UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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 December 31, 2003
                               -----------------

                                       OR

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

For the transition period from __________ to ___________

                         Commission file number: 0-25251
                                                 -------


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

        MASSACHUSETTS                                 04-3447594
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
 Incorporation or Organization)

399 HIGHLAND AVENUE
SOMERVILLE, MASSACHUSETTS                                      02144
-------------------------------             ------------------------------------
   (Address of Principal                                (Zip Code)
    Executive Offices)

                                 (617) 628-4000
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

                                       N/A
--------------------------------------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report)

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

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


     Common Stock, $1.00 par value                           1,664,957
     -----------------------------            --------------------------------
                Class                         Outstanding at February 13, 2004
<PAGE>


                              CENTRAL BANCORP, INC.

                                Table of Contents

<TABLE>
<CAPTION>
Part I.  Financial Information                                                                Page No.
                                                                                              --------
        <S>                                                                                   <C>
         Item 1.  Financial Statements (Unaudited)

                  Consolidated Statements of Financial Condition at December 31, 2003 and        1
                  March 31, 2003

                  Consolidated Statements of Income for the three and nine months ended          2
                  December 31, 2003 and 2002

                  Consolidated Statements of Changes in Stockholders' Equity for the nine        3
                  months ended December 31, 2003 and 2002

                  Consolidated Statements of Cash Flows for the nine months ended                4
                  December 31, 2003 and 2002

                  Notes to Unaudited Consolidated Financial Statements                           5

         Item 2.  Management's Discussion and Analysis of Financial Condition and Results        9
                  of Operations

                  Liquidity and Capital Resources                                                14

         Item 3.  Quantitative and Qualitative Disclosures about Market Risk                     14

         Item 4.  Controls and Procedures                                                        15

Part II.  Other Information

         Item 1.  Legal Proceedings                                                              16

         Item 2.  Changes in Securities and Use of Proceeds                                      16

         Item 3.  Defaults upon Senior Securities                                                16

         Item 4.  Submission of Matters to a Vote of Security Holders                            16

         Item 5.  Other Information                                                              16

         Item 6.  Exhibits and Reports on Form 8-K                                               16

Signatures and Certifications
</TABLE>

<PAGE>


Part I.   Financial Information

Item 1. Financial Statements
                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                 Consolidated Statements of Financial Condition
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      December 31,  March 31,
(Dollars in Thousands)                                                   2003          2003
                                                                      ----------------------
ASSETS
<S>                                                                   <C>          <C>
Cash and due from banks                                               $   9,523    $   5,996
Short-term investments                                                    7,022        5,226
                                                                      ---------    ---------
     Cash and cash equivalents                                           16,545       11,222
                                                                      ---------    ---------

Certificate of Deposit (Note 6)                                           1,200           --
Investment securities available for sale (amortized cost of $84,467
     at December 31, 2003 and $59,500 at March 31, 2003)                 87,719       61,111
Stock in Federal Home Loan Bank of Boston, at cost                        8,300        8,300
The Co-operative Central Bank Reserve Fund                                1,576        1,576
                                                                      ---------    ---------
    Total investments                                                    97,595       70,987
                                                                      ---------    ---------
Loans held for sale                                                         306          647

Loans (Note 2)                                                          358,684      389,817
Less allowance for loan losses                                            3,473        3,284
                                                                      ---------    ---------
     Net loans                                                          355,211      386,533
                                                                      ---------    ---------
Accrued interest receivable                                               2,277        2,380
Banking premises and equipment, net                                       2,032        1,869
Deferred tax asset, net                                                     164          719
Goodwill                                                                  2,232        2,232
Other assets                                                                615          619
                                                                      ---------    ---------
    Total assets                                                      $ 478,177    $ 477,208
                                                                      =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits (Note 3)                                                   $ 287,095    $ 287,959
  Federal Home Loan Bank advances                                       141,100      144,400
  Other borrowings (Note 6)                                               3,962          176
  Advance payments by borrowers for taxes and insurance                   1,210          999
  Accrued expenses and other liabilities (Note 5)                         1,719        4,231
                                                                      ---------    ---------
    Total liabilities                                                   435,086      437,765
                                                                      ---------    ---------
Commitments and Contingencies (Note 5)
Stockholders' equity (Note 6):
  Preferred stock $1.00 par value; authorized 5,000,000 shares;
    none issued or outstanding                                               --           --
    Common stock $1.00 par value; authorized 15,000,000 shares;
    2,030,251 shares issued at December 31, 2003 and
    2,027,727 shares issued at March 31, 2003                             2,030        2,028
  Additional paid-in capital                                             12,895       12,751
  Retained income                                                        36,798       34,601
  Treasury stock (365,294 shares at December 31, 2003 and
     at March 31, 2003), at cost                                         (7,305)      (7,249)
  Accumulated other comprehensive income                                  2,090        1,002
  Unearned compensation - ESOP                                           (3,417)      (3,690)
                                                                      ---------    ---------
    Total stockholders' equity                                           43,091       39,443
                                                                      ---------    ---------
    Total liabilities and stockholders' equity                        $ 478,177    $ 477,208
                                                                      =========    =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       1
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
                      (In Thousands, Except Per Share Data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended     Nine Months Ended
                                                         December 31,          December 31,
                                                     -------------------   --------------------
                                                       2003       2002       2003        2002
                                                     --------   --------   --------    --------
Interest and dividend income:
<S>                                                  <C>        <C>        <C>         <C>
  Mortgage loans                                     $  5,414   $  6,220   $ 17,228    $ 18,512
  Other loans                                              90        145        338         438
  Short-term investments                                   75         23        168         118
  Investments                                             997      1,212      2,681       3,540
                                                     --------   --------   --------    --------
    Total interest and dividend income                  6,576      7,600     20,415      22,608
                                                     --------   --------   --------    --------
Interest expense:
  Deposits                                              1,075      1,385      3,332       4,366
  Advances from Federal Home Loan Bank of Boston        1,768      1,863      5,299       5,494
  Other borrowings                                         40         --         41          --
                                                     --------   --------   --------    --------
    Total interest expense                              2,883      3,248      8,672       9,860
                                                     --------   --------   --------    --------

    Net interest and dividend income                    3,693      4,352     11,743      12,748
Provision for loan losses                                  50         --        150          --
                                                     --------   --------   --------    --------
    Net interest and dividend income after
      provision for loan losses                         3,643      4,352     11,593      12,748
                                                     --------   --------   --------    --------
Non-interest income:
  Deposit service charges                                 147        151        465         413
  Net gains (losses) from sales and write-downs
      of investment securities                             --         14       (135)       (196)
  Gain on sales of loans                                   54         27        263          28
  Other income                                            106        114        291         342
                                                     --------   --------   --------    --------
    Total non-interest income                             307        306        884         587
                                                     --------   --------   --------    --------
Non-interest expenses:
  Salaries and employee benefits                        1,816      1,759      5,314       5,050
  Occupancy and equipment                                 286        265        826         834
  Data processing service fees                            264        268        810         814
  Professional fees (Note 5)                               95        438        108       1,141
  Advertising                                             157         94        404         276
  Other expenses                                          399        376      1,314       1,108
                                                     --------   --------   --------    --------
    Total non-interest expenses                         3,017      3,200      8,776       9,223
                                                     --------   --------   --------    --------

