
other factors. The Company closely monitors its liquidity position on a daily
basis. If the Company requires funds beyond its ability to generate them
internally, additional sources of funds are available through FHLB advances. At
June 30, 1999, the Company had $75.0 million of outstanding FHLB borrowings.
Although the Company's policies allow for the use of brokered deposits, the
Company does not currently solicit brokered deposits.

Additionally, in August 1998, the Company completed the securitization
(converting whole loans into mortgage-backed securities) of $19.1 million of 30
year fixed-rate one- to four-family mortgage loans with Fannie Mae. The loans
are serviced as mortgage-backed securities for Fannie Mae. In addition to
resulting in a decrease in loans receivable and a related increase in mortgage-
backed securities, the securitization provides a liquidity related benefit to
the Company in that it adds high quality collateral to the Company's balance
sheet which can be pledged for borrowings in the secondary market and designates
such loans as "available-for-sale" so that the Company could sell or
collateralize such securities.

Outstanding commitments for all loans totaled $7.8 million at June 30, 1999.
Management of the Company anticipates that it will have sufficient funds
available to meet its current loan commitments. Certificates of deposit which
are scheduled to mature in one year or less from June 30, 1999 totaled $114.9
million. The Company relies primarily on competitive rates, customer service,
and long-standing relationships with customers to retain deposits. From time to
time, the Company will also offer competitive special products to its customers
to increase retention and to attract new deposits. Based upon the Company's
experience with deposit retention and current retention strategies, management
believes that, although it is not possible to predict future terms and
conditions upon renewal, a significant portion of such deposits will remain with
the Company.

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
Bank'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 Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined) to risk weighted assets (as
defined) and to average assets (as defined). As of June 30, 1999, the Bank meets
all adequacy requirements to which it is subject.

                                       26
<PAGE>

As of June 30, 1999 and December 31, 1998, the most recent notification from the
FDIC categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the following table. There were no conditions or events since
that notification that management believes have changed the Bank's category.

<TABLE>
<CAPTION>
                                                                                                          Minimum
                                                                                                         to be Well
                                                                                                      Capitalized Under
                                                                            Minimum for Capital       Prompt Corrective
                                                     Actual                  Adequacy Purposes        Action Provisions
                                           -------------------------   -------------------------   -----------------------
                                              Amount        Ratio        Amount         Ratio         Amount      Ratio
                                           --------------   --------   ----------    -----------   -----------  ----------
                                                                       (Dollars in Thousands)
<S>                                        <C>             <C>         <C>           <C>           <C>           <C>
As of June 30, 1999:
--------------------

Total Capital to Risk Weighted Assets       $  60,882      23.0%       $  21,206        8.0%         $ 26,507       10.0%
Tier 1 Capital to Risk Weighted Assets         58,601      22.1%          10,603        4.0%           15,904        6.0%
Tier 1 Capital to Average Assets               58,601      13.2%          13,324 -      3.0%  -        22,207        5.0%
                                                                          22,207        5.0%

As of December 31, 1998:
------------------------

Total Capital to Risk Weighted Assets       $  36,226      13.9%       $  20,898        8.0%         $  26,122      10.0%
Tier 1 Capital to Risk Weighted Assets         34,060      13.0%          10,449        4.0%            15,673       6.0%
Tier 1 Capital to Average Assets               34,060       9.3%          10,929 -      3.0% -          18,215       5.0%
                                                                          18,215        5.0%
</TABLE>



Year 2000 Compliance

As the Year 2000 approaches, an important business issue has emerged regarding
how existing computer application software programs and operating systems can
accommodate this date value. Many existing application software products are
designed to accommodate only two digits. If not corrected, many computer
applications and systems could fail or create erroneous results at or after the
Year 2000. While the Company maintains an internal computer system for
approximately 20% of its operating functions, the substantial majority of the
Company's data processing is outsourced to a third party vendor. The Company's
Year 2000 Project Planning Committee has identified potential problems
associated with the Year 2000 issue and has implemented a Year 2000 Action Plan
(the "Y2K Plan") designated to ensure that all software and hardware used in
connection with the Company's business will manage and manipulate data involved
in the transition from 1999 to 2000 without functional or data abnormality and
without inaccurate results related to such data. Currently, 95% of the Company's
internal software, and 99% of its hardware are Year 2000 compliant. The
Company's critical issues schedule identifies timelines and responsibilities for
completion of the remainder. The remaining items consist of the Company's e-
mail, safe deposit billing, and voice mail systems. In keeping with our
schedule, compliant versions of all remaining critical issues have now been
arranged. Installation Dates are currently being scheduled for the summer of
1999.

