U.S. SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D. C. 20549

                                 FORM 10-KSB

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

                For the fiscal year ended September 30, 2002

                       Commission File No.: 000-27997

                    WESTBOROUGH FINANCIAL SERVICES, INC.
               (Name of small business issuer in its charter)


                  Massachusetts                    04-3504121
         (State or other jurisdiction of        (I.R.S. Employer
          incorporation or organization)       Identification No.)

            100 E. Main Street, Westborough, Massachusetts 01581
                  (Address of principal executive offices)

                               (508) 366-4111
                         (Issuer's Telephone Number)

    Securities registered pursuant to section 12(g) of the Exchange Act:

                             Title of each class
                   Common Stock, par value $0.01 per share

      Check whether the issuer (1) has 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
                ----       ----

      Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB.    [ X ]

      The revenues for the issuer's fiscal year ended September 30, 2002 are
$14,044,000.

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was sold, as of a specified date within the last 60 days.
On December 11, 2002: $9,508,292.

      State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.  The Company had
1,581,574 shares outstanding as of December 30, 2002.

                     DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Annual Report to Shareholders for the year ended
September 30, 2002 are incorporated by reference into Part II of this Form
10-KSB.

      Portions of the Proxy Statement for the 2003 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-
KSB.

Transitional Small Business Disclosure Format (check one):  Yes     No    [X]
                                                               ----      ----


<PAGE>


                              TABLE OF CONTENTS

                                                               Page
                                                               ----

FORWARD LOOKING STATEMENTS                                      (i)

PART I                                                           1

ITEM 1.   BUSINESS                                               1

ITEM 2.   DESCRIPTION OF PROPERTY                               39

ITEM 3.   LEGAL PROCEEDINGS                                     40

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS   40

PART II                                                         40

ITEM 5.   MARKET FOR THE COMPANY COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS                                   40

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS                   41

ITEM 7.   FINANCIAL STATEMENTS                                  41

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE                   41

PART III                                                        41

ITEM 9.   DIRECTORS AND PRINCIPAL OFFICERS                      41

ITEM 10.  EXECUTIVE COMPENSATION                                41

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT                                        42

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS        42

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                      42

ITEM 14.  CONTROLS AND PROCEDURES                               44

SIGNATURES                                                      45

CERTIFICATIONS                                                  47


<PAGE>


Forward Looking Statements

      Westborough Financial Services, Inc. (the "Company") and The
Westborough Bank (the "Bank") may from time to time make written or oral
"forward-looking statements" which may be identified by the use of such
words as "may," "could," "should," "would," "believe,"  "anticipate,"
"estimate," "expect,"  "intend,"  "plan" and similar expressions that are
intended to identify forward-looking statements.

      Forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, which are subject to significant risks and
uncertainties.  The following factors, many of which are subject to change
based on various other factors beyond the Company's control, and other
factors identified in the Company's filings with the Securities and Exchange
Commission and those presented elsewhere by management from time to time,
could cause its financial performance to differ materially from the plans,
objectives, expectations, estimates and intentions expressed in such
forward-looking statements.  Examples of forward-looking statements include,
but are not limited to, estimates with respect to our financial condition,
results of operations and business that are subject to various factors which
would cause actual results to differ materially from these estimates.  These
factors include, but are not limited to:

      *     conditions which effect general and local economies;

      *     changes in interest rates, deposit flows, demand for mortgages
            and other loans, real estate values and competition;

      *     changes in accounting principles, policies, or guidelines;

      *     changes in legislation or regulation; and

      *     other economic, competitive, governmental, regulatory, and
            technological factors affecting our operations, pricing,
            products and services.

      This list of important factors is not exclusive.  The Company or the
Bank does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Company or the Bank.


<PAGE>  i


PART I

ITEM 1.     BUSINESS

General

      The Company is a Massachusetts chartered mid-tier holding company that
completed its initial public offering in February 2000 in the reorganization
of the Westborough Bank (the "Bank") from a Massachusetts chartered mutual
savings bank into the Massachusetts mutual holding company form of
organization. Pursuant to the reorganization, the Bank converted to a
Massachusetts chartered stock savings bank as a wholly-owned subsidiary of
the Company, which is majority owned by Westborough Bancorp, MHC ("MHC"), a
Massachusetts chartered mutual holding company. The Company's common stock
is traded on the Over-the-Counter Bulletin Board under the symbol "WFSM.OB."

      The Company's principal business is its investment in the Bank.  The
Bank is headquartered in Westborough, Massachusetts and its deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC") up to the
applicable legal limits and by the Depositors Insurance Fund.  As a
Massachusetts stock savings bank, the Bank is examined by the Division of
Banks for the Commonwealth of Massachusetts (the "Division") and the FDIC.
The Bank currently serves primarily in the towns of Westborough,
Northborough and Shrewsbury, Massachusetts.  The Bank has been, and intends
to continue to be, a community-oriented financial institution offering a
variety of financial services to meet the needs of the communities it
serves. The Bank attracts retail deposits from the general public and
invests those funds primarily in loans secured by first mortgages on owner-
occupied, one- to four-family residences and, to a lesser extent, in
commercial real estate and commercial loans to small businesses.

      Unless otherwise indicated, the information presented in this Annual
Report on Form 10-KSB represents the consolidated activity of the Company
and its subsidiary for the fiscal year ended September 30, 2002.

      At September 30, 2002, total assets were $241.3 million, deposits were
$202.1 million and total stockholders' equity was  $28.0 million.

Market Area

      The Bank is a community- and customer-oriented retail bank offering
traditional deposit products, residential and commercial real estate
mortgage loans and, to a lesser extent, consumer and commercial loans. The
Bank operates five full service-banking offices located in the towns of
Westborough, Northborough and Shrewsbury, Massachusetts.  The Bank also
operates a non-public, self-contained office at the "Willows," a retirement
community located in Westborough.  Together, these offices serve the Bank's
"primary market area" consisting of Westborough, Northborough, Shrewsbury,
Grafton, Southborough and Hopkinton, Massachusetts. The Bank's deposits are
gathered from the general public in these towns and the surrounding
communities.  The Bank's lending activities are concentrated primarily in
the towns where it has offices, as well as contiguous cities and towns.
These cities and towns are located in east central Massachusetts, near the
central Route 495 belt.

      The Bank's market area has grown steadily to achieve a blend of
industry, office parks and residences.  The town of Westborough is
approximately 12 miles east of Worcester and 29 miles west of Boston,
located at the junction of major interstate highways constructed in the
1950s and 1960s.  The convenient access provided by Routes 20, 9, I-90 and
I-495 has contributed to the diverse economic base consisting of a retail
and commercial section, and a high-tech manufacturing section.

      Among the largest industries in the Bank's market area are financial
services, health services, high tech and utilities.


<PAGE>  1


      Public transportation within the Bank's market area has expanded with
the addition of mass transit stations.  The Massachusetts Bay Transportation
Authority recently opened stations in the towns of Grafton, Westborough and
Southborough.  These stations provide direct access to Worcester and Boston
for residents in the Bank's market area.  Since 1980, the Bank's primary
market area has experienced increases in both population and households as
individuals and families moved from urban areas surrounding Boston to more
outlying areas with lower cost and newer housing stock.

      The Bank anticipates that its future growth opportunities will be
influenced by the growth and stability of the statewide and regional
economies, other demographic population trends and the competitive
environment. The Bank believes that it has developed lending, deposit and
non-deposit products and marketing strategies to address the diverse needs
of the residents in its market area.

Business Strategy

      Historically, the Bank's primary management strategy has been to offer
savings and certificate of deposit accounts and residential mortgage loans
in the market area of Westborough, Massachusetts and surrounding
communities.  The Bank's loan portfolio historically consisted of one- to
four-family residential first mortgage loans, with relatively few commercial
real estate or commercial loans in its portfolio.  In recent years, the Bank
has adopted a growth-oriented strategy that has focused on expanding its
product lines and services, providing expanded delivery systems for its
customers and extending its branch network.  The Bank believes that this
business strategy is best for its long-term success and viability, and
complements its existing commitment to high quality customer service.  In
connection with the Bank's overall growth strategy, it seeks to:

      *     continue to focus on expanding its residential lending and
            retail banking franchise, and increasing the number of
            households served within its market area;

      *     expand its commercial banking products and services for small-
            and medium-sized businesses, as a means to increase the yield on
            its loan portfolio and to attract lower cost transaction deposit
            accounts;

      *     expand its branch network to increase its market share;

      *     increase the use of alternative delivery channels, such as on-
            line and telephonic banking; and

      *     offer a variety of uninsured products and services as a means to
            compete for an increased share of its customers' financial
            service business.

      In order to create a platform for the accomplishment of the Bank's
goals, the Bank has made significant investments in its physical
infrastructure and human and technological resources.  In particular, the
Bank has completed an addition to its main office and is in the process of
renovating the older portion of that building.  Additionally, the Bank is in
the process of constructing an enlarged Maple Avenue, Shrewsbury branch
office.  The Bank has also completed a major conversion of its core data
processing system.  Such investments have been, and in the future, will be,
necessary to ensure that adequate resources are in place to offer increased
products and services.  As a result, for a period of time, the Bank expects
operating expenses to increase and net income to be adversely impacted.  The
Bank believes, however, that its long-term profitability should improve as
it realizes the benefits of diversified product lines and market share
growth.


<PAGE>  2


Lending Activities

      General.  The Bank originates loans through its offices located in
Westborough, Massachusetts and the surrounding communities. The principal
lending activities of the Bank are the origination and purchase of first
mortgage loans for the purpose of purchasing or refinancing owner-occupied,
one- to four-family residential properties.  To a lesser extent, the Bank
also originates commercial real estate loans, consumer loans and commercial
loans.

      The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and percentages at the dates indicated.

<TABLE>
<CAPTION>

                                                                       At September 30,
                               ------------------------------------------------------------------------------------------------
                                      2002                2001                2000               1999                1998
                               ------------------  ------------------  ------------------  ------------------  ----------------
                                         Percent             Percent             Percent            Percent            Percent
                                Amount   of Total   Amount   of Total   Amount   of Total  Amount   of Total  Amount   of Total
                                ------   --------   ------   --------   ------   --------  ------   --------  ------   --------
                                                                    (dollars in thousands)

                            <c>       <c>       <c>       <c>       <c>        <c>      <c>      <c>       <c>      <c>

Real estate loans:
  Fixed rate mortgages         $ 47,599   35.01%   $ 53,431   39.42%   $ 47,964    41.68%  $52,674   56.12%   $47,239   55.81%
  Variable rate mortgages        54,096   39.78%     55,859   41.21%     52,233    45.38%   30,485   32.48%    27,384   32.36%
  Commercial                     20,092   14.78%     13,149    9.70%      6,309     5.48%    3,198    3.41%     2,743    3.24%
  Home equity lines of
   credit                         8,792    6.47%      6,931    5.11%      4,027     3.50%    3,598    3.83%     3,918    4.63%
                               ----------------------------------------------------------------------------------------------
      Total real estate loans   130,579   96.04%    129,370   95.44%    110,533    96.04%   89,955   95.84%    81,284   96.04%
                               ----------------------------------------------------------------------------------------------

Consumer loans:
  Personal                          983    0.72%      1,196    0.88%        911     0.79%      571    0.61%       858    1.01%
  Deposit secured                   509    0.37%        652    0.48%        676     0.59%      651    0.69%       676    0.80%
  Home improvement                  171    0.13%        759    0.56%        118     0.10%      199    0.21%       132    0.16%
                               ----------------------------------------------------------------------------------------------
      Total consumer loans        1,663    1.22%      2,607    1.92%      1,705     1.48%    1,421    1.51%     1,666    1.97%
                               ----------------------------------------------------------------------------------------------

Commercial loans:
  Commercial lines of
   credit                         2,549    1.87%      1,783    1.32%      1,403     1.22%    1,029    1.10%       599    0.71%
  Commercial installment          1,182    0.87%      1,795    1.32%      1,450     1.26%    1,457    1.55%     1,087    1.28%
                               ----------------------------------------------------------------------------------------------
      Total commercial loans      3,731    2.73%      3,578    2.64%      2,853     2.48%    2,486    2.65%     1,686    1.99%
                               ----------------------------------------------------------------------------------------------

Total loans                     135,973  100.00%    135,555  100.00%    115,091   100.00%   93,862  100.00%    84,636  100.00%
                                         ======              ======               ======            ======             ======
Adjusted by:
  Due to borrowers on
   incomplete loans              (2,866)               (480)               (543)            (1,013)            (1,570)
  Net deferred loan costs           161                 136                 120                122                109
  Net premium (discount)
   on purchased loans               538                 662                (235)                 0                  0
  Allowance for loan loss          (926)               (916)               (874)              (879)              (827)
                               ----------------------------------------------------------------------------------------------

  Net loans                    $132,880            $134,957            $113,559            $92,092            $82,348
                               ========            ========            ========            =======            =======
</TABLE>


<PAGE>  3


      Residential Mortgage Loans.  The Bank's primary lending emphasis is
the origination of first mortgage loans secured by one- to four-family
properties that serve as the primary or secondary residence of the owner. As
of September 30, 2002, loans on one- to four-family residential properties
accounted for 74.8% of the Bank's total loan portfolio.

      Most of the Bank's loan originations are from existing or past
customers, members of the Bank's local communities or referrals from local
real estate agents, attorneys and builders.  The Bank believes that its
branch network, particularly as it expands, is a significant source of new
loan generation.

      The Bank currently offers loans that conform to underwriting standards
specified by Fannie Mae ("conforming loans") and also originates non-
conforming loans, as described below.  These loans may be fixed-rate one- to
four-family mortgage loans or adjustable-rate one- to four-family mortgage
loans with maturities of between 5 and 30 years.  The non-conforming loans
generally follow Fannie Mae guidelines except that the loan amount exceeds
Fannie Mae guidelines' maximum limit of $300,700.  The average size of the
Bank's first mortgage loans originated during the year ended September 30,
2002 and the year ended September 30, 2001 was $194,800 and $187,000,
respectively.  The average size of the Bank's first mortgage loans was
$125,000  at September 30, 2002.  The Bank is an approved seller/servicer
for Fannie Mae.  From time to time, the Bank has sold loans in the secondary
market although such sales have been infrequent.  The loans that the Bank
sells are all fixed-rate mortgage loans with terms of 30 years.  Such loans,
however, continue to be serviced by the Bank.

      The Bank's originations of first mortgage loans amounted to $30.0
million in fiscal year 2002, $20.9 million in fiscal year 2001 and $17.2
million in fiscal year 2000. A significant number of the Bank's first
mortgage loan originations have been the result of refinancing of its
existing loans due to the relatively low interest rate levels over the past
three years.

      The Bank offers a variety of Adjustable Rate Mortgages ("ARMs") and
fixed-rate one- to four-family mortgage loans with maximum loan-to-value
ratios that depend on the type of property and the size of loan involved.
The loan-to-value ratio is the loan amount divided by the appraised value of
the property.  The loan-to-value ratio is a measure commonly used by
financial institutions to determine exposure to risk.  The majority of the
Bank's loans on owner-occupied one- to four-family homes are originated with
a loan-to-value ratio of 80% or less.  For first-time home buyers, the Bank
has made loans on owner-occupied one- to four-family homes with a loan-to-
value ratio of up to 95%.  In such cases, the borrower is required to obtain
mortgage insurance.

