UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, DC 20549
                                 Form 10-KSB

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

      For the fiscal year ended September 30, 2004

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

      For the transition period from _______________ to _______________.

                        Commission file No. 000-27997

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

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

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

                               (508) 366-4111
              (Issuer's telephone number, including area code)

       Securities registered under Section 12(b) of the Exchange Act:

                                    None.

       Securities registered under Section 12(g) of the Exchange Act:

                   Common Stock, par value $0.01 per share

                              (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]      No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.      [X]

The issuer's revenues for the fiscal year ended September 30, 2004 were
$12,605,000.


<PAGE>


The aggregate market value of the common equity held by non-affiliates of
the registrant, computed by reference to the average bid and asked prices of
the common stock as of December 6, 2004 was $14,015,503.

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of December 6, 2004,
the registrant had 1,591,174 shares of common stock, par value $0.01 per
share, outstanding.

                    Documents incorporated by reference.

Portions of the registrant's annual report to shareholders for the fiscal
year ended September 30, 2004, attached hereto as Exhibit 13.1,  are
incorporated by reference in Part II of this Form 10-KSB.

Portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on January 27, 2005, and to be filed pursuant to
Regulation 14A within 120 days after registrant's fiscal year ended
September 30, 2004, are incorporated by reference in Part III of this Form
10-KSB.

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


<PAGE>


                              TABLE OF CONTENTS

                                                                       Page
                                                                       ----

FORWARD LOOKING STATEMENTS                                              (i)

PART I                                                                   1
  ITEM 1.   DESCRIPTION OF BUSINESS                                      1
  ITEM 2.   DESCRIPTION OF PROPERTY                                     40
  ITEM 3.   LEGAL PROCEEDINGS                                           41
  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         41

PART II                                                                 41
  ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS    41
  ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION   41
  ITEM 7.   FINANCIAL STATEMENTS                                        41
  ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE                         42
  ITEM 8A.  CONTROLS AND PROCEDURES                                     42
  ITEM 8B.  OTHER INFORMATION                                           42

PART III                                                                42
  ITEM 9.   DIRECTORS AND PRINCIPAL OFFICERS                            42
  ITEM 10.  EXECUTIVE COMPENSATION                                      42
  ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT                                              42
  ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS              43
  ITEM 13.  EXHIBITS                                                    43
  ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                      45
  SIGNATURES                                                            46
  CERTIFICATIONS                                                        49


<PAGE>


FORWARD LOOKING STATEMENTS

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

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

      *     conditions which effect general and local economies;

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

      *     changes in accounting principles, policies or guidelines;

      *     changes in legislation or regulation; and

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

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


<PAGE>


PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General

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

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

      Unless otherwise indicated, the information presented in this Annual
Report on Form 10-KSB represents the consolidated activity of the Company
and its subsidiary for the year ended September 30, 2004.

      At September 30, 2004, total assets were $264.0 million, deposits were
$211.7 million and total stockholders' equity was  $28.7 million.

Market Area

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

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

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


<PAGE>  1


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

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

Business Strategy

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

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

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

      *     expand its branch network to increase its market share;

      *     increase the use of alternative delivery channels, such as
            internet and telephone banking; and

      *     offer a variety of non-deposit investment products (such as
            mutual funds, insurance, etc.,) and services as a means to
            compete for an increased share of its customers' financial
            service business.

      In order to create a platform for the accomplishment of the Company's
goals, management has made significant investments in its physical
infrastructure and human and technological resources.  In particular, the
Bank has completed an addition to its main office and renovated the older
portion of its main office.  Additionally, in 2003, the Bank completed
constructing a 3,400 square foot office at 23 Maple Avenue, Shrewsbury.  The
previous, 900 square foot 19 Maple Avenue branch was closed and customers
are now utilizing the new, expanded facility.  In Spring 2004, the Shaw's
Supermarket branch office in Shrewsbury closed and customers were encouraged
to utilize the new, expanded,  Shrewsbury branch facility.  The Bank
continues to upgrade and expand its internet-based service delivery systems
with the addition of an enhanced internet bill payment product and an
improved web page.  Such investments have been, and in the future, will be,
necessary to ensure that adequate resources are in place to offer increased
products and services.  Management believes that its long-term profitability
should improve as it realizes the benefits of diversified product lines,
delivery systems and market share growth.