    Income before income taxes                            933      1,458      3,701       4,112
Provision for income taxes (Note 5)                       358        548      1,008       1,507
                                                     --------   --------   --------    --------
      Net income                                     $    575   $    910   $  2,693    $  2,605
                                                     ========   ========   ========    ========

Earnings per common share - basic                    $   0.37   $   0.58   $   1.74    $   1.64
                                                     ========   ========   ========    ========

Earnings per common share - diluted                  $   0.37   $   0.58   $   1.72    $   1.63
                                                     ========   ========   ========    ========


Weighted average common shares outstanding - basic      1,553      1,569      1,549       1,584

Weighted average common and equivalent shares
   outstanding - diluted                                1,567      1,580      1,563       1,600

</TABLE>
See accompanying notes to unaudited consolidated financial statements.

                                       2
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
           Consolidated Statements of Changes in Stockholders' Equity
                                   (Unaudited)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------

                                                                Additional
                                                  Common          Paid-In       Retained       Treasury
                    (In Thousands)                 Stock          Capital        Income          Stock
----------------------------------------------------------------------------------------------------------

Nine Months Ended December 31, 2003
-----------------------------------
<S>                                              <C>           <C>           <C>              <C>
     Balance at March 31, 2003                   $   2,028     $    12,751   $    34,601      $   (7,249)

     Net income                                         --              --         2,693              --
     Other comprehensive income, net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               --              --            --              --
            Comprehensive income (Note 4)
     Proceeds from exercise of stock options             2              45            --              --
     Tax benefit of stock options                       --               4            --              --
     Director deferred compensation
         transactions                                   --              64            --             (67)
     Dividends paid ($.36 per share)                    --              --          (496)             --
     Amortization of unearned compensation -
         ESOP                                           --              31            --              --
     Other equity transactions                          --              --            --              11
                                                 ---------     -----------   -----------      ----------
     Balance at December 31, 2003                $   2,030     $    12,895   $    36,798      $   (7,305)
                                                 =========      ==========    ==========       ==========
Nine Months Ended December 31, 2002
-----------------------------------

     Balance at March 31, 2002                   $   2,000     $    11,934   $    33,141      $   (7,189)

     Net income                                         --              --         2,605              --
     Other comprehensive income, net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               --              --            --              --

            Comprehensive income (Note 4)

     Proceeds from exercise of stock options            28             488            --              --
     Tax benefit of stock options                       --              66            --              --
     Purchase of shares by ESOP                         --              --            --              --
     Director deferred compensation
         transactions                                   --              20            --             (15)
     Dividends paid ($.32 per share)                    --              --          (528)             --
     Amortization of unearned compensation -
         ESOP                                           --             189            --              --
                                                 ---------     -----------   -----------      ----------
     Balance at December 31, 2002                $   2,028     $    12,697   $    35,218      $   (7,204)
                                                 =========     ===========   ===========      ===========


<CAPTION>

---------------------------------------------------------------------------------------------
                                                    Accumulated
                                                      Other        Unearned        Total
                                                  Comprehensive  Compensation   Stockholders'
                    (In Thousands)                Income (Loss)      ESOP          Equity
---------------------------------------------------------------------------------------------

Nine Months Ended December 31, 2003
-----------------------------------
<S>                                               <C>           <C>           <C>
     Balance at March 31, 2003                    $     1,002   $   (3,690)   $    39,443

     Net income                                            --           --          2,693
     Other comprehensive income, net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               1,088           --          1,088
                                                                               ----------
            Comprehensive income (Note 4)                                           3,781
                                                                               ----------
     Proceeds from exercise of stock options               --           --             47
     Tax benefit of stock options                          --           --              4
     Director deferred compensation
         transactions                                      --           --             (3)
     Dividends paid ($.36 per share)                       --           --           (496)
     Amortization of unearned compensation -
         ESOP                                              --          273            304
     Other equity transactions                             --           --             11
                                                  -----------   ----------    -----------
     Balance at December 31, 2003                 $     2,090   $   (3,417)   $    43,091
                                                  ===========   ===========   ===========
Nine Months Ended December 31, 2002
-----------------------------------

     Balance at March 31, 2002                    $      (626)  $     (306)   $    38,954

     Net income                                            --           --          2,605
     Other comprehensive income, net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               1,512           --          1,512
                                                                              -----------
            Comprehensive income (Note 4)                                           4,117
                                                                              -----------
     Proceeds from exercise of stock options               --           --            516
     Tax benefit of stock options                          --           --             66
     Purchase of shares by ESOP                            --       (2,358)        (2,358)
     Director deferred compensation
         transactions                                      --           --              5
     Dividends paid ($.32 per share)                       --           --           (528)
     Amortization of unearned compensation -
         ESOP                                              --          129            318
                                                  -----------   ----------    -----------
     Balance at December 31, 2002                 $       886   $   (2,535)   $    41,090
                                                  ===========   ===========   ===========
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       Nine Months Ended
                                                                          December 31,
                                                                     ---------------------
                           (In thousands)                              2003         2002
------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S>                                                                  <C>         <C>
Net income                                                           $  2,693    $  2,605
   Adjustments to reconcile net income to net cash provided
      by (used in) operating activities
         Depreciation and amortization                                    234         239
         Amortization of premiums                                         115         189
         Provision for loan losses                                        150          --
         Stock-based compensation                                         233         318
         Net losses from sales and write-downs of
             investment securities                                        135         196
         Gain on sale of loans held for sale                             (263)        (28)
         Originations of loans held for sale                          (30,081)    (21,309)
         Proceeds from sale of loans originated for sale               30,685       1,843
(Increase) decrease in accrued interest receivable                        103         (44)
(Increase) decrease in other assets, net                                    4        (700)
Increase (decrease) in advance payments by borrowers for taxes
  and insurance                                                           211        (121)
Increase (decrease) in accrued expenses and other liabilities          (2,386)        142
                                                                     --------    --------
         Net cash provided by (used in) operating activities            1,833     (16,670)
                                                                     --------    --------

Cash flows from investing activities:

Net (increase) decrease in loans                                       31,133      (8,787)
Principal payments on mortgage-backed securities                        4,187       5,293
Purchase of certificate of deposit                                     (1,200)         --
Purchases of investment securities                                    (33,885)     (5,210)
Maturities and calls of investment securities                           4,000       4,000
Proceeds from sales of investment securities                              482       8,126
Purchase of banking premises and equipment                               (397)       (269)
                                                                     --------    --------
         Net cash provided by investing activities                      4,320       3,153
                                                                     --------    --------

