Exhibit 13.1


[LOGO and Photos]                                               Westborough
                                                                  Financial
                                                             Services, Inc.

                                                              Annual Report

                                                                       2004


<PAGE>


<TABLE>
<CAPTION>

         Directors                                   Employees


                                   <c>                     <c>
James N. Ball                         Michael Allard          Michele Lewis
Nelson P. Ball                        Steven Anderson         Joseph MacDonough
Edward S. Bilzerian                   Elizabeth Arsenault     Timothy Maher
Nancy M. Carlson                      Karissa Ayeni           Philip Maio
David E. Carlstrom                    Linda Bilodeau          Robert McCann
John L. Casagrande                    Jennifer Boule          Michael McKay
Benjamin H. Colonero, Jr.             Vickie Bouvier          Alexandru Megas
William W. Cotting, Jr.               Karen Brooks            Eileen Messier
Robert A. Klugman                     Sandra Bucher           Linda Millette
Roger B. Leland (Chairman)            Carol Burgoyne          Jay Monfreda
Joseph F. MacDonough                  Dawn Buzzell            Lois Murphy
Paul F. McGrath                       John Casagrande         Joseph Normant, Jr.
Charlotte C. Spinney                  Jean Costantino         Catherine Paglieroni
Phyllis A. Stone                      Janet Daniels           George Panagopoulos
James E. Tashjian                     Erin Drummey            Tracy Pare'
                                      Margaret Duquette       Kimberly Perkins
Executive Committee                   Ann Dussault            Judith Pfeffer
                                      Margaret Everitt        Samir Rauf
David E. Carlstrom                    Alison Ferris           Kathleen Reilly
Robert A. Klugman                     Patricia Flood          Linda Richard
Roger B. Leland                       Mary Lynn Hart          Lisa Roberts
Joseph F. MacDonough (Chairman)       Claire Hart             Nilda Rodriguez
Paul F. McGrath                       Marion Hartshorn        Marites Sabolboro
James. E. Tashjian                    Melissa Havalotti       Annette Sangkhum
                                      Beth Hayden             Cheri Scanlon
                                      Amelia Hodgson          Iris Shehi
                                      Colleen Horne           Edward Stearns, III
                                      Janet Jankowski         Paula Stevens
                                      Vivian Kambouris        Corinne Temple
                                      Janice Kelley           Timothy Thibault
                                      Mark Klein              Linda Tumeinski
                                      Renuka Kulathila        Catherine Vallaincourt
                                      Jane LaFlamme           Lucia Visci
                                      Victoria Lane           Ryan Vorapheth
                                      Suzanne Laperle         Tammy Wheeler
                                      Amanda Laraia           Eugene Zicuis

              Exceeding expectations - one customer at a time.

Long Range Planning Committee                         Years of Service

Nancy M. Carlson                      25 Years +              10 - 15 Years
David E. Carlstrom                    Vickie Bouvier          Mary Lynn Hart
John L. Casagrande                    Linda Richard           John Casagrande
Robert A. Klugman (Chairman)
Roger B. Leland                       20 - 25 Years           5 - 10 Years
Joseph F. MacDonough                  Beth Hayden             Karen Brooks
Paul F. McGrath                       Janet Jankowski         Margaret Duquette
James. E. Tashjian                    Joseph MacDonough       Marion Hartshorn
                                                              Melissa Havalotti
Audit Committee                       15 - 20 Years           Colleen Horne
                                      Ann Dussault            Laura Knowles
Edward S. Bilzerian                   Suzanne Laperle         Robert McCann
Benjamin H. Colonero, Jr.             Kimberly Perkins        Lois Murphy
William W. Cotting, Jr. (Chairman)
Paul F. McGrath
</TABLE>


<PAGE>


Total Assets                             Total Deposits
$ in Millions                            $ in Millions

2004    $264,010                         2004    $211,710
2003    $256,122                         2003    $215,898
2002    $241,273                         2002    $202,063

                                         Stockholders'
Total Loans                                 Equity
$ in Millions                            $ in Millions

2004    $165,288                         2004    $ 28,705
2003    $141,557                         2003    $ 28,718
2002    $132,880                         2002    $ 27,989


<PAGE>


[PHOTO of Joe MacDonough]

Message To Shareholders

For Westborough Financial Services, Inc. and its wholly owned subsidiary,
Westborough Bank, the 2004 fiscal year ended on a positive note.  Basic
earnings per share for fiscal year 2004 were $0.77 on net income of $1.2
million, as compared to $0.63 on net income of $966 thousand for fiscal
year 2003.  Although interest and dividend income declined during the year
due to a decrease in interest rates earned, net interest income increased
by 4.0% to $8.5 million.  The increase was attributable to our overall
lower cost of funds during the year.  Other income, consisting primarily of
customer service fee income and gains on securities and loans sold, also
increased during the year.  This coupled with improved controls of
operating expenses (held to growth of 3.2%) resulted in the 23.3%
improvement in bottom line net income.

Fueled by an increase in our loan portfolio of $23.7 million (16.8%) the
Company's total assets increased by $7.9 million (3.1%) during the fiscal
year.  This less than enviable growth rate was a result of deposit outflow
of $4.2 million (1.9%) as customers sought higher returns in the improving
stock market.  The deposit outflow was most notable, as anticipated, in our
Shrewsbury market place where we closed our underperforming supermarket
branch in May 2004.  While overall deposit flow was negative, we did
experience an increase in low-cost retail personal and business checking
accounts with little or no cost of funds.

In May of 2004, our Board of Directors gathered for a day and a half to
develop a strategic plan to guide the Company over the next three to five
years.  The plan calls for continued commitment to our customers,
employees, communities and to you, our shareholders, in the years ahead.
The plan calls for continued investment in people and technology which has
already resulted in exciting changes and improvements to the Company.
Based on the research and effort of our bank-wide technology task force, we
enhanced our internet and bill payments functionality to better service our
growing customer base.  In addition, with the introduction of our new web
site which includes an online mortgage loan application feature, customers
can apply for any of our mortgage products from any computer at any time
they choose, day or night.

Also, during the year we were extremely honored and proud to have been
profiled in the local print media as the only one of 31 public companies in
Central Massachusetts to have three women as members of our Board of
Directors.  Charlotte C. Spinney has served on our Board for ten years,
Phyllis A. Stone for five years and Nancy M. Carlson joined the board in
2003.  All three bring a wealth of business knowledge and community
involvement to the Board.

Of course, our accomplishments in 2004 would not have been possible absent
the dedication of our entire Board.  In any public company, the Board of
Directors plays an important role in developing policies and strategies,
overseeing management and monitoring performance.  We have been extremely
fortunate to have Board members with the highest level of commitment and
guidance.  In particular, we wish to thank Roger Leland who is retiring
from the Board after thirty years and serving as our Chairman during 2004.
We will miss his common sense business approach, leadership and sound
judgment.

A sincere thank you as well to our entire staff, who on a day to day basis
interact with our customers, providing customer service that is second to
none.

On behalf of the Board of Directors, I want to pledge our continued
commitment to our shareholders, customers and community.

/s/ Joseph R. MacDonough

Sincerely,
Joseph F. MacDonough
President & CEO
December 1, 2004

[PHOTO of website]


<PAGE>


         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS

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>  1


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 (the
"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."

      Unless otherwise indicated, the information presented herein
represents the consolidated activity of the Company and its subsidiary.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes that are included
within this report.

      The business of the Bank consists of attracting deposits from the
general public and using these funds to originate various types of loans
primarily in the towns of Westborough, Northborough, Shrewsbury and
Grafton, Massachusetts, including residential and commercial real estate
mortgage loans and, to a lesser extent, consumer and commercial loans.

      The Bank's profitability depends primarily on its net interest
income, which is the difference between the interest income the Bank earns
on its loans and securities portfolio and its cost of funds, which consist
primarily of interest paid on deposits and borrowings from the Federal Home
Loan Bank (the "FHLB").  Net interest income is affected by the relative
amounts of interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on these balances.  When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive
interest rate spread will generate net interest income.

      The level of other (non-interest) income and operating expenses also
affects the Bank's profitability.  Other income consists primarily of
customer service fees, gains and losses on sales of securities and
mortgages, income from the sale of non-deposit investment products and
increases in bank-owned life insurance.  Operating expenses consist of
salaries and benefits, occupancy-related expenses and other general
operating expenses.

      The operations of the Company, and banking institutions in general,
are significantly influenced by general economic conditions and related
monetary and fiscal policies of financial institutions' regulatory
agencies.  Deposit flows and the cost of funds are influenced by interest
rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for financing real estate and
other types of loans, which in turn are affected by the interest rates at
which such financing may be offered and other factors affecting loan demand
and the availability of funds.

Business Strategy

      In past years, 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.  In recent years, the Company has adopted a growth-oriented
strategy that has focused on expanding its product lines and services,
providing expanded electronic and traditional 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:


<PAGE>  2


      *     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
            Internet-based and telephonic banking; and
      *     offer a variety of non-deposit investment products and services
            as a means to compete for an increased share of its customers'
            financial service business and improve fee-based income.

      In order to create a platform for the accomplishment of the Company's
goals, management has made significant investments in its physical
infrastructure and human and technological resources.  The Bank recently
completed constructing an enlarged 23 Maple Avenue, Shrewsbury branch
office.  The previous, 900 square foot 19 Maple Avenue branch has been
closed and customers are utilizing the new, expanded facility.  In the
spring of 2004, our Shaw's Supermarket branch office in Shrewsbury closed
and customers were encouraged to utilize our new, enlarged, Shrewsbury
branch facility.  Such investments have been necessary to ensure that
adequate resources are in place to offer increased products and services.
Management believes that its long-term profitability should improve as it
realizes the benefits of diversified product lines and market share growth.

Asset/Liability Management; Market Risk Analysis

      A primary component of the Company's market risk is interest rate
volatility.  Fluctuations in interest rates will ultimately impact both the
Bank's level of income and expense recorded on a large portion of its
assets and liabilities.  Fluctuations in interest rates will also affect
the market value of all interest-earning assets, other than those that
possess a short term to maturity.

      The primary objective of the Bank's interest rate management strategy
is to optimize its economic value and net income under likely market rate
scenarios.  To achieve this objective, the Bank has developed policies and
procedures to assist senior management in evaluating and maintaining
acceptable levels of interest rate risk, liquidity risk and capital.  In
particular, the Bank seeks to coordinate asset and liability decisions so
that, under changing interest rate scenarios, earnings will remain within
an acceptable range.

      Due to the nature of the Bank's operations, it is not subject to
foreign currency exchange or commodity price risk. The Bank's real estate
loan portfolio, concentrated in the towns of Westborough, Northborough,
Shrewsbury and Grafton, Massachusetts, is, however, subject to risks
associated with the local economy.  Historically, the Bank's lending
activities have emphasized one- to four-family residential mortgage loans,
and the Bank's primary source of funds has been deposits.  In recent years,
the Bank has attempted to employ certain strategies to manage the interest
rate risk inherent in this asset/liability mix, including: (a) investing in
securities with relatively short maturities or call dates; (b) maintaining
and promoting, through various programs and strategies, a concentration of
less interest rate sensitive "core deposits;" (c) emphasizing the
origination or purchase and retention of adjustable-rate one- to four-
family loans; (d) emphasizing the origination of commercial loans with
short-term maturities; and (e) borrowing funds from the FHLB, which may be
used to originate or purchase loans with similar anticipated cash flow
characteristics.  The Bank believes that the frequent re-pricing of its
adjustable-rate mortgage loans and short-term securities, which reduces the
exposure to interest rate fluctuations, will help stabilize the Bank's net
interest margin.


<PAGE>  3


      The actual amount of time before mortgage loans and mortgage-backed
securities are repaid can be significantly impacted by changes in mortgage
prepayment rates and market interest rates.  Mortgage prepayment rates will
vary due to a number of factors, including the regional economy in the area
where the underlying mortgages were originated, seasonal factors,
demographic variables and the assumability of the underlying mortgages.
However, the major factors affecting prepayment rates are prevailing
interest rates, related mortgage refinancing opportunities and competition.
The Bank monitors interest rate sensitivity so that it can make adjustments
to its asset and liability mix on a timely basis.

      Gap Analysis. The matching of assets and liabilities may be analyzed
by examining the extent to which such assets and liabilities are "interest
rate sensitive" and by monitoring a bank's interest rate sensitivity "gap."
An asset or liability is deemed to be interest rate sensitive within a
specific time period if it will mature or re-price within that time period.
The interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or re-pricing within a specific
time period and the amount of interest-bearing liabilities maturing or re-
pricing within that same time period.

      At September 30, 2004, the Company's cumulative one-year gap
position, which measures the difference between the amount of interest-
earning assets maturing or re-pricing within one year, and interest-bearing
liabilities maturing or re-pricing within one year, was a negative 18.47%
of total assets.  A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive
assets. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities.
Accordingly, during a period of rising interest rates, an institution with
a negative gap position generally would not be in as favorable a position,
compared to an institution with a positive gap, to invest in higher
yielding assets.  The resulting yield on an institution's assets generally
would increase at a slower rate than the increase in its cost of interest-
bearing liabilities.  Conversely, during a period of falling interest
rates, an institution with a negative gap would tend to experience a re-
pricing of its assets at a slower rate than its interest-bearing
liabilities which, consequently, would generally result in its net interest
income growing at a faster rate than an institution with a positive gap
position.

      The following table sets forth interest-earning assets and interest-
bearing liabilities outstanding at September 30, 2004, which is anticipated
by the Company, based upon certain assumptions, to re-price or mature in
each of the future time periods shown.  Except as stated below, the amount
of assets and liabilities shown which re-price or mature during a
particular period were determined in accordance with the earlier term to
re-pricing/call date or the contractual maturity of the asset or liability.
The table sets forth an approximation of the projected re-pricing of assets
and liabilities at September 30, 2004, on the basis of contractual
maturities, anticipated prepayments and scheduled rate adjustments within a
three-month period and subsequent projected time intervals.  The loan
amounts in the table reflect principal balances expected to be redeployed
and/or re-priced as a result of contractual amortization and as a result of
contractual rate adjustments on adjustable-rate loans.