<PAGE>  2


Lending Activities

      General.  The Bank originates loans through all of its offices.  The
principal lending activities of the Bank are the origination and purchase of
first mortgage loans for the purpose of purchasing or refinancing owner-
occupied, one- to four-family residential properties.  To a lesser extent,
the Bank also originates commercial real estate loans, commercial and
industrial (C&I) loans and consumer loans.

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

<TABLE>
<CAPTION>

                                                                         At September 30,
                                 -------------------------------------------------------------------------------------------------
                                       2004                2003                2002                2001                2000
                                 -----------------   -----------------   -----------------   -----------------   -----------------
                                          Percent             Percent             Percent             Percent             Percent
                                 Amount   of Total   Amount   of Total   Amount   of Total   Amount   of Total   Amount   of Total
                                 ------   --------   ------   --------   ------   --------   ------   --------   ------   --------
                                                                      (Dollars in thousands)


                             <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>
Real estate loans:
  Fixed rate mortgages          $ 64,310   38.51%   $ 65,170   44.84%   $ 47,599   35.01%   $ 53,431   39.42%   $ 47,964   41.68%
  Variable rate mortgages         64,788   38.81%     48,287   33.23%     54,096   39.78%     55,859   41.21%     52,233   45.38%
  Commercial                      23,313   13.96%     17,290   11.90%     20,092   14.78%     13,149    9.70%      6,309    5.48%
  Home equity lines-of-credit     11,295    6.77%     10,303    7.09%      8,792    6.47%      6,931    5.11%      4,027    3.50%
                                --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
      Total real estate loans    163,706   98.05%    141,050   97.06%    130,579   96.04%    129,370   95.44%    110,533   96.04%
                                --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
Consumer loans:
  Personal                           322    0.19%        564    0.39%        983    0.72%      1,196    0.88%        911    0.79%
  Deposit secured                    297    0.18%        358    0.24%        509    0.37%        652    0.48%        676    0.59%
  Home improvement                    85    0.05%         68    0.05%        171    0.13%        759    0.56%        118    0.10%
                                --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
      Total consumer loans           704    0.42%        990    0.68%      1,663    1.22%      2,607    1.92%      1,705    1.48%
                                --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
Commercial loans:
  Commercial lines-of-credit         965    0.58%      1,824    1.25%      2,549    1.87%      1,783    1.32%      1,403    1.22%
  Commercial installment           1,579    0.95%      1,461    1.01%      1,182    0.87%      1,795    1.32%      1,450    1.26%
                                --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
      Total commercial loans       2,544    1.53%      3,285    2.26%      3,731    2.74%      3,578    2.64%      2,853    2.48%
                                --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
Total loans                      166,954  100.00%    145,325  100.00%    135,973  100.00%    135,555  100.00%    115,091  100.00%
                                          ======              ======              ======              ======              ======
Adjusted by:
Due to borrowers on
 incomplete loans                 (1,507)             (3,550)             (2,866)               (480)               (543)
Net deferred loan costs              389                 223                 161                 136                 120
Net premium (discount) on
 purchased  loans and indirect
 lending                             402                 470                 538                 662                (235)
Allowance for loan loss             (950)               (911)               (926)               (916)               (874)
                                --------            --------            --------            --------            --------
Net loans                       $165,288            $141,557            $132,880            $134,957            $113,559
                                ========            ========            ========            ========            ========
</TABLE>


<PAGE>  3


      Residential Mortgage Loans.  The Bank's primary lending emphasis is
the origination of first mortgage loans secured by one- to four-family
properties that serve as the primary or secondary residence of the owner. As
of September 30, 2004, loans on one- to four-family residential properties
accounted for 77.3% of the Bank's total loan portfolio.