Cash flows from financing activities:

Increase (decrease) in deposits                                          (864)     24,814
Proceeds from advances from FHLB of Boston                                 --      39,000
Repayments on advances from FHLB of Boston                             (3,300)    (47,600)
Proceeds from ESOP loan                                                 3,506          --
Repayment of ESOP loan                                                    (98)         --
Increase in short-term borrowings                                         378         457
Proceeds from exercise of stock options                                    47         516
Purchase of shares by ESOP                                                 --      (2,358)
Dividends paid                                                           (496)       (528)
Net directors deferred compensation                                        (3)          5
                                                                     --------    --------
         Net cash provided by (used in) financing activities             (830)     14,306
                                                                     --------    --------

Net increase in cash and cash equivalents                               5,323         789
Cash and cash equivalents at beginning of period                       11,222       7,564
                                                                     --------    --------
Cash and cash equivalents at end of period                           $ 16,545    $  8,353
                                                                     ========    ========

Supplemental disclosure of cash flow information: Cash paid during
     the period for:
       Interest                                                      $  8,642    $  9,834
       Income taxes                                                  $  1,911    $  2,095


</TABLE>
See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
              Notes to Unaudited Consolidated Financial Statements
                                December 31, 2003

(1)  Basis of Presentation

     The unaudited  consolidated  financial statements of Central Bancorp,  Inc.
and its wholly-owned subsidiary Central Co-operative Bank (collectively referred
to as "the Company")  presented  herein should be read in  conjunction  with the
consolidated  financial  statements  of the Company as of and for the year ended
March 31, 2003,  included in the Company's Annual Report on Form 10-K filed with
the  Securities  and  Exchange  Commission.  In the opinion of  management,  the
accompanying   unaudited   consolidated   financial   statements   reflect   all
adjustments,  consisting of normal recurring  adjustments,  necessary for a fair
presentation.  Interim results are not  necessarily  indicative of results to be
expected for the entire year.

     The Company's  significant  accounting  policies are described in Note 1 of
the Notes to Consolidated Financial Statements included in its Form 10-K for the
year ended March 31, 2003. For interim reporting  purposes,  the Company follows
the same significant accounting policies.

     Certain  reclassifications  have  been  made to the  prior  year  financial
statements to conform to the current year presentation.  Such  reclassifications
have no effect on previously reported net income.

(2)  Loans

     Loans as of December 31, 2003 and March 31, 2003 are  summarized  below (in
thousands):

<TABLE>
<CAPTION>
                                                      December 31,   March 31,
                                                         2003         2003
                                                       ---------    ---------
<S>                                                    <C>          <C>
  Real estate loans:
     Residential real estate                           $ 177,789    $ 236,649
     Commercial real estate                              142,948      107,140
     Construction                                         24,003       30,294
     Second mortgage and home equity lines of credit       9,221        9,128
                                                       ---------    ---------
          Total real estate loans                        353,961      383,211
  Commercial loans                                         3,712        5,319
  Consumer loans                                           1,011        1,287
                                                       ---------    ---------
           Total loans                                   358,684      389,817
   Less:  allowance for loan losses                       (3,473)      (3,284)
                                                       ---------    ---------
           Total loans, net                            $ 355,211    $ 386,533
                                                       =========    =========
</TABLE>

     There were no non-accrual loans at December 31, 2003 and March 31, 2003.

                                       5
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
        Notes to Unaudited Consolidated Financial Statements (continued)
                                December 31, 2003


(3)  Deposits

     Deposits at December 31, 2003 and March 31, 2003 are  summarized as follows
(in thousands):


                                         December 31,  March 31,
                                             2003       2003
                                           --------   --------

Demand deposit accounts                    $ 30,162   $ 31,523
NOW accounts                                 35,988     38,047
Passbook and other savings accounts          73,387     71,629
Money market deposit accounts                46,751     42,687
                                           --------   --------
         Total non certificate accounts     186,288    183,886
                                           --------   --------
Term deposit certificates
      Certificates of $100 and above         26,478     26,259
      Certificates less than $100            74,329     77,814
                                           --------   --------
         Total term deposit certificates    100,807    104,073
                                           --------   --------
         Total deposits                    $287,095   $287,959
                                           ========   ========


(4)  Other Comprehensive Income

     The  Company  has  established   standards  for  reporting  and  displaying
comprehensive  income,  which  is  defined  as  all  changes  to  equity  except
investments by, and distributions to, shareholders. Net income is a component of
comprehensive  income,  with all other components referred to, in the aggregate,
as other comprehensive income.

     The  Company's  other  comprehensive  income and  related  tax effect is as
follows (in thousands):


<TABLE>
<CAPTION>
                                                       For the Nine Months Ended
                                                           December 31, 2003
                                                   ----------------------------------
                                                   Before-Tax     Tax       After-Tax
                                                     Amount      Effect       Amount
                                                   ----------    -------    ---------
Unrealized gains on securities:
<S>                                                   <C>         <C>         <C>
  Unrealized holding gains arising during period     $1,506      $  507      $  999
   Less: reclassification adjustment for net
            losses included in net income               135          46          89
                                                     ------      ------      ------
   Other comprehensive income                        $1,641      $  553      $1,088
                                                     ======      ======      ======
</TABLE>

                                       6
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
        Notes to Unaudited Consolidated Financial Statements (continued)
                                December 31, 2003

(4)  Other Comprehensive Income (continued)

<TABLE>
<CAPTION>
                                                         For the Nine Months Ended
                                                              December 31, 2002
                                                       ------------------------------
                                                       Before-Tax    Tax        After-Tax
                                                         Amount     Effect       Amount
                                                       ----------   -------     ---------
Unrealized gains on securities:
<S>                                                        <C>        <C>          <C>
  Unrealized net holding gains arising during period     $2,236     $  845       $1,391
   Less: reclassification adjustment for net
            losses included in net income                   196         75          121
                                                         ------     ------       ------
   Other comprehensive income                            $2,432     $  920       $1,512
                                                         ======     ======       ======
</TABLE>

(5)  Contingencies

Legal Proceedings

     The Company  from time to time is involved as  plaintiff  or  defendant  in
various legal actions incident to its business. Except as described herein, none
of  these  actions  are  believed  to  be  material,   either   individually  or
collectively,  to the  results of  operations  and  financial  condition  of the
Company.

     Central Co-operative Bank (the Bank) had been named as defendant in a civil
suit filed March 28, 2002 in  Middlesex  Superior  Court under the caption Yi v.
Central Bank in which it was  alleged,  inter alia,  that the Bank  committed an
unfair or  deceptive  trade  practice  by  failing  to pay  surplus  foreclosure
proceeds to a junior lien holder in 1994.  Plaintiff  sought damages of $165,000
plus interest of approximately  $175,000 and applied for a multiple damage award
under  Chapter 93A of the  Massachusetts  General Laws which  provides for up to
treble  damages if a  violation  is found to be willful or  knowing.  In January
2004,  the parties  reached a settlement,  which will result in a payment by the
Bank,  net of insurance,  of $400,000.  As of December 31, 2003, the Company had
fully reserved for its costs under the settlement.