Accordingly, the Company recognizes that its ability to be Year 2000 compliant
is dependent upon the cooperation of its vendors and, in particular, this third
party data processor. The Company is requiring its computer systems and software
vendors to represent that the products provided are or will be Year 2000
compliant, and has planned a program of testing for compliance. The Company
utilizes these representations from its computer system and software vendors for
the purpose of determining the vendors' Year 2000

                                       27
<PAGE>

readiness. Upon receiving such representations, the Company determines the need
for replacement of or remediations to each particular vendor's system. The
Company recognizes that its ability to pursue vendors for possible
misrepresentation is limited in comparison to the disruption that may occur in
the Company's business and operations if a particular vendor is not Year 2000
compliant. Accordingly, rather than solely relying on representations from its
vendors, the Company also independently tests all available critical vendor
applications. The Company has completed testing of its critical vendors'
computer applications and any known Year 2000 issues have been corrected. The
Company has received representations from its primary third party data
processing vendor that its internally developed programs are fully compliant. Of
the data processor's internal programs, its critical banking related programs
are also 100% compliant. Testing of the data center's core applications by its
user banks is now completed. For other appropriate applications involving
multiple banks using similar services, "proxy" testing is performed with the
results shared with all similarly situated banks. Proxy statements for tested
applications were issued in July of 1999. The data processor's Year 2000 User
Committee, on which Woronoco Savings Bank is represented, meets quarterly to
address important Year 2000 issues.

The Company identified and contacted commercial borrowers that may be vulnerable
to the Year 2000 date change. Additionally, the Company determined that Year
2000 readiness issues have little or no impact on the Company's one- to four-
family lending relationships. The Company views Year 2000 compliance as an
integral part of the commercial loan credit analysis and underwriting process.

As warranted by the type and nature of a particular loan request, the Company
reviews and assesses the impact of Year 2000 on an applicant's business and any
factors that may limit the applicant's ability to repay the debt. Additionally,
an assessment is made on the potential effect that vendors, suppliers and
customers, who fail to remediate Year 2000 risks, might have on the applicant's
business. Based upon this review, a determination is made as to whether it is
necessary to require the applicant to develop a formal program to address Year
2000 issues and to report the progress of such a program to the Company. In
situations that warrant formal programs and monitoring, this requirement becomes
a condition for granting the loan. The Company completed its efforts to contact
and survey all of its existing commercial borrowers with lending relationships
having aggregate exposure exceeding $500,000. The majority of these
relationships are comprised of multi-family and commercial real estate loans.
All 32 borrowers in this category responded to a comprehensive questionnaire
either in writing or via telephone. Based upon the responses and analysis of the
type of business operations that each borrower conducts, the Company concluded
that the effect of Year 2000 issues on these credits does not pose a material
risk to the Company.

The Company's operations may also be affected by the Year 2000 compliance of its
significant suppliers and other vendors, including those that provide
non-information and technology systems. With respect to those significant
suppliers and other vendors, information has been gathered to assess their Year
2000 compliance. Over 80% of the those critical suppliers and vendors contacted
have met our expectations concerning their Year 2000 compliance progress. Those
vendors that are not Year 2000 compliant and who are unlikely to achieve Year
2000 compliance are being replaced according to established timeframes as
identified in the Company's contingency plans. If any of the Company's
significant suppliers or other vendors do not achieve Year 2000 compliance in a
timely manner, the Company's business or operations could be adversely affected.
The Company also has prepared a Year 2000 Contingency Plan for use in the
unlikely event of a Year 2000 related failure affecting any of its core business
processes. Various department managers have completed development of appropriate
contingency plans for the Company's core business processes. This project is
part of a general upgrade to the Company's existing Business Resumption Policy.
A test plan to validate the Company's Business Resumption Policy and related
Year 2000 contingency plans is in place and testing of the plan is underway. The
upgrade to the Business Resumption Plan and the Year 2000 Contingency Plan