      The Bank currently offers fixed-rate mortgage loans with terms of 15,
20, 25 and 30 years secured by one- to four-family residences.  The Bank
prices its interest rates on fixed-rate loans to be competitive in light of
market conditions.

      The Bank currently offers a variety of ARM loans secured by one- to
four-family residential properties that initially adjust after one year,
three years, five years, seven years, or ten years.  After the initial
adjustment period, ARM loans adjust on an annual basis.  The ARM loans that
the Bank currently originates have a maximum 30 year amortization period and
are subject to the same loan-to-value ratios applicable to fixed-rate
mortgage loans described above.  The interest rates on ARM loans fluctuate
based upon a fixed spread above the average yield on United States treasury
securities and generally are subject to a maximum increase of 2% per
adjustment period and a limitation on the aggregate adjustment of 6% over
the life of the loan.  The Bank originated $16.7 million and $13.6 million
of one-to-four family ARM loans in the years ended September 30, 2002 and
2001, respectively.  At September 30, 2002,  39.8% of the Bank's total loans
consisted of ARM loans, down from 41.2% at September 30, 2001.

      The volume and types of ARM loans the Bank originates or purchases
have been affected by the level of market interest rates, competition,
consumer preferences and the availability of funds. Although the Bank will
continue to offer ARM loans, it cannot guarantee that it will be able to
originate or purchase


<PAGE>  4


a sufficient volume of ARM loans to increase or maintain the proportion that
these loans bear to its total loans.

      The retention of ARM loans in the Bank's loan portfolio helps reduce
its exposure to increases in interest rates.  However, ARM loans can pose
credit risks different from the risks inherent in fixed-rate loans,
primarily because as interest rates rise, the underlying payments of the
borrower may rise.  This increases the potential for default.

      The Bank's home equity lines of credit, which totaled $8.8 million, or
6.5% of total loans at September 30, 2002, are adjustable-rate loans secured
by a first or second mortgage on owner-occupied one- to four-family
residences located in the Bank's market area.  Interest rates on home equity
credit lines are based upon the "prime rate" as published in the "Money
Rates" section of the Wall Street Journal (the "index") with a minimum
monthly principal payment of one-half of 1% of the outstanding principal
balance of the loan.  The maximum credit line available is equal to (i) the
lesser of $250,000 or 80% of the Bank's appraisal of the property, or (ii)
50% of the tax assessment on the property. In each case, these amounts are
reduced by the first mortgage balance.  Such loans also have a maximum term
of 15 years.  The underwriting standards applicable to these loans generally
are the same as one- to four-family first mortgage loans, except that the
combined loan-to-value ratio, including the balance of the first mortgage,
cannot exceed 80% of the appraised value of the property.

      In conjunction with the Bank's residential mortgage lending, the Bank
offers construction loans to the future occupants of single family homes.
At September 30, 2002, $1.9 million of the Bank's total loan portfolio
consisted of gross residential construction loans.  Unadvanced funds on
these loans amounted to $840 thousand at September 30, 2002.  These loans
typically have a term of twelve months and are structured to become
permanent loans upon the completion of construction.  All such loans are
secured by first liens on the property and are subject to a maximum loan-to-
value ratio of 80%, which is based upon the anticipated value of the
property.  During the construction period, the interest rate for
construction loans to individuals is equal to the index.  Loans involving
construction financing present a greater risk than loans for the purchase of
existing homes since collateral values and construction costs can only be
estimated at the time the loan is approved.

      Commercial Real Estate Loans.  Origination of loans secured by
commercial real estate is a growing area of lending for the Bank.  At
September 30, 2002, commercial real estate mortgage loans totaled $20.1
million, or 14.8% of total loans.  These loans are generally secured by
office buildings, condominiums, retail establishments and churches located
within the Bank's market area.

      The Bank's commercial real estate loans are offered on a fixed- and
adjustable-rate basis.  Typical terms for such loans provide for a maximum
seven-year re-pricing term with a 20 year amortization and a balloon payment
in five to seven years, and a market interest rate, based upon the index, as
adjusted to reflect inherent risk factors.  Loans on commercial properties
are also subject to a maximum loan-to-value ratio of 80% for the acquisition
of the property and 75% for refinancing of the property.

      Pursuant to the Bank's underwriting standards, a number of factors are
considered before a commercial real estate loan is made.  The Bank evaluates
qualifications and financial condition of the borrower, including credit
history, profitability and managerial experience, as well as the appraised
value and condition of the underlying property.  Factors that the Bank
considers in evaluating the underlying property include the net operating
income of the mortgaged property before debt service and depreciation, the
debt service coverage ratio (the ratio of operating income to debt service)
and, as noted above, the ratio of the loan amount to the appraised value of
the property.

      Loans secured by commercial real estate properties are generally
larger and involve a greater degree of credit risk than one- to four-family
residential mortgage loans.  Such loans typically involve large balances to
single borrowers or groups of related borrowers.  Because payments on loans
secured by commercial real estate properties are often dependent on the
successful operation or management of the properties, repayment of such
loans may be subject to adverse conditions in the real estate market or the


<PAGE>  5


economy.  If the cash flow from the project decreases, or if leases are not
obtained or renewed, the borrower's ability to repay the loan may be
impaired.

      The Bank's real estate loan portfolio also includes construction loans
to builders and developers of residential properties within the Bank's
market area.  At September 30, 2002, $7.9 million of the Bank's total loan
portfolio consisted of gross commercial construction loans.  Advanced funds
and unadvanced funds on these loans amounted to approximately $5.7 million
and $2.0 million, respectively.

      Construction loans to builders typically are in amounts equal to 70%
of the completed appraised value.  Construction loans generally have up to
twelve months with a fixed interest rate based upon the index plus a margin.
In addition to securing the loan with the property under construction, the
Bank generally obtains personal guarantees from the borrower.  The proceeds
of such loans are disbursed after certification by in-house personnel that
specified stages of construction have been completed.

      Construction lending is generally considered to carry a higher level
of risk than permanent mortgage financing because of the uncertainty of the
value of the collateral upon completion.  Repayment of such loans is also
dependent upon the successful completion of the project and can be adversely
affected by market conditions and other factors not within the control of
the Bank or the borrower.  The Bank seeks to control such risks by tying the
amount of the loan advanced to a predetermined construction schedule, with
appropriate inspections by local authorities, in order to ensure that loan
proceeds are applied appropriately.

      Consumer Loans.  At September 30, 2002, $1.7 million, or  1.2 % of the
Bank's total loans, consisted of consumer loans such as personal, deposit
secured and fixed-rate home improvement loans.  Consumer loans generally
have shorter terms to maturity, which reduces the Bank's exposure to changes
in interest rates.  Consumer loans also carry higher rates of interest than
do one- to four-family residential mortgage loans.  In addition, the Bank
believes that offering consumer loan products helps to expand and create
stronger ties to the Bank's existing customer base by increasing the number
of customer relationships and providing cross-marketing opportunities.

      The Bank's personal loans consist of unsecured loans to individuals
and secured loans for the purchase of new and used automobiles.  The Bank's
unsecured loans have a maximum term of 48 months. The terms of the Bank's
automobile loans generally are determined by the age and condition of the
vehicle.  At September 30, 2002, the Bank's personal loans totaled $1.0
million, or 0.7% of total loans.

      The Bank also makes loans secured by deposit accounts up to 90% of the
amount of the depositor's savings account balance.  The rate for such loans
is 2.0% higher than the rate paid on regular savings accounts and 3.0%
higher than the rate paid on term deposits.  Deposit secured loans totaled
$0.5 million, or  0.4% of total loans at September 30, 2002.

      The Bank offers fixed-rate home improvement loans in amounts equal to
that available for home equity credit line loans as discussed above.  These
loans are secured by owner-occupied one- to four-family residences for terms
of up to 10 years.  At September 30, 2002, these loans totaled $0.2 million,
or  0.1% of total loans.  Interest rates on fixed-rate home improvement
loans are periodically set by the Bank's Loan Committee, consisting of the
Bank's President, Treasurer and a Senior Loan Officer, after consultation
with the Executive Committee and are based on market conditions.  The
underwriting terms and procedures applicable to these loans are
substantially the same as for the Bank's home equity credit line loans.

      Commercial Loans.  The Bank has made a commitment to small business
lending by developing certain products and services for the small- and
medium-sized businesses located in the Bank's market area.  Such services
are designed to give business owners borrowing opportunities for, among
other things, modernization, inventory, equipment, consolidation and working
capital.  In addition, the Bank has tailored certain products and services,
such as its business checking accounts and treasury and tax loan service, to
better serve the needs of local businesses.  The Bank also is an approved
lender of the Small


<PAGE>  6


Business Administration.  At September 30, 2002, $3.7 million, or 2.7%, of
the Bank's total loans consisted of commercial loans.  The Bank expects that
commercial loans will comprise a growing portion of its total loan portfolio
in the future.

      Commercial loans generally are limited to terms of five years or less.
 Substantially all commercial loans have variable interest rates tied to the
prime rate.  Whenever possible, the Bank collateralizes these loans with a
lien on business assets and equipment and the personal guarantees of the
borrower's principal officers (a lien may also be placed on one's primary
residence).

      The Bank's commercial services are administered by the Bank's loan
department.  The Bank has an experienced commercial loan officer with
considerable commercial lending expertise, including many years of banking
experience in Massachusetts and personal ties to Westborough.  The Bank also
intends to add additional qualified employees as market conditions warrant.
Assisting the commercial loan officer are a commercial loan administrator
and a commercial loan credit analyst.

      Commercial loans generally are considered to involve a higher degree
of risk than residential mortgage loans because the primary collateral may
be in the form of intangible assets and/or inventory subject to market
obsolescence.  Commercial loans also may involve relatively large loan
balances to single borrowers or groups of related borrowers, with the
repayment of such loans typically dependent on the successful operation and
income stream of the borrower.  Such risks can be significantly affected by
economic conditions.  In addition, commercial lending ordinarily requires
substantially greater oversight efforts compared to residential real estate
lending.  To minimize these risks, the Bank conducts periodic reviews of the
commercial loan portfolio to ensure adherence to underwriting standards and
policy requirements.

      Origination of Loans.  The Bank's lending activities are conducted
through its main and branch offices.  The Bank's ability to originate loans
is dependent upon the relative customer demand for fixed-rate or adjustable-
rate mortgage loans, which is affected by the current and expected future
levels of interest rates.


<PAGE>  7


      The following table sets forth information with respect to
originations, sales of loans and principal payments for the periods
indicated.

<TABLE>
<CAPTION>

                                                            For the Year Ended September 30,
                                               -----------------------------------------------------------
                                                 2002        2001         2000         1999         1998
                                               -----------------------------------------------------------
                                                                     (In thousands)


                                            <c>         <c>          <c>          <c>          <c>
Loans, net:

  Balance outstanding beginning of year        $134,957    $113,559     $ 92,092     $ 82,348     $ 70,580
                                               -----------------------------------------------------------
Originations and Purchased Loans:
  Mortgage loans:
    Residential                                  30,003      20,892       17,194       31,280       32,346
    Commercial                                    8,866       7,023        4,453        1,583          476
    Home equity lines of credit                   8,658       7,326        2,611        3,198        3,397
                                               -----------------------------------------------------------
      Total mortgage originations                47,527      35,241       24,258       36,061       36,219
Commercial loans                                  1,704       5,085        2,705        1,987        1,438
Consumer loans                                    2,123       1,956        3,382        1,825        1,275
                                               -----------------------------------------------------------
      Total originations                         51,354      42,282       30,345       39,873       38,932
                                               -----------------------------------------------------------

Purchased loans                                       0       9,484       12,791            0            0
                                               -----------------------------------------------------------

Less:
  Principal repayments, unadvanced
   funds and other, net                         (53,421)    (30,326)     (21,674)     (30,077)     (26,780)
  Sale of mortgage loans, principal balance           0           0            0            0         (269)
  Provision for loan losses                          (8)        (48)           0          (45)         (39)
  Net loan charge-off (recoveries)                   (2)          6            5           (7)          (2)
  Transfers to foreclosed real estate                 0           0            0            0          (74)
                                               -----------------------------------------------------------
      Total deductions                          (53,431)    (30,368)     (21,669)     (30,129)     (27,164)
                                               -----------------------------------------------------------

Net loan activity                                (2,077)     21,398       21,467        9,744       11,768
                                               -----------------------------------------------------------

Loans, net, end of year                        $132,880    $134,957     $113,559     $ 92,092     $ 82,348
                                               ===========================================================
</TABLE>


<PAGE>  8


      The following table presents, as of September 30, 2002, the dollar
amount of all loans due after September 30, 2003, and whether such loans
have fixed or adjustable interest rates.

<TABLE>
<CAPTION>

                                     Due After September 30, 2003
                                     --------------------------------
                                      Fixed    Adjustable      Total
                                     --------------------------------
                                              (In thousands)
                                     --------------------------------


                                  <c>         <c>         <c>
      Fixed rate mortgages           $46,736     $     0     $ 46,736
      Variable rate mortgages              0      45,553       45,553
      Commercial mortgage loans       15,696       1,693       17,389
      Home equity lines of credit      1,253           0        1,253
      Consumer loans                   1,634           0        1,634
      Commercial loans                     0         721          721
                                     --------------------------------
        Total loans                  $65,319     $47,967     $113,286
                                     ================================
</TABLE>


<PAGE>  9


      Loan Commitments.  The Bank generally makes loan commitments to
borrowers not exceeding 45 days.  At September 30, 2002, the Bank had $5.7
million in loan commitments outstanding, primarily for the origination of
one- to four-family residential real estate loans, commercial loans and
commercial real estate loans.  Unadvanced funds on home equity lines of
credit and commercial lines of credit at September 30, 2002 represented $9.5
million and $2.1 million, respectively.

      Loan Solicitation.  Loan originations are derived from a number of
sources, including the Bank's existing customers, referrals, realtors,
advertising and "walk-in" customers at the Bank's offices.  The Bank also
employs one full-time "on the road" loan originator who is available to meet
with customers at their convenience.

      Loan Approval and Administrative  Procedures.  On an annual basis the
Board of Directors approves the Bank's lending policies, loan approval
limits, and outside, independent firms (such as appraisers), that may be
retained during the underwriting process.  Depending on the type and size of
the requested loan, coupled with the borrower's aggregate loan balances with
the Bank, loans may be approved by individual loan officers, the Loan
Committee (the "LC") or the Executive Committee (the "EC").  The Bank's LC
is comprised of the President & Chief Executive Officer, Senior Vice
President & Chief Financial Officer, and the Vice President & Senior Lending
Officer.  Residential mortgage loan requests for one-to four-family homes in
amounts up to $500,000 may be approved by the LC. One-to four-family
mortgage requests greater than $500,000 require approval by the EC.
Commercial and Industrial Loan (Commercial Real Estate, Term loans, Lines of
Credit, etc.) requests up to $850,000 may be approved by the LC. Commercial
and Industrial loan requests exceeding $850,000 require approval of the EC.
The Bank requires that all prospective borrowers complete a loan application
and sign documentation authorizing the release of financial information to
the Bank such as Credit reports, Personal Financial Statements,
Individual/Corporate Tax Returns, Financial Statements, etc.  Upon receipt
of the information, the Bank will proceed with the underwriting process.  If
necessary, the Bank may require additional financial or credit related
information from the applicant. The Bank requires an appraisal for
commercial and residential mortgage loans, except in some cases where
existing mortgages are being refinanced.  Appraisals are performed by
licensed or certified third-party appraisal firms and are reviewed by the
Bank's lending department.  The Bank requires title insurance on all
mortgage loans, except for home equity credit lines and fixed-rate home
improvement loans.  For those exceptions, the Bank requires evidence of
previous title insurance.  The Bank requires borrowers to obtain hazard
insurance and may require borrowers to obtain flood insurance prior to
closing.  For properties with a private sewage disposal system, the Bank
also requires evidence of compliance with applicable laws.  Further, if
requested by the Bank, some borrowers are required to deposit funds on a
monthly basis to an escrow account for the future payment of real estate
taxes, and premium payments for flood insurance and private mortgage
insurance.