     The  Company and certain  present  and former  directors  had been named in
related  federal  and  state  court  lawsuits  brought  by PL  Capital,  LLC and
affiliates  ("PL  Capital")  and also by  Lawrence  B.  Seidman  and  affiliates
("Seidman"),  respectively, current and former stockholders, in which PL Capital
and Seidman had  challenged  the  directors'  determination  that PL Capital and
Seidman  secretly  acted in concert in  violation of the  Company's  Shareholder
Rights  Agreement  ("Rights  Plan").  On August 4,  2003,  the  Company  and the
directors,  former  directors and  affiliated  entities that were parties to the
litigation entered into an Agreement (the "Agreement") with PL Capital,  LLC and
its affiliated  persons and entities,  pursuant to which all the parties settled
all of the pending litigation between them and filed with the appropriate courts
the  filings  necessary  for  the  litigation  to be  dismissed.  As part of the
Agreement, a payment of $400,000, which was reimbursed by insurance, was made to
PL Capital.

     The  Company had been  working  with its  insurance  carrier to recover its
legal defense  costs,  including the  settlement  payment noted in the preceding
paragraph, incurred in connection with the PL Capital and Seidman litigation. In
connection therewith, the Company recognized insurance recoveries of $80,000 and
$3,093,000  during the three and nine month  periods  ended  December  31, 2003,
respectively.  These recoveries have been classified with  professional  fees in
the accompanying consolidated statements of income.

State Income Taxes

     During 2003, the Massachusetts Department of Revenue ("DOR") issued notices
of  intent  to  assess  additional  state  excise  taxes to  numerous  financial
institutions in  Massachusetts  that have formed a real estate  investment trust
(REIT)  subsidiary.  The DOR contended that dividends received by the banks from
such subsidiaries were fully taxable in Massachusetts.

                                       7
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
        Notes to Unaudited Consolidated Financial Statements (continued)
                                December 31, 2003

(5)  Contingencies (continued)

     The Governor of  Massachusetts  signed  legislation on March 5, 2003, which
expressly disallows  deductions for dividends received from a REIT, resulting in
such dividends  being subject to state taxation.  In addition,  this law applies
retroactively  to tax years ending on or after  December 31, 1999. In the fourth
quarter of fiscal 2003, the Company provided  additional state taxes,  including
interest, net of the related federal tax benefit, of $835,000.

     In June 2003, a settlement  of this matter was reached  between the DOR and
the majority of affected  financial  institutions  including  the  Company.  The
settlement  provides that 50% of all dividends  received from REIT  subsidiaries
from  1999  through  2002  are  subject  to  state  taxation.  Interest  on such
additional taxes was also assessed.  Payment of such taxes and interest totaling
$431,000  was  made in June  2003.  As a  result  of this  settlement,  the Bank
recognized a recovery of $374,000 in income taxes, which increased net income by
the same amount in the quarter ended June 30, 2003. In December  2003,  the Bank
liquidated its REIT subsidiary in a tax-free transaction.

(6)  ESOP Loan

     On October 16, 2003, the Central Co-operative Bank Employee Stock Ownership
Plan Trust (the "ESOP") refinanced the loan it had from the Company with a third
party lender.  The Company received proceeds of $3,505,629,  of which $2,250,000
was contributed to the Bank's capital. The loan bears interest at the prevailing
prime rate plus 1/2% and  matures in March 2012.  Principal  payments of $97,400
are scheduled to be made each quarter.  The loan is collateralized by the ESOP's
unallocated  shares of Company stock, a certificate of deposit of $1,200,000 and
a pledge of the Company's stock in the Bank. In addition, the Company guarantees
repayment of the loan.

     In connection  with this  transaction,  the Bank incurred costs of $109,000
which have been capitalized and are being amortized over the term of the loan.

(7)  Subsequent Event

     On January 8, 2004, the Board of Directors voted the payment of a quarterly
cash dividend of $.12 per share. The dividend is payable on February 13, 2004 to
stockholders of record on January 30, 2004.

(8)  Recent Accounting Pronouncement

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and  Disclosure."  SFAS No. 148 amends SFAS Statement
No. 123, to provide  alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
Companies  are able to  eliminate  a  "ramp-up"  effect  that  the SFAS No.  123
transition rule creates in the year of adoption. Companies can choose to elect a
method that will provide for comparability  amongst years reported. In addition,
this  Statement  amends the  disclosure  requirement of Statement 123 to require
prominent  disclosures in both annual  compensation and the effect of the method
used on reported  results.  The  amendments  to SFAS No. 123 are  effective  for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
Company  is  not  currently   considering  the  adoption  of  fair  value  based
compensation of stock options.

                                       8
<PAGE>

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

Forward-Looking Statements

     When used in this discussion and elsewhere in this Quarterly Report on Form
10-Q,  the words or phrases  "will  likely  result,"  "are  expected  to." "will
continue," "is anticipated,"  "estimate,"  "project," or similar expressions are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private  Securities  Litigation Reform Act of 1995. The Company cautions readers
not to place undue reliance on any such forward-looking statements,  which speak
only as of the date made, and to advise readers that various factors,  including
changes in regional  and  national  economic  conditions,  unfavorable  judicial
decisions,  substantial  changes in levels of market interest rates,  credit and
other risks of lending and investment  activities and competitive and regulatory
factors,  could affect the Company's  financial  performance and could cause the
Company's  actual  results for future  periods to differ  materially  from those
anticipated or projected.

     The Company does not undertake and specifically disclaims any obligation to
update any  forward-looking  statements to reflect  occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.

Critical Accounting Policies

     Accounting  policies  involving  significant  judgments and  assumptions by
management,  which have, or could have, a material  impact on the carrying value
of  certain  assets  and  impact  income,  are  considered  critical  accounting
policies. The Company considers the allowance for loan losses to be its critical
accounting  policy.  There have been no  significant  changes in the  methods or
assumptions used in the accounting  policies that require material estimates and
assumptions.

     Arriving at an appropriate  level of allowance for loan losses  necessarily
involves a high degree of judgment.  The ongoing  evaluation  process includes a
formal  analysis of the allowance  each quarter,  which  considers,  among other
factors,  the  character and size of the loan  portfolio,  business and economic
conditions,  loan  growth,  delinquency  trends,   nonperforming  loans  trends,
charge-off  experience and other asset quality  factors.  The Company  evaluates
specific loan status reports on certain  commercial  and commercial  real estate
loans  rated  "substandard"  or worse in excess of a  specified  dollar  amount.
Estimated  reserves for each of these credits is determined by reviewing current
collateral value, financial  information,  cash flow, payment history and trends
and other  relevant facts  surrounding  the  particular  credit.  Provisions for
losses on the remaining commercial and commercial real estate loans are based on
pools of similar loans using a combination  of historical  loss  experience  and
qualitative  adjustments.  For the  residential  real estate and  consumer  loan
portfolios,   the  range  of  reserves  is  calculated  by  applying  historical
charge-off and recovery  experience to the current  outstanding  balance in each
loan category.  Although management uses available  information to establish the
appropriate  level of the  allowance  for loan losses,  future  additions to the
allowance may be necessary  based on estimates that are susceptible to change as
a result of changes in  economic  conditions  and other  factors.  In  addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically  review the Company's  allowance for loan losses. Such agencies may
require the Company to recognize  adjustments  to the  allowance  based on their
judgments about information available to them at the time of their examination.