<PAGE>  4


GAP Table

<TABLE>
<CAPTION>
                                      ---------------------------------------------------------------------------------------------
                                                       Amounts Maturing or Re-pricing as of September 30, 2004
                                      ---------------------------------------------------------------------------------------------
                                      less than 3    3 to 6    6 months      1 to        3 to        5 to        over
                                         months      months    to 1 year    3 years     5 years    10 years    10 years     Total
                                      ---------------------------------------------------------------------------------------------
                                                                          ($ in thousands)


                                     <c>         <c>        <c>         <c>         <c>         <c>         <c>         <c>
Interest-earning Assets (1)
  Short-term investments (2)            $  4,643    $     0    $      0    $      0    $      0    $      0    $      0    $  4,643
  Investment securities (3)                4,354      1,656       4,336      27,487       4,208           0           0      42,041
  Mortgage and asset backed securities         0        231         466       1,313      13,032       3,670      14,248      32,960
  Loans (4)                               19,324      1,235       4,492      12,848      14,772      55,771      57,796     166,238
                                        --------    -------    --------    --------    --------    --------    --------    --------
      Total interest-earning assets       28,321      3,122       9,294      41,648      32,012      59,441      72,044     245,882
                                        --------    -------    --------    --------    --------    --------    --------    --------

Interest-bearing Liabilities:
  NOW accounts (5)                         2,004      2,004       2,005       2,005           0           0      12,026      20,044
  Regular and other savings
   accounts (5)                           11,217     11,218      11,217      11,218           0           0      67,304     112,174
  Money market deposit accounts (5)          614        614         614         614           0           0       3,683       6,139
  Certificate of deposit accounts         11,264     13,596       9,323      12,090       1,949           0           0      48,222
  Federal Home Loan Bank advances (6)      5,500          0       8,000       5,500       2,500           0           0      21,500
  Mortgage escrow deposits                   312          0           0           0           0           0           0         312
                                        --------    -------    --------    --------    --------    --------    --------    --------
      Total interest-bearing
       liabilities                        30,911     27,432      31,159      31,427       4,449           0      83,013     208,391
                                        --------    -------    --------    --------    --------    --------    --------    --------

Interest sensitivity gap                $(2,590)   $(24,310)   $(21,865)   $ 10,221    $ 27,563    $ 59,441    $(10,969)   $ 37,491
                                        --------    -------    --------    --------    --------    --------    --------    ========
Cumulative interest sensitivity gap     $(2,590)   $(26,900)   $(48,765)   $(38,544)   $(10,981)   $ 48,460    $ 37,491
                                        =======    ========    ========    ========    ========    ========    ========

Cumulative interest sensitivity gap
 as a percent of total assets             -0.98%     -10.19%     -18.47%     -14.60%      -4.16%      18.36%      14.20%

Cumulative interest sensitivity gap
 as a percent of total interest-
 earning assets                           -1.05%     -10.94%     -19.83%     -15.68%      -4.47%      19.71%      15.25%

Cumulative interest sensitivity gap
 as a percent of total interest-
 bearing liabilities                      -1.24%     -12.91%     -23.40%     -18.50%      -5.27%      23.25%      17.99%

<FN>
-------------------
<F1>  Interest-earning assets are included in the period in which the
      balances are expected to be redeployed and/or re-priced as a result
      of anticipated prepayments, scheduled rate adjustments, call dates
      and contractual maturities.
<F2>  Short-term Investments include federal funds, money market mutual
      funds and interest-earning amounts in the Federal Home Loan Bank of
      Boston.
<F3>  Investment securities are at market value.  Common stock and stock in
      the Federal Home Loan Bank of Boston is included in the less than 3
      month column.
<F4>  Loans are principal balances, net of deferred loan
      costs/fees/discounts/premiums on purchased loans and unadvanced
      funds.
<F5>  60% of NOW, regular and other savings and money market deposit
      accounts are included in the over ten year period and the remaining
      allocated evenly within the four intervals up to and including one to
      three years.
<F6>  Federal Home Loan Bank advances are categorized by contractual
      maturity date.
</FN>
</TABLE>


<PAGE>  5


      Certain shortcomings are inherent in the method of analysis presented
in the Gap Table.  For example, although certain assets and liabilities may
have similar maturities or periods to re-price, they may react in different
degrees to changes in market interest rates.  Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes
in market interest rates, while interest rates on other types may lag
behind changes in market rates.  Additionally, certain assets such as
adjustable-rate loans have features, which restrict changes in interest
rates both on a short-term basis and over the life of the asset.  Further,
in the event of changes in interest rates, prepayment and early
withdrawals, the level would likely deviate significantly from those
assumed in calculating the table.  Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an
interest rate increase.

      The following table sets forth certain information relating to the
Company's financial condition and net interest income at and for the years
ended September 30, 2004, 2003, and 2002, and reflects the average yield on
assets and average cost of liabilities for the periods indicated.  Such
yields and costs are derived by dividing interest and dividend income or
interest expense by the average balance of assets or liabilities,
respectively, for the periods shown.  Average balances are derived from
average daily balances.  The yields include fees and costs, which are
considered adjustments to yields.  Loan interest and yield does not include
any accrued interest from non-accrual loans.


<PAGE>  6


<TABLE>
<CAPTION>
                                      ---------------------------------------------------------------------------------------------
                                                                    For the Year Ended September 30,
                                      ---------------------------------------------------------------------------------------------
                                                  2004                            2003                            2002
                                      ---------------------------------------------------------------------------------------------
                                                           Average                         Average                         Average
                                      Average              Yield or   Average              Yield or   Average              Yield or
                                      Balance   Interest    Cost      Balance   Interest    Cost      Balance   Interest    Cost
                                      ---------------------------------------------------------------------------------------------
                                                                            ($ in thousands)


                                  <c>         <c>      <c>        <c>         <c>      <c>        <c>         <c>      <c>
Assets:
Interest-earning assets:
  Short-term investments (1)         $  5,037    $    47    0.93%    $ 12,671    $   117    0.92%    $ 11,956    $   192    1.61%
  Investment securities (2)            91,511      3,588    3.92%      87,172      3,983    4.57%      68,194      4,068    5.97%
  Loans (3)                           144,942      7,859    5.42%     133,349      7,983    5.99%     136,118      9,594    7.05%
                                     --------    -------             --------    -------             --------    -------
      Total interest-earning
       assets                         241,490     11,494    4.76%     233,192     12,083    5.18%     216,268     13,854    6.40%
                                                 -------                         -------                         -------
  Non-interest-earning assets          17,599                          17,824                          16,795
                                     --------                        --------                        --------
      Total assets                   $259,089                        $251,016                        $233,063
                                     ========                        ========                        ========

Liabilities and Equity:
Interest-bearing liabilities:
  NOW accounts                       $ 19,597         20    0.10%    $ 18,489         29    0.16%    $ 17,032         73    0.43%
  Savings accounts (4)                115,483      1,229    1.06%     106,868      1,500    1.40%      86,667      1,899    2.19%
  Money market deposit accounts         5,325         53    1.00%       5,567         69    1.24%       5,903        101    1.71%
  Certificate of deposit accounts      49,443      1,021    2.07%      59,911      1,673    2.79%      63,848      2,509    3.93%
                                     --------    -------             --------    -------             --------    -------
      Total interest-bearing
       deposits                       189,848      2,323    1.22%     190,835      3,271    1.71%     173,450      4,582    2.64%
  FHLB advances                        16,215        639    3.94%       9,500        610    6.42%      11,677        776    6.65%
                                     --------    -------             --------    -------             --------    -------
      Total interest-bearing
       liabilities                    206,063      2,962    1.44%     200,335      3,881    1.94%     185,127      5,358    2.89%
                                     --------    -------             --------    -------             --------    -------
  Non-interest bearing deposits        22,229                          20,108                          18,156
  Other non-interest-bearing
   liabilities                          2,050                           2,047                           2,517
                                     --------                        --------                        --------
      Total non-interest-bearing
       liabilities                     24,279                          22,155                          20,673
                                     --------                        --------                        --------
      Total liabilities               230,342                         222,490                         205,800
      Total stockholders' equity       28,747                          28,526                          27,263
                                     --------                        --------                        --------
      Total liabilities and
       stockholders' equity          $259,089                        $251,016                        $233,063
                                     ========                        ========                        ========

Net interest income                              $ 8,532                         $ 8,202                         $ 8,496
                                                 =======                         =======                         =======
Net interest rate spread (5)                                3.32%                           3.24%                           3.51%
                                                          ======                          ======                          ======
Net interest margin (6)                                     3.53%                           3.52%                           3.93%
                                                          ======                          ======                          ======
Ratio of interest-earning
 assets to interest-bearing
 liabilities                                              117.19%                         116.40%                         116.82%
                                                          ======                          ======                          ======

<FN>
-------------------
<F1>  Short-term investments include federal funds, money market mutual
      funds and interest earning amounts in the Federal Home Loan Bank of
      Boston.
<F2>  All investment securities are considered available for sale.
<F3>  Loans are net of deferred loan origination costs/fees, allowance for
      loan losses, discount/premium on purchased loans and unadvanced
      funds.
<F4>  Savings accounts include the balance in mortgagors' escrow accounts.
<F5>  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.
<F6>  Net interest margin represents net interest income as a percentage of
      average interest-earning assets.
</FN>
</TABLE>


<PAGE>  7


      The following table presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-
bearing liabilities have affected our interest income and interest expense
during the years indicated.  Information is provided in each category with
respect to:

      *     changes attributable to changes in volume (changes in volume
            multiplied by prior rate);
      *     changes attributable to changes in rate (changes in rate
            multiplied by prior volume); and
      *     the net change.

      The changes attributable to the combined impact of volume and rate
have been allocated proportionately to the changes due to volume and the
changes due to rate.

<TABLE>
<CAPTION>
                                      ---------------------------------------------------------------
                                      Year Ended September 30, 2004   Year Ended September 30, 2003
                                         Compared to Year Ended          Compared to Year Ended
                                           September 30, 2003              September 30, 2002
                                           Increase (Decrease)             Increase (Decrease)
                                      ---------------------------------------------------------------
                                                 Due to                          Due to
                                      ---------------------------------------------------------------
                                       Volume     Rate        Net      Volume     Rate         Net
                                      ---------------------------------------------------------------
                                                            ($ In thousands)


                                    <c>       <c>         <c>       <c>       <c>         <c>
Interest-earning assets:
  Short-term investments (1)           $ (71)    $     1     $ (70)    $  12     $   (87)    $   (75)
  Investment Securities (2)              191        (586)     (395)      988      (1,073)        (85)
  Loans (3)                              663        (787)     (124)     (192)     (1,419)     (1,611)
                                       -----     -------     -----     -----     -------     -------
      Total interest-earning assets      783      (1,372)     (589)      808      (2,579)     (1,771)
                                       -----     -------     -----     -----     -------     -------

Interest-bearing liabilities:
  NOW accounts                             2         (11)       (9)        6         (50)        (44)
  Savings accounts (4)                   114        (385)     (271)      380        (779)       (399)
  Money market deposit accounts           (3)        (13)      (16)       (5)        (27)        (32)
  Certificate of deposit accounts       (262)       (390)     (652)     (147)       (689)       (836)
                                       -----     -------     -----     -----     -------     -------
      Total interest-bearing deposits   (149)       (799)     (948)      234      (1,545)     (1,311)
Borrowed funds                           323        (294)       29      (141)        (25)       (166)
                                       -----     -------     -----     -----     -------     -------
Total interest-bearing liabilities       174      (1,093)     (919)       93      (1,570)     (1,477)
                                       -----     -------     -----     -----     -------     -------
Net change in net interest income      $ 609     $  (279)    $ 330     $ 715     $(1,009)    $  (294)
                                       =====     =======     =====     =====     =======     =======

<FN>
-------------------
<F1>  Short-term investments include federal funds, money market mutual
      funds and interest  earning amounts in the Federal Home Loan Bank of
      Boston.
<F2>  All investment securities are considered available for sale.
<F3>  Loans are net of deferred loan origination costs (fees), allowance
      for loan losses, discounts/premiums on purchased loans and unadvanced
      funds.
<F4>  Savings accounts include the balance in mortgagors' escrow accounts.
</FN>
</TABLE>

<PAGE>  8


Comparison of Financial Condition at September 30, 2004 and
 September 30, 2003

      The Company's total assets increased by $7.9 million, or 3.1%, to
$264.0 million at September 30, 2004 from $256.1 million at September 30,
2003.  Loans increased by $23.7 million, or 16.8%, to $165.3 million at
September 30, 2004 from $141.6 million at September 30, 2003.  Much of this
loan growth was the result of a successful wholesale mortgage broker
program and attractive retail and business loan products.  The loan growth
occurred primarily in 25 year bi-weekly loans and various adjustable-rate
retail and commercial real estate loans.   Securities available for sale
decreased by $14.6 million, or 16.7%, to $73.0 million, at September 30,
2004 as compared to $87.6 million at September 30, 2003.   The majority of
the proceeds from the sale and maturity of securities available for sale
were reinvested in the loan portfolio.  The primary areas of decrease in
securities available for sale were in the categories of federal agency
obligations and federal agency mortgage-backed securities.  Asset quality
remained strong, as non-performing assets declined to $121 thousand at
September 30, 2004, compared to $634 thousand at September 30, 2003.

      While deposits declined by $4.2 million, or 1.9%, to $211.7 million
from $215.9 million, FHLB advances increased by $12.0 million, or 126.3%,
to $21.5 million at September 30, 2004 from $9.5 million at September 30,
2003.  The increase in advances was used primarily to fund deposit outflows
and loan growth.  During the year, some maturing certificates of deposit
and saving account customers chose to withdraw their funds.  In response to
those withdrawals, the Company increased low-cost borrowing from the FHLB.
Alternatively, during the year, the Company experienced an increase in low-
cost retail checking accounts and non-interest bearing personal and
business checking accounts.

      Total stockholders' equity declined by $13 thousand, to $28.7 million
at September 30, 2004 primarily as a result of a decline in the after-tax
market value of securities available for sale, somewhat offset by net
income of $1.2 million, less dividends paid to shareholders of $318
thousand.  Accumulated other comprehensive after-tax income at September
30, 2004 was $159 thousand, as compared to $1.3 million at September 30,
2003.  The Company's securities consist primarily of interest-rate
sensitive securities, whose market value changes inversely with changes in
market interest rates.  Interest rates at September 30, 2004 were generally
higher than rates at September 30, 2003 and, accordingly, the after-tax
market value of securities available for sale declined.  Deferred income
tax benefits associated with this market value decline were approximately
$615 thousand.

Comparison of Operating Results for the Years Ended
 September 30, 2004 and 2003

      Net Income.  The Company reported earnings per share (dilutive) for
fiscal year ended September 30, 2004 of $0.76 on net income of $1.2
million, as compared to $0.62 per share (dilutive) on net income of $966
thousand for fiscal year ended September 30, 2003.  For year ended
September 30, 2004, net income increased by $225 thousand, or 23.3%, to
$1.2 million, as compared to $966 thousand, for year ended September 30,
2003.  The Company's return on average assets was 0.46% for year ended
September 30, 2004 as compared to 0.38% for year ended September 30, 2003.

      Interest and Dividend Income.  Interest and dividend income declined
by $589 thousand, or 4.9%, to $11.5 million for the year ended September
30, 2004 from $12.1 million for the year ended September 30, 2003.  The
decrease in interest and dividend income was mainly the result of a decline
in the earnings rate earned on interest-earning assets offset, to a lesser
extent, by an increase in the volume of interest-earning assets.  The
average rate earned on interest-earning assets was 4.76% on average earning
assets of $241.5 million and 5.18% on average interest-earning assets of
$233.2 for the years ended September 30, 2004 and 2003, respectively.  The
generally declining interest rate environment translated into reduced rates
earned on loans, investment securities and short-term investments.
Additionally, some loan customers renegotiated their existing loan interest
rate that, accordingly, lowered the interest rate earned by the Company on
those loans.


<PAGE>  9


      The average balance of loans for the year ended September 30, 2004
was $144.9 million, earning 5.42% for the year.  This compares to an
average balance of loans for the year ended September 30, 2003 of $133.3
million, earning 5.99% for the year.  During the year ended September 30,
2004, the Company experienced net variable rate, one-to-four family
residential loan growth of $16.5 million and net commercial real estate
loan growth of $6.0 million.  The average balance of investment securities
for the year ended September 30, 2004 was $91.5 million, earning 3.92% for
the year.  This compares to an average balance of investments securities
for the year ended September 30, 2003 of $87.2 million, earning 4.57% for
the year.  Finally, the average balance of short-term investments for the
year ended September 30, 2004 was $5.0 million, earning 0.93% for the year.
This compares to an average balance of short-term investments for the year
ended September 30, 2003 of $12.7 million, earning 0.92% for the year.
Rates of interest on short-term investments were low when compared to other
investment securities and management has made a conscious effort to reduce
its level of short-term investments.

      Interest Expense.  Interest expense declined by $919 thousand, or
23.7%, to $3.0 million for the year ended September 30, 2004 from $3.9
million for the year ended September 30, 2003.  Interest expense declined
mainly due to a decline in the average rate paid on interest-bearing
liabilities offset, to a lesser extent, by an increase in the average
volume of interest-bearing liabilities.  The average volume of interest-
bearing deposits declined to $189.8 million with a cost of 1.22% for the
year ended September 30, 2004 as compared to $190.8 million with a cost of
1.71% for the year ended September 30, 2003.  The average volume of
borrowed funds from the FHLB, however, increased to $16.2 million with a
cost of 3.94% as compared to $9.5 million with a cost of 6.42% for the year
ended September 30, 2003.

      Net Interest Income.  The Company's net interest rate spread
increased to 3.32% for the year ended September 30, 2004 from 3.24% for the
year ended September 30, 2003.  Net interest income increased by $330
thousand for the year ended September 30, 2004, or 4.0%, to $8.5 million,
from $8.2 million, for the year ended September 30, 2003.  The increase was
attributed to the combination of a decrease of $589 thousand in total
interest and dividend income offset, to a larger extent, by a decrease of
$919 thousand in total interest expense.