      Most of the Bank's loan originations are from internal mortgage
specialists, directors and officers, marketing promotions, referrals from
mortgage brokers (correspondents), existing or past customers, and members
of the Bank's local communities or referrals from local real estate agents,
attorneys and builders. The Bank believes that its branch network is a
significant source of new loan generation.  The Bank has two mortgage loan
originators, each of whom have designated call areas and each originator has
a lap-top computer for ease in taking loan applications.  They have
extensive training in residential and equity products and are available to
meet with customers at the office of a realtor or their homes. The Bank's
marketing department provides support in the form of displays, mailings and
other materials which are available to the loan specialists to leave in real
estate offices.

      The Bank currently offers loans that conform to underwriting standards
specified by Fannie Mae ("conforming loans") and also originates non-
conforming loans, as described below.  These loans may be fixed-rate one- to
four-family mortgage loans or adjustable-rate one- to four-family mortgage
loans with maturities of between 5 and 30 years.  The non-conforming loans
generally follow Fannie Mae guidelines except that the loan amount exceeds
Fannie Mae guidelines' maximum limit of $333,700.  The average size of the
Bank's first mortgage loans originated during the year ended September 30,
2004 and the year ended September 30, 2003 was $244,431 and $193,927,
respectively.  The average size of the Bank's first mortgage loans was
$156,435 and $137,064 at September 30, 2004 and September 30, 2003,
respectively. The Bank is an approved seller/servicer for Fannie Mae.  The
Bank generally sells 30-year, fixed rate one-to four-family loans in the
secondary market.  Loan sales were $5.6 million and $4.1 million for years
ended September 30, 2004 and September 30, 2003, respectively.  Such loans,
however, continue to be serviced by the Bank.

      The Bank's originations of first mortgage loans amounted to $49.9
million in fiscal year 2004, $53.7 million in fiscal year 2003 and $30.0
million in fiscal year 2002.  A significant number of the Bank's first
mortgage loan originations have been the result of refinancing of its
existing loans due to the relatively low interest rate levels over the past
three years.  During the latter part of 2004, the Bank entered into
correspondent contracts with a number of mortgage brokers and lenders who
present prospective customer loan applications to the Bank for
consideration.  Such loan applications are reviewed by the Bank, and
approval is subject to the loan meeting established underwriting conditions
and criteria.

      The Bank offers a variety of adjustable-rate mortgages ("ARM's") and
fixed-rate one- to four-family mortgage loans with maximum loan-to-value
ratios that depend on the type of property and the size of loan involved.
The loan-to-value ratio is the loan amount divided by the appraised value of
the property.  The loan-to-value ratio is a measure commonly used by
financial institutions to determine exposure to risk.  The majority of the
Bank's loans on owner-occupied one- to four-family homes are originated with
a loan-to-value ratio of 80% or less.  For first-time home buyers, the Bank
has made loans on owner-occupied one- to four-family homes with a loan-to-
value ratio of up to 95%.  The borrower is required to obtain mortgage
insurance if the loan-to-value ratio is over 80%.  Subsequently, if the
loan-to-value ratio falls to 80% or less, the borrower would not be required
to continue to have mortgage insurance.

      The Bank currently offers fixed-rate mortgage loans with terms of 15,
20, 25 and 30 years secured by one- to four-family residences.  Fixed rate
mortgage loans are priced to be competitive with the offerings of local area
banks, reflecting current market trends and conditions.