      Interest rates charged by the Bank on all loans are primarily
determined by competitive loan rates offered in its market area and interest
rate costs of the source of funding for the loan. The Bank may charge an
origination fee on new mortgage loans.  The origination fees, net of direct
origination costs, are deferred and amortized into income over the life of
the loan. At September 30, 2002, the amount of net deferred loan origination
costs was $161,000.

      Loan Maturity and Re-pricing.  The following table sets forth certain
information as of September 30, 2002 regarding the dollar amount of loans
maturing in the Bank's portfolio based on their contractual terms to
maturity.  Demand loans having no stated schedule of repayments and no
stated maturity, and overdrafts are reported as due in one year or less.
Adjustable and floating rate loans are included in the period in which
interest rates are next scheduled to adjust rather than the period in which
they contractually mature, and fixed-rate loans are included in the period
in which the final contractual repayment is due.  This table does not
include prepayments on scheduled principal amortizations.


<PAGE>  10


<TABLE>
<CAPTION>

                                                                         At September 30, 2002
                                      -------------------------------------------------------------------------------------------
                                                                                        Home
                                                            Variable     Commercial    Equity
                                         Fixed Rate           Rate        Mortgage    Lines of   Consumer   Commercial     Total
                                      Mortgage Loans(1)   Mortgages(1)    Loans(1)     Credit     Loans       Loans        Loans
                                      -------------------------------------------------------------------------------------------

                                                                             (In thousands)


                                        <c>              <c>           <c>          <c>        <c>         <c>        <c>
Amounts due:
  Within one year                          $    23          $ 8,543       $   677      $7,539     $   29      $3,010     $ 19,821
  One to three years                            99           15,834           774           7      1,139          20       17,873
  Over three to five years                   3,062            1,946         8,882         421        495         701       15,507
  Over five to ten years                     3,330           26,733         5,013         805          0           0       35,881
  Over ten to twenty years                  38,654            1,040         2,720          20          0           0       42,434
  Over twenty years                          1,591                0             0           0          0           0        1,591
                                           --------------------------------------------------------------------------------------
      Loans, gross                         $46,759          $54,096       $18,066      $8,792     $1,663      $3,731      133,107
                                           =========================================================================
Net deferred loan origination costs                                                                                           161
Net premium on purchased loans                                                                                                538
Allowance for loan losses                                                                                                    (926)
                                                                                                                        ---------

      Loans, net                                                                                                         $132,880
                                                                                                                         ========

<FN>
--------------------
<F1>  Net of unadvanced loan funds
</FN>
</TABLE>

      Non-Performing Assets, Asset Classification and Allowances for Losses.
The Senior Lending Officer, working with other members of the LC,
continually monitors the status of all delinquent loans. On a monthly basis,
the Senior Lending Officer presents an update of the status of loans to both
the Bank's EC and Board of Directors. One of the Bank's primary tools
utilized to manage and control delinquent and problem loans is the Watched
Asset List (the "WAL"). This report identifies all loans or commitments that
are considered to have inherent collateral or cash flow deficiencies that
could result in a potential loss to the Bank if not properly supervised. The
subject loans are managed by the LC, which, together with the EC, may meet
more frequently to discuss the status of particular loans and to add or
delete loans from the Watch List, as is deemed appropriate. At September 30,
2002, the Bank had three loans more than 90 days past due which totaled $2
thousand.  The Bank also had $1.1 million and $2.7 million in assets
classified as pass and substandard, respectively.  No assets were classified
as special mention, doubtful or loss.

      The Bank had $140 thousand and $0 non-performing assets at September
30, 2002 and 2001, respectively.


<PAGE>  11


      The following table presents information regarding non-accrual
mortgage and consumer and other loans, accruing loans delinquent 90 days or
more, and foreclosed real estate as of the dates indicated:

<TABLE>
<CAPTION>

                                                                            At September 30,
                                                              --------------------------------------------
                                                               2002     2001      2000      1999      1998
                                                              --------------------------------------------
                                                                         (Dollars in thousands)


                                                           <c>      <c>       <c>       <c>       <c>
Non-accrual first mortgage loans                              $ 140    $   0     $   0     $   0     $   0
Non-accural consumer and other loans                              0        0         0         0         0
Accruing loans delinquent 90 days or more                         0        0         0         0        55
                                                              --------------------------------------------
      Total non-performing and delinquent loans                 140        0         0         0        55
Foreclosed real estate, net                                       0        0         0         0        74
                                                              --------------------------------------------

      Total non-performing assets and delinquent loans        $ 140    $   0     $   0     $   0     $ 129
                                                              ============================================
Non-performing and delinquent loans to total loans             0.11%    0.00%     0.00%     0.00%     0.06%
Non-performing assets and delinquent loans to total assets     0.06%    0.00%     0.00%     0.00%     0.08%
</TABLE>

      Loans are placed on non-accrual status when they are 90 days past due
or, in the opinion of management, the collection of principal and interest
is doubtful. When the Bank designates loans as non-accrual loans, it
reverses outstanding interest that it previously recognized to income.  The
Bank may recognize income in the period that interest is collected, and when
the full return of principal balances are no longer in doubt. A loan can be
returned to accrual status once there is no longer principal and interest
past due, or in circumstances where an abundance of additional collateral
has been obtained and the loan is in a "positive" state of collection.

      Impaired loans generally are individually assessed to determine
whether a loan's carrying value is not in excess of the fair value of the
collateral or the present value of the loan's cash flows.  Groups of smaller
balance loans, however, are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual consumer loans
for impairment disclosures.  The Bank had no loans classified as impaired at
September 30, 2002, 2001 and 2000, respectively.  In addition at September
30, 2002, 2001 and 2000, the Bank had no loans classified as troubled debt
restructurings, as defined in SFAS No. 15.

      Foreclosed real estate consists of property the Bank acquired through
foreclosure or deed in lieu of foreclosure.  Foreclosed real estate
properties are initially recorded at the lower of the investment in the loan
or fair value.  Thereafter, the Bank carries foreclosed real estate at fair
value less estimated selling costs, net of a valuation allowance account
established through provisions charged to income, which result from the
ongoing periodic valuations of foreclosed real estate properties.  The Bank
had no foreclosed real estate at September 30, 2002, 2001 and 2000,
respectively.


<PAGE>  12


      Allowance for Loan Losses.  The following table presents the activity
in the Bank's allowance for loan losses at or for the dates indicated:

<TABLE>
<CAPTION>

                                               At or for the Years Ended September 30,
                                          -------------------------------------------------
                                           2002      2001      2000       1999       1998
                                           ----      ----      ----       ----       ----
                                                       (Dollars in thousands)


                                       <c>        <c>       <c>       <c>        <c>
Balance at beginning of year              $  916     $ 874     $ 879     $  827     $   786
                                          -------------------------------------------------
Provision for loan losses                      8        48         0         45          39
                                          -------------------------------------------------
Charge-off:
  Mortgage loans                               0         0         0          0           0
  Commercial Loans                             0         0         0          0           0
  Consumer loans                             (11)      (10)       (6)        (6)          0
                                          -------------------------------------------------
      Total charge-offs                      (11)      (10)       (6)        (6)          0
Recoveries                                    13         4         1         13           2
                                          -------------------------------------------------
Balance at end of year                    $  926     $ 916     $ 874     $  879     $   827
                                          =================================================

Net charge-offs/(recoveries) for
 the year                                 $   (2)    $   6     $   5     $   (7)    $    (2)

Ratio of net charge-offs/(recoveries)
 to average loans outstanding
 during the year                          -0.001%    0.005%    0.005%    -0.008%     -0.003%

Allowance for loan losses as a
 percent of total loans before the
 allowance for loan losses                  0.69%     0.67%     0.76%      0.95%       0.99%

Allowance for loan losses as a
 percent of non-performing loans          661.43%     0.00%     0.00%      0.00%    1503.64%
</TABLE>

      The allowance for loan losses is a valuation account that reflects
the Bank's evaluation of the losses inherent in its loan portfolio.  The
Bank maintains the allowance through provisions for loan losses that it
charges to income. The Bank charges losses on loans against the allowance
for loan losses when it believes the collection of loan principal is
unlikely.


<PAGE>  13


      The following table presents the Bank's allocation of the allowance
for loan losses by loan category and the percentage of loans in each
category to total loans at the dates indicated.

<TABLE>
<CAPTION>

                                                               At September 30,
                           ----------------------------------------------------------------------------------------
                                        2002                           2001                           2000
                           --------------------------     --------------------------     --------------------------
                                           Percent of                     Percent of                     Percent of
                                            Loans in                       Loans in                       Loans in
                             Dollar         Category        Dollar         Category        Dollar         Category
                             Amount         to Total        Amount         to Total        Amount         to Total
                           (in thous.)       Loans        (in thous.)       Loans        (in thous.)       Loans
                           -----------     ----------     -----------     ----------     -----------     ----------


                           <c>           <c>              <c>           <c>              <c>           <c>
Real estate-mortgage:
  Residential (1)             $133           81.25%          $165           85.74%          $347           90.56%
  Commercial                    41           14.78%            39            9.70%           212             5.48%
Commercial                     643            2.74%           606            2.64%            70             2.48%
Consumer                        24            1.22%            28            1.92%           163             1.48%
Unallocated                     85            0.00%            78            0.00%            82             0.00%
                              -----------------------------------------------------------------------------------
      Total Allowance
       for loan losses        $926          100.00%          $916          100.00%          $874           100.00%
                              ===================================================================================

<CAPTION>

                                               At September 30,
                           ---------------------------------------------------------
                                        1999                           1998
                           --------------------------     --------------------------
                                           Percent of                     Percent of
                                            Loans in                       Loans in
                             Dollar         Category        Dollar         Category
                             Amount         to Total        Amount         to Total
                           (in thous.)       Loans        (in thous.)       Loans
                           -----------     ----------     -----------     ----------


                           <c>           <c>              <c>           <c>

Real estate-mortgage:
  Residential (1)             $279           92.43%          $309           92.80%
  Commercial                   176            3.41%           184            3.24%
Commercial                      60            2.65%           103            1.99%
Consumer                       149            1.51%            24            1.97%
Unallocated                    215            0.00%           207            0.00%
                              ---------------------------------------------------
      Total Allowance
       for loan losses        $879          100.00%          $827          100.00%
                              ===================================================

<FN>
--------------------
<F1>  Includes home equity lines of credit and construction loans.
</FN>
</TABLE>

      With regard to determining how the allowance for loan loss is
allocated to various categories of loans, individual loans selected to
appear on the Bank's WAL have been identified by the line officer
(relationship manager) and reviewed by management as having a defined
weakness, such as insufficient cash flow, inadequate collateral, irregular
payment history, etc., which could jeopardize the contractual repayment of
the loan. Potential loss factors are quantified utilizing a "discount
factor" against the collateral held for a specific loan(s). All substandard
loan factors are decided by the line officer that has intimate knowledge of
the loan relationship and the collateral supporting the obligation. The
discounts can range from 0% to 100%, depending on the nature of the
collateral and the circumstances behind the loan classification. The
discounted collateral value is then compared with the outstanding loan
balance to determine what allowance for loan loss allocation is considered
appropriate. This method of allocating the allowance for loan loss was
implemented for the fiscal year ended September 30, 2001.  In prior years,
such analysis was not as specific because the amount and characteristics of
our commercial loan portfolio was relatively small in relation to other
categories of loans.  As a result of implementing this revised method,
while the total allowance for loan loss has not changed dramatically, there
has been a significant change in the percentage and dollar amounts
allocated within each category of loans.  Management believes this revised,
quantitative approach is more acceptable and better reflects the  changes
which have occurred in the Bank's loan portfolio. The allowance for loan
loss was $926 thousand at September 30, 2002 as compared to $916 thousand
at September 30, 2001.  As a result of growth in commercial loan balances
and portfolio risk characteristics, the amount of allowance for loan loss
allocated to commercial loans increased to $643 thousand at September 30,
2002 as compared to $606 thousand at September 30, 2001.

      The remaining loans not subject to individual review, are evaluated
as related, homogeneous, groups, according to specific loan categories.
Residential real estate mortgage loans generally fall into this category of
homogeneous groups.  Loss factors are assigned to each related, homogeneous
group according to factors such as historical losses, peer group
comparisons, industry and economic data and loss percentages generally used
by banking regulators for similarly graded loans.  The allowance for loan
loss allocated to residential real estate mortgage loans declined by $32
thousand to $133 thousand at September 30, 2002 as compared to $165
thousand at September 30, 2001.  The decline is mainly a result of a
decline


<PAGE>  14


in the aggregate balance of homogeneous loans in this group, less any which
may have been specifically identified on the Bank's WAL.

      Although the management of the Bank believes that it has established
and maintained the allowance for loan losses at adequate levels, future
additions may be necessary if economic and other conditions in the future
differ substantially from the current operating environment.  We believe
our policies with respect to the methodology for our determination of the
allowance for loan losses involve a higher degree of complexity and require
management to make difficult and subjective judgments which often require
assumptions or estimates about highly uncertain matters.  Changes in these
judgments, assumptions or estimates could cause reported results to differ
materially.  This critical policy and its application are periodically
reviewed with the Audit Committee and our Board of Directors.

      In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's loan and
foreclosed real estate portfolios and the related allowance for loan losses
and valuation allowance for foreclosed real estate.  The FDIC, in
conjunction with the other federal banking agencies, has adopted an inter-
agency policy statement on allowance for loan losses and lease losses.  The
policy statement provides guidance for financial institutions on both the
responsibilities of management for their assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines.


<PAGE>  15


Investment Activities

      The Company's Board of Directors reviews and approves the investment
policy on an annual basis.  The President and Treasurer, as authorized by
the Board, implement this policy.  Management reports securities
transactions to the Board for review and approval on a monthly basis.

      The investment policy is designed primarily to manage the interest
rate sensitivity of the Bank's assets and liabilities, to generate a
favorable return without incurring undue interest rate and credit risk, to
complement the Bank's lending activities and to provide and maintain
liquidity within established guidelines. In establishing investment
strategies, the Bank considers its interest rate sensitivity, the types of
securities to be held, liquidity and other factors. Massachusetts-chartered
savings banks have authority to invest in various types of assets,
including U.S. Treasury obligations, securities of various federal
agencies, mortgage-backed securities, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements, loans of federal funds, and, subject to certain
limits, corporate debt and equity securities, commercial paper and mutual
funds.

      At September 30, 2002, with the exception of securities of the U.S.
Government and U.S. Government agencies and corporations, the Company had
no securities of any issuer where the aggregate market and book value of
the securities of such issuer, exceeded 10 percent of stockholders' equity.