      Provision for Loan Losses.  The Company's provision for loan losses
increased by $70 thousand for year ended September 30, 2004 and primarily
reflects the result of the inherent risks associated with a $6.0 million
net increase in commercial loans and a $16.5 million net increase in
variable-rate residential loans for year ended September 30, 2004.  The
provision for loan losses is a result of management's periodic analysis of
risks inherent in its loan portfolio from time to time, as well as the
adequacy of the allowance for loan losses.  It is the Bank's policy to
provide valuation allowances for estimated losses on loans based upon past
loss experience, current trends in the level of delinquent and specific
problem loans, loan concentrations to single borrowers, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions in our market area.
Accordingly, the evaluation of the adequacy of the allowance for loan
losses is not based directly on the level of non-performing loans.  The
allowance for loan losses, in management's opinion, is sufficient to cover
losses in the Bank's loan portfolio at this time.  As the Bank expands its
commercial lending activities, management believes that growth in the
provision for loan losses may be likely.  Additionally, while the Bank
believes it continues to have excellent loan quality, with $121 thousand of
non-accrual loans and non-performing assets at September 30, 2004, the Bank
recognizes that it is located in a market and geographic area that is
considered in the high technology and financial services belt and, most
likely, the Bank's allowance for loan loss will reflect the relative health
of these economic sectors.  While Bank management believes that its current
level of allowance for loan losses is adequate, there can be no assurance
that the allowance will be sufficient to cover loan losses or that future
adjustments to the allowance will not be necessary if economic and/or other
conditions differ substantially from the economic and other conditions
considered by management in evaluating the adequacy of the current level of
the allowance.


<PAGE>  10


      Other Income.  Other income increased $257 thousand, or 28.3%, to
$1.2 million for year ended September 30, 2004 as compared to $908 thousand
for year ended September 30, 2003.  Other income consists of fee income for
bank services, gains and losses from the sale of securities and loans and
income from bank-owned life insurance.  Income from customer service fees
increased by $98 thousand, or 17.4%, to $661 thousand for year ended
September 30, 2004 as compared to $563 thousand for year ended September
30, 2003, primarily due to the recognition of a non-refundable $71 thousand
prepayment fee from the payment in full of a $2.6 million commercial loan
and due to an increase in fee income from the sale of non-deposit
investment products.  Additionally, for year ended September 30, 2004, the
Company sold $5.5 million of 30 year fixed-rate mortgage loans, with
servicing retained by the Bank, and recognized a pre-tax gain on such
sales, including mortgage servicing rights, of $100 thousand, as compared
to $33 thousand for year ended September 30, 2003.  Also, for year ended
September 30, 2004, the Company sold securities for a net gain on the sale
of such securities of $159 thousand, as compared to a net gain of $121
thousand for year ended September 30, 2003.  Security sales were incurred
primarily to fund increased loan growth.  The Company's marketable equity
securities (primarily common stock) at September 30, 2004 had a fair market
value of $407 thousand, with a net unrealized loss of $3 thousand.  The
Company's internal investment policy requires it to either write-down to
market value, or sell, any common stock issue that has sustained a
continuous decline in market value of 50% or more, for a period of 9 months
or more.  At September 30, 2004, no common stock met such criteria.
Although the management of the Bank believes that it has established and
maintained an adequate accounting policy as it relates to investment
impairment, such judgments involve a higher degree of complexity and
require management to make difficult and subjective judgments that 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 Board of Directors.
Lastly, miscellaneous income increased by 28.3%, to $245 thousand for year
ended September 30, 2004 as compared to $191 thousand for year ended
September 40, 2003 primarily as a result of a net increase in cash
surrender value of bank-owned life insurance.

      Operating Expenses.  For year ended September 30, 2004, operating
expenses increased by $297 thousand, or 3.9%, to $7.9 million, from $7.6
million for year ended September 30, 2003.  Salaries and employee benefits
increased by $310 thousand, or 7.9%, to $4.3 million for year ended
September 30, 2004, from $3.9 million for year ended September 30, 2003.
The primary reasons for the increase were due to general increases in staff
salaries and increased expenses relating to supplemental employee
retirement plans, medical insurance and staff incentive compensation.  As a
result of a higher level of services provided, data processing expenses
increased by $57 thousand, or 9.5%, to $660 thousand for year ended
September 30, 2004 as compared to $603 thousand for year ended September
30, 2003.  Occupancy and equipment expenses declined by $71 thousand, or
5.5%, to $1.2 million for year ended September 30, 2004 as compared to $1.3
million for year ended September 30, 2003 due primarily to a savings
associated with the closing of the Shaw's Supermarket branch in April 2004
and a general decline in depreciation due to more in-use equipment being
fully depreciated.  Also, professional fees declined as a result of a
decline in legal expenses.

      Income Taxes.  The provision for income taxes declined by $5
thousand, to $526 thousand for year ended September 30, 2004, resulting in
an effective income tax rate of 30.6%, as compared to an effective income
tax rate of 35.4% for year ended September 30, 2003.  For year ended
September 30, 2003 the Company recognized the income tax expense associated
with filing amended tax returns with respect to dividend received
deductions taken in prior years on serial trust preferred securities.  The
increase in taxes amounted to a 6.7% increase in the effective tax rate as
compared to the statutory corporate income tax rate.


<PAGE>  11


Liquidity and Capital Resources

      The term "liquidity" refers to the Bank's ability to generate
adequate amounts of cash to fund loan originations, deposit withdrawals and
operating expenses.  The Bank's primary sources of funds are deposits,
scheduled amortization and prepayments of loan principal and mortgage-
backed securities, maturities and calls of investment securities and funds
provided by the Bank's operations.  From time to time, the Bank has
utilized borrowing from the FHLB as part of its management of interest rate
risk and to fund loan growth in periods when deposit growth is not
sufficient to meet such loan growth.  At September 30, 2004, the Bank had
$21.5 million in outstanding borrowing from the FHLB with a weighted
average interest rate of 3.37%, as compared to $9.5 million with a weighted
average interest rate of 5.36% at September 30, 2003.

      The Bank generally makes loan commitments to borrowers not exceeding
45 days.  At September 30, 2004, the Bank had $6.2 million in loan
commitments outstanding, primarily to grant 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, 2004 represented $13.7 million and $1.0 million,
respectively.  Total deposits declined by $4.2 million during year ended
September 30, 2004 and increased $13.8 million and $17.0 million, during
the years ended September 30, 2003 and 2002, respectively.  During the
current year, some maturing certificate of deposit and savings account
customers chose to withdraw their funds.  In response to those withdrawals,
the Company increased low-cost borrowing from the FHLB.  The level of
deposit flows is affected by interest rates offered by the Bank, products
offered by competitors and other factors.  Certificate of deposit accounts
scheduled to mature within one year were $34.2 million at September 30,
2004.  Based on the Bank's deposit retention experience and current pricing
strategy, the Bank anticipates that a significant portion of these
certificates of deposit will remain with the Bank. The Bank is committed to
maintaining a strong liquidity position; therefore, it monitors its
liquidity position on a daily basis.  The Bank also periodically reviews
liquidity information prepared by the Federal Deposit Insurance Corporation
(the "FDIC"), Depositors Insurance Fund and other available reports that
compare the Bank's liquidity with banks in its peer group.  The Bank
anticipates that it will have sufficient funds to meet its current funding
commitments. Further, the Bank does not have any balloon or other payments
due on any long-term obligations other than the commitments.

      The following table shows the Leverage ratio, Tier 1 risk-based
capital and Total risk-based capital ratios, for the Bank and consolidated
Company, at September 30, 2004:


<PAGE>  12


<TABLE>
<CAPTION>
                                        -----------------------------------------------------------------------
                                                                 As of September 30, 2004
                                        -----------------------------------------------------------------------
                                                               Minimum                   Minimum
                                        Actual                For Capital               For prompt
                                        Capital   Percent of   Adequacy    Percent of   Corrective   Percent of
                                        Amount    Assets (1)   Purposes      Assets       Action       Assets
                                        -----------------------------------------------------------------------
                                                                  (Dollars in thousands)


                         <c>         <c>         <c>        <c>           <c>         <c>           <c>
Total risk-based capital    Company     $29,496     20.97%     $11,253       8.00%           N/A         N/A
                            Bank        $28,662     20.54%     $11,165       8.00%       $13,957       10.00%

Tier 1 risk-based capital   Company     $28,546     20.29%     $ 5,626       4.00%           N/A         N/A
                            Bank        $27,712     19.86%     $ 5,583       4.00%       $ 8,374        6.00%

Tier 1 leverage capital     Company     $28,546     10.79%     $10,578       4.00%           N/A         N/A
                            Bank        $27,712     10.48%     $10,575       4.00%       $13,219        5.00%

<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, 2004, the Bank was considered "well capitalized" under
FDIC guidelines.


<PAGE>  13


Off-Balance Sheet Arrangements

      The Company does not have any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on the
Company's financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
investors.

      The following table sets forth information relating to the Company's
payments due under contractual obligations at September 30, 2004.

<TABLE>
<CAPTION>
                                         --------------------------------------------------
                                                      Payments due by period
                                         --------------------------------------------------
                                          Total       <1 yr    1-3 yrs    3-5 yrs    >5 yrs
                                         --------------------------------------------------


                                      <c>         <c>        <c>        <c>        <c>
Short-term debt (1)                      $ 3,500     $3,500     $    -     $    -     $  -
Long-term debt (2)                        18,000      5,000      5,500      7,500        -
Capital lease obligations                      -          -          -          -        -
Operating lease obligations (3)                6          5          1          -        -
Purchase obligations                           -          -          -          -        -
Other long-term liabilities
 reflected on the company's
 balance sheet under GAAP                      -          -          -          -        -
                                         -------     ------     ------     ------     ----

                                         $21,506     $8,505     $5,501     $7,500     $  -
                                         =======     ======     ======     ======     ====

<FN>
-------------------
<F1>  Consists of FHLB advances with original maturities less than one year
      which are scheduled to mature within one year.
<F2>  Consists of FHLB advances with original maturities greater than one
      year which are scheduled to mature after September 30, 2004.  Certain
      advances are callable in 2004 and 2005.
<F3>  Pertains to noncancelable lease agreements in effect at September 30,
      2004, pertaining to banking premises and equipment and future
      minimum rent commitments.  The leases contain options to extend for
      periods from two to ten years.
</FN>
</TABLE>

Impact of Inflation and Changing Prices

      The consolidated financial statements and accompanying notes
presented here have been prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP").  GAAP
generally requires the measurement of financial position and operating
results in terms of historical dollars without consideration for changes in
the relative purchasing power of money over time due to inflation.  The
impact of inflation is reflected in the increased cost of the Company's
operations.  Unlike industrial companies, the Company's assets and
liabilities are primarily monetary in nature.  As a result, changes in
market interest rates have a greater impact on performance than do the
effects of inflation.

Critical Accounting Policies

      The Notes to our Audited Consolidated Financial Statements for the
year ended September 30, 2004 included in our Annual Report contain a
summary of our significant accounting policies.  We believe our policies
with respect to the methodology for our determination of the allowance for
loan losses, asset impairment judgments and other-than-temporary declines
in the value of our securities, 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.  The Audit Committee and our Board of Directors
periodically review these critical policies and their application.


<PAGE>  14


Directors of the Company and the Bank

      James N. Ball is the sole owner of Secure Futures, Inc., which has
operated in Westborough for nearly 20 years (as a sole proprietor prior to
1999).  Mr. Ball is a financial services specialist and a member of the
National Association of Securities Dealers.  Mr. Ball assists individuals
and small business owners in a broad range of financial decision-making.
Mr. Ball is the son of Nelson P. Ball, also a member of the Board of
Directors.

      Nelson P. Ball is the owner of Ball Financial Services, Co., located
in Westborough, Massachusetts.  He has served as a financial services
consultant for over 39 years.  Mr. Ball is the father of James N. Ball,
also a member of the Board of Directors.

      Edward S. Bilzerian is retired from Bilzerian Consulting Group, Inc.,
a privately held company located in Worcester, Massachusetts, specializing
in small business turnarounds, where he served as president.  Prior to
that, he was Vice President of Marketing and Finance at Bay State
Abrasive's Division of Dresser Industries.  He has been self-employed for
over 18 years.  Mr. Bilzerian also serves as a member of the Worcester
Airport Commission and Chairman of the Worcester Health and Hospital
Authority.

      Nancy M. Carlson is the owner and president of Suburban Staffing,
Inc., a full-service staffing firm located in Westborough, Massachusetts
since 1968.  She purchased the company in 1994 and has grown in size and
services to include consulting services, automated data management and
conversions.  Ms. Carlson is a past president of the Corridor Nine Area
Chamber of Commerce where she continues to serve on the Board of Directors.
She is a former member of the board of Directors for the Better Business
Bureau and is currently a Corporator for the Greater Worcester Community
Foundation.

      David E. Carlstrom is formally the President of Carlstrom Pressed
Metal Company, Inc. and now serves as a consultant to the family owned
company.  Carlstrom Pressed Metal is a contract manufacturer of metal
stamps located in Westborough for 54 years.

      John L. Casagrande has served as the Senior Vice President and Chief
Financial Officer of Westborough Bank since 1993 and of Westborough
Financial Services since its inception in 2000.  He joined Westborough Bank
after having been employed as a senior bank officer and certified public
accountant for over 15 years at various times by several financial
institutions (including mutual and stock institutions) and the accounting
firm of Peat Marwick.  Mr. Casagrande has been serving as Clerk of
Westborough Financial Services since 2001.  Mr. Casagrande serves as a
director of the Massachusetts Bank Insurance Association, a division of the
Massachusetts Bankers Association.

      Benjamin H. Colonero, Jr. has served as chief financial officer and
executive director in the healthcare industry for over 20 years.  Mr.
Colonero is currently the executive director of the Westborough campus of
the Salmons Family of Services, which serves the health and social needs of
over 400 seniors.

      William W. Cotting, Jr. has been an attorney in private practice for
over 20 years.  His practice is primarily devoted to tax law, trusts, and
real estate.  His practice is located in Shrewsbury, Massachusetts.

      Robert A. Klugman, M.D., F.A.C.P. has practiced general medicine in
Westborough, Massachusetts for over 20 years.  Dr. Klugman is currently an
Associate Professor of Clinical Medicine at the University of Massachusetts
Medical School as well as Division Chief of Community Internal Medicine at
the UMASS/Memorial.


<PAGE>  15


      Roger B. Leland has practiced estate, tax and real estate law at
Leland Law Associates for over 30 years.  During that time, he also served
as an insurance broker, selling life and casualty insurance products,
through Leland Insurance Agency, Inc.  Leland Law Associates and Leland
Insurance Agency are located in Northborough, Massachusetts.  Mr. Leland is
the father of Jeffrey B. Leland who has been nominated to serve as a member
of the Board of Directors.

      Joseph F. MacDonough has served as President and Chief Executive
Officer of Westborough Bank since 1994 and of Westborough Financial
Services since its inception in 2000.  He joined Westborough Bank in 1981
and served as Vice President and Treasurer until his appointment as
President.  Mr. MacDonough serves on the Board of Directors of the
Massachusetts Bankers Association.

      Jeffrey B. Leland is a nominee as a new director at the 2005 Annual
Meeting of Shareholders.  He was recommended to the Nominating Committee by
a non-management director.  He has practiced estate administration, elder
law and real estate law and other general practices of law at Leland Law
Associates, P.C. for 13 years.  At the same time, he has also served as an
insurance broker selling property and casualty insurance through Leland
Insurance Agency, Inc.  Both Leland Law Associates, P.C. and Leland
Insurance Agency, Inc. are located in Northborough, Massachusetts.  Mr.
Leland is an officer and director of both of the corporations.  He is also
the son of Roger B. Leland, a member of the Board of Directors of
Westborough Bank.

      Paul F. McGrath is a certified public accountant and has served as
President of Mottle McGrath Braney & Flynn, P.C. for over ten years.
Mottle McGrath is a certified public accounting firm, located in Worcester,
Massachusetts, that provides accounting, tax and business advisory services
throughout central New England.

      Charlotte C. Spinney is a retired social studies teacher.  Ms.
Spinney taught at Westborough High School for 41 years and, during that
time, she created the curriculum for the community service component of the
school's Sociology course.

      Phyllis A. Stone served as Vice President and Treasurer of Comey Oil
Co., Inc., located in Westborough, Massachusetts, for 13 years prior to her
retirement in 2001.  Ms. Stone served in various other capacities within
Comey Oil for over 30 years.  Ms. Stone is currently President of Schenker
Properties, Inc., a real estate holding company based in Westborough,
Massachusetts.  She is past Treasurer of the Regatta Point Community
Sailing Inc. of Worcester, Massachusetts.