      The Bank currently offers a variety of ARM loans secured by one- to
four-family residential properties that initially adjust after one year,
three years, five years, seven years, or ten years.  After the initial
adjustment period, ARM loans adjust on an annual basis.  The ARM loans that
the Bank currently


<PAGE>  4


originates have a maximum 30 year amortization period and are subject to the
same loan-to-value ratios applicable to fixed-rate mortgage loans described
above.  The interest rates on ARM loans fluctuate based upon a fixed spread
above the average yield on United States treasury securities and generally
are subject to a maximum increase of 2% per adjustment period and a
limitation on the aggregate adjustment of 6% over the life of the loan.  The
Bank originated $33.4 million and $22.8 million of one-to-four family ARM
loans in the years ended September 30, 2004 and 2003, respectively.  At
September 30, 2004,  38.8% of the Bank's total loans consisted of ARM loans,
up from 33.2% at September 30, 2003.

      The volume and types of ARM loans the Bank originates or purchases
have been affected by the level of market interest rates, competition,
consumer preferences and the availability of funds.  Although the Bank will
continue to offer ARM loans it cannot guarantee that it will be able to
originate or purchase a volume of ARM loans sufficient to maintain or
perhaps increase the proportion these loans represent when compared against
the aggregate residential loan portfolio.

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

      The Bank's home equity lines-of-credit, which totaled $11.3 million,
or 6.8% of total loans at September 30, 2004, are adjustable-rate loans
secured by a first or second mortgage on owner-occupied one- to four-family
residences located in the Bank's market area.  Interest rates on home equity
credit lines are based upon the "prime rate" as published in the "Money
Rates" section of the Wall Street Journal (the "index") with a minimum
monthly principal payment of one-half of 1% of the outstanding principal
balance of the loan.  The maximum credit line available is equal to (i) the
lesser of $250,000 or 80% of the Bank's appraisal of the property, or (ii)
50% of the tax assessment on the property. In each case, these amounts are
reduced by the first mortgage balance.  Such loans also have a maximum term
of 15 years.  The underwriting standards applicable to these loans generally
are the same as one- to four-family first mortgage loans, except that the
combined loan-to-value ratio, including the balance of the first mortgage,
cannot exceed 80% of the appraised value of the property.  After September
30, 2004, the Bank modified its home equity line-of-credit product for new
lines.  The home equity line product is now written for a term of 20 years,
with a 10 year draw period and a 10 year payback period, with no principal
payments required during the draw period.

      In conjunction with the Bank's residential mortgage lending the Bank
offers construction loans to the future occupants of single family homes.
These loans typically have a term of twelve months and are structured to
become permanent loans upon the completion of construction.  All such loans
are secured by first liens on the property and are subject to a maximum
loan-to-value ratio of 80%, which is based upon the "as completed" valuation
of the property.  During the construction period, the interest rate for
construction loans to individuals is equal to the index.  Loans involving
construction financing present a greater risk than loans for the purchase of
existing homes since collateral values and construction costs can only be
estimated at the time the loan is approved.

      Commercial Real Estate Loans.  At September 30, 2004, commercial real
estate mortgage loans totaled $23.3 million, or 14.0% of total loans.  These
loans are generally secured by office buildings, condominiums, retail
establishments and churches located within the Bank's market area.

      The Bank's commercial real estate loans are offered on a fixed- and
adjustable-rate basis.  Typical terms for fixed rate loans provide for a
maximum seven-year re-pricing term with a 20 year amortization and a market
interest rate, based upon the index, as adjusted to reflect inherent risk
factors.  Typical terms for adjustable-rate loans provide for a maximum note
and amortization term of 20 years, with a re-pricing schedule every 3 or 5
years. Price readjustments at each scheduled interval are based on a spread
above the newly established index.  Loans on commercial properties are also
subject to a maximum loan-to-value ratio of 80% for the acquisition of the
property and 75% for refinancing of the property.