      At September 30, 2002 and September 30, 2001, the Bank's liquidity
ratio was 80.5% and 63.3%, respectively. For information regarding the
carrying values, yields and maturities of the Bank's securities, see
"Carrying Values, Yields and Maturities" further on in this section.

      At September 30, 2002,  the fair value of the U.S. Government and
federal agency securities portfolio totaled $23.5 million. This portfolio
consists primarily of securities with maturities of one to five years.
Some of the agency debentures are callable and call provisions vary
following a minimum holding period.  The Bank generally does not purchase
structured notes, and at September 30, 2002, there were no structured notes
in the Bank's portfolio.

      At September 30, 2002, the portfolio of other debt obligations,
excluding mortgage-backed securities, totaled $29.2 million.  The Bank's
policy generally requires that investment in corporate debt obligations be
limited to corporate bonds with an "A" rating or better by at least one
nationally recognized rating service at the time of purchase.

      At September 30, 2002, the Bank's mortgage-backed securities, all of
which were classified as available for sale, totaled $18.2 million, or 7.5%
of total assets. The Bank generally purchases mortgage-backed securities as
a means to deploy excess liquidity at more favorable yields than other
investment alternatives.  In addition, mortgage-backed securities generate
positive interest rate spreads with minimal administrative expense and
lower the Bank's overall credit risk due to the fact that they are directly
or indirectly insured or guaranteed.   Purchases of mortgage-backed
securities may decline in the future if the Bank experiences an increase in
demand for one-to four-family mortgage loans. The Bank did not sell any of
its mortgage-backed securities during fiscal year 2002.

      Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or
credit enhancements that reduce credit risk.  However, mortgage-backed
securities are more liquid than individual mortgage loans and may be used
to collateralize the Bank's borrowings.  In general, mortgage-backed
securities issued or guaranteed by GNMA, Fannie Mae and Freddie Mac are
weighted at no more than 20% for risk-based capital purposes, compared to
the 50% risk-weighting assigned to most non-securitized residential
mortgage loans.

      While mortgage-backed securities carry a reduced credit risk as
compared to whole loans, they remain subject to the risk of a fluctuating
interest rate environment.  Along with other factors, such as the
geographic distribution of the underlying mortgage loans, changes in
interest rates may alter the


<PAGE>  16


prepayment rate of those mortgage loans and affect both the prepayment
rates and value of mortgage-backed securities.

      The fair market value of the marketable equity securities portfolio
totaled $4.9 million at September 30, 2002.  These securities consisted of
$1.6 million of common stock, $0.2 million of preferred stock and $3.1
million of trust preferred securities issued by financial service
corporations.  Under the Bank's investment policy, the aggregate amount of
common stock that it may purchase may not exceed 13% of its total
securities portfolio.  The Bank's policy also has limitations against
acquiring concentrations of such securities in any one issuer or industry.
The Bank purchases marketable equity securities as growth investments that
can provide the opportunity for capital appreciation that is taxed on a
more favorable basis than operating income.  There can be no assurance that
investment in marketable equity securities will appreciate in value and,
therefore, such investments involve higher risk than U.S. Government or
federal agency securities.  Aggregate purchases of marketable equity
securities totaled $0, $0.4 million and $3.4 million for the years ended
September 30, 2002, 2001 and 2000. At September 30, 2002, pre-tax net
unrealized loss on marketable equity securities amounted to $666 thousand.


<PAGE>  17


      Unless otherwise noted with respect to certain securities or required
by regulators or accounting standards, the Bank classifies securities
available for sale at the date of purchase.  Available for sale securities
are reported at fair market value.  The Bank currently has no securities
classified as trading.  During fiscal year 2002, the Bank sold securities
in the aggregate amount of $4.3 million.

      The following table presents activity in the Bank's securities
portfolio, including FHLB stock for the years indicated:

<TABLE>
<CAPTION>

                                               For the Year Ended September 30,
                                               --------------------------------
                                                2002         2001        2000
                                                ----         ----        ----
                                                    (Dollars In Thousands)


                                            <c>         <c>          <c>
Beginning balance                              $65,514     $ 70,119     $64,457
  Purchases                                     27,735       26,696      19,101
  Maturities                                    (4,600)     (10,310)     (5,102)
  Sales and calls                               (5,868)     (19,531)     (5,446)
  Principal repayments                          (6,892)      (3,205)     (3,304)
  Premium and (discount) amortization, net         (95)          32          29
  Recognition of expired options                     0           16         425
  Change in net unrealized gains/(losses)        1,094        1,697          61
  Write-down                                         0            0        (102)
                                               --------------------------------
Ending balance                                 $76,888     $ 65,514     $70,119
                                               ================================
</TABLE>


<PAGE>  18


      The following table sets forth certain information regarding the
amortized cost and fair value of the Bank's securities at the dates
indicated.

<TABLE>
<CAPTION>

                                                                  At September 30,
                                      -------------------------------------------------------------------------
                                              2002                      2001                      2000
                                      ---------------------     ---------------------     ---------------------
                                      Amortized      Fair       Amortized      Fair       Amortized      Fair
                                        Cost         Value        Cost         Value        Cost         Value
                                      ---------      -----      ---------      -----      ---------      -----
                                                               (Dollars in thousands)


                                    <c>          <c>          <c>          <c>          <c>          <c>
Debt securities:
  U.S. Government obligations          $     -      $     -      $ 2,099      $ 2,108      $10,574      $10,585
  Federal agency obligations            22,830       23,451        9,130        9,571       12,622       12,251
  Banking and finance obligations       15,898       16,990       18,542       19,478       10,982       10,930
  Other bonds and obligations           11,720       12,174        9,260        9,590       16,203       16,063
                                       ------------------------------------------------------------------------
      Total debt securities             50,448       52,615       39,031       40,747       50,381       49,829
                                       ------------------------------------------------------------------------
Mortgage-backed and mortgage-
 related securities:
  FHLMC                                  4,553        4,710        2,276        2,361        1,427        1,555
  FNMA                                  11,663       12,173       11,788       12,150        4,633        4,505
  GNMA                                     968          983        1,459        1,469        2,273        2,138
  Other                                    258          285        1,698        1,763        2,089        2,058
                                       ------------------------------------------------------------------------
  Total mortgage-backed and
   mortgage-related securities          17,442       18,151       17,221       17,743       10,422       10,256
                                       ------------------------------------------------------------------------
Asset-backed securities                      -            -          119          120          314          311
Marketable equity securities             5,538        4,872        6,927        5,804        8,680        8,820
FHLB stock                               1,250        1,250        1,100        1,100          903          903
                                       ------------------------------------------------------------------------
      Total Securities                 $74,678      $76,888      $64,398      $65,514      $70,700      $70,119
                                       ========================================================================
</TABLE>


<PAGE>  19


      The following table sets forth the amortized cost and fair value of
the Bank's mortgage-backed and mortgage-related securities, all of which
were classified as available for sale at the dates indicated.

<TABLE>
<CAPTION>

                                                                         At September 30,
                                    -------------------------------------------------------------------------------------------
                                                2002                           2001                           2000
                                    -----------------------------  -----------------------------  -----------------------------
                                                Percent                        Percent                        Percent
                                    Amortized     of       Fair    Amortized     of       Fair    Amortized     of      Fair
                                      Cost     Total (1)   Value     Cost     Total (1)   Value     Cost     Total (1)  Value
                                    ---------  ---------   -----   ---------  ---------   -----   ---------  ---------  -----
                                                                 (Dollars in thousands)


                                  <c>        <c>       <c>       <c>        <c>       <c>       <c>        <c>       <c>
Mortgage-backed and
 mortgage-related securities:
  FHLMC                              $ 4,553     26.09%   $ 4,710   $ 2,276     13.22%   $ 2,361   $ 1,427     13.69%   $ 1,555
  FNMA                                11,663     66.84%    12,173    11,788     68.44%    12,150     4,633     44.45%     4,505
  GNMA                                   968      5.55%       983     1,459      8.47%     1,469     2,273     21.81%     2,138
  Other                                  258      1.52%       285     1,698      9.86%     1,763     2,089     20.05%     2,058
                                     ------------------------------------------------------------------------------------------
      Total Mortgage-backed and
       mortgage-related securities   $17,442    100.00%   $18,151   $17,221    100.00%   $17,743   $10,422    100.00%   $10,256
                                     ==========================================================================================
<FN>
--------------------
<F1>  Based on amortized cost
</FN>
</TABLE>


<PAGE>  20


      Carrying Values, Yields and Maturities.  The table below presents
information regarding the carrying values, weighted average yields and
contractual maturities of debt securities at September 30, 2002.  Mortgage-
backed securities are presented by issuer.  Yields on tax exempt
obligations were not computed on a tax equivalent basis.

<TABLE>
<CAPTION>

                                                                         September 30, 2002
                                 --------------------------------------------------------------------------------------------------
                                                         More than           More than
                                                          One Year           Five Years          More than
                                  One Year or Less     to Five Years        to Ten Years         Ten Years             Total
                                 ------------------  ------------------  ------------------  ------------------  ------------------
                                           Weighted            Weighted            Weighted            Weighted            Weighted
                                 Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Average
                                  Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield
                                 --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
                                                                       (Dollars in thousands)


                               <c>        <c>     <c>        <c>      <c>        <c>      <c>        <c>      <c>        <c>
Debt securities:
  U.S. Government obligations     $    -     0.00%   $     -    0.00%    $     -    0.00%    $     -    0.00%    $     -    0.00%
  Federal agency obligations       1,025     6.35%    17,301    4.23%      5,125    6.52%          -    0.00%     23,451    4.82%
  Banking and finance obligations  3,055     6.27%    13,935    6.94%          -    0.00%          -    0.00%     16,990    6.82%
  Other bonds and obligations        988     6.06%    10,300    6.12%        886    3.97%          -    0.00%     12,174    5.96%
                                  ------             -------             -------             -------
      Total debt securities        5,068     6.24%    41,536    5.61%      6,011    6.15%          -    0.00%     52,615    5.73%
Mortgage-backed and mortgage-
 related securities:
  FHLMC                                -     0.00%     1,002    5.00%        609    6.00%      3,099    5.75%      4,710    5.62%
  FNMA                                 -     0.00%     1,021    4.80%      4,036    6.08%      7,116    6.33%     12,173    6.12%
  GNMA                                 -     0.00%         -    0.00%          -    0.00%        983    6.21%        983    6.21%
  Other                                -     0.00%         -    0.00%          -    6.63%        285    6.51%        285    6.51%
                                  ------             -------             -------             -------
  Total mortgage-backed and
   mortgage-related securities         -     0.00%     2,023    4.90%      4,645    6.07%     11,483    6.17%     18,151    6.00%
Asset-backed securities                -     0.00%         -    0.00%          -    0.00%          -    0.00%          -    0.00%
                                  ------             -------             -------             -------
      Total                       $5,068     6.24%   $43,559    5.58%    $10,656    6.11%    $11,483    6.17%    $70,766    5.80%
                                  ======             =======             =======             =======
</TABLE>


<PAGE>  21


Deposit Activity and Other Sources of Funds

      General.  Deposits, scheduled amortization and prepayments of loan
principal and mortgage-backed securities, maturities and calls of
securities and funds provided by operations are the Bank's primary sources
of funds for use in lending, investing and for other general purposes.  The
Bank also utilizes borrowed funds from the FHLB  to fund certain loans in
connection with the Bank's management of the interest rate sensitivity of
its assets and liabilities, as well as for other general purposes.

      Deposits.  The Bank offers a variety of deposit accounts having a
range of interest rates and terms. The Bank currently offers regular
savings deposits, NOW accounts, personal and business demand accounts,
money market accounts and certificates of deposit.  The Bank also offers
Individual Retirement Accounts ("IRAs"), which at September 30, 2002
totaled $9.9 million.

      Deposit flows are influenced significantly by general and local
economic conditions, changes in prevailing interest rates, pricing of
deposits and competition.  The Bank's deposits are primarily obtained from
areas surrounding its offices, and the Bank relies primarily on paying
competitive rates, service and long-standing relationships with customers
to attract and retain these deposits.  The Bank also has developed deposit
products to attract and retain individual and commercial depositors.  One
such product is a tiered-rate savings account in which deposits over
certain amounts earn interest at higher rates.  Other programs involve the
introduction of commercial deposit products tailored to small- and medium-
sized businesses, such as the Bank's business and commercial checking
accounts.  The Bank does not use brokers to obtain deposits.

      When the Bank determines its deposit rates, it considers local
competition, U.S. Treasury securities offerings and the rates charged on
other sources of funds.  Core deposits (defined as total savings accounts,
NOW accounts, money market accounts and demand accounts) represented 68.8%
of total deposits on September 30, 2002.  At September 30, 2002,
certificates of deposit with remaining terms to maturity of less than one
year amounted to $53.4 million.

      The following table presents the Bank's deposit activity for the
years indicated.

<TABLE>
<CAPTION>

                                           For the Years Ended September 30,
                                           ----------------------------------
                                             2002         2001         2000
                                             ----         ----         ----
                                                 (Dollars In Thousands)


                                        <c>          <c>          <c>
Beginning balance                          $185,098     $163,405     $150,111
  Net deposits                               12,383       15,819        8,069
  Interest expense on deposit accounts        4,582        5,874        5,225
                                           ----------------------------------
Ending Balance                             $202,063     $185,098     $163,405
                                           ==================================
Total increase in deposit accounts         $ 16,965     $ 21,693     $ 13,294
Percentage increase                            9.17%       13.28%        8.86%
</TABLE>


<PAGE>  22


      At September 30, 2002, the Bank had $14.7 million in certificates of
deposit with balances of $100,000 and over maturing as follows:

<TABLE>
<CAPTION>

                                          At September 30, 2002
                                          ----------------------
                                                        Weighted
                                                        Average
                                          Amount          Rate
                                          ---------------------
                                          (Dollars in thousands)


                                       <c>            <c>
Maturity Period:
  Three months or less   $                  5,644        3.56%
  Over three months through six months      3,695        3.29%
  Over six months through 12 months         3,898        3.19%
  Over 12 months                            1,486        3.83%
                                          -------
Total                                     $14,723        3.42%
                                          =======
</TABLE>

      The following table presents the distribution of the Bank's deposit
accounts at the dates indicated by dollar amount and percent of portfolio,
and the weighted average interest rate on each category of deposits.