      James E. Tashjian is a partner in the law firm of Tashjian, Simsarian
& Wickstrom, located in Worcester, Massachusetts.  He has engaged in the
general practice of law for over 30 years.


<PAGE>  16


                    WESTBOROUGH FINANCIAL SERVICES, INC.

                      CONSOLIDATED FINANCIAL STATEMENTS
                      ---------------------------------

                   Years Ended September 30, 2004 and 2003


                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                    WESTBOROUGH FINANCIAL SERVICES, INC.

Report of Independent Registered Public Accounting Firm          F-1

Consolidated Balance Sheets as of September 30, 2004
 and 2003                                                        F-2

Consolidated Statements of Income for the Years Ended
 September 30, 2004 and 2003                                  F-3 - F-4

Consolidated Statements of Changes in Stockholders' Equity
 for the Years Ended September 30, 2004 and 2003                 F-5

Consolidated Statements of Cash Flows for the
 Years Ended September 30, 2004 and 2003                      F-6 - F-7

Notes to Consolidated Financial Statements                    F-8 - F-43


<PAGE>


           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders of
 Westborough Financial Services, Inc.

We have audited the accompanying consolidated balance sheets of Westborough
Financial Services, Inc. and subsidiary as of September 30, 2004 and 2003,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Westborough Financial Services, Inc. and subsidiary as of September 30, 2004
and 2003, and the results of their operations and their cash flows for the
years then ended in conformity with U.S. generally accepted accounting
principles.


/s/ Wolf & Company, P.C.


Boston, Massachusetts
October 29, 2004


<PAGE>  F-1


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY
                         CONSOLIDATED BALANCE SHEETS
                         September 30, 2004 and 2003
                           (Dollars in thousands)

<TABLE>
<CAPTION>

                                   ASSETS

                                                                            2004         2003
                                                                            ----         ----


                                                                       <c>          <c>
Cash and due from banks                                                   $  4,528     $  4,190
Federal funds sold                                                           3,584        6,024
Short-term investments                                                       1,059        1,687
                                                                          --------     --------
      Total cash and cash equivalents                                        9,171       11,901

Securities available for sale, at fair value                                72,959       87,590
Federal Home Loan Bank stock, at cost                                        2,042        1,250
Loans, net of allowance for loan losses of $950 in 2004
 and $911 in 2003                                                          165,288      141,557
Banking premises and equipment, net                                          6,437        6,708
Accrued interest receivable                                                  1,050        1,179
Deferred income taxes                                                          765           93
Bank-owned life insurance                                                    5,746        5,293
Other assets                                                                   552          551
                                                                          --------     --------
                                                                          $264,010     $256,122
                                                                          ========     ========

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                  $211,710     $215,898
Short-term borrowings                                                        3,500            -
Long-term borrowings                                                        18,000        9,500
Mortgagors' escrow accounts                                                    312          208
Accrued expenses and other liabilities                                       1,783        1,798
                                                                          --------     --------
      Total liabilities                                                    235,305      227,404
                                                                          --------     --------

Commitments and contingencies (Note 13)
Stockholders' equity:
  Preferred stock - $.01 par value, 1,000,000 shares authorized,
   none outstanding                                                              -            -
  Common stock - $.01 par value, 5,000,000 shares authorized,
   1,589,574 and 1,586,174 shares issued and outstanding in 2004
   and 2003, respectively                                                       16           16
  Additional paid-in capital                                                 4,843        4,706
  Retained earnings                                                         24,198       23,325
  Accumulated other comprehensive income                                       159        1,290
  Unearned compensation - RRP (10,859 and 14,659 shares, respectively)        (209)
(288)
  Unearned compensation - ESOP (30,202 and 33,149 shares,
   respectively)                                                              (302)
(331)
                                                                          --------     --------
      Total stockholders' equity                                            28,705       28,718
                                                                          --------     --------
                                                                          $264,010     $256,122
                                                                          ========     ========
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-2


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF INCOME
                  (Dollars in thousands, except share data)

<TABLE>
<CAPTION>

                                                        Years Ended September 30,
                                                        -------------------------
                                                            2004        2003
                                                            ----        ----


                                                        <c>         <c>
Interest and dividend income:
  Interest and fees on loans                               $ 7,859     $ 7,983
  Interest and dividends on securities:
    Taxable interest                                         3,409       3,656
    Non-taxable interest                                        61          70
    Dividends                                                  118         257
  Interest on federal funds sold                                33          93
  Interest on short-term investments                            14          24
                                                           -------     -------
      Total interest and dividend income                    11,494      12,083
                                                           -------     -------

Interest expense:
  Interest on deposits                                       2,323       3,271
  Interest on Federal Home Loan Bank advances                  639         610
                                                           -------     -------
      Total interest expense                                 2,962       3,881
                                                           -------     -------

Net interest income                                          8,532       8,202
Provision for loan losses                                       70           -
                                                           -------     -------

Net interest income, after provision for loan losses         8,462       8,202
                                                           -------     -------

Other income:
  Customer service fees                                        661         563
  Gain (loss) on sales and calls of securities, net            159         121
  Gain on sales of mortgages, net                              100          33
  Miscellaneous                                                245         191
                                                           -------     -------
      Total other income                                     1,165         908
                                                           -------     -------

Operating expenses:
  Salaries and employee benefits                             4,253       3,943
  Occupancy and equipment expenses                           1,216       1,287
  Data processing expenses                                     660         603
  Marketing and advertising                                    216         205
  Professional fees                                            250         284
  Other general and administrative expenses                  1,315       1,291
                                                           -------     -------
      Total operating expenses                               7,910       7,613
                                                           -------     -------
</TABLE>

                                 (continued)

See accompanying notes to consolidated financial statements.


<PAGE>  F-3


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF INCOME (Concluded)
                  (Dollars in thousands, except share data)

<TABLE>
<CAPTION>

                                                        Years Ended September 30,
                                                        -------------------------
                                                            2004        2003
                                                            ----        ----


                                                        <c>         <c>
Income before provision for income taxes                     1,717       1,497
Provision for income taxes                                     526         531
                                                           -------     -------
Net income                                                 $ 1,191     $   966
                                                           =======     =======

Earnings per share:
  Basic                                                    $  0.77     $  0.63
  Diluted                                                  $  0.76     $  0.62
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-4


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CHANGES IN
                            STOCKHOLDERS' EQUITY
                   Years Ended September 30, 2004 and 2003
                (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                         Accumulated
                                                  Additional               Other         Unearned       Unearned         Total
                                          Common   Paid-in    Retained  Comprehensive  Compensation-  Compensation-  Stockholders'
                                          Stock    Capital    Earnings     Income           RRP           ESOP          Equity
                                          ------  ----------  --------  -------------  -------------  -------------  -------------


                                        <c>     <c>        <c>          <c>            <c>            <c>           <c>
Balance at September 30, 2002              $ 16    $ 4,583    $ 22,676     $ 1,439        $ (365)        $ (360)       $ 27,989
                                                                                                                       --------

Comprehensive income:
  Net income                                  -          -         966           -             -              -             966
  Change in net unrealized gain
   (loss) on securities available
   for sale, after reclassification
   adjustment and tax effects                 -          -           -        (149)            -              -            (149)
                                                                                                                       --------
      Total comprehensive income                                                                                            817
                                                                                                                       --------

Cash dividends declared
 ($0.20 per share)                            -          -        (317)          -             -              -            (317)
ESOP shares released and committed
 to be released (2,947 shares)                -         48           -           -             -             29              77
Amortization of RRP stock
 (3,500 shares)                               -          -           -           -            77              -              77
Issuance of common stock under
 stock option plan, including
 tax benefits of $28                          -         75           -           -             -              -              75
                                           ----    -------    --------     -------        ------         ------        --------

Balance at September 30, 2003                16      4,706      23,325       1,290          (288)          (331)         28,718
                                                                                                                       --------

Comprehensive income:
  Net income                                  -          -       1,191           -             -              -           1,191
  Change in net unrealized gain
   (loss) on securities available
   for sale, after reclassification
   adjustment and tax effects                 -          -           -      (1,131)            -              -          (1,131)
                                                                                                                       --------
      Total comprehensive income                                                                                             60
                                                                                                                       --------

Cash dividends declared
 ($0.20 per share)                            -          -        (318)          -             -              -            (318)
ESOP shares released and committed
 to be released (2,947 shares)                -         67           -           -             -             29              96
Amortization of RRP stock
 (3,800 shares)                               -          -           -           -            79              -              79
Issuance of common stock under
 stock option plan, including
 tax benefits of $26                          -         70           -           -             -              -              70
                                           ----    -------    --------     -------        ------         ------        --------

Balance at September 30, 2004              $ 16    $ 4,843    $ 24,198     $   159        $ (209)        $ (302)       $ 28,705
                                           ====    =======    ========     =======        ======         ======        ========
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-5


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Dollars in thousands)

<TABLE>
<CAPTION>

                                                            Years Ended September 30,
                                                            -------------------------
                                                              2004            2003
                                                              ----            ----


                                                         <c>             <c>
Cash flows from operating activities:
  Net income                                                $  1,191        $    966
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Provision for loan losses                                     70               -
    Net amortization of securities                               522             333
    Amortization of net deferred loan costs and premiums
     on purchased loans and indirect lending                      12              59
    Depreciation and amortization expense                        566             635
    Gain on sales of mortgages, net                             (100)            (33)
    Gain on sales and calls of securities, net                  (159)           (121)
    Decrease in accrued interest receivable                      129             162
    Deferred income tax (benefit) provision                      (57)             20
    ESOP shares released and committed to be released             96              77
    Amortization of RRP stock                                     79              77
    Increase in bank-owned life insurance                       (214)           (226)
    Other, net                                                    55              39
                                                            --------        --------
      Net cash provided by operating activities                2,190           1,988
                                                            --------        --------

Cash flows from investing activities:
  Activity in available-for-sale securities:
    Sales and calls                                           30,684          22,875
    Maturities                                                 6,790           4,955
    Purchases                                                (31,237)        (55,022)
    Principal payments                                         6,285          14,788
  Purchase of Federal Home Loan Bank stock                      (792)              -
  Loan originations, net                                     (29,335)        (12,801)
  Proceeds from loan sales                                     5,551           4,098
  Purchase of banking premises and equipment, net               (309)         (1,819)
  Retirement of banking premises and equipment                    14               -
  Premiums paid on bank-owned life insurance                    (239)            (17)
                                                            --------        --------
      Net cash used by investing activities                  (12,588)        (22,943)
                                                            --------        --------
</TABLE>

                                 (continued)

See accompanying notes to consolidated financial statements.


<PAGE>  F-6


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY
              CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
                           (Dollars in thousands)

<TABLE>
<CAPTION>

                                                             Years Ended September 30,
                                                             -------------------------
                                                               2004            2003
                                                               ----            ----


                                                         <c>             <c>
Cash flows from financing activities:
  Net (decrease) increase in deposits                         (4,188)         13,835
  Net increase in short-term borrowings                        3,500               -
  Proceeds from Federal Home Loan Bank advances               11,000           2,500
  Repayment of Federal Home Loan Bank advances                (2,500)         (2,500)
  Net increase in mortgagors' escrow accounts                    104              10
  Issuance of common stock under stock option plan,
   net of tax benefits                                            70              75
  Dividends paid                                                (318)           (317)
                                                            --------        --------
      Net cash provided by financing activities                7,668          13,603
                                                            --------        --------

Net change in cash and cash equivalents                       (2,730)         (7,352)

Cash and cash equivalents at beginning of year                11,901          19,253
                                                            --------        --------

Cash and cash equivalents at end of year                    $  9,171        $ 11,901
                                                            ========        ========

Supplemental cash flow information:
  Interest paid on deposits                                 $  2,324        $  3,293
  Interest paid on Federal Home Loan Bank advances               612             619
  Income taxes paid                                              532             494
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  7


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                   Years Ended September 30, 2004 and 2003
                (Dollars in thousands, except per share data)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of consolidation and presentation

      The consolidated financial statements include the accounts of
      Westborough Financial Services, Inc. (the "Company") and its wholly-
      owned subsidiary, The Westborough Bank (the "Bank"). The Bank's active
      wholly-owned subsidiaries are The Hundredth Corporation, which was
      formed to own real estate, and the Eli Whitney Security Corporation,
      which is a Massachusetts security corporation. All significant
      intercompany balances and transactions have been eliminated in
      consolidation.

      Use of estimates

      In preparing consolidated financial statements in conformity with
      accounting principles generally accepted in the United States of
      America, management is required to make estimates and assumptions that
      affect the reported amounts of assets and liabilities as of the date
      of the consolidated balance sheet and reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates. The determination of the allowance for losses on
      loans is a material estimate that is particularly susceptible to
      significant change in the near term.

      Business and operating segments

      The Bank provides a variety of financial services to individuals and
      small businesses through its offices in Westborough, Northborough and
      Shrewsbury, Massachusetts. Its primary deposit products are checking,
      savings and term certificate accounts and its primary lending product
      is residential mortgage loans.

      Management evaluates the Company's performance and allocates resources
      based on a single segment concept. Accordingly, there are no
      separately identified operating segments for which discrete financial
      information is available. The Company does not derive revenues from,
      or have assets located in, foreign countries, nor does it derive
      revenues from any single customer that represents 10% or more of the
      Company's total revenues.

      Reclassifications

      Certain amounts in the 2003 consolidated financial statements have
      been reclassified to conform to the 2004 presentation.


<PAGE>  F-8


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Cash equivalents

      Cash equivalents include amounts due from banks, federal funds sold on
      a daily basis and short-term investments which mature within ninety
      days.

      Securities available for sale

      Securities classified as "available for sale" are reflected on the
      consolidated balance sheet at fair value, with unrealized gains and
      losses excluded from earnings and reported in accumulated other
      comprehensive income.

      Purchase premiums and discounts are recognized in interest income
      using the interest method over the terms of the securities. Declines
      in the fair value of securities that are deemed to be other than
      temporary are reflected in earnings as realized losses. Management
      evaluates securities for other-than-temporary impairment at least on a
      quarterly basis, and more frequently when economic or market concerns
      warrant such evaluation. Consideration is given to (1) the length of
      time and the extent to which the fair value has been less than cost,
      (2) the financial condition and near-term prospects of the issuer, and
      (3) the intent and ability of the Company to retain its investment in
      the issuer for a period of time sufficient to allow for any
      anticipated recovery in fair value. Gains and losses on disposition of
      securities are recorded on the trade date and computed by the specific
      identification method.

      Loans

      The Bank grants mortgage, commercial and consumer loans to its
      customers. A substantial portion of the loan portfolio consists of
      mortgage loans in Westborough and the surrounding communities. The
      ability of the Bank's debtors to honor their contracts is dependent
      upon the local economy and the local real estate market.

      Loans that management has the intent and ability to hold for the
      foreseeable future or until maturity or pay-off generally are reported
      at their outstanding unpaid principal balances adjusted for the
      allowance for loan losses and net deferred costs on originated loans.
      Interest income is accrued on the unpaid principal balance. Net loan
      origination costs are deferred and recognized as an adjustment of the
      related loan yield using the interest method.

      The accrual of interest on mortgage and commercial loans is
      discontinued when in the judgment of management the collection of
      principal or interest is doubtful.


<PAGE>  F-9


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Loans (concluded)

      All interest accrued but not collected for loans that are placed on
      non-accrual or charged off is reversed against interest income. The
      interest on these loans is accounted for on the cash-basis until
      qualifying for return to accrual. Loans are returned to accrual status
      when all the principal and interest amounts contractually due are
      brought current and future payments are reasonably assured.

      A loan is considered impaired when, based on current information and
      events, it is probable that the Bank will be unable to collect the
      scheduled payments of principal or interest when due according to the
      contractual terms of the loan agreement. Impaired loans are generally
      maintained on a non-accrual basis. Impairment is measured on a loan by
      loan basis by the fair value of the collateral if the loan is
      collateral dependent.

      Large groups of smaller balance homogeneous loans are collectively
      evaluated for impairment. Accordingly, the Bank does not separately
      identify individual consumer loans for impairment disclosures.

      Allowance for loan losses

      The allowance for loan losses is established as losses are estimated
      to have occurred through a provision for loan losses charged to
      earnings. Loan losses are charged against the allowance when
      management believes the uncollectibility of a loan balance is
      confirmed. Subsequent recoveries, if any, are credited to the
      allowance.