Comparison of Financial Condition at December 31, 2003 and March 31, 2003

     Total assets  increased  by $1.0  million from $477.2  million at March 31,
2003 to $478.2  million at  December  31,  2003.  During the nine  months  ended
December  31, 2003,  loans  (excluding  loans held for sale)  decreased by $31.1
million consisting primarily of a $58.9 million decrease in residential mortgage
loans,  partially  offset by an $35.8 million increase in commercial real estate
loans. During the first half of the current year, interest rates for residential
mortgages reached a 45-year low resulting in significant  refinancing  activity.
Management  regularly  assesses the  desirability  of holding  newly  originated
long-term,  fixed-rate  residential  mortgage loans in portfolio or selling such
loans in the  secondary  market.  A number of factors are evaluated to determine
whether or not to hold such loans in portfolio including,  current and projected
liquidity,  current and  projected  interest  rates,  projected  growth in other
interest-earning  assets  and the  current  and  projected  interest  rate

                                       9
<PAGE>

risk profile. Based on its consideration of these factors, management determined
that most fixed-rate  residential  mortgage loans  originated  during the period
should  be  sold  in  the  secondary  market.  This  decision  resulted  in  the
aforementioned  decrease  in  residential  mortgage  loans and an $11.9  million
increase in the average balance of short-term investments during the nine months
ended December 31, 2003.

     In October 2003, the Company commenced a program to reinvest  approximately
$40 million of funds which were invested on an overnight  basis at September 30,
2003. In connection  with this program,  the Company  purchased $33 million in a
combination of callable  government agency securities having final maturities in
approximately five years and mortgage-backed securities collateralized by either
10-year fixed-rate  residential  mortgages or hybrid  adjustable-rate  mortgages
(hybrid  ARMs).  The interest rate on the hybrid ARMs will initially be adjusted
in five  years and  annually  thereafter  subject to  certain  limitations.  The
remaining $7 million in this reinvestment  program was used to fund a portion of
the growth in the commercial real estate loan portfolio.

     The Company  experienced a modest increase of $2.4 million in core deposits
in the  first  nine  months  of the year  and a $3.3  million  decrease  in term
deposits  resulting  in a net  decrease  in total  deposits of  $864,000.  While
deposits  flows  can  vary  significantly  on a daily  basis,  the  Company  has
experienced a generally flat level of total deposits during the past year with a
declining  level of term deposits.  Management sets its term deposit rates to be
competitive in its market area,  however,  the desirability to customers of term
deposits has been adversely affected during this period of low interest rates.

     Advances  from the Federal Home Loan Bank of Boston  (FHLB) were reduced by
$3.3 million  during the first nine months of the year. A FHLB advance  totaling
$2.0  million and having a rate of 3.46%  matured in January 2004 and was repaid
with the proceeds of a 3-year FHLB advance having a rate of 2.53%. No additional
FHLB advances are scheduled to mature in fiscal 2004.

     The increase in  stockholders'  equity of $3.6 million to $43.1  million at
December 31, 2003 resulted  primarily  from net income of $2.7 million and other
comprehensive income of $1.1 million.

Comparison  of Operating  Results for the Quarters  Ended  December 31, 2003 and
2002

     Net income  decreased  to  $575,000,  or $0.37 per diluted  share,  for the
quarter ended December 31, 2003,  from $910,000,  or $0.58 per diluted share for
the  corresponding  quarter in the prior  year.  The current  quarter's  results
reflect an  insurance  recovery of $53,000,  net of taxes,  attributable  to the
dispute  with  certain  shareholders,  which was  settled  during  the  previous
quarter.  The results for the quarter ended  December 31, 2002,  included  legal
fees  attributable  to  shareholder  litigation  which  reduced  net  income  by
$165,000.

     Earnings during the quarter ended December 31, 2003 were adversely affected
by a decrease  in net  interest  income of  $659,000,  as  compared  to the same
quarter in the prior year.  The gradual  reduction  in interest  rates in recent
years had a greater  relative impact on the Company's yield on earning assets in
the  current  quarter  than on the cost of funds due to limited  opportunity  to
reduce deposit rates as well as the fixed cost of FHLB  advances.  As previously
noted, the Company sold most of its current production of fixed-rate residential
mortgages due to the  historically  low rates  prevailing  during the period and
invested the related  proceeds on an overnight basis through  September and in a
combination of short and intermediate-term investments thereafter. These factors
lead to a reduction in the net interest  margin from 3.73% in the quarter  ended
December 31, 2002, to 3.15% in the current quarter.

Interest  Income.  Interest  income for the quarter ended  December 31, 2003 was
$6.6 million, a decrease of $1.0 million, or 13.5%, compared to the same quarter
in the prior year.  This decrease was due primarily to a decline in the yield on
interest-earning  assets  from  6.51% in the third  quarter of the prior year to
5.60% in the current quarter.  Average interest-earning assets increased by $2.7
million to $469.7 million during the quarter ended December 31, 2003 from $467.0
million for the quarter ended December 30, 2002.

     While the balance of average  interest-earning  assets  increased only $2.7
million  during the quarter  ended  December 31,  2003,  as compared to the same
quarter in the prior year,  the Company  experienced a significant  shift in the
composition of its earning assets.  Overall, the average balance of loans, which
generally  earn  interest at a

                                       10
<PAGE>

higher  rate and have a longer term to maturity  or  repricing,  declined  $28.9
million,  while  investments  and short-term  investments,  which generally earn
interest  at a lower  rate and have a shorter  term to  maturity  or  repricing,
increased  $31.5 million  between  periods.  This shift  reflected the Company's
previously  disclosed  intent to allow its portfolio of  fixed-rate  residential
loans to decline during the period of historically low rates which has prevailed
throughout most of the past nine months.

Interest  Expense.  Interest expense for the quarter ended December 31, 2003 was
$2.9 million compared to $3.2 million for the quarter ended December 31, 2002, a
decrease of $365,000,  or 11.2%.  This decrease  resulted from a 33 basis points
decrease in the cost of funds from 3.21% in the quarter ended  December 30, 2002
to 2.88% in the  quarter  ended  December  31,  2003.  Average  interest-bearing
liabilities decreased $4.5 million between periods.