<TABLE>
<CAPTION>

                                          At September 30, 2002         At September 30, 2001         At September 30, 2000
                                       ----------------------------  ----------------------------  ----------------------------
                                                           Weighted                      Weighted                      Weighted
                                                 Percent    Average            Percent    Average            Percent    Average
                                                 of total   Nominal            of total   Nominal            of total   Nominal
                                        Amount   deposits    Rate     Amount   deposits    Rate     Amount   deposits    Rate
                                       ----------------------------------------------------------------------------------------
                                       (Dollars in thousands)


                                    <c>       <c>         <c>     <c>       <c>         <c>     <c>       <c>         <c>
Non-interest bearing accounts          $ 20,393   10.09%     0.00%   $ 17,496    9.45%     0.00%   $ 15,475    9.47%     0.00%
NOW accounts                             17,033    8.43%     0.25%     18,178    9.82%     0.50%     15,281    9.35%     0.50%
Savings accounts:
  Regular                                42,173   20.87%     1.73%     35,890   19.39%     2.20%     32,339   19.79%     2.40%
  Tiered-rate                            54,133   26.80%     2.32%     44,286   23.93%     2.82%     38,808   23.75%     4.52%
                                       ----------------              ----------------              ----------------
      Total savings accounts             96,306   47.67%     2.06%     80,176   43.32%     2.54%     71,147   43.54%     3.56%
                                       ----------------              ----------------              ----------------
Money market deposit accounts             5,259    2.60%     1.98%      5,494    2.97%     1.97%      5,868    3.59%     2.17%
                                       ----------------              ----------------              ----------------
      Total non-certificate accounts    138,991   68.79%     1.53%    121,344   65.56%     1.84%    107,771   65.95%     2.54%
                                       ----------------              ----------------              ----------------
Certificates of deposit accounts:
  Due within 1 year                      53,392   26.42%     3.27%     52,378   28.30%     5.02%     44,049   26.96%     5.47%
  Over 1 year through 3 years             9,680    4.79%     3.89%     11,370    6.14%     5.00%     11,578    7.09%     5.84%
  Over 3 years                                -    0.00%     0.00%          6    0.00%     4.88%          7    0.00%     4.91%
                                       ----------------              ----------------              ----------------
      Total certificate accounts         63,072   31.21%     3.37%     63,754   34.44%     5.02%     55,634   34.05%     5.55%
                                       ----------------              ----------------              ----------------
      Total deposits                   $202,063  100.00%     2.11%   $185,098  100.00%     2.94%   $163,405  100.00%     3.56%
                                       ======================================================================================
</TABLE>


<PAGE>  23


      Borrowings.  The Bank borrows funds from the FHLB for use in
connection with its management of the interest rate sensitivity of its
assets and liabilities, as well as to fund certain loans and for other
general purposes.  The advances are collateralized by certain of the Bank's
mortgage loans and by its investment in stock of the FHLB.  The maximum
amount the FHLB will advance to its members, including the Bank, fluctuates
from time to time in accordance with FHLB policies.  At September 30, 2002,
the Bank had $9.5 million in outstanding advances from the FHLB and had the
capacity to increase that amount to $ 77.3 million based on the Bank's
qualified collateral available to the FHLB.  The Bank expects to continue
to borrow from the FHLB.

      The following table presents certain information regarding the Bank's
borrowed funds at or for the years ended on the dates indicated.

<TABLE>
<CAPTION>

                                                 At or for the
                                           Years Ended September 30,
                                        -------------------------------
                                          2002        2001        2000
                                        -------------------------------
                                             (Dollars in thousands)


                                     <c>         <c>         <c>
Federal Home Loan Bank advances:
  Average balance outstanding           $11,677     $16,178     $ 5,335
  Maximum amount outstanding at any
   month-end during the year            $12,000     $16,500     $16,500
  Balance outstanding at end of year    $ 9,500     $12,000     $16,500
  Weighted average interest rate
   during the year                         6.55%       6.51%       5.60%
  Weighted average interest rate
   end of year                             6.58%       6.65%       6.44%
</TABLE>


<PAGE>  24


Selected Financial Ratios and Other Data

      The following information in the table are selected financial ratios
and other data for the Company for the periods indicated:

<TABLE>
<CAPTION>

                                                                       At or for the
                                                                 Years Ended September 30,
                                                            -----------------------------------
                                                               2002          2001        2000
                                                            -----------------------------------


                                                         <c>           <c>           <c>
Selected Financial Ratios and Other Data (1)

Performance Ratios:
  Return on average assets                                       0.42%         0.64%      0.68%
  Return on average stockholders' equity                         3.59%         5.49%      5.70%
  Average stockholders' equity to average assets                11.70%        11.69%     11.88%
  Stockholders' equity to assets at end of period               11.60%        11.93%     12.00%
  Net interest rate spread (2)                                   3.52%         2.93%      3.19%
  Net interest margin (3)                                        3.94%         3.53%      3.73%
  Average interest-bearing assets to average interest-
   bearing liabilities                                         116.82%       117.68%    116.88%
  Operating expenses as a percent of average assets              3.19%         3.20%      3.16%
  Efficiency ratio (4)                                          81.36%        86.93%     83.78%

Regulatory Capital Ratios: (5)
  Total risk-based capital                                      19.27%        19.38%     21.73%
  Tier 1 risk-based capital                                     18.61%        18.70%     20.99%
  Regulatory tier 1 leverage capital                            11.11%        11.51%     12.82%

Asset Quality Ratios:
  Non-performing loans as a percent of loans                     0.11%         0.00%      0.00%
  Non-performing assets as a percent of total assets             0.06%         0.00%      0.00%
  Allowance for loan losses as a percent of total loans
   before the allowance for loan losses                          0.69%         0.67%      0.76%

Number of:
  Full-service offices (6)                                          5             5          5
  Full-time equivalent employees                                   76            70         69

Share Data: (7)
  Basic number of weighted average shares outstanding       1,540,103     1,540,518         na
  Dilutive number of weighted average shares outstanding    1,558,622     1,550,588         na
  Basic earnings per share                                  $    0.64     $    0.91         na
  Dilutive earnings per share                               $    0.63     $    0.90         na
  Dividends declared per share                              $    0.20     $    0.20         na

<FN>
--------------------
<F1>  Asset Quality and Regulatory Capital Ratios are end of year ratios.
<F2>  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.
<F3>  Net interest margin represents net interest income as a percentage of
      average interest-earning assets.
<F4>  Efficiency ratio represents total operating expenses divided by the
      sum of net interest income, customer service fees and miscellaneous
      income.
<F5>  Ratios are based on consolidation.
<F6>  The number of full service offices does not include the Bank's branch
      at the Willows retirement community.
<F7>  Share data for 2000 not applicable since the Company converted to a
      stock company on February 15, 2000.
</FN>
</TABLE>


<PAGE>  25


Competition

      The Bank faces significant competition both in making loans and
attracting deposits.  The Bank's service area of central Massachusetts has
a high concentration of financial institutions, many of which are branches
of large money center and regional banks that have resulted from the
consolidation of the banking industry in Massachusetts and surrounding
states.  Some of these competitors have greater resources than the Bank
does and may offer services that the Bank does not provide.

      The Bank's competition for loans comes principally from commercial
banks, savings institutions, mortgage banking firms, credit unions, finance
companies, mutual funds, insurance companies and brokerage and investment
banking firms.  The Bank's most direct competition for deposits has
historically come from commercial banks, savings banks, savings and loan
associations and credit unions.  The Bank faces additional competition for
deposits from short-term money market funds and other corporate and
government securities funds and from brokerage firms and insurance
companies. The Bank  expects competition to increase in the future as a
result of legislative, regulatory and technological changes and the
continuing trend of consolidation in the industry.

Employees

      At September 30, 2002, the Bank had 64 full-time and 18 part-time
employees.  None of the Bank's employees is represented by a collective
bargaining agreement.  Management of the Bank believes that it enjoys
excellent relations with its personnel.

Subsidiary Activities

      Eli Whitney Security Corporation.  Eli Whitney Security Corporation
is a wholly-owned subsidiary of the Bank.  Eli Whitney was established in
1995 as a Massachusetts security corporation for the purpose of buying,
selling and holding  securities on its own behalf and not as a broker.  The
income earned on Eli Whitney's securities is subject to a significantly
lower rate of state tax than that assessed on income earned on securities
maintained by the Bank.  At September 30, 2002, Eli Whitney had total
assets of $15.6 million, virtually all of which were in securities.

      One Hundredth Security Corporation.  One Hundredth Security
Corporation is a wholly-owned subsidiary of the Bank established in 1993.
One Hundredth is also a Massachusetts security corporation that was formed
for the purpose of buying, selling and holding securities on its own behalf
and not as a broker.  The income earned on One Hundredth securities is
subject to a significantly lower rate of state tax than that assessed on
income earned on securities maintained by the Bank.  At September 30, 2002,
One Hundredth had total assets of $25.1 million, virtually all of which
were in securities.  On October 1, 2002, One Hundredth Security Corporation
was merged into Eli Whitney Security Corporation.

      The Hundredth Corporation.  The Hundredth Corporation is a wholly-
owned subsidiary of the Bank. The Hundredth Corporation was established in
1991 for the investment in real or personal property. At September 30,
2002, The Hundredth Corporation had total assets of $993 thousand.  Its
largest investment consists of $958 thousand of land on which the Bank is
in the process of constructing its expanded Maple Avenue, Shrewsbury Branch
office.


<PAGE>  26


FEDERAL AND STATE TAXATION

Federal Taxation

      General.  The following discussion is intended only as a summary and
does not purport to be a comprehensive description of the tax rules
applicable to the Bank, the MHC or the Company.  For federal income tax
purposes, the Bank reports income on the basis of a taxable year ending
September 30, using the accrual method of accounting, and the Bank is
generally subject to federal income taxation in the same manner as other
corporations.  The Bank and the Company constitute an affiliated group of
corporations and, therefore, are eligible to report their income on a
consolidated basis. Because the MHC owns less than 80% of the common stock
of the Company, it is not a member of such affiliated group and reports its
income on a separate return.  The Bank is not currently under audit by the
Internal Revenue Service and its federal income tax returns have not been
audited for the past five years.

      Bad Debt Reserves.  The Bank, as a "small bank" (one with assets
having an adjusted tax basis of $500 million or less) is permitted to
maintain a reserve for bad debts and to make, within specified formula
limits, annual additions to the reserve which are deductible for purposes
of computing its taxable income. Pursuant to the Small Business Job
Protection Act of 1996, the Bank has recaptured (taken into income) over a
multi-year period, a portion of the balance of its bad debt reserve as of
September 30, 1996.

      Distributions.  To the extent that the Bank makes non-dividend
distributions to shareholders, such distributions will be considered to
result in distributions from the Bank's base year reserve, i.e., its
reserve as of April 30, 1988, to the extent thereof and then from its
supplemental reserve for losses on loans, and an amount based on the amount
distributed will be included in the Bank's taxable income.  Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock and
distributions in partial or complete liquidation.  However, dividends paid
out of the Bank's current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not constitute non-
dividend distributions and, therefore, will not be included in the Bank's
income.

      The amount of additional taxable income created from a non-dividend
distribution is equal to the lesser of the Bank's base year reserve and
supplemental reserve for losses on loans or an amount that, when reduced by
the tax attributable to the income, is equal to the amount of the
distribution.  Thus, in certain situations, approximately one and one-half
times the non-dividend distribution would be includible in gross income for
federal income tax purposes, assuming a 34% federal corporate income tax
rate.  The Bank does not intend to pay dividends that would result in the
recapture of any portion of its bad debt reserves.

      Elimination of Dividends; Dividends Received Deduction.  The Company
may exclude from its income 100% of dividends received from the Bank as a
member of the same affiliated group of corporations. Because the MHC is not
be a member of such affiliated group, it does not qualify for such 100%
dividends exclusion, but is entitled to deduct 80% of the dividends it
receives from the Company so long as it owns more than 20% of the Company's
common stock.

State Taxation

      The Bank files Massachusetts Savings Institution income tax returns.
Generally, the income of savings institutions in Massachusetts, which is
calculated based on federal taxable income, subject to certain adjustments,
is subject to Massachusetts tax. The Bank is not currently under audit with
respect to its Massachusetts income tax returns and its state tax returns
have not been audited for the past five years.

      The Company is required to file a Massachusetts income tax return and
is generally subject to a state income tax rate that is the same tax rate
as the tax rate for savings institutions in Massachusetts.  However, if the
Company meets certain requirements, it may be eligible to elect to be taxed
as a


<PAGE>  27


Massachusetts Security Corporation, which would allow the Company to be
taxed at a rate that is currently lower than income tax rates for savings
institutions in Massachusetts.

REGULATION

General

      The Bank is a Massachusetts-chartered stock savings bank, and its
deposit accounts are insured up to applicable limits by the Bank Insurance
Fund (the "BIF") of the FDIC and by the Depositors Insurance Fund.  The
Bank is subject to extensive regulation, examination and supervision by the
Commonwealth of Massachusetts Division of Banks (the "Division") as its
primary corporate regulator, and by the FDIC as the deposit insurer.  The
Bank must file reports with the Division and the FDIC concerning its
activities and financial condition, and it must obtain regulatory approval
prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions and opening or acquiring
branch offices.  The Division and the FDIC conduct periodic examinations to
assess the Bank's compliance with various regulatory requirements.  This
regulation and supervision establishes a comprehensive framework of
activities in which a savings bank can engage and is intended primarily for
the protection of the deposit insurance fund and depositors.  The Bank is
also a member of the FHLB and is subject to certain regulation by the Board
of the Federal Reserve System.

      The MHC and the Company, as bank holding companies controlling the
Bank are subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA"), and the rules and regulations of the Federal Reserve Board (the
"FRB") under the BHCA and to the provisions of the Massachusetts General
Laws applicable to savings banks and other depository institutions and
their holding companies (the "Massachusetts banking laws") and the
regulations of the Division under the Massachusetts banking laws applicable
to bank holding companies.  The MHC and the Company are required to file
reports with, and otherwise comply with the rules and regulations of the
FRB and the Division.  The Company is required to file certain reports
with, and otherwise comply with, the rules and regulations of the
Securities and Exchange Commission under the federal securities laws.  Any
change in such laws and regulations, whether by the Division, the FDIC, or
the FRB, or through legislation, could have a material adverse impact on
the MHC, the Company and the Bank, and their operations and stockholders.

Financial Services Modernization Legislation

      The Gramm-Leach-Bliley Financial Services Modernization Act of 1999
(the "GLB Act") was signed into law on November 12, 1999.  This federal
legislation was intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms and other financial
service providers.

      As a result of the GLB Act, bank holding companies who have elected
to be regulated as financial holding companies are now permitted to engage
in a wider variety of financial activities than permitted under prior law,
particularly with respect to insurance and securities activities. In
addition, in a change from prior law, financial holding companies are in a
position to be owned, controlled or acquired by any company engaged in
financially-related activities. On October 23, 2000, the MHC and the
Company elected to be regulated as financial holding companies.

Massachusetts Banking Regulation

      Activity Powers.  The Bank derives its lending, investment and other
activity powers primarily from the applicable provisions of the
Massachusetts banking laws and its related regulations.  Under these laws
and regulations, savings banks, including the Bank, generally may, invest
in (a) real estate mortgages; (b) consumer and commercial loans; (c)
specific types of debt securities, including certain corporate debt
securities and obligations of federal, state and local governments and
agencies; (d) certain types of corporate equity securities; and (e) certain
other assets.


<PAGE>  28


      A savings bank may also invest pursuant to a "leeway" power that
permits investments not otherwise permitted by the Massachusetts banking
laws.  "Leeway" investments must comply with a number of limitations on the
individual and aggregate amounts of "leeway" investments.  A savings bank
may also exercise trust powers upon approval of the Division.
Massachusetts savings banks may also exercise any power and engage in any
activity permissible for national banks in accordance with regulations
adopted by the Division with respect to such power or activity.  The
exercise of lending, investment and activity powers are limited by federal
law and the related regulations. See "Federal Banking Regulation --
Activity Restrictions on State-Chartered Banks" below.