                                       28
<PAGE>

were both completed prior to June 30, 1999. Both plans were reviewed by the
Executive Officers and Board of Directors. The Company's most likely worst case
scenario relates to a possible excess amount of withdrawal requests created by
depositor concerns over possible Year 2000 failures. Accordingly, the Company
has implemented a customer awareness program designed to keep customers well
informed of the facts relating to Year 2000 and what the Company is doing to
achieve Year 2000 compliance. In this regard, the Company provided brochures to
customers to make them aware of the Year 2000 issue. Our goal is to continually
reassure customers concerning the safety of their deposits with Woronoco Savings
Bank. Additionally, as part of its Year 2000 contingency planning efforts, the
Company has developed a Cash and Liquidity Contingency Plan. This plan is
designed to enable the Company to forecast and prepare for any unusual customer
cash demands associated with the Year 2000 date change.

The Company budgeted $235,000 for achieving Year 2000 compliance. As of June 30,
1999, approximately $190,000 relating to Year 2000 compliance has been
identified for payment, with $143,676 paid to date. Approximately 16% of the
$235,000 Year 2000 budget is being used for remediation. To insure the
reliability of the Company's Year 2000 risk and cost estimates, the Company
follows the work program guidelines as provided by the Federal Financial
Institutions Examination Council. These are the same guidelines used by federal
examiners to determine the effectiveness of the Year 2000 efforts by the banks
they examine. The Company's Compliance Officer regularly monitors the Company's
Year 2000 progress and the Company's internal auditor has performed regular
audits of the Y2K Plan. In addition, the FDIC conducts regular Y2K examinations
of the Company. Material costs, if any, that may arise from the failure to
achieve Year 2000 compliance by either the Company's third party data processing
vendor or its significant suppliers and other vendors is not currently
determinable. To the extent that the Company's systems are not yet fully Year
2000 compliant, there can be no assurance that potential systems interruptions
or the cost necessary to update software would not have a materially adverse
effect on the Company's business, financial condition, results of operations,
cash flows or business prospects. If the Company's progress towards becoming
Year 2000 compliant is deemed inadequate, regulatory action may be undertaken.

This description of the Company's Year 2000 Action Plan is a "Year 2000
Readiness Disclosure" as defined by the Year 2000 Information and Readiness
Disclosure Act and is subject to the Act's civil liability protections. This
"Year 2000 Readiness Disclosure" is solely intended to inform and does not
constitute an explicit or implicit representation or warranty of any kind.

                                       29
<PAGE>

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

There have been no material changes in information regarding quantitative and
qualitative disclosure about market risk from the information presented as of
December 31, 1998 in the Company's Form 10-K.

                                       30
<PAGE>

                          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.

                                       31
<PAGE>

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

         (a)   Exhibits

               2.1   Amended Plan of Conversion of Woronoco Savings Bank (1)
               3.1   Certificate of Incorporation of Woronoco Bancorp, Inc. (1)
               3.2   Amended Bylaws of Woronoco Bancorp, Inc.
               4.0   Stock Certificate of Woronoco Bancorp, Inc. (1)
               27.0  Financial Data Schedule

                         -----------------------------


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


         (b)   Reports on Form 8-K
                     None.

                                       32
<PAGE>

                                  SIGNATURES

     In accordance with the requirements of the Securities and Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


                               WORONOCO BANCORP, INC.

Dated: August 13, 1999     By: /s/ Cornelius D. Mahoney
                               ---------------------------------------
                                   Cornelius D. Mahoney
                                   Chairman of the Board, President and
                                   Chief Executive Officer
                                   (principal executive officer)

Dated: August 13, 1999     By: /s/ Debra L. Murphy
                               ---------------------------------------
                                   Debra L. Murphy
                                   Senior Vice President and
                                   Chief Financial Officer
                                   (principal financial and accounting officer)

                                       33