     The following table presents average balances and average rates earned/paid
by the Company for the quarter  ended  December 31, 2003 compared to the quarter
ended December 31, 2002:

<TABLE>
<CAPTION>
                                                                          Three Months Ended December 31,
                                               --------------------------------------------------------------------------
                                                             2003                                     2002
                                               --------------------------------       -----------------------------------
                                                Average                 Average       Average                    Average
                                                Balance   Interest       Rate         Balance       Interest       Rate
                                               --------   ---------      ----         --------      --------       ----
                                                                            (Dollars in thousands)
<S>                                            <C>          <C>           <C>          <C>            <C>          <C>
Interest-earning assets:
Mortgage loans                                 $349,042     $5,414        6.20%        $374,910       $6,220       6.64%
Other loans                                       4,796         90        7.51            7,807          145       7.43
Investment securities                            85,809        997        4.65           77,957        1,212       6.22
Short-term investments                           30,012         75        1.00            6,366           23       1.45
                                               --------     ------                     --------       ------
    Total interest-earning assets              $469,659      6,576        5.60         $467,040        7,600       6.51
                                                             -----                                     -----

Allowance for loan losses                        (3,435)                                 (3,284)
Noninterest-earning assets                       12,944                                  15,209
                                               --------                                --------
Total assets                                   $479,168                                $478,965
                                               ========                                ========

Interest-bearing liabilities:
Deposits                                       $254,189     $1,075        1.69         $252,557       $1,385       2.19
Advances from FHLB of Boston                    143,611      1,768        4.92          152,577        1,863       4.88
Other borrowings                                  2,945         40        5.43              107           --       1.50
                                               --------     ------                     --------       ------
Total interest-bearing liabilities             $400,745      2,883        2.88         $405,241        3,248       3.21
                                                            ------                                    ------

Noninterest-bearing liabilities                  37,487                                  36,265
                                               --------                                --------
Total liabilities                              $438,232                                $441,506
                                               --------                                --------

Stockholders' equity                             40,936                                  37,459
                                               --------                                --------
    Total liabilities and stockholders' equity $479,168                                $478,965
                                               ========                                ========

Net interest and dividend income                            $3,693                                    $4,352
                                                            ======                                    ======
Net interest spread                                                       2.72%                                    3.30%
                                                                          =====                                    =====
Net interest margin                                                       3.15%                                    3.73%
                                                                          =====                                    =====
</TABLE>

Provisions  for Loan  Losses.  The Company  provides for loan losses in order to
maintain the allowance for loan losses at a level that  management  estimates is
adequate to absorb  probable losses based on an evaluation of known and inherent
risks in the portfolio.  In determining the  appropriate  level of the allowance
for loan losses,  management  considers past and  anticipated  loss  experience,
evaluations of underlying collateral, prevailing economic conditions, the nature
and  volume of the loan  portfolio  and the levels of  non-performing  and other
classified loans. The amount of the allowance is based on estimates and ultimate
losses may vary from such estimates.  Management assesses the allowance for loan
losses on a quarterly  basis and  provides  for loan losses  monthly in order to
maintain the adequacy of the allowance.

                                       11
<PAGE>

     During the current  quarter,  the Company provided $50,000 for loan losses.
While the Company's asset quality, as measured principally by delinquency rates,
charge-offs and loan classifications,  continues to be outstanding, the shifting
of the mix of the loan portfolio to a greater  portion of commercial real estate
loans  indicated  the need for an increase in the reserve for loan losses in the
current quarter.  No provision was recorded in the corresponding  quarter of the
prior year.

Non-interest  Income.  Non-interest  income was $307,000  for the quarter  ended
December 31, 2003 virtually  unchanged from $306,000 in the same period of 2002.
The Company  experienced  a decline in  residential  mortgage  loan  origination
activity  during each of the last two quarters and, as a result,  has sold fewer
loans. Loan sale gains have decreased in each of the past three quarters and are
not expected to increase in the upcoming quarter.

     Non-interest Expenses.  Non-interest expenses decreased $183,000 during the
quarter ended  December 31, 2003 as compared to the quarter  ended  December 31,
2002.  Exclusive  of the net impact of legal fees  incurred in  connection  with
shareholder litigation in fiscal 2003 and a related insurance recovery in fiscal
2004,  non-interest  expenses  increased  $147,000,  or 5.0%, due principally to
increases  in  salaries  and  employee   benefits  of  $57,000  and   additional
advertising expense of $63,000.

     The increase in salaries and employee benefits of $57,000,  or 3.2%, during
the  quarter  ended  December  31,  2003,  was due to overall  salary  increases
averaging  4.0% and  increases  in  staffing  to support  higher  mortgage  loan
originations,  partially  offset by a reduction in incentive  compensation.  The
increase in advertising expense of $63,000,  or 67.0%,  resulted from additional
promotion  of  residential  and  commercial  loan  products as well as a deposit
promotion program.

Income Taxes.  The effective tax rates for the quarters  ended December 31, 2003
and 2002 were 38.4% and 37.6%, respectively. These rates vary from the statutory
income tax rate for banks of  approximately  40.9% due to the  Company's  use of
both a securities  corporation  and a REIT subsidiary (in fiscal 2003) for state
tax purposes.

Comparison of Operating  Results for the Nine Months Ended December 31, 2003 and
2002

     For the nine months ended December 31, 2003,  net income  increased 3.4% to
$2.7 million, or $1.72 per diluted share, compared to $2.6 million, or $1.63 per
diluted share, in the year earlier period.  Exclusive of the favorable impact of
$374,000,   after  taxes,   resulting  from  the  settlement  of  the  Company's
REIT-related tax liability with the Massachusetts  Department of Revenue and the
favorable impact of a net insurance recovery associated with certain shareholder
litigation,  which  increased net income by $329,000 in the first nine months of
the current  year,  net income  declined  $780,000  compared to the year earlier
period.  This change was largely  the result of a $1.0  million  decrease in net
interest income between periods attributable to the factors previously disclosed
herein.

Interest Income. Interest income for the nine months ended December 31, 2003 was
$20.4 million, or $2.2 million less than the amount earned in the same period in
the prior year due to a decrease  in the yield on  interest-earning  assets from
6.53% in the first nine  months of the prior year to 5.84% in the same period of
the current year. Average  interest-earning  assets increased by $3.8 million to
$465.7  million  during the nine months ended  December  31,  2003,  from $461.9
million for the nine months ended December 31, 2002.

Interest  Expense.  Interest expense for the nine months ended December 31, 2003
was $8.7 million compared to $9.9 million for the nine months ended December 30,
2002, a decrease of $1.2 million,  or 12.0%.  This  decrease  resulted from a 39
basis  points  decrease in the cost of funds from 3.28% in the nine months ended
December 31, 2002 to 2.89% in the nine months ended  December 31, 2003.  Average
interest-bearing liabilities decreased $1.2 million between periods.