      Community Reinvestment Act.  The Bank is also subject to provisions
of the Massachusetts banking laws that, like the provisions of the federal
Community Reinvestment Act ("CRA"), impose continuing and affirmative
obligations upon a banking institution organized in Massachusetts to serve
the credit needs of its local communities ("Massachusetts CRA").  The
obligations of the Massachusetts CRA are similar to those imposed by the
CRA, with the exception of the assigned exam ratings.  Massachusetts
banking law provides for an additional exam rating of "high satisfactory"
in addition to the federal CRA ratings of "outstanding," "satisfactory,"
"needs to improve" and "substantial noncompliance."  The Division has
adopted regulations to implement the Massachusetts CRA that are based on
the CRA.  See "Federal Banking Regulation -- Community Reinvestment Act."
The Division is required to consider a bank's Massachusetts CRA rating when
reviewing the bank's application to engage in certain transactions,
including mergers, asset purchases and the establishment of branch offices
or automated teller machines, and provides that such assessment may serve
as a basis for the denial of any such application.  The Massachusetts CRA
requires the Division to assess a bank's compliance with the Massachusetts
CRA and to make such assessment available to the public.  The Bank's most
recent Massachusetts CRA rating, received by letter, dated March 22, 1999,
from the Division was a rating of "Satisfactory."

      Loans-to-One-Borrower Limitations.  With specified exceptions, the
total obligations of a single borrower to a Massachusetts-chartered savings
bank may not exceed 20% of the savings bank's surplus account.  A savings
bank may lend additional amounts up to 100% of the bank's surplus account
if secured by collateral meeting the requirements of the Massachusetts
banking laws.  The Bank currently complies with applicable loans-to-one-
borrower limitations.

      Loans to a Bank's Insiders.  Provisions of the Massachusetts banking
laws prohibit a savings bank from making a loan or otherwise extending
credit to any of its officers and directors or trustees and prohibits any
such officer, director or trustee from borrowing, otherwise becoming
indebted, or becoming liable for a loan or other extension of credit by
such bank to any other person except for any of the following loans after
approval by a majority of the all of the members of the Bank's Executive
Committee, excluding any member involved in such loan or extension of
credit: (a) loan or extension of credit, secured or unsecured, to an
officer of the bank in an amount not exceeding $20,000; (b) loan or
extension of credit intended or secured for educational purposes to an
officer of the bank in an amount not exceeding $75,000; (c) loan or
extension of credit secured by a mortgage on residential real estate to be
occupied in whole or in part by the officer to whom the loan or extension
of credit is made, in an amount not exceeding $275,000; or (d) loan or
extension of credit to a director or trustee of the bank who is not also an
officer of the bank in an amount permissible under the bank's loan-to-one
borrower limit.  See "Massachusetts Banking Regulation, Loans-to-One
Borrower Limitations" above.  No such loan may be granted with an interest
rate or on other terms that are preferential in comparison to loans granted
to persons not affiliated with the savings bank.

      Dividends.  Under the Massachusetts banking laws, a stock savings
bank may, subject to several limitations, declare and pay a dividend on its
capital stock, which is the bank's common stock and any preferred stock,
out of the bank's net profits.  A dividend may not be declared, credited or
paid by a stock savings bank so long as there is any impairment of capital
stock.  No dividend may be declared on the bank's common stock for any
period other than for which dividends are declared upon preferred stock,
except as authorized by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner"). The approval of the Commissioner is
also required for a stock savings bank to declare a dividend, if the total
of all dividends declared by the savings bank in any calendar year shall
exceed the


<PAGE>  29


total of its net profits for that year combined with its retained net
profits of the preceding two years, less any required transfer to surplus
or a fund for the retirement of any preferred stock.

      In addition, federal law may also limit the amount of dividends that
may be paid by the Bank.  See " - Federal Banking Regulation - Prompt
Corrective Action" below.

      Examination and Enforcement.  The Division is required to
periodically examine savings banks at least once every calendar year or at
least once each 18 month period if the savings bank qualifies as well
capitalized under the prompt corrective action provisions of the Federal
Deposit Insurance Act.  See " - Federal Banking Regulation - Prompt
Corrective Action" below.  The Division may also examine a savings bank
whenever the Division deems an examination expedient.  If the Division
finds, after an inquiry, that any trustee, director or officer of a savings
bank has, among other things, violated any law related to such bank or has
conducted the business of such bank in an unsafe or unsound manner, the
Division may take various actions that could result in the suspension or
removal of such person as an officer, director or trustee of the savings
bank.  If the Division determines that, among other things, a savings bank
has violated its charter or any Massachusetts law or is conducting its
business in an unsafe or unsound manner or is in an unsafe or unsound
condition to transact its banking business, the Division may take
possession of the property and business of the savings bank and may, if the
facts warrant, initiate the liquidation of the bank.

Federal Banking Regulation

      Capital Requirements.  FDIC regulations require BIF-insured banks,
such as the Bank, to maintain minimum levels of capital.  The FDIC
regulations define two tiers, or classes, of capital.

      Tier 1 capital is comprised of the sum of common stockholders' equity
(excluding the unrealized appreciation or depreciation, net of tax, from
available-for-sale securities), non-cumulative perpetual preferred stock
(including any related surplus) and minority interests in consolidated
subsidiaries, minus all intangible assets (other than qualifying servicing
rights), and any net unrealized loss on marketable equity securities.

      The components of Tier 2 capital currently include cumulative
perpetual preferred stock, certain perpetual preferred stock for which the
dividend rate may be reset periodically, mandatory convertible securities,
subordinated debt, intermediate preferred stock, allowance for possible
loan losses and up to 45% of pretax net unrealized holding gains on
available for sale equity securities with readily determinable market
values.  Allowance for possible loan losses includible in Tier 2 capital is
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount
of Tier 2 capital that may be included in total capital cannot exceed 100%
of Tier 1 capital.

      The FDIC regulations establish a minimum leverage capital requirement
for banks in the strongest financial and managerial condition, with a
rating of 1 (the highest examination rating of the FDIC for banks) under
the Uniform Financial Institutions Rating System, of not less than a ratio
of 3.0% of Tier 1 capital to total assets.  For all other banks, the
minimum leverage capital requirement is 4.0%, unless a higher leverage
capital ratio is warranted by the particular circumstances or risk profile
of the depository institution.

      The FDIC regulations also require that savings banks meet a risk-
based capital standard.  The risk-based capital standard requires the
maintenance of a ratio of total capital (which is defined as the sum of
Tier 1 capital and Tier 2 capital) to risk-weighted assets of at least 8%
and a ratio of Tier 1 capital to risk-weighted assets of at least 4%.  In
determining the amount of risk-weighted assets, all assets, plus certain
off balance sheet items, are multiplied by a risk-weight of 0% to 100%,
based on the risks the FDIC believes are inherent in the type of asset or
item.

      The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to
declines in the economic value of a bank's capital due to


<PAGE>  30


changes in interest rates when assessing the bank's capital adequacy.
Under such a risk assessment, examiners will evaluate a bank's capital for
interest rate risk on a case-by-case basis, with consideration of both
quantitative and qualitative factors.  According to the agencies,
applicable considerations include the quality of the bank's interest rate
risk management process, the overall financial condition of the bank and
the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital.  The agencies also issued a joint policy statement
providing guidance on interest rate risk management, including a discussion
of the critical factors affecting the agencies' evaluation of interest rate
risk in connection with capital adequacy.

      The following table shows the Bank's leverage ratio, its Tier 1 risk-
based capital ratio, and its total risk-based capital ratio, at September
30, 2002:

<TABLE>
<CAPTION>

                                           As of September 30, 2002
                             -----------------------------------------------------
                             Regulatory                   Regulatory
                              Capital      Percent of       Capital     Percent of
                               Amount      Assets (1)    Requirements     Assets
                             -----------------------------------------------------
                                            (Dollars in thousands)


                            <c>           <c>            <c>            <c>
Total risk-based capital       $25,392       18.35%         $11,069        8.00%
Tier 1 risk-based capital      $24,466       17.68%         $ 5,535        4.00%
Tier 1 leverage capital        $24,466       10.47%         $ 9,350        4.00%

<FN>
--------------------
<F1>  For purposes of calculating Total risk-based capital and Tier 1 risk-
      based capital, assets are based on total risk-weighted assets.  In
      calculating Tier 1 leverage capital, assets are based on adjusted
      total average assets.
</FN>
</TABLE>

      At September 30, 2002, the Bank was considered "well capitalized"
under FDIC guidelines.

      Enforcement.  The FDIC has extensive enforcement authority over
insured savings banks, including the Bank.  This enforcement authority
includes, among other things, the ability to assess civil money penalties,
to issue cease and desist orders and to remove directors and officers.  In
general, these enforcement actions may be initiated in response to
violations of laws and regulations and to unsafe or unsound practices.

      The FDIC is required, with certain exceptions, to appoint a receiver
or conservator for an insured state bank if that bank is "critically
undercapitalized."  For this purpose, "critically undercapitalized" means
having a ratio of tangible capital to total assets of less than 2%.  The
FDIC may also appoint a conservator or receiver for a state bank on the
basis of the institution's financial condition or upon the occurrence of
certain events, including: (a) insolvency (whereby the assets of the bank
are less than its liabilities to depositors and others); (b) substantial
dissipation of assets or earnings through violations of law or unsafe or
unsound practices; (c) existence of an unsafe or unsound condition to
transact business; (d) likelihood that the bank will be unable to meet the
demands of its depositors or to pay its obligations in the normal course of
business; and (e) insufficient capital or the incurring or likely incurring
of losses that will deplete substantially all of the institution's capital
with no reasonable prospect of replenishment of capital without federal
assistance.

      Deposit Insurance.  Pursuant to FDICIA, the FDIC established a system
for setting deposit insurance premiums based upon the risks a particular
bank or savings association posed to its deposit insurance funds.  Under
the risk-based deposit insurance assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending six months before
the assessment period.  The three capital categories are (1) well
capitalized, (2) adequately capitalized and (3) undercapitalized.  With
respect to the capital ratios, institutions are classified as well
capitalized, adequately capitalized or undercapitalized using ratios that
are


<PAGE>  31


substantially similar to the prompt corrective action capital ratios
discussed below.  The FDIC also assigns an institution to a supervisory
subgroup based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information that the FDIC
determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds which may include information
provided by the institution's state supervisor.

      An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned.  Under the final risk-based
assessment system, there are nine assessment risk classifications to which
different assessment rates are applied or combinations of capital groups
and supervisory subgroups.  Assessment rates for deposit insurance
currently range from 0 basis points to 27 basis points.  The capital and
supervisory subgroup to which an institution is assigned by the FDIC is
confidential and may not be disclosed.  A bank's rate of deposit insurance
assessments will depend upon the category and subcategory to which the bank
is assigned by the FDIC.  Any increase in insurance assessments could have
an adverse effect on the earnings of insured institutions, including the
Bank.

      Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), the
assessment base for the payments on the bonds (the "FICO bonds") issued in
the late 1980's by the Financing Corporation to recapitalize the now
defunct Federal Savings and Loan Insurance Corporation was expanded to
include, beginning January 1, 1997, the deposits of BIF-insured
institutions, such as the Bank. The annual rate of assessments for the
payments on the FICO bonds for the quarter period beginning on July 1, 2002
was 0.0172% for BIF-assessable deposits.

      Under the FDIA, the FDIC may terminate the insurance of an
institution's deposits upon a finding that the institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC.  The Bank's management does not
know of any practice, condition or violation that might lead to termination
of deposit insurance.

      Transactions with Affiliates of the Bank.  Transactions between an
insured bank, such as the Bank, and any of its affiliates is governed by
Sections 23A and 23B of the Federal Reserve Act.  An affiliate of a bank is
any company or entity that controls, is controlled by or is under common
control with the bank.  Currently, a subsidiary of a bank that is not also
a depository institution is not treated as an affiliate of the bank for
purposes of Sections 23A and 23B.  Sections 23A and 23B (1) limit the
extent to which the bank or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
bank's capital stock and retained earnings, and limit on all such
transactions with all affiliates to an amount equal to 20% of such capital
stock and retained earnings, and (2) require that all such transactions be
on terms that are consistent with safe and sound banking practices.  The
term "covered transaction" includes the making of loans, purchase of
assets, issuance of guarantees and other similar types of transactions.
Further, most loans by a bank to any of its affiliates must be secured by
collateral in amounts ranging from 100 to 130 percent of the loan amounts.
In addition, any covered transaction by a bank with an affiliate and any
purchase of assets or services by a bank from an affiliate must be on terms
that are substantially the same, or at least as favorable, to the bank as
those that would be provided to a non-affiliate.  The FRB has adopted a
final regulation, Regulation W, which is a comprehensive regulation
implementing Sections 23A and 23B of the Federal Reserve Act.  Regulation W
becomes effective on April 1, 2003.

      Prohibitions Against Tying Arrangements.  Banks are subject to the
prohibitions of 12 U.S.C. 1972 on certain tying arrangements.  A depository
institution is prohibited, subject to certain exceptions, from extending
credit to or offering any other service, or fixing or varying the
consideration for such extension of credit or service, on the condition
that the customer obtain some additional service from the institution or
certain of its affiliates or not obtain services of a competitor of the
institution.

      Community Reinvestment Act.  Under the Community Reinvestment Act
(the "CRA"), any insured depository institution, including the Bank, has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including
low- and


<PAGE>  32


moderate-income neighborhoods.  The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that
it believes are best suited to its particular community.  The CRA requires
the FDIC, in connection with its examination of a savings bank, to assess
the depository institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such institution, including applications for additional
branches and acquisitions.

      Among other things, the current  CRA evaluation system focuses on
three tests: (1) a lending test, to evaluate the institution's record of
making loans in its service areas; (2) an investment test, to evaluate the
institution's record of investing in community development projects,
affordable housing, and programs benefiting low or moderate income
individuals and businesses; and (3) a service test, to evaluate the
institution's delivery of services through its branches, ATMs and other
offices.

      For a small bank, which is a bank with less than $250 million in
assets in the year prior to the CRA examination, such as the Bank, the CRA
assessment will be based on: (a) the bank's loan-to-deposit ratio; (b) the
percentage of the bank's loans and any other appropriate lending related
activities located in the bank's assessment areas; (c) the bank's record of
lending to, and other appropriate lending related activities for borrowers
of different income levels and businesses and farms of different sizes; (d)
the geographic distribution of the bank's loans; and (e) the bank's record
in acting in response to written complaints about the bank's performance in
helping to meet the credit needs of its assessment areas.

      The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating
system and requires public disclosure of an institution's CRA rating.  The
Bank received a "satisfactory" rating in its CRA examination conducted by
the FDIC on March 1, 1999.

      Safety and Soundness Standards.  Pursuant to the requirements of
federal banking law each federal banking agency, including the FDIC, has
adopted guidelines establishing general standards relating to internal
controls, information and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, asset quality,
earnings, and compensation, fees and benefits.  In general, the guidelines
require, among other things, appropriate systems and practices to identify
and manage the risks and exposures specified in the guidelines.  The
guidelines prohibit excessive compensation as an unsafe and unsound
practice and describe compensation as excessive when the amounts paid are
unreasonable or disproportionate to the services performed by an executive
officer, employee, director, or principal stockholder.