      The allowance for loan losses is evaluated on a regular basis by
      management and is based upon management's periodic review of the
      collectibility of the loans in light of historical experience, the
      nature and volume of the loan portfolio, adverse situations that may
      affect the borrower's ability to repay, estimated value of any
      underlying collateral and prevailing economic conditions. This
      evaluation is inherently subjective as it requires estimates that are
      susceptible to significant revision as more information becomes
      available.

      The allowance consists of allocated, general and unallocated
      components. The allocated component relates to loans that are
      classified as either doubtful, substandard or special mention. For
      such loans that are also classified as impaired, an allowance is
      established when the collateral value of the impaired loan is lower
      than the carrying value of that loan. The general component covers
      non-classified loans and is based on historical loss experience
      adjusted for qualitative factors. An unallocated component is
      maintained to cover uncertainties that could affect management's
      estimate of probable losses. The unallocated component of the
      allowance reflects the margin of imprecision inherent in the
      underlying assumptions used in the methodologies for estimating
      allocated and general losses in the portfolio.


<PAGE>  F-10


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Servicing

      Effective October 1, 2003, the Company applied the provisions of
      Statement of Financial Accounting Standards ("SFAS") No. 140,
      "Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities."

      Servicing assets are recognized as separate assets when rights are
      acquired through purchase or through sale of financial assets. For
      sales of mortgage loans, a portion of the cost of originating the loan
      is allocated to the servicing right based on relative fair value. Fair
      value is based on a valuation model that calculates the present value
      of estimated future net servicing income. Capitalized servicing rights
      are reported in other assets and are amortized into non-interest
      income in proportion to, and over the period of, the estimated future
      net servicing income of the underlying financial assets. Servicing
      assets are evaluated for impairment based upon the fair value of the
      rights as compared to amortized cost. Impairment is determined by
      stratifying rights by predominant characteristics, such as interest
      rates and terms. Fair value is based upon discounted cash flows using
      market-based assumptions. Impairment is recognized through a valuation
      allowance for an individual stratum, to the extent that fair value is
      less than the capitalized amount for the stratum.

      Banking premises and equipment

      Land is carried at cost. Buildings, leasehold improvements and
      equipment are stated at cost, less accumulated depreciation and
      amortization, computed on the straight-line method over the estimated
      useful lives of the assets.

      Retirement plan

      The Bank accounts for pension benefits on the net periodic pension
      cost method for financial reporting purposes. This method recognizes
      the compensation cost of an employee's pension benefit over the
      employee's approximate service period. Pension costs are funded in the
      year of accrual using the aggregate cost method.


<PAGE>  F-11


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Stock compensation plans

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

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

<TABLE>
<CAPTION>

                                                   Years Ended September 30,
                                                   -------------------------
                                                        2004         2003
                                                        ----         ----

       
                          <c>                <c>            <c>
       Net income                   As reported        $1,191       $ 966
                                    Pro forma          $1,165       $ 940

      Basic earnings per share      As reported        $ 0.77       $0.63
                                    Pro forma          $ 0.76       $0.61

      Diluted earnings per share    As reported        $ 0.76       $0.62
                                    Pro forma          $ 0.75       $0.61
</TABLE>


<PAGE>  F-12


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Employee stock ownership plan ("ESOP")

      Compensation expense is recognized as ESOP shares are committed to be
      released. Allocated and committed to be released ESOP shares are
      considered outstanding for earnings per share calculations based on
      debt service payments. Other ESOP shares are excluded from earnings
      per share calculations. The value of unearned shares to be allocated
      to ESOP participants for future services not yet performed is
      reflected as a reduction of stockholders' equity.

      Advertising costs

      All advertising costs are expensed as incurred.

      Income taxes

      Deferred tax assets and liabilities are reflected at currently enacted
      income tax rates applicable to the period in which the deferred tax
      assets or liabilities are expected to be realized or settled. As
      changes in tax laws or rates are enacted, deferred tax assets and
      liabilities are adjusted accordingly through the provision for income
      taxes. The Bank's base amount of its federal income tax reserve for
      loan losses that arose before 1987 is a permanent difference for which
      there is no recognition of a deferred tax liability. However, the
      allowance for loan losses maintained for financial reporting purposes
      is treated as a temporary difference with allowable recognition of a
      related deferred tax asset, if it is deemed realizable.

      Earnings per common share

      Basic earnings per share represents income available to common
      stockholders divided by the weighted-average number of common shares
      outstanding during the period. Diluted earnings per share reflects
      additional common shares that would have been outstanding if dilutive
      potential common shares had been issued, as well as any adjustment to
      income that would result from the assumed issuance. Potential common
      shares that may be issued by the Company relate solely to outstanding
      stock options and are determined using the treasury stock method. For
      the years ended September 30, 2004 and 2003, there were no anti-
      dilutive potential common shares. Anti-dilutive potential common
      shares would be excluded from dilutive earnings per share
      calculations.


<PAGE>  F-13


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Earnings per common share (concluded)

      Earnings per common share for the year ended September 30, 2004 and
      2003 has been computed based on the following:

<TABLE>
<CAPTION>

                                                                    2004          2003
                                                                    ----          ----

      
                                                         <c>           <c>
      Average number of common shares outstanding                 1,541,927     1,530,003
      Effect of dilutive options                                     21,800        18,846
                                                                  ---------     ---------
      Average number of common shares outstanding
       used to calculate diluted earnings per common share        1,563,727     1,548,849
                                                                  =========     =========
</TABLE>

      Comprehensive income

      Accounting principles generally require that recognized revenue,
      expenses, gains and losses be included in net income. Although certain
      changes in assets and liabilities, such as unrealized gains and losses
      on securities available for sale are reported in accumulated
      comprehensive income/loss in the consolidated balance sheet, such
      items, along with net income, are components of comprehensive income.

      The components of the change in accumulated other comprehensive
      income/loss and related tax effects are as follows:

<TABLE>
<CAPTION>

                                                          Years Ended September 30,
                                                          -------------------------
                                                               2004         2003
                                                               ----         ----

      
                                                   <c>            <c>
      Change in net unrealized holding (gains)
       losses on securities available for sale              $ (1,587)      $ (119)
      Reclassification adjustment for (gains) losses
       realized in income                                       (159)        (121)
                                                            --------       ------
                                                              (1,746)        (240)

      Tax effect                                                 615           91
                                                            --------       ------

      Net-of-tax amount                                     $ (1,131)      $ (149)
                                                            ========       ======
</TABLE>


<PAGE>  F-14


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Recent accounting pronouncements

      In March 2004, the Securities and Exchange Commission ("SEC") issued
      Staff Accounting Bulletin ("SAB") No. 105, Application of Accounting
      Principles to Loan Commitments, which provides guidance regarding loan
      commitments that are accounted for as derivative instruments. In this
      SAB, the SEC determined that an interest rate lock commitment should
      generally be valued at zero at inception. The rate locks will continue
      to be adjusted for changes in value resulting from changes in market
      interest rates. This SAB did not have any effect on the Company's
      financial position or results of operations.

      On June 30, 2004, the FASB published an Exposure Draft, "Share-Based
      Payment," an Amendment of FASB Statement Nos. 123 and 95 (the
      "Exposure Draft"). The FASB is proposing, among other things,
      amendments to SFAS No. 123 and thus, the manner in which share-based
      compensation, such as stock options, will be accounted for by both
      public and non-public companies. For public companies, the cost of
      employee services received in exchange for equity instruments
      including options and restricted stock awards generally would be
      measured at fair value at the grant date. The grant date fair value
      would be estimated using option-pricing models adjusted for the unique
      characteristics of those options and instruments, unless observable
      market prices for the same or similar options are available. The cost
      would be recognized over the requisite service period, often the
      vesting period, and would be remeasured subsequently at each reporting
      date through settlement date.

      The proposed changes in accounting would replace existing requirements
      under SFAS No. 123, "Accounting for Stock-Based Compensation," and
      would eliminate the ability to account for share-based compensation
      transactions using APB Opinion No. 25, "Accounting for Stock Issued to
      Employees," which does not require companies to expense options if the
      exercise price is equal to the trading price at the date of grant.
      Under the terms of the Exposure Draft, the accounting for similar
      transactions involving parties other than employees or the accounting
      for employee stock ownership plans that are subject to American
      Institute of Certified Public Accountants ("AICPA") Statement of
      Position 93-6, "Employers' Accounting for Employee Stock Ownership
      Plans," would remain unchanged.


<PAGE>  F-15


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

      Recent accounting pronouncements (concluded)

      On September 30, 2004, the Financial Accounting Standards Board
      ("FASB") issued FASB Staff Position ("FSP") Emerging Issues Task Force
      ("EITF") Issue No. 03-1-1 delaying the effective date of paragraphs
      10-20 of EITF 03-1, "The Meaning of Other-Than-Temporary Impairment
      and Its Application to Certain Investments", which provides guidance
      for determining the meaning of "other-than-temporarily impaired" and
      its application to certain debt and equity securities within the scope
      of SFAS No. 115, "Accounting for Certain Investments in Debt and
      Equity Securities", and investments accounted for under the cost
      method. The guidance requires that investments which have declined in
      value due to credit concerns or solely due to changes in interest
      rates  must be recorded as other-than-temporarily impaired unless the
      Company can assert and demonstrate its intention to hold the security
      for a period of time sufficient to allow for a recovery of fair value
      up to or beyond the cost of the investment which might mean maturity.
      The delay of the effective date of EITF 03-1 will be superceded
      concurrent with the final issuance of proposed FSP Issue 03-1-a.
      Proposed FSP Issue 03-1-a is intended to provide implementation
      guidance with respect to all securities analyzed for impairment under
      paragraphs 10-20 of EITF 03-1. Management continues to closely monitor
      and evaluate how the provisions of EITF 03-1 and proposed FSP Issue
      03-1-a will affect the Company.

2.    RESTRICTIONS ON CASH AND DUE FROM BANKS

      The Bank is required to maintain average balances on hand or with the
      Federal Reserve Bank. At September 30, 2004 and 2003, these reserve
      balances amounted to $1,074 and $998, respectively.


<PAGE>  F-16


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

3.    SECURITIES AVAILABLE FOR SALE

      The amortized cost and estimated fair value of securities available
      for sale, at September 30, 2004 and 2003, with gross unrealized gains
      and losses, is as follows:

<TABLE>
<CAPTION>

                                                               September 30, 2004
                                               ------------------------------------------------
                                                              Gross         Gross
                                               Amortized    Unrealized    Unrealized     Fair
                                                 Cost         Gains         Losses       Value
                                               ---------    ----------    ----------     -----

      
                                      <c>           <c>            <c>         <c>
      Federal agency obligations               $ 21,549      $    81        $ (116)     $ 21,514
      Banking and finance obligations            12,442          240           (37)       12,645
      Mortgage-backed securities                 33,035          236          (311)       32,960
      Other bonds and obligations                 5,299          142            (8)        5,433
                                               --------      -------        ------      --------
            Total debt securities                72,325          699          (472)       72,552
      Marketable equity securities                  410           18           (21)          407
                                               --------      -------        ------      --------

                                               $ 72,735      $   717        $ (493)     $ 72,959
                                               ========      =======        ======      ========

<CAPTION>

                                                               September 30, 2003
                                               ------------------------------------------------
                                                              Gross         Gross
                                               Amortized    Unrealized    Unrealized     Fair
                                                 Cost         Gains         Losses       Value
                                               ---------    ----------    ----------     -----

      
                                      <c>           <c>            <c>         <c>
      Federal agency obligations               $ 28,806      $   527        $  (38)     $ 29,295
      Banking and finance obligations            18,329          753           (12)       19,070
      Mortgage-backed securities                 29,052          428           (63)       29,417
      Other bonds and obligations                 7,030          328             -         7,358
                                               --------      -------        ------      --------
            Total debt securities                83,217        2,036          (113)       85,140
      Marketable equity securities                2,403          132           (85)        2,450
                                               --------      -------        ------      --------

                                               $ 85,620      $ 2,168        $ (198)     $ 87,590
                                               ========      =======        ======      ========
</TABLE>


<PAGE>  F-17


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SECURITIES AVAILABLE FOR SALE (continued)

      Proceeds from sales and calls of securities amounted to $30,684 and
      $22,875 for the years ended September 30, 2004 and 2003, respectively.
      Gross realized gains amounted to $244 and $609, respectively. Gross
      realized losses amounted to $85 and $488, respectively.

      The amortized cost and estimated fair value of debt securities by
      contractual maturity are shown below. Expected maturities will differ
      from contractual maturities because issuers may have the right to call
      or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>

                                              September 30, 2004        September 30, 2003
                                             --------------------      --------------------
                                             Amortized      Fair       Amortized      Fair
                                               Cost         Value        Cost         Value
                                             ---------      -----      ---------      -----

      
                                    <c>          <c>          <c>          <c>
      Within 1 year                          $  4,802     $  4,896     $  6,778     $  6,972
      Over 1 year through 5 years              34,123       34,309       44,462       45,688
      Over 5 years through 10 years               365          387        2,925        3,063
                                             --------     --------     --------     --------
                                               39,290       39,592       54,165       55,723
      Mortgage and asset-backed securities     33,035       32,960       29,052       29,417
                                             --------     --------     --------     --------

                                             $ 72,325     $ 72,552     $ 83,217     $ 85,140
                                             ========     ========     ========     ========
</TABLE>

      At September 30, 2004 and 2003, a federal agency obligation with a
      carrying value of $1,012 and $1,018, respectively, and fair value of
      $1,000, for both years, was pledged to secure public deposits.


<PAGE>  F-18


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SECURITIES AVAILABLE FOR SALE (concluded)

      Information pertaining to securities with gross unrealized losses at
      September 30, 2004, aggregated by investment category and length of
      time that individual securities have been in a continuous loss
      position, follows:

<TABLE>
<CAPTION>

                                                  Less Than Twelve Months   Over Twelve Months
                                                  -----------------------   -------------------
                                                     Gross                    Gross
                                                   Unrealized     Fair      Unrealized    Fair
                                                     Losses       Value       Losses      Value
                                                   ----------     -----     ----------    -----

      
                                             <c>       <c>            <c>       <c>
      Federal agency obligations                      $  88     $ 11,955       $  28     $ 1,987
      Banking and finance obligations                    27        4,305          10       1,118
      Mortgage-backed securities                        226       20,214          85       4,471
      Other bonds and obligations                         8          789           -           -
                                                      -----     --------       -----     -------
            Total debt securities                       349       37,263         123       7,576
      Marketable equity securities                       21          274           -           -
                                                      -----     --------       -----     -------

            Total temporarily impaired securities     $ 370     $ 37,537       $ 123     $ 7,576
                                                      =====     ========       =====     =======
</TABLE>

      At September 30, 2004, forty-nine debt securities have unrealized
      losses with aggregate depreciation of 1% from the Company's amortized
      cost basis. These unrealized losses relate principally to the interest
      rate environment. In analyzing an issuer's financial condition,
      management considers whether the securities are issued by the federal
      government or its agencies, whether downgrades by bond rating agencies
      have occurred, and industry analysts' reports. As management has the
      ability to hold these securities for the foreseeable future, no
      declines are deemed to be other than temporary.

      At September 30, 2004, three marketable equity securities have
      unrealized losses with aggregate depreciation of 7% from the Company's
      cost basis. Although the issuers have shown declines in earnings as a
      result of the weakened economy, no credit issues have been identified
      that cause management to believe the declines in market value are
      other than temporary. In analyzing the issuer's financial condition,
      management considers industry analysts' reports, financial performance
      and projected target prices of investment analysts within a one-year
      time frame.