     The  decrease  in the cost of funds  during the nine  months of the current
year was entirely  due to a reduction in the cost of deposits  from 2.37% during
the prior year period to 1.74% during the nine months  ended  December 31, 2003.
The  cost  of  FHLB  advances,  the  Company's  other  primary  interest-bearing
liability,  increased  during the first nine months of the current year to 4.90%
from 4.70% in the  comparable  prior year  period.  As FHLB  advances can not be
prepaid without a substantial penalty, these longer-term,  fixed-rate borrowings
have been a

                                       12
<PAGE>

significant  factor in the  compression  of the  Company's  net interest  margin
during the most recent period of declining rates.

     The following table presents average balances and average rates earned/paid
by the Company for the nine months ended  December 31, 2003 compared to the nine
months ended December 31, 2002:

<TABLE>
<CAPTION>
                                                                        Nine Months Ended December 31,
                                             ----------------------------------------------------------------------------
                                                              2003                                    2002
                                             ------------------------------------    ------------------------------------
                                               Average                   Average       Average                    Average
                                               Balance      Interest      Rate         Balance       Interest       Rate
                                               -------      --------      ----         -------       --------       ----
                                                                            (Dollars in thousands)
<S>                                          <C>           <C>            <C>          <C>           <C>           <C>
Interest-earning assets:
Mortgage loans                               $363,416      $17,228        6.32%        $363,574      $18,512       6.79%
Other loans                                     6,100          338        7.39            7,776          438       7.51
Investment securities                          74,590        2,681        4.79           80,862        3,540       5.84
Short-term investments                         21,610          168        1.04            9,665          118       1.63
                                             --------      -------                     --------      -------
    Total interest-earning assets             465,716       20,415        5.84          461,877       22,608       6.53
                                                           -------                                   -------
Allowance for loan losses                      (3,369)                                   (3,290)
Noninterest-earning assets                     13,826                                    14,641
                                             --------                                  --------
Total assets                                 $476,173                                  $473,228
                                             ========                                  ========

Interest-bearing liabilities:
Deposits                                     $254,620       $3,332        1.74         $245,294       $4,366       2.37
Advances from FHLB of Boston                  144,136        5,299        4.90          155,741        5,494       4.70
Other borrowings                                1,140           41        4.80               73           --       0.73
                                             --------      -------                     --------      -------
Interest-bearing liabilities                  399,896        8,672        2.89          401,108        9,860       3.28
                                                           -------                                   -------
Non-interest bearing liabilities               37,537                                    34,923
                                             --------                                  --------
Total liabilities                             437,433                                   436,031
                                             --------                                  --------

Stockholders' equity                           38,740                                    37,197
                                             --------                                  --------
    Total liabilities and stockholders'
        equity                               $476,173                                  $473,228
                                             ========                                  ========

Net interest and dividend income                           $11,743                                   $12,748
                                                           =======                                   =======
Net interest spread                                                       2.95%                                    3.25%
                                                                          =====                                    =====
Interest margin                                                           3.36%                                    3.68%
                                                                          =====                                    =====
</TABLE>

Provision for Loan Losses. During the first nine months of the current year, the
Company provided $150,000 for loan losses. While the Company's asset quality, as
measured principally by delinquency rates, charge-offs and loan classifications,
continues to be outstanding,  the shifting of the mix of the loan portfolio to a
greater  portion of  commercial  real  estate  loans  indicated  the need for an
increase in the reserve for loan losses in the current quarter. No provision was
recorded in the corresponding period of the prior year.

Non-interest Income. Exclusive of securities  transactions,  non-interest income
was $1.0  million  for the nine  months  ended  December  31,  2003  compared to
$783,000 in the prior year period.  The primary reason for the $236,000 increase
in the current year was gains on the sale of loans as the Company  commenced its
mortgage banking activities in the second half of fiscal 2003.

     Net  losses  from  sales and  write-downs  of  investment  securities  were
$135,000 for the nine months ended December 31, 2003 compared to $196,000 in the
comparable prior year period. During the nine months ended December 31, 2003 and
2002, the Company recorded  write-downs of $130,000 and $688,000,  respectively,
in  certain  equity  securities  which had  experienced  a decline in fair value
judged to be other than temporary. At December 31, 2003, the market value of the
Company's  portfolio of equity  securities  exceeded its adjusted  cost basis by
$305,000.

                                       13
<PAGE>

Non-interest Expenses.  Non-interest expenses decreased $447,000 during the nine
months ended December 31, 2003, as compared to the  corresponding  period in the
prior year.  Exclusive of the impact of  litigation  and legal fees,  net of the
related  insurance  recovery,  and  additional  professional  fees  incurred  in
connection  with the contested  election of directors at the 2002 Annual Meeting
of  Stockholders,   non-interest  expenses  increased  $646,000,  or  7.5%,  due
principally  to  increases  in  salaries  and  employee  benefits  of  $264,000,
increased  advertising  costs of $128,000 and an increase in other  non-interest
expenses of $156,000.

     The increase in salaries and employee benefits of $264,000, or 5.2%, during
the nine months ended  December 31, 2003,  was due to overall  salary  increases
averaging   4.0%,   increases  in  staffing  to  support  higher  mortgage  loan
originations,  as well as increases  in health  insurance  and pension  expense.
These increases were partially offset by a reduction in incentive compensation.

     The increase in advertising expense of $128,000, or 46.4%, during the first
nine months of the current  year  resulted  from  additional  promotion  of both
residential and commercial loan products as well as a deposit  promotion program
during the most recent quarter.  The increase in other non-interest  expenses of
$156,000,  or 14.1%,  is primarily  attributable  to increases in insurance  and
training related costs.

Income Taxes.  The  effective  tax rates for the nine months ended  December 31,
2003 and 2002 were 27.2% and  36.6%,  respectively.  As  previously  noted,  the
Company  recovered  $374,000  in taxes in the  current  year as a result  of the
settlement of the REIT tax dispute with the Massachusetts Department of Revenue.
Exclusive  of this  item,  the  effective  tax rate for the  nine  months  ended
December 31, 2003 was 37.3%.  This  increase from the prior year is entirely due
to the change in state tax law  eliminating  the use of the  dividends  received
deduction on dividends received by a bank from its REIT subsidiary.

Liquidity and Capital Resources

     The Company's  principal sources of liquidity are loan  amortization,  loan
prepayments,  increases  in deposits,  advances  from the Federal Home Loan Bank
(FHLB) of Boston and funds from  operations.  The Bank is a voluntary  member of
the FHLB of  Boston  and as such is  entitled  to  borrow up to the value of its
qualified  collateral that has not been pledged to others.  Qualified collateral
generally  consists of residential  first mortgage  loans,  U. S. Government and
agencies securities, mortgage-backed securities and funds on deposit at the FHLB
of Boston.  At December 31, 2003,  the Bank had  approximately  $35.6 million in
unused borrowing capacity at the FHLB of Boston.