      In addition, the FDIC adopted regulations to require a bank that is
given notice by the FDIC that it is not satisfying any of such safety and
soundness standards to submit a compliance plan to the FDIC.  If, after
being so notified, a bank fails to submit an acceptable compliance plan or
fails in any material respect to implement an accepted compliance plan, the
FDIC may issue an order directing corrective and other actions of the types
to which a significantly undercapitalized institution is subject under the
"prompt corrective action" provisions.  If a bank fails to comply with such
an order, the FDIC may seek to enforce such an order in judicial
proceedings and to impose civil monetary penalties.

      Prompt Corrective Action.  FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
The FDIC, as well as the other federal banking regulators, adopted
regulations governing the supervisory actions that may be taken against
undercapitalized institutions.  The regulations establish five categories,
consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized."  The FDIC's regulations defines the five capital
categories as follows.  Generally, an institution will be treated as "well
capitalized" if its ratio of total capital to risk-weighted assets is at
least 10%, its ratio of Tier 1 capital to risk-weighted assets is at least
6%, its ratio of Tier 1 capital to total assets is at least 5%, and it is
not subject to any order or directive by the FDIC to meet a specific
capital level.  An institution will be treated as "adequately capitalized"
if its ratio of total capital to risk-weighted assets is at least 8%, its
ratio of Tier 1 capital to risk-weighted assets is at least 4%, and its
ratio of Tier 1 capital to


<PAGE>  33


total assets is at least 4% (3% if the bank receives the highest rating
under the Uniform Financial Institutions Rating System) and it is not a
well-capitalized institution.  An institution that has total risk-based
capital of less than 8%, Tier 1 risk-based-capital of less than 4% or a
leverage ratio that is less than 4% (or less than 3% if the institution is
rated a composite "1" under the Uniform Financial Institutions Rating
System) will be treated as "undercapitalized."  An institution that has
total risk-based capital of less than 6%, Tier 1 capital of less than 3% or
a leverage ratio that is less than 3% will be treated as "significantly
undercapitalized," and an institution that has a tangible capital to assets
ratio equal to or less than 2% would be deemed to be "critically
undercapitalized."

      The severity of the action authorized or required to be taken under
the prompt corrective action regulations increases as a bank's capital
decreases within the three undercapitalized categories.  All banks are
prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution,
the bank would be undercapitalized.  The FDIC is required to monitor
closely the condition of an undercapitalized bank and to restrict the
growth of its assets.  An undercapitalized bank is required to file a
capital restoration plan within 45 days of the date the bank receives
notice that it is within any of the three undercapitalized categories, and
the plan must be guaranteed by any parent holding company.  The aggregate
liability of a parent holding company is limited to the lesser of: (a) an
amount equal to five percent of the bank's total assets at the time it
became "undercapitalized," and (b) the amount that is necessary (or would
have been necessary) to bring the bank into compliance with all capital
standards applicable with respect to such bank as of the time it fails to
comply with the plan.  If a bank fails to submit an acceptable plan, it is
treated as if it were "significantly undercapitalized."  Banks that are
significantly or critically undercapitalized are subject to a wider range
of regulatory requirements and restrictions.

      Loans to a Bank's Insiders.  A bank's loans to its executive
officers, directors, any owner of 10% or more of its stock (each, an
"insider") and any of certain entities affiliated to any such person (an
insider's related interest) are subject to the conditions and limitations
imposed by Section 22(h) of the Federal Reserve Act and the FRB's
Regulation O thereunder.  Under these restrictions, the aggregate amount of
the loans to any insider and the insider's related interests may not exceed
the loans-to-one-borrower limit applicable to national banks, which is
comparable to the loans-to-one-borrower limit applicable to the Bank's
loans.  See "Massachusetts Banking Regulation - Loans-to-One Borrower
Limitations."  All loans by a bank to all insiders and insiders' related
interests in the aggregate may not exceed the bank's unimpaired capital and
unimpaired retained earnings.  With certain exceptions, loans to an
executive officer, other than loans for the education of the officer's
children and certain loans secured by the officer's residence, may not
exceed the lesser of  (1) $100,000 or (2) the greater of $25,000 or 2.5% of
the bank's capital and unimpaired retained earnings.  Regulation O also
requires that any proposed loan to an insider or a related interest of that
insider be approved in advance by a majority of the Board of Directors of
the bank, with any interested director not participating in the voting, if
such loan, when aggregated with any existing loans to that insider and the
insider's related interests, would exceed either (1) $500,000 or (2) the
greater of $25,000 or 5% of the bank's unimpaired capital and retained
earnings.  Generally, such loans must be made on substantially the same
terms as, and follow credit underwriting procedures that are not less
stringent than, those that are prevailing at the time for comparable
transactions with other persons.  An exception is made for extensions of
credit made pursuant to a benefit or compensation plan of a bank that is
widely available to employees of the bank and that does not give any
preference to insiders of the bank over other employees of the bank.

      In addition, provisions of the BHCA prohibit extensions of credit to
a bank's insiders and their related interests by any other institution that
has a correspondent banking relationship with the bank, unless such
extension of credit is on substantially the same terms as those prevailing
at the time for comparable transactions with other persons and does not
involve more than the normal risk of repayment or present other unfavorable
features.


<PAGE>  34


Federal Home Loan Bank System

      The Bank is a member of the FHLB, which is one of 12 regional Federal
Home Loan Banks, that administers the home financing credit function of
savings institutions. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the Federal Home Loan
Bank System. It makes loans or advances to members in accordance with
policies and procedures, established by the board of directors of the FHLB,
which are subject to the oversight of the Federal Housing Finance Board.
All advances from the FHLB are required to be fully secured by sufficient
collateral as determined by the FHLB. In addition, all long-term advances
are required to provide funds for residential home financing.

      As a member, the Bank is required to purchase and maintain stock in
the FHLB.  At September 30, 2002, the Bank was in compliance with this
requirement.

Holding Company Regulation

      Federal Regulation.  The MHC and the Company are governed as bank
holding companies under the BHCA.  Bank holding companies are subject to
examination, regulation and periodic reporting under the BHCA, as
administered by the FRB.  The FRB has adopted capital adequacy guidelines
for bank holding companies on a consolidated basis substantially similar to
those of the FDIC for the Bank.  As of September 30, 2002, the Company's
total capital and Tier 1 capital ratios for the MHC and the Company exceed
these minimum capital requirements.

      Regulations of the FRB provide that a bank holding company must serve
as a source of strength to any of its subsidiary banks and must not conduct
its activities in an unsafe or unsound manner.  Under the prompt corrective
action provisions of FDICIA, a bank holding company parent of an
undercapitalized subsidiary bank would be directed to guarantee, within
limitations, the capital restoration plan that is required of such an
undercapitalized bank.  See "- Federal Banking Regulation-Prompt Corrective
Action" above.  If the undercapitalized bank fails to file an acceptable
capital restoration plan or fails to implement an accepted plan, the FRB
may prohibit the bank holding company parent of the undercapitalized bank
from paying any dividend or making any other form of capital distribution
without the prior approval of the FRB.

      As bank holding companies, the MHC and the Company are required to
obtain the prior approval of the FRB to acquire all, or substantially all,
of the assets of any bank or bank holding company.  Prior FRB approval are
required for the MHC or the Company to acquire direct or indirect ownership
or control of any voting securities of any bank or bank holding company if,
after giving effect to such acquisition, it would, directly or indirectly,
own or control more than 5% of any class of voting shares of such bank or
bank holding company.

      A bank holding company is required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities
if the gross consideration for the purchase or redemption, when combined
with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, will be equal to 10% or more of the
company's consolidated net worth.  The FRB may disapprove such a purchase
or redemption if it determines that the proposal would constitute an unsafe
and unsound practice, or would violate any law, regulation, FRB order or
directive, or any condition imposed by, or written agreement with, the FRB.
Such notice and approval is not required for a bank holding company that
would be treated as "well capitalized" under applicable regulations of the
FRB, that has received a composite "1" or "2" rating at its most recent
bank holding company inspection by the FRB, and that is not the subject of
any unresolved supervisory issues.

      In addition, a bank holding company that has elected to be regulated
as a financial holding company under the GLB Act, such as the Company and
the MHC, may generally engage in securities, insurance and other activities
that are financial in nature or incidental to a financial activity.  In
order to have qualified to be a financial holding company, each of the bank
holding companies' depository institution subsidiaries must have been "well
capitalized," "well managed," have at least a "satisfactory"


<PAGE>  35


CRA rating at its most recent examination and have filed a certification
with the FRB that it elects to become a financial holding company.

Acquisition of the Company

      Under federal law, no person may acquire control of the Company or
the Bank without first obtaining, as summarized below, approval of such
acquisition of control by the FRB.

      Federal Restrictions.  Under the federal Change in Bank Control Act,
any person (including a company), or group acting in concert, seeking to
acquire 10% or more of the outstanding shares of the Company's common stock
will be required to submit prior notice to the FRB, unless the FRB has
found that the acquisition of such shares will not result in a change in
control of the Company. Under the BHCA, the FRB has 60 days within which to
act on such notices, taking into consideration certain factors, including
the financial and managerial resources of the acquiror, the convenience and
needs of the communities served by the Company and the Bank, and the anti-
trust effects of the acquisition.  Under the BHCA, any company would be
required to obtain prior approval from the FRB before it may obtain
"control," within the meaning of the BHCA, of the Company.  The term
"control" is defined generally under the BHCA to mean the ownership or
power to vote 25% more of any class of voting securities of an institution
or the ability to control in any manner the election of a majority of the
institution's directors.  An existing bank holding company would require
FRB approval prior to acquiring more than 5% of any class of voting stock
of the Company.

Dividend Waivers by the MHC

      Any dividend declared by the Company that is waived by the MHC will
be subject to the following general restrictions:

      Massachusetts Restrictions.  Under applicable Massachusetts
regulations, a mutual holding company may not waive any dividends to be
paid by any of its subsidiary institutions if any shares of the stock to
which the waiver would apply is held by an insider (any officer, director,
or corporator of the mutual holding company or a subsidiary banking
institution) or a stock benefit plan of the mutual holding company unless
prior written notice of the waiver has been given to the Division and the
Division does not object to the waiver.  The Division may not object to a
dividend waiver notice if: (a) the waiver would not be detrimental to the
safe and sound operation of the subsidiary banking institution, and (b) the
board of trustees of the mutual holding company expressly determines, as
evidenced by a resolution of the board of trustees, that such waiver is
consistent with the trustees' fiduciary duties to the mutual members of the
mutual holding company.

      Federal Restrictions.  In connection with its approval of the
reorganization, the FRB imposed certain conditions on the waiver by the MHC
of dividends paid on the common stock by the Company.  Specifically, the
FRB requires the MHC obtain prior approval of the FRB before the MHC may
waive any dividends from the Company.  In addition, the terms of the FRB
approval of the Reorganization provides that any dividends waived by the
MHC will not be available for payment to its public stockholders of the
Company (i.e., stockholders except for the MHC) or may be excluded from the
Company's capital for purposes of calculating dividends payable to the
public stockholders.  Moreover, the Company is required to maintain the
cumulative amount of dividends waived by the MHC in a restricted capital
account that would be added to the liquidation account established in the
reorganization.  This amount is not available for distribution to public
stockholders.  The restricted capital account and liquidation account
amounts would not be reflected in the Company's financial statements, but
would be considered as a notional or memorandum account of the Company.
These accounts would be maintained in accordance with the laws, rules,
regulations and policies of the Division and the plan of reorganization.
In addition, if the MHC converted to stock form in the future, (commonly
referred to as a second-step conversion), any waived dividends would reduce
the percentage of the converted company's shares of common stock issued to
public stockholders in connection with any such transaction.


<PAGE>  36


      To date, the MHC has not waived dividends declared by the Company.
If the MHC decides that it is in its best interest to waive a particular
dividend to be paid by the Company and the FRB approves such waiver, then
the Company will pay such dividend only to its public stockholders.  The
amount of the dividend waived by the MHC would be treated in the manner
described above.  The MHC's decision as to whether or not to waive a
particular dividend will depend on a number of factors, including the MHC's
capital needs, the investment alternatives available to the MHC as compared
to those available to the Company, and the possibility of regulatory
approvals.  The Company cannot guarantee: (1) the MHC will waive dividends
paid by the Company; (2) that if the application is made to waive a
dividend, that the FRB will approve such dividend waiver request; or (3)
what conditions might be imposed by the Federal Reserve Board on any
dividend waiver.

USA PATRIOT Act

      In response to the events of September 11th, President George W. Bush
signed into law the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
or the USA PATRIOT Act, on October 26, 2001.  The USA PATRIOT Act gives the
federal government new powers to address terrorist threats through enhanced
domestic security measures, expanded surveillance powers, increased
information sharing, and broadened anti-money laundering requirements.  By
way of amendments to the Bank Secrecy Act, Title III of the USA PATRIOT Act
takes measures intended to encourage information sharing among bank
regulatory agencies and law enforcement bodies.  Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including banks, thrifts, brokers, dealers, credit
unions, money transfer agents and parties registered under the Commodity
Exchange Act.

      Among other requirements, Title III of the USA PATRIOT Act imposes
the following requirements with respect to financial institutions:


      *     Pursuant to Section 352, all financial institutions must
            establish anti-money laundering programs that include, at
            minimum: (i) internal policies, procedures, and controls, (ii)
            specific designation of an anti-money laundering compliance
            officer, (iii) ongoing employee training programs, and (iv) an
            independent audit function to test the anti-money laundering
            program.

      *     Pursuant to Section 326, on July 23, 2002 the Secretary of the
            Department of Treasury, in conjunction with other bank
            regulators, issued a Proposed Rule that provides for minimum
            standards with respect to customer identification and
            verification.  At this time, a Final Rule is pending.

      *     Section 312 requires financial institutions that establish,
            maintain, administer, or manage private banking accounts or
            correspondent accounts in the United States for non-United
            States persons or their representatives (including foreign
            individuals visiting the United States) to establish
            appropriate, specific, and, where necessary, enhanced due
            diligence policies, procedures, and controls designed to detect
            and report money laundering.

      *     Effective December 25, 2001, financial institutions are
            prohibited from establishing, maintaining, administering or
            managing correspondent accounts for foreign shell banks
            (foreign banks that do not have a physical presence in any
            country), and will be subject to certain recordkeeping
            obligations with respect to correspondent accounts of foreign
            banks.

      *     Bank regulators are directed to consider a holding company's
            effectiveness in combating money laundering when ruling on
            Federal Reserve Act and Bank Merger Act applications.