<PAGE>  F-19


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

4.    LOANS

      A summary of the balances of loans follows:

<TABLE>
<CAPTION>

                                                      September 30,
                                                 -----------------------
                                                    2004          2003
                                                    ----          ----

      
                                        <c>           <c>
      Mortgage loans:
        Fixed rate                               $  64,310     $   5,170
        Variable rate                               64,788        48,287
        Commercial                                  23,313        17,290
        Home equity lines-of-credit                 11,295        10,303
                                                 ---------     ---------
            Total mortgage loans                   163,706       141,050
                                                 ---------     ---------

      Other loans:
        Personal loans                                 322           564
        Deposit secured loans                          297           358
        Home improvement loans                          85            68
        Commercial lines-of-credit                     965         1,824
        Commercial installment                       1,579         1,461
                                                 ---------     ---------
            Total other loans                        3,248         4,275
                                                 ---------     ---------

            Total loans                            166,954       145,325

      Due to borrowers on incomplete loans          (1,507)       (3,550)
      Net deferred loan costs                          389           223
      Net premiums on purchased loans and
       indirect lending                                402           470
      Allowance for loan losses                      (950)          (911)
                                                 ---------     ---------

            Loans, net                          $ 165,288      $ 141,557
                                                =========      =========
</TABLE>

      An analysis of the allowance for loan losses follows:

<TABLE>
<CAPTION>

                                             Years Ended September 30,
                                             -------------------------
                                                 2004        2003
                                                 ----        ----

      
                                        <c>         <c>
      Balance at beginning of year               $ 911       $ 926
      Provision for loan losses                     70           -
      Charge-offs                                  (35)        (19)
      Recoveries                                     4           4
                                                 -----       -----

      Balance at end of year                     $ 950       $ 911
                                                 =====       =====
</TABLE>


<PAGE>  F-20


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      LOANS (concluded)

      The following is a summary of information pertaining to impaired and
      non-accrual loans:

<TABLE>
<CAPTION>

                                                              September 30,
                                                             ---------------
                                                             2004      2003
                                                             ----      ----

      
                                                    <c>       <c>
      Impaired loans without a valuation allowance           $ 275     $ 119

      Impaired loans with a valuation allowance                 25       695
                                                             -----     -----

      Total impaired loans                                   $ 300     $ 814
                                                             =====     =====

      Valuation allowance related to impaired loans          $  10     $  99
                                                             =====     =====

      Total non-accrual loans                                $ 121     $ 634
                                                             =====     =====
</TABLE>

      At September 30, 2004 and 2003, there were no loans past-due ninety
      days or more and still accruing.

<TABLE>
<CAPTION>

                                                     Years Ended September 30,
                                                     -------------------------
                                                          2004      2003
                                                          ----      ----

      
                                                 <c>       <c>
      Average investment in impaired loans                $ 660     $ 407
                                                          =====     =====
      Interest income recognized on a cash basis
       on impaired loans                                  $  23     $  15
                                                          =====     =====
</TABLE>

      No additional funds are committed to be advanced in connection with
      impaired loans.

5.    SERVICING

      The Bank has sold mortgage loans, without recourse, in the secondary
      mortgage market and has retained the servicing responsibility and
      receives fees for the services provided. Total loans serviced for
      others at September 30, 2004 and 2003 amounted to $8,499 and $4,113,
      respectively. Mortgage loans serviced for others are not included in
      the accompanying consolidated balance sheets.

      At September 30, 2004, $58 of capitalized servicing rights are
      included in other assets. During the year ended September 30, 2004,
      $71 of servicing rights were capitalized and $13 of servicing rights
      were amortized. Carrying value of servicing rights approximates fair
      value.


<PAGE>  F-21


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

6.    BANKING PREMISES AND EQUIPMENT

      A summary of the cost and accumulated depreciation and amortization of
      banking premises and equipment and their estimated useful lives
      follows:

<TABLE>
<CAPTION>

                                                 September 30,
                                               ----------------       Estimated
                                               2004        2003      Useful Lives
                                               ----        ----      ------------

      
                                    <c>         <c>         <c>
      Banking premises:
        Land                                 $ 1,200     $ 1,200
        Buildings                              5,134       5,097     5 - 40 years
        Leasehold improvements                     -         256     3 - 5 years
      Equipment                                4,083       3,912     3 - 7 years
                                             -------     -------
                                              10,417      10,465
      Less accumulated depreciation and
       amortization                           (3,980)     (3,757)
                                             -------     -------

                                             $ 6,437     $ 6,708
                                             =======     =======
</TABLE>

      Depreciation and amortization expense for the years ended September
      30, 2004 and 2003 amounted to $566 and $635, respectively.

7.    DEPOSITS

      A summary of deposit balances, by type, is as follows:

<TABLE>
<CAPTION>

                                                       September 30,
                                                  -----------------------
                                                     2004          2003
                                                     ----          ----

      
                                         <c>           <c>
      Non-interest bearing accounts               $  25,131     $  19,740
      NOW accounts                                   20,044        19,093
      Regular and other savings accounts            112,174       117,628
      Money market deposit accounts                   6,139         5,247
                                                  ---------     ---------
            Total non-certificate accounts          163,488       161,708
                                                  ---------     ---------

      Term certificates of $100,000 and over         10,812        11,848
      Term certificates less than $100,000           37,410        42,342
                                                  ---------     ---------
            Total certificate accounts               48,222        54,190
                                                  ---------     ---------

            Total deposits                        $ 211,710     $ 215,898
                                                  =========     =========
</TABLE>


<PAGE>  F-22


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      DEPOSITS (concluded)

      A summary of certificates, by maturity, is as follows:

<TABLE>
<CAPTION>

                                        September 30, 2004     September 30, 2003
                                        ------------------     ------------------
                                         Weighted               Weighted
                                         Average                Average
                                         Amount      Rate       Amount      Rate

      
                               <c>          <c>       <c>          <c>
      Within 1 year                     $ 34,183     1.84%     $ 42,544     2.15%
      Over 1 year through 3 years         12,090     2.63        11,646     2.82
      Over 3 years                         1,949     3.28             -        -
                                        --------     ----      --------     ----

                                        $ 48,222     2.10%     $ 54,190     2.29%
                                        ========     ====      ========     ====
</TABLE>

8.    SHORT-TERM BORROWINGS

      At September 30, 2004, short-term borrowings consist of advances from
      the Federal Home Loan Bank of Boston ("FHLB") with original maturities
      of less than one year at a weighted average interest rate of 1.92%.

      The Bank also has a $2,999 available line of credit with the FHLB at
      an interest rate that adjusts daily. Borrowings under the line are
      limited to 2% of the Bank's total assets. All borrowings from the FHLB
      are secured by a blanket lien on qualified collateral, defined
      principally as 75% of the carrying value of first mortgage loans on
      owner-occupied residential property. As of September 30, 2004 and
      2003, there were no advances outstanding on the line of credit.


<PAGE>  F-23


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

9.    LONG-TERM BORROWINGS

      Long-term borrowings consist of Federal Home Loan Bank advances as
      follows:

<TABLE>
<CAPTION>

                                Weighted
            Maturing During     Average          September 30,
            the Year Ending     Interest      ------------------
             September 30,        Rate         2004        2003
            ---------------     --------       ----        ----

               
              <c>          <c>          <c>
               2004               6.92%      $      -     $ 2,500
               2005               4.64          5,000       5,000
               2006               2.95          2,500           -
               2007               2.32          3,000           -
               2008               3.76          2,500           -
               2009*            3.61/4.88       5,000       2,000
                                             --------     -------
                                             $ 18,000     $ 9,500
                                             ========     =======
</TABLE>

      *  Includes advances callable on November 22, 2004 and April 1, 2005.

10.   INCOME TAXES

      Allocation of federal and state income taxes between current and
      deferred portions is as follows:

<TABLE>
<CAPTION>

                                               Years Ended September 30,
                                               -------------------------
                                                    2004      2003
                                                    ----      ----

      
                                           <c>       <c>
      Current income tax provision:
        Federal                                     $ 546     $ 483
        State                                          37        28
                                                    -----     -----
                                                      583       511
                                                    -----     -----

      Deferred income tax provision (benefit):
        Federal                                       (43)       43
        State                                         (14)      (23)
                                                    -----     -----
                                                      (57)       20
                                                    -----     -----

            Total provision for income taxes        $ 526     $ 531
                                                    =====     =====
</TABLE>


<PAGE>  F-24


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      INCOME TAXES (continued)

      The reasons for the differences between the statutory corporate
      federal income tax rate and the effective tax rates are summarized as
      follows:

<TABLE>
<CAPTION>

                                                Years Ended September 30,
                                                -------------------------
                                                      2004      2003
                                                      ----      ----

      
                                             <c>       <c>
      Statutory rate                                  34.0%     34.0%
      Increase (decrease) resulting from:
        State taxes, net of federal tax benefit        0.9       0.2
        Dividends received deduction                  (0.3)     (0.6)
        Officers' life insurance                      (2.8)     (3.3)
        Municipal income                              (1.2)     (1.6)
        Prior year amended returns                       -       6.7
                                                      ----      ----

            Effective tax rates                       30.6%     35.4%
                                                      ====      ====
</TABLE>

      The components of the net deferred tax asset are as follows:

<TABLE>
<CAPTION>

                                              September 30,
                                           -------------------
                                            2004        2003
                                            ----        ----

      
                                  <c>          <c>
      Deferred tax asset:
        Federal                            $   818      $  725
        State                                  282         250
                                           -------      ------
                                             1,100         975
                                           -------      ------

      Deferred tax liability:
        Federal                               (288)       (844)
        State                                  (47)        (38)
                                           -------      ------
                                              (335)       (882)
                                           -------      ------

      Net deferred tax asset               $   765      $   93
                                           =======      ======
</TABLE>


<PAGE>  F-25


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      INCOME TAXES (concluded)

      The tax effects of each type of income and expense item that give rise
      to deferred taxes are as follows:

<TABLE>
<CAPTION>

                                                             September 30,
                                                            ----------------
                                                            2004       2003
                                                            ----       ----

      
                                                   <c>        <c>
      Employee benefit plans                                $ 583      $ 486
      Allowance for loan losses                               465        449
      Net unrealized gain/loss on securities available
       for sale                                               (65)      (680)
      Depreciation and amortization                           (60)       (87)
      Net deferred loan costs                                (159)       (90)
      Other, net                                                1         15
                                                            -----      -----

      Net deferred tax asset                                $ 765      $  93
                                                            =====      =====
</TABLE>

      A summary of the change in the net deferred tax asset is as follows:

<TABLE>
<CAPTION>

                                                        Years Ended September 30,
                                                        -------------------------
                                                             2004      2003
                                                             ----      ----

      
                                                    <c>       <c>
      Balance at beginning of year                           $  93     $  22
      Deferred tax provision (benefit)                          57       (20)
      Deferred tax effect on net unrealized (gain) loss
       on securities available for sale                        615        91
                                                             -----     -----

      Balance at end of year                                 $ 765     $  93
                                                             =====     =====
</TABLE>

      The federal income tax reserve for loan losses at the Bank's base year
      amounted to $2,423. If any portion of the reserve is used for purposes
      other than to absorb loan losses, approximately 150% of the amount
      actually used (limited to the amount of the reserve) would be subject
      to taxation in the fiscal year in which used. As the Bank intends to
      use the reserve to only absorb loan losses, a deferred income tax
      liability of $994 has not been provided.


<PAGE>  F-26


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

11.   STOCKHOLDERS' EQUITY

      Minimum Regulatory Capital Requirements

      The Company (on a consolidated basis) and the Bank are subject to
      various regulatory capital requirements administered by the federal
      banking agencies. Failure to meet minimum capital requirements can
      initiate certain mandatory, and possibly additional discretionary
      actions by regulators that, if undertaken, could have a direct
      material effect on the Company's and the Bank's consolidated financial
      statements. Under capital adequacy guidelines and the regulatory
      framework for prompt corrective action, the Company and the Bank must
      meet specific capital guidelines that involve quantitative measures of
      their assets, liabilities, and certain off-balance sheet items as
      calculated under regulatory accounting practices. The capital amounts
      and classification are also subject to qualitative judgments by the
      regulators about components, risk weightings, and other factors.
      Prompt corrective action provisions are not applicable to bank holding
      companies.

      Quantitative measures established by regulation to ensure capital
      adequacy require the Company and the Bank to maintain minimum amounts
      and ratios (set forth in the following table) of total and Tier 1
      capital (as defined) to risk-weighted assets (as defined) and of Tier
      1 capital (as defined) to average assets (as defined). Management
      believes, as of September 30, 2004 and 2003, that the Company and the
      Bank meet all capital adequacy requirements to which they are subject.

      The most recent notification from the Federal Deposit Insurance
      Corporation categorized the Bank as well capitalized under the
      regulatory framework for prompt corrective action. To be categorized
      as well capitalized the Bank must maintain minimum total risk-based,
      Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
      following table. There are no conditions or events since that
      notification that management believes have changed the Bank's
      category.


<PAGE>  F-27


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      STOCKHOLDERS' EQUITY (continued)

      Minimum Regulatory Capital Requirements (concluded)

      The Company's and the Bank's actual and minimum required capital
      amounts and ratios as of September 30, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>

                                                                                                Minimum
                                                                                               To Be Well
                                                                      Minimum              Capitalized Under
                                                                     For Capital           Prompt Corrective
                                               Actual             Adequacy Purposes        Action Provisions
                                         -----------------        -----------------        -----------------
                                         Amount      Ratio        Amount      Ratio        Amount      Ratio
                                         ------      -----        ------      -----        ------      -----

      
                               <c>          <c>        <c>           <c>        <c>          <c>
      September 30, 2004:
        Total capital (to risk
         weighted assets)
        Consolidated                    $ 29,496     20.97%     $ 11,253      8.00%           N/A        N/A
        Bank                              28,662     20.54        11,165      8.00       $ 13,957      10.00%

        Tier 1 capital (to risk
         weighted assets)
        Consolidated                      28,546     20.29         5,626      4.00            N/A         N/A
        Bank                              27,712     19.86         5,583      4.00          8,374        6.00

        Tier 1 capital (to average
         assets)
        Consolidated                      28,546     10.79        10,578      4.00            N/A         N/A
        Bank                              27,712     10.48        10,575      4.00         13,219        5.00

      September 30, 2003:
        Total capital (to risk
         weighted assets)
        Consolidated                    $ 28,291     20.68%     $ 10,944      8.00%           N/A         N/A
        Bank                              27,286     19.95        10,942      8.00        $13,677       10.00%

        Tier 1 capital (to risk
         weighted assets)
        Consolidated                      27,380     20.02         5,472      4.00            N/A         N/A
        Bank                              26,374     19.28         5,471      4.00          8,206        6.00

        Tier 1 capital (to average
         assets)
        Consolidated                      27,380     10.91        10,041      4.00            N/A         N/A
        Bank                              26,374     10.59         9,963      4.00         12,453        5.00
</TABLE>


<PAGE>  F-28


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      STOCKHOLDERS' EQUITY (concluded)

      Restrictions on Dividends, Loans and Advances

      Federal and state banking regulations place certain restrictions on
      dividends paid and loans or advances made by the Bank to the Company.
      The total amount of dividends which may be paid at any date is
      generally limited to the retained earnings of the Bank, and loans or
      advances are limited to 10% of the Bank's capital stock and surplus,
      as defined, (which for this purpose represents total capital as
      calculated under the risk-based capital guidelines) on a secured
      basis.

      At September 30, 2004 and 2003, the Bank's retained earnings available
      for the payment of dividends was $17,497 and $16,344, respectively.
      Accordingly, $11,165 and $10,942 of the Company's equity in the net
      assets of the Bank was restricted at September 30, 2004 and 2003,
      respectively. Funds available for loans or advances by the Bank to the
      Company amounted to $1,750 and $1,634 at September 30, 2004 and 2003,
      respectively.

      The Company and the Bank may not declare or pay dividends on, and the
      Company may not purchase any of its shares of, its common stock if the
      effect thereof would cause stockholders' equity to be reduced below
      applicable regulatory capital maintenance requirements or if such
      declaration, payment or repurchase would otherwise violate regulatory
      requirements.