     At December  31, 2003,  the Company had  commitments  to  originate  loans,
unused  outstanding  lines of credit and undisbursed  proceeds of loans totaling
$47.0  million.  Since many of the  commitments  may expire  without being drawn
upon, the total  commitment  amounts do not  necessarily  represent  future cash
requirements.  The  Company  anticipates  that it  will  have  sufficient  funds
available to meet its current loan commitments.

     The  Company's and the Bank's  capital  ratios at December 31, 2003 were as
follows:

                                                    Company          Bank
                                                    -------          ----

      Total Capital (to risk-weighted assets)         12.76%         12.39%

      Tier 1 Capital (to risk-weighted assets)        11.68          11.25

      Tier 1 Capital (to average assets)               8.13           7.81

     These ratios placed the Company in excess of  regulatory  standards and the
Bank in the "well capitalized" category as set forth by the FDIC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company's  earnings are largely  dependent on its net interest  income,
which is the  difference  between the yield on  interest-earning  assets and the
cost of interest-bearing  liabilities.  The Company seeks to reduce its

                                       14
<PAGE>

exposure to changes in interest rate, or market risk,  through active monitoring
and management of its interest-rate  risk exposure.  The policies and procedures
for managing both on- and  off-balance  sheet  activities are established by the
Bank's  asset/liability  management  committee ("ALCO").  The Board of Directors
reviews and approves the ALCO policy annually and monitors related activities on
an ongoing basis.

     Market risk is the risk of loss from adverse  changes in market  prices and
rates.  The  Company's  market risk arises  primarily  from  interest  rate risk
inherent in its lending, borrowing and deposit taking activities.

     The main  objective  in  managing  interest  rate risk is to  minimize  the
adverse impact of changes in interest rates on net interest  income and preserve
capital, while adjusting the asset/liability  structure to control interest-rate
risk.  However, a sudden and substantial  increase or decrease in interest rates
may  adversely  impact  earnings to the extent that the interest  rates borne by
assets and liabilities do not change at the same speed,  to the same extent,  or
on the same basis.

     The  Company   quantifies   its   interest-rate   risk  exposure   using  a
sophisticated  simulation  model.  Simulation  analysis  is used to measure  the
exposure of net  interest  income to changes in  interest  rates over a specific
time horizon. Simulation analysis involves projecting future interest income and
expense under various rate scenarios. The simulation is based on both actual and
forecasted cash flows and assumptions of management  about the future changes in
interest  rates and levels of activity  (loan  originations,  loan  prepayments,
deposit flows,  etc). The assumptions are inherently  uncertain and,  therefore,
actual results will differ from simulated  results due to timing,  magnitude and
frequency of interest rate changes as well as changes in market  conditions  and
strategies.  The net interest income projection resulting from use of actual and
forecasted cash flows and  management's  assumptions is compared to net interest
income  projections  based on an immediate  shift of 300 basis points upward and
50/100 basis points  downward.  Internal  guidelines on interest rate risk state
that for every 100 basis points immediate shift in interest rates, estimated net
interest income over the next twelve months should decline by no more than 5%.

     The following  table indicates the estimated  exposure,  as a percentage of
estimated net interest income,  for the  twelve-month  period following the date
indicated assuming an immediate shift in interest rates as set forth below:

                                                       December 31,   March 31,
                                                           2003          2003
                                                      ----------      ---------

        300 basis point increase in rates.........        (9.6)%       (7.6)%

        50 basis point decrease in rates
        (December 31 only)........................        (1.1)%

        100 basis point decrease in rates
        (March 31 only)..........................                      (2.0)%

     For each one percentage point change in net interest income in the December
2003  projections,  the effect on net income would be $95,000 assuming a 38% tax
rate.

Item 4. Controls and Procedures

     As of the end of the  period  covered  by this  report,  management  of the
Company  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation  of  the  Company's  principal  executive  officer  and  principal
financial officer, of the effectiveness of the Company's disclosure controls and
procedures.  Based on this evaluation, the Company's principal executive officer
and principal financial officer concluded that the Company's disclosure controls
and  procedures  are  effective  in  ensuring  that  information  required to be
disclosed  by the  Company  in  reports  that it  files  or  submits  under  the
Securities Exchange Act of 1934, as amended, is recorded, processed,  summarized
and reported,  within the time periods  specified in the Securities and Exchange
Commission's rules and forms.

                                       15
<PAGE>

     In addition,  there have been no changes in the Company's  internal control
over financial  reporting (to the extent that elements of internal  control over
financial  reporting are subsumed  within  disclosure  controls and  procedures)
identified in connection  with the evaluation  described in the above  paragraph
that occurred  during the Company's  last fiscal  quarter,  that has  materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

     The Company  from time to time is involved as  plaintiff  or  defendant  in
various legal actions  incidental to its business.  Except as described  herein,
none of these  actions  are  believed to be  material,  either  individually  or
collectively,  to the  results of  operations  and  financial  condition  of the
Company.

     The Bank had been named as  defendant  in a civil suit filed March 28, 2002
in Middlesex Superior Court under the caption Yi v. Central Bank in which it was
alleged,  inter  alia,  that the Bank  committed  an unfair or  deceptive  trade
practice by failing to pay surplus foreclosure  proceeds to a junior lien holder
in 1994.  Plaintiff  sought  damages of $165,000 plus interest of  approximately
$175,000  and  applied  for a multiple  damage  award  under  Chapter 93A of the
Massachusetts  General  Laws  which  provides  for  up to  treble  damages  if a
violation  is found to be  willful or  knowing.  In January  2004,  the  parties
reached  a  settlement,  which  will  result in a  payment  by the Bank,  net of
insurance, of $400,000.

Item 2. Changes in  Securities  Use of Proceeds  and Issuer  Purchases of Equity
Securities

          Not Applicable

Item 3. Defaults upon Senior Securities

          Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

          Not Applicable

Item 5. Other Information

          None

Item 6. Exhibits and Reports on Form 8-K

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

          31.1 Rule 13a-14(a) Certification of Chief Executive Officer
          31.2 Rule 13a-14(a) Certification of Chief Financial Officer
          32   Section 1350 Certification

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

     The Registrant  filed the following  Current Reports on Form 8-K during the
quarter ended December 31, 2003:

       Date of Report         Item(s) Reported       Financial Statements Filed
       --------------         ----------------       --------------------------

       October 30, 2003            7, 12                         N/A
       November 21, 2003(1)        4, 7                          N/A

----------
(1) The  Registrant  filed a Form  8-K/A on  December  1,  2003 to  correct  the
submission header of this Form 8-K.

                                       16
<PAGE>
                                   SIGNATURES


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




                                CENTRAL BANCORP, INC.
                                ---------------------
                                Registrant




February 17, 2004               /s/ John D. Doherty
-----------------               ------------------------------------------------
  Date                          John D. Doherty
                                Chairman, President and Chief Executive Officer



February 17, 2004               /s/ Michael K. Devlin
-----------------               ------------------------------------------------
  Date                          Michael K. Devlin
                                Senior Vice President, Treasurer and
                                Chief Financial Officer

                                       17