The Sarbanes-Oxley Act

      On July 30, 2002, President George W. Bush signed into law the
Sarbanes-Oxley Act of 2002.  The Sarbanes-Oxley Act implements a broad
range of corporate governance and accounting measures for


<PAGE>  37


public companies designed to promote honesty and transparency in corporate
America and better protect investors from the type of corporate wrongdoing
that occurred in Enron, WorldCom and similar companies.  The Sarbanes-Oxley
Act's principal legislation includes:

      *     the creation of an independent accounting oversight board;

      *     auditor independence provisions which restrict non-audit
            services that accountants may provide to their audit clients;

      *     additional corporate governance and responsibility measures,
            including the requirement that the chief executive officer and
            chief financial officer certify financial statements;

      *     the forfeiture of bonuses or other incentive-based compensation
            and profits from the sale of an issuer's securities by
            directors and senior officers in the twelve month period
            following initial publication of any financial statements that
            later require restatement;

      *     an increase the oversight of, and enhancement of certain
            requirements relating to audit committees of public companies
            and how they interact with the company's independent auditors;

      *     requirement that audit committee members must be independent
            and are absolutely barred from accepting consulting, advisory
            or other compensatory fees from the issuer;

      *     requirement that companies disclose whether at least one member
            of the committee is a "financial expert" (as such term will be
            defined by the Securities and Exchange Commission) and if not,
            why not;

      *     expanded disclosure requirements for corporate insiders,
            including accelerated reporting of stock transactions by
            insiders and a prohibition  on insider  trading during pension
            blackout periods;

      *     a prohibition on personal loans to directors and officers,
            except certain loans made by insured financial institutions;

      *     disclosure of a code of ethics and filing a Form 8-K for a
            change or waiver of such code;

      *     mandatory disclosure by analysts of potential conflicts of
            interest; and

      *     a range of enhanced penalties for fraud and other violations.

      Although we anticipate that we will incur additional expense in
complying with the provisions of the Sarbanes-Oxley Act and the resulting
regulations, management does not expect that such compliance will have a
material impact on our results of operations or financial condition.

Federal Securities Laws

      The Company's common stock issued in the stock offering was
registered with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").  The Company is therefore subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.  The Company is also
required to file annual, quarterly and periodic reports with the SEC.


<PAGE>  38


ITEM 2.  DESCRIPTION OF PROPERTY

      The Company conducts its business at the main office of the Bank and
its six retail banking offices, five of which are full service branches.
As of September 30, 2002, the properties and leasehold improvements owned
by the Company and the Bank had an aggregate net book value of $3.6
million.

<TABLE>
<CAPTION>

                                     Original Date
                        Leased or      Leased or      Date of Lease
Location                  Owned        Acquired         Expiration
-------------------------------------------------------------------


                       <c>           <c>           <c>
Main Office:
  100 E. Main Street      Owned         06/10/75      N/A
  Westborough, MA

Branch Offices:
  33 W. Main Street       Owned         05/01/54      N/A
  Westborough, MA

  53 W. Main Street       Owned         07/01/81      N/A
  Northborough, MA

  19 Maple Avenue         Leased        12/01/95      11/30/05
  Shrewsbury, MA

  Shaw's Supermarket      Leased        05/01/99      04/30/04
  Shrewsbury, MA

Other Offices:
  The Willows(1)          Leased        08/01/87      Tenant at Will
  One Lyman Street
  Westborough, MA

<FN>
--------------------
<F1>  This office provides limited retail banking services to the residents
      of the Willows.  It is not open to the general public and maintains
      restricted operating hours.
</FN>
</TABLE>


<PAGE>  39


ITEM 3.  LEGAL PROCEEDINGS

      Although the Bank and the Company, from time to time, are involved in
various legal proceedings in the normal course of business, there are no
material legal proceedings to which the Bank or the Company, its directors
or its officers is a party or to which any of its property is subject as of
the date of this Form 10-KSB.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September
30, 2002.


PART II


ITEM 5.  MARKET FOR THE COMPANY COMMON STOCK AND RELATED STOCKHOLDER
         MATTERS

      Information relating to the market for the Company's common equity,
related stockholder matters and payment of dividends by the Company appears
in the 2002 Annual Report to Shareholders, which is attached to this Form
10-KSB as Exhibit 13, and is incorporated herein by reference.

      The table below reflects the stock trading price and dividend payment
frequency of the Company's stock for fiscal year ending September 30, 2002.
The quotations reflect inter-dealer prices, without mark-up, mark-down or
commissions, and may not represent actual transactions.

<TABLE>
<CAPTION>

                  High Price    Low Price    Average Price    Dividends per share
                  ---------------------------------------------------------------


                 <c>           <c>            <c>                 <c>
First Quarter       $18.75        $16.60         $17.80              $.05
Second Quarter      $21.75        $17.96         $20.31              $.05
Third Quarter       $23.00        $20.15         $21.94              $.05
Fourth Quarter      $24.00        $21.00         $22.07              $.05
</TABLE>

      The following table sets forth the aggregate information of the
Company's equity compensation plans in effect as of September 30, 2002.

<TABLE>
<CAPTION>

                                                                                Number of securities
                          Number of securities                                remaining available for
                              to be issued          Weighted-average           future issuance under
                            upon exercise of       exercise price of         equity compensation plans
                          outstanding options,    outstanding options,    (excluding securities reflected
Plan category             warrants and rights     warrants and rights       in column (a)) see note (1)
-------------             -------------------------------------------------------------------------------
                                   (a)                     (b)                          (c)


                              <c>                     <c>                           <c>
Equity compensation
 plans approved
 by security holders             41,900                  $10.31                        17,287

Equity compensation
 plans not approved by
 security holders                 none                    none                          none
                                 ------------------------------------------------------------
      Total                      41,900                  $10.31                        17,287
                                 ============================================================

<FN>
--------------------
Note (1)  This amount represents 13,248 and 4,039 shares remaining to be
          issued from the 2001 Stock Option Plan and the 2001 Recognition
          and Retention Plan, respectively.
</FN>
</TABLE>


<PAGE>  40


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

      Certain of the above-captioned information appears under
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" in the 2002 Annual Report to Shareholders, which is attached to
this Form 10-KSB as Exhibit 13, and is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

      The following information appearing in the Company's 2002 Annual
Report to Shareholders, which is attached to this Form 10-KSB as Exhibit
13, is incorporated herein by reference.

      Annual Report Section                            Pages in Annual Report
      ---------------------                            ----------------------

      Report of Independent Auditors                            F-1

      Consolidated Balance Sheets as of                         F-2
      September 30, 2002 and 2001

      Consolidated Statements of Income for the
      Years Ended September 30, 2002, 2001 and 2000          F-3 to F-4

      Consolidated Statements of Changes in
      Stockholders' Equity for the Years Ended
      September 30, 2002, 2001 and 2000                         F-5

      Consolidated Statements of Cash Flows for the
      Years Ended September 30, 2002, 2001 and 2000          F-6 to F-7

      Notes to the Consolidated Financial Statements         F-8 to F-39

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a
change of accountants and/or reporting disagreements on any matter of
accounting principle or financial statement disclosure.

PART III

ITEM 9.  DIRECTORS AND PRINCIPAL OFFICERS

      The information relating to directors and executive officers of the
Company is incorporated  herein by reference to the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on January  30,
2003, a copy of which was filed with the SEC on December 27, 2002.

ITEM 10.  EXECUTIVE COMPENSATION

      The information relating to executive compensation is incorporated
herein by reference to the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held on January 30, 2003, a copy of which was filed
with the SEC on December 27, 2002.


<PAGE>  41


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information relating security ownership of certain beneficial
owners and management is incorporated herein by reference to the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on
January 30, 2003, a copy of which was filed with the SEC on December 27,
2002.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information relating to certain relationships and related
transactions is incorporated herein by reference to the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on January 30,
2003, a copy of which was filed with the SEC on December 27, 2002.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits.

      The following exhibits are either filed as part of this report or are
incorporated herein by reference:

2.1         Plan of Reorganization from Mutual Savings Bank to Mutual
            Holding Company and Stock Issuance Plan of Westborough Savings
            Bank*

3.1         Articles of Organization of Westborough Financial Services,
            Inc.*

3.2         Bylaws of Westborough Financial Services, Inc.*

3.3         Articles of Organization of The Westborough Bank*

3.4         Bylaws of The Westborough Bank*

3.5         Charter of Westborough Bancorp, MHC*

3.6         Bylaws of Westborough Bancorp, MHC*

3.7         Amendment to Article IV of the Articles of Organization of
            Westborough Financial Services, Inc. filed on December 26, 2000
            as Exhibit A to the Proxy Statement (File No. 000-27997) is
            incorporated herein by reference.

4.1         Articles of Organization of Westborough Financial Services,
            Inc. (See Exhibit 3.1)

4.2         Bylaws of Westborough Financial Services, Inc. (See Exhibit
            3.2)

4.3         Form of Stock Certificate of Westborough Financial Services,
            Inc.*

10.1(a)     Form of Employee Stock Ownership Plan of Westborough Financial
            Services, Inc.*

10.1(b)     Form of ESOP Trust Agreement*

10.2        Form of Executive Employment Agreement, by and between Joseph
            F. MacDonough and Westborough Financial Services, Inc.*

10.3        Form of Executive Employment Agreement, by and between John L.
            Casagrande and Westborough Financial Services, Inc.*


<PAGE>  42


10.4        Westborough Financial Services, Inc. 2001 Stock Option Plan
            filed on December 26, 2000 as Exhibit C to the Proxy Statement
            (File No. 000-27997) is incorporated herein by reference.

10.5        Westborough Financial Services, Inc. 2001 Recognition and
            Retention Plan filed on December 26, 2000 as Exhibit D to the
            Proxy Statement (File No. 000-27997) is incorporated herein by
            reference.

10.6        Form of Officers' Deferred Compensation Plan of Westborough
            Financial Services, Inc.**

13.1        Annual Report of Westborough Financial Services, Inc.

21.1        Subsidiaries of the Registrant.*

23.1        Consent of Wolf & Company, P.C.

99.1        Certification of CEO and CFO under Section 906 of the Sarbanes-
            Oxley Act.

<FN>
--------------------
*     Incorporated herein by reference to the Registration Statement on
      Form SB-2 (Registration No. 333-80075), as filed with the Securities
      and Exchange Commission on June 4, 1999, as amended.
**    Incorporated by reference to the Company's Form 10-KSB for the year
      ended September 30, 2001, as filed with the Securities and Exchange
      Commission on December 28, 2001.
</FN>

      (b)   Reports on Form 8-K.

            None.


<PAGE>  43


ITEM 14.  CONTROLS AND PROCEDURES

During the 90-day period prior to the filing date of this report,
management, including the Company's President and Chief Executive Officer
and Senior Vice President and Treasurer, evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures.
Based upon and as of the date of that evaluation, the President and Chief
Executive Officer and Senior Vice President and Treasurer concluded that
the disclosure controls and procedures were effective, in all material
respects, to ensure that information required to be disclosed in the
reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.

There have been no significant changes in the Company's internal controls
or in other factors  which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.  There were
no significant deficiencies or material weaknesses identified in the
evaluation and therefore, no corrective actions were taken.


<PAGE>  44


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.


                                    WESTBOROUGH FINANCIAL SERVICES, INC.

                                    By: /s/ Joseph F. MacDonough
                                        -------------------------------------
                                        President and Chief Executive Officer
                                        (Duly Authorized Representative)

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

            Name                           Title                    Date
            ----                           -----                    ----

/s/ Walter A. Kinell, Jr.        Chairman of the Board        December 30, 2002
-----------------------------    of Directors
Walter A. Kinell, Jr.


/s/ Joseph F. MacDonough         President, Chief Executive   December 30, 2002
-----------------------------    Officer and Director
Joseph F. MacDonough             (Principal Executive and
                                 Operating Officer)


/s/ Nelson P. Ball               Director                     December 30, 2002
-----------------------------
Nelson P. Ball


/s/ Edward S. Bilzerian          Director                     December 30, 2002
-----------------------------
Edward S. Bilzerian


/s/ David E. Carlstrom           Director                     December 30, 2002
-----------------------------
David E. Carlstrom


/s/ John L. Casagrande           Senior Vice President,       December 30, 2002
-----------------------------    Treasurer, Clerk and
John L. Casagrande Director      (Principal
                                 Financial and
                                 Accounting Officer)


/s/ William W. Cotting, Jr.      Director                     December 30, 2002
-----------------------------
William W. Cotting, Jr.


/s/Robert G. Daniel              Director                     December 30, 2002
-----------------------------
Robert G. Daniel


/s/ Earl W. Hutt                 Director                     December 30, 2002
-----------------------------
Earl W. Hutt


/s/ Robert A. Klugman            Director                     December 30, 2002
-----------------------------
Robert A. Klugman


/s/ Roger B. Leland              Director                     December 30, 2002
-----------------------------
Roger B. Leland


<PAGE>  45


/s/ Paul F. McGrath              Director                     December 30, 2002
-----------------------------
Paul F. McGrath


/s/ Charlotte C. Spinney         Director                     December 30, 2002
-----------------------------
Charlotte C. Spinney


/s/ Phyllis A. Stone             Director                     December 30, 2002
-----------------------------
Phyllis A. Stone


/s/ James E. Tashjian            Director                     December 30, 2002
-----------------------------
James E. Tashjian


<PAGE>  46


CERTIFICATIONS

      I, Joseph F. MacDonough, certify that:

1.    I have reviewed this annual report on Form 10-KSB of Westborough
      Financial Services, Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact
      necessary to make the statements made, in light of the circumstances
      under which such statements were made, not misleading with respect to
      the period covered by this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all
      material respects the financial condition, results of operations and
      cash flows of the registrant as of, and for, the periods presented in
      this annual report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
      and have:

      a.    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            annual report is being prepared;

      b.    evaluated the effectiveness of the registrant's disclosure
            controls and procedures as of a date within 90 days prior to
            the filing date of this annual report (the "Evaluation Date");
            and

      c.    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based
            on our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed,
      based on our most recent evaluation, to the registrant's auditors and
      the audit committee of the registrant's board of directors (or
      persons performing the equivalent function):

      a.    all significant deficiencies in the design or operation of
            internal controls which could adversely affect the registrant's
            ability to record, process, summarize and report financial data
            and have identified for the registrant's auditors any material
            weaknesses in internal controls; and

      b.    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officers and I have indicated in
      this annual report whether or not there significant changes in
      internal controls or in other factors that could significantly affect
      internal controls subsequent to the date of our most recent
      evaluation, including any corrective actions with regard to
      significant deficiencies and material weaknesses.


Date:  December 30, 2002               /s/ Joseph F. MacDonough
                                       ------------------------
                                       Joseph F. MacDonough
                                       President and Chief Executive Officer


<PAGE>  47


      I, John L. Casagrande, certify that:

1.    I have reviewed this annual report on Form 10-KSB of Westborough
      Financial Services, Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact
      necessary to make the statements made, in light of the circumstances
      under which such statements were made, not misleading with respect to
      the period covered by this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all
      material respects the financial condition, results of operations and
      cash flows of the registrant as of, and for, the periods presented in
      this annual report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
      and have:

      a.    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            annual report is being prepared;

      b.    evaluated the effectiveness of the registrant's disclosure
            controls and procedures as of a date within 90 days prior to
            the filing date of this annual report (the "Evaluation Date");
            and

      c.    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based
            on our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed,
      based on our most recent evaluation, to the registrant's auditors and
      the audit committee of the registrant's board of directors (or
      persons performing the equivalent function):

      a.    all significant deficiencies in the design or operation of
            internal controls which could adversely affect the registrant's
            ability to record, process, summarize and report financial data
            and have identified for the registrant's auditors any material
            weaknesses in internal controls; and

      b.    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officers and I have indicated in
      this annual report whether or not there significant changes in
      internal controls or in other factors that could significantly affect
      internal controls subsequent to the date of our most recent
      evaluation, including any corrective actions with regard to
      significant deficiencies and material weaknesses.


Date:  December 30, 2002               /s/ John L. Casagrande
                                       ----------------------
                                       John L. Casagrande
                                       Senior Vice President, Treasurer
                                        and Clerk


<PAGE>  48