<PAGE>  F-29


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

12.   EMPLOYEE BENEFIT PLANS

      Pension plan

      The Bank provides pension benefits for eligible employees through a
      defined benefit pension plan. Substantially all employees participate
      in the retirement plan on a non-contributing basis, and are fully
      vested after three years of service. Information pertaining to the
      activity in the plan is as follows:

<TABLE>
<CAPTION>

                                                         Plan Years Ended October 31,
                                                         ----------------------------
                                                               2004        2003
                                                               ----        ----
                                                            (Projected)

      
                                                     <c>         <c>
      Change in plan assets:
        Fair value of plan assets at beginning of year        $ 2,821     $ 2,305
        Actual gain on plan assets                                220         357
        Employer contribution                                      86         182
        Benefits paid                                            (467)        (23)
                                                              -------     -------
        Fair value of plan assets at end of year                2,660       2,821
                                                              -------     -------

      Change in benefit obligation:
        Benefit obligation at beginning of year                 3,159       2,882
        Service cost                                              194         203
        Interest cost                                             192         186
        Actuarial gain                                            341         (89)
        Benefits paid                                            (467)        (23)
                                                              -------     -------
        Benefit obligation at end of year                       3,419       3,159
                                                              -------     -------

      Funded status                                              (759)       (338)
      Unrecognized net actuarial (gain) loss                      215        (139)
      Transition liability                                         22          24
                                                              -------     -------

      Accrued pension cost                                    $  (522)    $  (453)
                                                              =======     =======

      Accumulated benefit obligation                          $ 2,149     $ 2,230
                                                              =======     =======
</TABLE>

      At October 31, 2004 and 2003, the assumptions used to determine the
      benefit obligation are as follows:

<TABLE>
<CAPTION>

                                           2004      2003
                                           ----      ----

      
                                  <c>       <c>
      Discount rate                        5.75%     6.25%
      Rate of compensation increase        4.50%     4.50%
</TABLE>


<PAGE>  F-30


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Pension plan (continued)

      The components of net periodic pension cost are as follows:

<TABLE>
<CAPTION>

                                          Plan Years Ended October 31,
                                          ----------------------------
                                                2004      2003
                                                ----      ----
                                            (Projected)

      
                                       <c>       <c>
      Service cost                              $ 194     $ 203
      Interest cost                               192       186
      Expected return on plan assets             (224)     (183)
      Transition obligation                         2         2
      Recognized net actuarial loss               (10)        1
                                                -----     -----

                                                $ 154     $ 209
                                                =====     =====
</TABLE>

      Total pension expense for the years ended September 30, 2004 and 2003
      amounted to $173 and $215, respectively.

      For the plan years ended October 31, 2004 and 2003, actuarial
      assumptions used in accounting were as follows:

<TABLE>
<CAPTION>

                                                           2004      2003
                                                           ----      ----
                                                       (Projected)

      
                                                  <c>       <c>
      Discount rate on benefit obligations                 6.25%     6.25%
      Expected long-term rate of return on plan assets     8.00      8.00
      Annual salary increases                              4.50      4.50
</TABLE>

      In general, the Company has selected their assumption with respect to
      the long term rate of return based on prevailing yields on high
      quality fixed income investments increased by a premium for equity
      return expectations.


<PAGE>  F-31


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Pension plan (concluded)

      The Bank's pension plan weighted average asset allocation at
      September 30, 2004 and 2003, are as follows:

<TABLE>
<CAPTION>

                                          Percentage
                                        of Plan Assets
                                       at September 30,
                                       ----------------
      Asset Category                   2004        2003
      --------------                   ----        ----

      
                             <c>         <c>
      Fixed income                     29.2%       29.9%
      Equity securities                70.8        70.1
                                      -----       -----

                                      100.0%      100.0%
                                      =====       =====
</TABLE>

      SBERA offers a common and collective trust as the underlying
      investment structure for pension plans. The target allocation mix for
      the common and collective trust portfolio calls for an equity-based
      investment range from 55% to 75% of total portfolio assets. The
      Trustees of SBERA, through the Investment Committee, select investment
      managers for the common and collective trust portfolio. A professional
      investment advisory firm is retained by the Investment Committee to
      provide allocation analysis, performance measurement and to assist
      with manager searches. The overall investment objective is to
      diversify equity investments across a spectrum of investment types
      (e.g., small cap, large cap, international, etc) and styles (e.g.,
      growth, value, etc.).

      The Bank expects to contribute $161 to its pension plan in fiscal
      2005.

      Estimated future benefit payments, which reflects expected future
      service, as appropriate, are as follows:

<TABLE>
<CAPTION>

      Years Ending
       October 31,                 Amount
      ------------                 ------

       
                         <c>
          2005                     $  121
          2006                         11
          2007                         11
          2008                         25
          2009                        444
       2010-2014                    2,847
</TABLE>


<PAGE>  F-32


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Incentive compensation plan

      Management and employees of the Bank participate in an annual
      incentive compensation plan which is based on a percentage of the
      Bank's annual net profits (as defined) and other factors and
      objectives set forth and administered by the Bank's Executive
      Committee. Incentive compensation expense for the year ended
      September 30, 2004 amounted to $70. There was no incentive
      compensation expense for the year ended September 30, 2003.

      401(k) Plan

      The Bank has a 401(k) Plan whereby each employee reaching the age of
      21 and having completed at least three months of service, beginning
      with date of employment, automatically becomes a participant in the
      Plan. Employees may contribute up to 75% of their compensation subject
      to certain limits based on federal tax laws. Beginning in January of
      2003, the Bank began matching 50% of the first 6% of an employee's
      compensation contributed to the Plan. Prior to this the Bank made
      matching contributions equal to 25% of the first 4% of an employee's
      compensation contributed to the Plan. All participants are fully
      vested. For the years ended September 30, 2004 and 2003, expense
      attributable to the Plan amounted to $48 and $36, respectively.

      Supplemental retirement plans

      The Bank provides supplemental retirement benefits to certain
      executive officers and Directors. In connection with the supplemental
      retirement plans, the Bank has purchased life insurance contracts as a
      funding source. At September 30, 2004 and 2003, the Bank has accrued
      $911 and $703, respectively, relating to these plans. For the years
      ended September 30, 2004 and 2003, expenses attributable to the plans
      amounted to $208 and $187, respectively.

      Deferred compensation plan

      The Company has adopted an Officers' Deferred Compensation Plan
      whereby qualified officers may elect to defer all or a portion of
      their salary. The Company pays monthly interest on amounts deferred at
      an interest rate that is determined annually.


<PAGE>  F-33


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Employees' stock ownership plan

      The Company established an Employees Stock Ownership Plan (the "ESOP")
      for the benefit of each eligible employee that has reached the age of
      21 and has completed at least 1,000 hours of service in the previous
      twelve-month period. In addition, the Company provided a loan to the
      ESOP which was used to purchase 8%, or 44,200 shares, of the shares
      sold to the public in the Company's stock offering. The loan bears
      interest equal to 8% and provides for annual payments of principal and
      interest for 15 years.

      At September 30, 2004, the remaining principal balance is payable as
      follows:

<TABLE>
<CAPTION>

      Years Ending
      September 30,               Amount
      -------------               ------

      
                         <c>
         2005                     $  22
         2006                        24
         2007                        26
         2008                        28
         2009                        30
      Thereafter                    235
                                  -----

                                  $ 365
                                  =====
</TABLE>

      The Bank has committed to make contributions to the ESOP sufficient to
      support the debt service of the loan. The loan is secured by the
      shares purchased by the ESOP which are held in a suspense account for
      allocation among the members as the loans are paid. Total compensation
      expense applicable to the ESOP amounted to $96 and $77 for the years
      ended September 30, 2004 and 2003, respectively.

      Shares held by the ESOP include the following:

<TABLE>
<CAPTION>

                                         September 30,
                                       -----------------
                                        2004       2003

      
                              <c>        <c>
      Allocated                        11,788      8,841
      Committed to be released          2,210      2,210
      Unallocated                      30,202     33,149
                                       ------     ------

                                       44,200     44,200
                                       ======     ======
</TABLE>


<PAGE>  F-34


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Employees' stock ownership plan (concluded)

      Cash dividends received on allocated shares are allocated to members
      and cash dividends received on shares held in suspense are applied to
      repay the outstanding debt of the ESOP.

      The fair market value of unallocated shares at September 30, 2004 and
      2003 was $911 and $994, respectively.

      Stock option plan

      A summary of the status of the Company's stock option plan for the
      years ended September 30, 2004 and 2003 is presented below:

<TABLE>
<CAPTION>

                                                    2004                    2003
                                             -------------------     -------------------
                                                        Weighted                Weighted
                                                        Average                 Average
                                                        Exercise                Exercise
                                             Shares      Price       Shares      Price
                                             ------     --------     ------     --------

      
                                   <c>         <c>         <c>         <c>
      Fixed Options:
        Outstanding at beginning of year     37,300     $ 11.53      41,900     $ 10.31
        Granted                                   -                   3,500       23.25
        Forfeited                                 -                  (3,500)      10.31
        Exercised                            (3,400)      12.98      (4,600)      10.31
                                            -------                 -------

        Outstanding at end of year           33,900     $ 11.38      37,300     $ 11.53
                                            =======                 =======

      Options exercisable at year-end        17,260     $ 10.31      11,840     $ 10.31
      Weighted-average fair value of
       options granted during the year      $     -                 $  6.18
</TABLE>

      The fair value of each option grant is estimated on the date of grant
      using the Black-Scholes option-pricing model. The weighted-average
      assumptions used for grants during the year ended September 30, 2003
      were dividend yield of .86%, expected life of 5 years, expected
      volatility of 26.7% and a risk-free interest rate of 3.1%.


<PAGE>  F-35


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (concluded)

      Stock option plan (concluded)

      Information pertaining to stock options outstanding at September 30,
      2004 is as follows:

<TABLE>
<CAPTION>

                                              Options Outstanding            Options Exercisable
                                    ------------------------------------    ----------------------
                                                  Weighted
                                                   Average      Weighted                  Weighted
                                                  Remaining     Average                   Average
                                      Number     Contractual    Exercise      Number      Exercise
            Exercise Price          Outstanding     Life         Price      Exercisable    Price
            --------------          -----------  -----------    --------    -----------   --------

      
                              <c>        <c>           <c>            <c>        <c>
               $10.31                  31,100     6.0 years     $ 10.31        17,260     $ 10.31
                23.25                   2,800     7.0             23.25             -           -
                                       ------                                  ------

      Outstanding at end of year       33,900     6.1 years                    17,260
                                       ======                                  ======
</TABLE>

       Recognition and retention plan

      On January 25, 2001, the Company's stockholders approved the Company's
      adoption of the Westborough Financial Services, Inc. 2001 Recognition
      and Retention Plan (the "RRP"), which allows the Company to grant
      restricted stock awards ("Awards") to certain officers, employees and
      outside directors. The RRP is authorized to acquire no more than
      22,139 shares of Common stock in the open market. Shares generally
      vest at a rate of 20% per year with the first vesting period ending
      April 30, 2002. During the year ended September 30, 2003, awards were
      granted with respect to 1,500 shares. There were no Awards granted
      during the year ended September 30, 2004. The aggregate purchase price
      of all shares acquired by the RRP has been reflected as a reduction of
      stockholders' equity and amortized to compensation expense as the
      Company's employees and directors become vested in their stock awards.
      Compensation expense relating to the RRP amounted to $79 and $77 for
      the years ended September 30, 2004 and 2003, respectively.
      Compensation expense is based on the fair value of common stock on the
      purchase date.

13.   COMMITMENTS AND CONTINGENCIES

      In the normal course of business, there are outstanding commitments
      and contingencies which are not reflected in the accompanying
      consolidated balance sheets.


<PAGE>  F-36


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      COMMITMENTS AND CONTINGENCIES (continued)

      Loan commitments

      The Bank is a party to financial instruments with off-balance sheet
      risk in the normal course of business to meet the financing needs of
      its customers. These financial instruments include commitments to
      extend credit, which involve elements of credit and interest rate risk
      in excess of the amount recognized in the accompanying consolidated
      balance sheets. The contract amount of these instruments reflects the
      extent of involvement the Bank has in these particular classes of
      financial instruments.

      The Bank's exposure to credit loss is represented by the contractual
      amount of the instruments. The Bank uses the same credit policies in
      making commitments as it does for on-balance sheet instruments.

      At September 30, 2004 and 2003, financial instruments whose contract
      amounts represent credit risk consist of:

<TABLE>
<CAPTION>

                                                         2004        2003
                                                         ----        ----

      
                                              <c>         <c>
      Commitments to grant mortgage loans              $ 6,204     $ 7,236
      Unadvanced funds on home equity and personal
       lines-of-credit                                  14,223      11,843
      Unadvanced funds on commercial loans and
       lines-of-credit                                   1,455       1,484
</TABLE>

      Commitments to extend credit are agreements to lend to a customer as
      long as there is no violation of any condition established in the
      contract. Unadvanced funds on lines-of-credit have fixed expiration
      dates and may expire without being drawn upon. Therefore, the total
      commitment amount does not necessarily represent future cash
      requirements. The Bank evaluates each customer's creditworthiness on a
      case-by-case basis. Except for commercial lines-of-credit, these
      financial instruments are secured by mortgage liens on real estate.


<PAGE>  F-37


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      COMMITMENTS AND CONTINGENCIES (concluded)

      Operating lease commitments

      Pursuant to the terms of noncancelable lease agreements in effect at
      September 30, 2004, pertaining to banking premises and equipment,
      future minimum rent commitments are as follows:

<TABLE>
<CAPTION>

      Years Ending
      September 30,          Amount
      -------------          ------

          
                 <c>
          2005                $ 5
          2006                  1
                              ---
                              $ 6
                              ===
</TABLE>

      The leases contain options to extend for periods from two to ten
      years. The cost of such rentals is not included above. Total rent
      expense for years ended September 30, 2004 and 2003 amounted to $58
      and $110, respectively.

      Employment and change in control agreements

      The Company and the Bank have entered into employment agreements with
      its President and Chief Financial Officer which generally provide for
      a base salary and the continuation of certain benefits currently
      received. The employment agreements require payments for the remaining
      base salary due to the employee for the remaining term of the
      agreement and the contributions that would have been made on the
      employee's behalf to any employee benefit plans of the Company and the
      Bank for certain reasons other than cause, including a "change in
      control" as defined in the agreement. However, such employment may be
      terminated for cause, as defined, without incurring any continuing
      obligations.

      Contingencies

      Various legal claims may arise from time to time and, in the opinion
      of management, these claims will have no material effect on the
      Company's consolidated financial statements.


<PAGE>  F-38


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

14.   RELATED PARTY TRANSACTIONS

      In the ordinary course of business, the Bank has granted loans to its
      Directors. At September 30, 2004 and 2003, the amount of such loans,
      which exceeded $60 in the aggregate to each related party, was
      approximately $1,732 and $1,540, respectively. Such loans are made in
      the ordinary course of business at the Bank's normal credit terms,
      including interest rate and collateral requirements, and do not
      represent more than a normal risk of collection. During the years
      ended September 30, 2004 and 2003, total principal additions were $272
      and $941, respectively, and total principal payments were $80 and $7,
      respectively.

15.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
      requires disclosure of estimated fair values of all financial
      instruments where it is practicable to estimate such values. In cases
      where quoted market prices are not available, fair values are based on
      estimates using present value or other valuation techniques. Those
      techniques are significantly affected by the assumptions used,
      including the discount rate and estimates of future cash flows.
      Accordingly, the derived fair value estimates cannot be substantiated
      by comparison to independent markets and, in many cases, could not be
      realized in immediate settlement of the instrument. SFAS No. 107
      excludes certain financial instruments and all nonfinancial
      instruments from its disclosure requirements. Accordingly, the
      aggregate fair value amounts presented do not represent the underlying
      value of the Company.

      The following methods and assumptions were used by the Company in
      estimating fair value disclosures for financial instruments:

            Cash and cash equivalents: The carrying amounts of cash and due
            from banks, federal funds sold and short-term investments
            approximate fair value.

            Securities available for sale: Fair values for securities
            available for sale are based on quoted market prices, where
            available. If quoted market prices are not available, fair
            values are based on quoted market prices of comparable
            instruments.

            Federal Home Loan Bank Stock: The carrying amount approximates
            fair value based on the redemption provisions of the Federal
            Home Loan Bank.


<PAGE>  F-39


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)

            Loans: For variable-rate loans that reprice frequently and with
            no significant change in credit risk, fair values are based on
            carrying values. Fair values for other types of loans are
            estimated using discounted cash flow analyses, using interest
            rates currently being offered for loans with similar terms to
            borrowers of similar credit quality. Fair values for non-
            performing loans are estimated using discounted cash flow
            analyses or underlying collateral values, where applicable.

            Deposits: The fair values for non-certificate accounts are, by
            definition, equal to the amount payable on demand at the
            reporting date (i.e., their carrying amounts). Fair values for
            certificate accounts are estimated using a discounted cash flow
            calculation that applies interest rates currently being offered
            on certificates to a schedule of aggregated expected monthly
            maturities on time deposits.

            Short-term borrowings and long-term borrowings: The fair value
            is based upon the Company's current incremental borrowing rate
            for a similar advance.

            Accrued interest: The carrying amounts of accrued interest
            approximate fair value.

            Off-balance sheet instruments: Fair values for off-balance sheet
            lending com-mitments are based on fees currently charged to
            enter into similar agreements, taking into account the remaining
            terms of the agreements and the counterparties' credit standing.
            The estimated fair value of off-balance sheet financial
            instruments at September 30, 2004 and 2003, was immaterial.

      The carrying amounts and related estimated fair values of the
      Company's financial instruments are as follows:

<TABLE>
<CAPTION>

                                                       September 30,
                                      -----------------------------------------------
                                              2004                      2003
                                      ---------------------     ---------------------
                                      Carrying       Fair       Carrying       Fair
                                       Amount        Value       Amount        Value
                                      --------       -----      --------       -----


                                   <c>          <c>          <c>          <c>
Financial assets:
    Cash and cash equivalents         $  9,171     $  9,171     $ 11,901     $ 11,901
    Securities available for sale       72,959       72,959       87,590       87,590
    Federal Home Loan Bank stock         2,042        2,042        1,250        1,250
    Loans, net                         165,288      170,037      141,557      144,947
    Accrued interest receivable          1,050        1,050        1,179        1,179

Financial liabilities:
    Deposits                           211,710      211,657      215,898      216,258
    Short-term borrowings                3,500        3,499            -            -
    Long-term borrowings                18,000       18,157        9,500       10,076
</TABLE>


<PAGE>  F-40


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

16.   CONDENSED FINANCIAL STATEMENTS OF WESTBOROUGH FINANCIAL SERVICES, INC.

<TABLE>
<CAPTION>

                                                   September 30,
                                               ---------------------
BALANCE SHEETS                                   2004         2003
--------------                                   ----         ----


                                            <c>          <c>
Assets
------

Cash and due from bank                         $  1,109     $    234
Short-term investments                              301          240
                                               --------     --------
      Total cash and cash equivalents             1,410          474
Investment in subsidiary                         26,868       27,666
Loan receivable - ESOP                              365          386
Other assets                                         62          192
                                               --------     --------

      Total assets                             $ 28,705     $ 28,718
                                               ========     ========

Liabilities and Stockholders' Equity
------------------------------------

Stockholders' equity                           $ 28,705     $ 28,718
                                               --------     --------

      Total liabilities and
       stockholders' equity                    $ 28,705     $ 28,718
                                               ========     ========
</TABLE>

<TABLE>
<CAPTION>

                                                    Years Ended
                                                   September 30,
                                               ---------------------
STATEMENTS OF INCOME                             2004         2003
--------------------                             ----         ----


                                            <c>          <c>
Income:
  Interest on short-term investments           $      4     $      2
  Interest on loan - ESOP                            37           24
                                               --------     --------
      Total income                                   41           26
                                               --------     --------
Operating expenses                                  130          116
Loss before income taxes and equity in
 undistributed net income of subsidiary             (89)         (90)
Income tax benefit                                  (30)         (17)
                                               --------     --------
Loss before undistributed net income
 of subsidiary                                      (59)         (73)
Equity in undistributed net income of
 subsidiary                                       1,250        1,039
                                               --------     --------

      Net income                               $  1,191     $    966
                                               ========     ========
</TABLE>


<PAGE>  F-41


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      CONDENSED FINANCIAL STATEMENTS OF WESTBOROUGH FINANCIAL SERVICES, INC.
      (concluded)

<TABLE>
<CAPTION>

                                                                   Years Ended
                                                                  September 30,
                                                              -------------------
STATEMENTS OF CASH FLOWS                                        2004        2003
------------------------                                        ----        ----


                                                           <c>         <c>
Cash flows from operating activities:
  Net income                                                  $ 1,191     $   966
  Adjustments to reconcile net income to net
   cash provided (used) by operating activities:
    Decrease in other assets                                      130          66
    Equity in undistributed earnings of subsidiary             (1,250)     (1,039)
                                                              -------     -------
      Net cash provided (used) by operating activities             71          (7)
                                                              -------     -------

Cash flows from investing activities:
  Principal paydowns received on ESOP loan                         21          18
                                                              -------     -------
      Net cash provided by investing activities                    21          18
                                                              -------     -------

Cash flows from financing activities:
  Intercompany cash transfer                                    1,162           -
  Dividends paid                                                 (318)       (317)
                                                              -------     -------
      Net cash provided (used) by financing activities            844        (317)
                                                              -------     -------

Net change in cash and cash equivalents                           936        (306)

Cash and cash equivalents at beginning of year                    474         780
                                                              -------     -------

Cash and cash equivalents at end of year                      $ 1,410     $   474
                                                              =======     =======
</TABLE>


<PAGE>  F-42


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

                (Dollars in thousands, except per share data)

17.   QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>

                                                                    Years Ended September 30,
                                       ------------------------------------------------------------------------------------
                                                         2004                                        2003
                                       ----------------------------------------    ----------------------------------------
                                       Fourth      Third     Second      First     Fourth      Third     Second      First
                                       Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                       -------    -------    -------    -------    -------    -------    -------    -------


                                    <c>        <c>        <c>        <c>        <c>        <c>        <c>        <c>
Interest and dividend income           $ 2,938    $ 2,838    $ 2,749    $ 2,969    $ 2,849    $ 2,877    $ 3,059    $ 3,298
Interest expense                           769        734        700        759        822        913      1,004      1,142
                                       -------    -------    -------    -------    -------    -------    -------    -------

Net interest income                      2,169      2,104      2,049      2,210      2,027      1,964      2,055      2,156
Provision for loan losses                    -         30         10         30          -          -          -          -
                                       -------    -------    -------    -------    -------    -------    -------    -------

Net interest income, after
 provision for loan losses               2,169      2,074      2,039      2,180      2,027      1,964      2,055      2,156

Gain (loss) on securities, net              69         31         60         (1)        (8)       132         (7)         4
All other income                           241        202        329        234        179        239        162        207
Operating expenses                       2,002      2,014      1,997      1,897      1,721      2,008      1,913      1,971
                                       -------    -------    -------    -------    -------    -------    -------    -------

Income before income taxes                 477        293        431        516        477        327        297        396

Provision for income taxes                 144         83        132        167        195        100        118        118
                                       -------    -------    -------    -------    -------    -------    -------    -------

Net income                             $   333    $   210    $   299    $   349    $   282    $   227    $   179    $   278
                                       =======    =======    =======    =======    =======    =======    =======    =======

Earnings per common share:
  Basic                                $  0.21    $  0.14    $  0.19    $  0.23    $  0.18    $  0.15    $  0.12    $  0.18
                                       =======    =======    =======    =======    =======    =======    =======    =======
  Diluted                              $  0.21    $  0.13    $  0.19    $  0.23    $  0.17    $  0.15    $  0.12    $  0.18
                                       =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>


<PAGE>  F-43


                    Westborough Financial Services, Inc.
                          Stockholders Information

Common Stock Information

On September 30, 2004 there were 1,589,574 shares of common stock issued
and outstanding and approximately 688 stockholders, not including persons
or entities holding stock in nominee or street name through brokers or
banks.  The Company's stock is not actively traded, although the stock is
quoted on the OTC Electronic Bulletin Board under the symbol "WFSM.OB".

Annual Meeting

The annual meeting of shareholders will be held on Thursday, January 27,
2005 at 3:00 p.m., local time.  The meeting will take place at Wyndham
Westborough Hotel located at 5400 Computer Drive, Westborough, MA, 01581.
10-KSB Report

A copy of the form 10-KSB as filed with the Securities and Exchange
Commission will be furnished without charge to stockholders upon written
request.  Please write to:

                          John L. Casagrande, Clerk
                    Westborough Financial Services, Inc.
                            100 East Main Street
                            Westborough, MA 01581

                               Transfer Agent
                       Registrar and Transfer Company
                              10 Commerce Drive
                             Cranford, NJ  07016
                           Shareholder Inquiries:
                               (800) 368-5948

                                   Counsel
                        Thacher Proffitt & Wood, LLP
                        1700 Pennsylvania Avenue, NW
                                  Suite 800
                            Washington, DC  20006
                               (202) 347-8400

                            Independent Auditors
                            Wolf & Company, P.C.
                               99 High Street
                              Boston, MA 02110
                               (617) 439-9700

                             Investor Relations
                             John L. Casagrande
                     Senior Vice President and Treasurer
                    Westborough Financial Services, Inc.
                            100 East Main Street
                           Westborough, MA 01581
                               (508) 366-4111

The table below reflects the stock price and dividend payment by quarter of
the Company's stock for fiscal year ended September 30, 2004.   The
information set forth below was provided to management of the Company by
certain securities firms effecting transactions in the Company's stock on
an agency basis.  The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.

Stock Price and Dividends by Quarter:

<TABLE>
<CAPTION>

                    High Price     Low Price   Average Price   Dividends per share

  
                 <c>           <c>            <c>               <c>
  First Quarter       $34.50        $30.00         $32.93            $0.05
  Second Quarter      $38.00        $33.10         $36.30            $0.05
  Third Quarter       $37.75        $29.00         $32.90            $0.05
  Fourth Quarter      $31.45        $28.35         $29.19            $0.05
</TABLE>

Dividend payment decisions are made with consideration of a variety of
factors, including earnings, financial condition, market considerations and
regulatory restrictions.


<PAGE>


[LOGO}      As you so proudly know, the Westborough Bank has contributed
            much to our communities during its 135-year history; however,
            no single contribution is greater than the impact of the
            Westborough Savings Charitable Foundation, Inc., an
            organization overseen by fellow corporator-volunteers.  The
            current directors of the Foundation are:  Charlotte Spinney,
            James Tashjian, Jim Harvey, Phyllis Stone, Marcia Roman, John
            Lebeaux, Larry Ware, Walter Kinell, Jr., Michael Allard, John
            Casagrande and Joseph MacDonough.

Since its inception in 1997, the Foundation has donated and pledged more
than $200,000 to local charities that make our communities better places to
live.  The Foundation pays no salaries and has minimal overhead costs
therefore, as the Foundation's Income Statement shows nearly 97% of the
money received by the Foundation has been distributed back to local
charities.

To date, Westborough Bank has been the primary source of the funds received
by the Foundation.  The bank will, of course, continue to contribute to the
Foundation.  However, for the first time in our Foundation's seven-year
history, we are asking that you consider making an unrestricted gift of
cash or securities to the Foundation when you are deciding your charitable
giving and estate planning for 2005 and future years.  By donating, you
would be assisting the Foundation in its ongoing efforts to support local
charities and, since the Foundation is a not for profit IRS 501(c)(3)
entity, your contributions may be tax deductible.*  This new logo for the
Westborough Savings Charitable Foundation was unveiled at our Annual
Meeting in January, 2004.

Below you will find a list of some of the organizations that have received
donations:

Abby's House * American Red Cross of Central Mass. * Bay Path Community
Services * Charlotte Spinney Vision Scholarship * Family Services of
Central Mass. * Friends of the Westborough State Hospital * Greater
Worcester Habitat for Humanity * Hillside School * Hopkinton Educational
Foundation, Inc. * Knox Trail Council - Boy Scouts * Montachusett Girl
Scout Council, Inc. * Northborough Educational Foundation * Shrewsbury
Community Services * Shrewsbury Educational Foundation * Shrewsbury Housing
Authority * Time Travelers * Trinity Free Medical Program * UMASS Cancer
Center Foundation, Inc. * United Way of Central Mass. * United Way of Tri-
County * Westborough Community Chorus/Players Club * Westborough
Educational Foundation * Worcester Common Ground * Worcester County Food
Bank * YMCA Boroughs Branch * YMCA of Greater Worcester * YWCA of Central
Mass.

[PHOTO]
Pictured from left: Mike Allard, Westborough Bank Vice President of
Marketing and board member of the Westborough Savings Charitable
Foundation; Marilyn E. Plue, Chair, Board of Directors for Family Services
of Central Mass.; Gary W. Thomas, Executive Director of Family Services of
Central Mass.


<PAGE>


             Westborough Financial Services, Inc. and Subsidiary
               Selected Consolidated Financial and Other Data

<TABLE>
<CAPTION>

                                                        at September 30,
Consolidated Balance Sheet Data ($ in thousands)       2004         2003


                                                  <c>          <c>
Total assets                                         $264,010     $256,122
Loans, net                                            165,288      141,557
Investment securities                                  75,001       88,840
Total deposits                                        211,710      215,898
Federal Home Loan Bank advances                        21,500        9,500
Stockholders' equity                                   28,705       28,718
Allowance for loan losses                                 950          911
Non-accrual loans                                         121          634
Non-performing assets                                     121          634
</TABLE>

<TABLE>
<CAPTION>

                                                                        Years Ended
Consolidated Statement of Income                                       September 30,
($ in thousands, except per share data)                             2004          2003


                                                             <c>           <c>
Total interest and dividend income                                $11,494       $12,083
Total interest expense                                              2,962         3,881
                                                                    -----         -----
Net interest income                                                 8,532         8,202
Provision for loan losses                                              70             0
                                                                       --             -
Net interest income, after provision for loan losses                8,462         8,202
                                                                    -----         -----
Customer service fees                                                 661           563
Gain on sales and calls of securities available for sale, net         159           121
Gain on sales of mortgages, net                                       100            33
Miscellaneous                                                         245           191
                                                                      ---           ---
Total other income                                                  1,165           908
                                                                    -----           ---
Total operating expenses                                            7,910         7,613
                                                                    -----         -----
Income before provision for income taxes                            1,717         1,497
Provision for income taxes                                            526           531
                                                                      ---           ---
Net income                                                         $1,191          $966
                                                                   ======          ====

Basic number of weighted average shares outstanding             1,541,927     1,530,003
Dilutive number of weighted average shares outstanding          1,563,727     1,548,849
Basic earnings per share                                            $0.77         $0.63
Dilutive earnings per share                                         $0.76         $0.62
Dividends declared per share                                        $0.20         $0.20
</TABLE>


<PAGE>


<TABLE>
<CAPTION>

                                                               Years Ended
                                                            2004         2003


                                                       <c>          <c>
Performance Ratios:
Return on average assets                                    0.46%        0.38%
Return on average stockholders' equity                      4.14%        3.39%
Dividend payout ratio (1)                                  26.23%       32.07%
Average stockholders' equity to average assets             11.10%       11.36%
Net interest rate spread (2)                                3.32%        3.24%
Net interest margin (3)                                     3.53%        3.52%
Operating expenses as a percent of average assets           3.05%        3.03%
Average interest-earning assets to average
 interest-bearing liabilities                             117.19%      116.40%
Efficiency ratio (4)                                       83.81%       85.00%

<FN>
<F1>  Dividend payout ratio represents dividends declared per share
divided by dilutive earnings per share.
<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
</FN>
</TABLE>

<TABLE>
<CAPTION>

                                                                 at September 30,
                                                               2004           2003

                                                        <c>            <c>
Asset Quality Ratios:
Non-performing loans as a percent of loans                      0.07%          0.45%
Non-performing assets as a percent of total assets              0.05%          0.25%
Allowance for loan losses as a percent of total loans           0.57%          0.64%

Capital Ratio and other data:
Equity to assets at end of period                              10.87%         11.21%
Number of shares outstanding at end of period              1,589,574      1,586,174

Number of:
Full-service offices (1)                                           4              5
Full-time equivalent employees                                    68             74

<FN>
<F1>  The number of full service offices does not include our branch at the
Willows.  Shaw's Supermarket branch closed in 2004.
</FN>
</TABLE>

<PAGE>


                                   Vision

                 Westborough Bank will be a value leader in
              providing financial services to individuals and
                    businesses in central Massachusetts.

                              Mission Statement

Westborough Bank will:

  Build Relationships
Westborough Bank is committed to building strong, long-term relationships
with our customers.

  Provide Solutions
We will offer a broad range of financial products and services that are
responsive to the needs of our customers - today and tomorrow.

  Deliver Outstanding Service
We will treat our customers as we would want to be treated ourselves, with
respect, courtesy, and friendliness.  We will earn their trust and loyalty
by actively listening and responding to their needs.

   Support Our Communities
As an independent community bank, our goal is to create customer loyalty,
enhance shareholder value, promote employee satisfaction and to actively
support the communities we serve.


[LOGO]

westboroughbank.com                           Full Service. Full Attention.

Member FDIC                    Member DIF              Equal Housing Lender


<PAGE>