<PAGE>  5


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

      Loans secured by commercial real estate properties are generally
larger and involve a greater degree of credit risk than one- to four-family
residential mortgage loans.  Such loans typically involve large balances to
single borrowers or groups of related borrowers.  Because payments on loans
secured by commercial real estate properties are often dependent on the
successful operation or management of the properties, repayment of such
loans may be subject to adverse conditions in the real estate market or the
economy.  If the cash flow from the project decreases, or if leases are not
obtained or renewed, the borrower's ability to repay the loan may be
impaired.

      The Bank's real estate loan portfolio also includes construction loans
to builders and developers of properties within the Bank's market area.
Construction loans to builders typically are in amounts equal to 70% of the
completed appraised value.  Construction loans generally have up to twelve
months with a fixed interest rate based upon the index plus a margin.  In
addition to securing the loan with the property under construction, the Bank
generally obtains personal guarantees from the borrower.  The proceeds of
such loans are disbursed only after certification by in-house personnel or
Bank retained inspection firms that confirm specified stages of construction
have been completed.

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

      Consumer Loans.  At September 30, 2004, $704 thousand, or  0.42 % of
the Bank's total loans, consisted of consumer loans such as personal,
deposit secured and fixed-rate home improvement loans.  Consumer loans
generally have shorter terms to maturity, which reduces the Bank's exposure
to changes in interest rates.  Consumer loans also carry higher rates of
interest than do one- to four-family residential mortgage loans.  In
addition, the Bank believes that offering consumer loan products helps to
expand and create stronger ties to the Bank's existing customer base by
increasing the number of customer relationships and providing cross-
marketing opportunities.

      The Bank's personal loans consist of unsecured loans to individuals
and secured loans for the purchase of new and used automobiles.  The Bank's
unsecured loans have a maximum term of 48 months. The terms of the Bank's
automobile loans generally are determined by the age and condition of the
vehicle. At September 30, 2004, the Bank's personal loans totaled $322
thousand , or 0.19% of total loans.

      The Bank also makes loans secured by deposit accounts up to 90% of the
amount of the depositor's savings account balance.  The rate for such loans
is 2.0% higher than the rate paid on regular savings accounts and 3.0%
higher than the rate paid on term deposits.  For loans secured by term
deposits, the maturity date for the loan is the lesser of 36 months, or the
maturity of the deposit instrument.  For loans secured by regular savings
deposit accounts, the term is the lesser of 36 months or the term desired by
the regular savings account customer.  Deposit secured loans totaled $297
thousand, or  0.18% of total loans at September 30, 2004.

      The Bank offers fixed-rate home improvement loans in amounts equal to
that available for home equity credit line loans as discussed above.  These
loans are secured by owner-occupied one- to four-family


<PAGE>  6


residences for terms of up to 10 years.  At September 30, 2004, these loans
totaled $85 thousand, or  0.05% of total loans.

      Commercial Loans.  The Bank has made a commitment to small business
lending by developing certain products and services for the small- and
medium-sized businesses located in the Bank's market area.  Such services
are designed to give business owners borrowing opportunities for, among
other things, modernization, inventory, equipment, consolidation and working
capital.  In addition, the Bank has tailored certain products and services,
such as its business checking accounts and treasury and tax loan service, to
better serve the needs of local businesses.  The Bank also is an approved
lender of the Small Business Administration.  At September 30, 2004, $2.5
million, or 1.53%, of the Bank's total loans consisted of commercial loans.
 The Bank expects that commercial loans will comprise a growing portion of
its total loan portfolio in the future.

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

      The Bank's commercial services are administered by the Bank's loan
department.  The Bank has two experienced commercial lending officers with
considerable commercial lending expertise, including many years of banking
experience in Massachusetts and in the Bank's market area.  Also, the Bank
added  an experienced commercial loan assistant, with in-depth knowledge of
the Bank's core processing system, and a senior credit analyst with
extensive national and international banking experience. The Bank also
intends to add additional qualified lending and support staff and enhanced
information systems as the size and complexity of the commercial portfolio
change.

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

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

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


<PAGE>  7


<TABLE>
<CAPTION>

                                                               For the Year Ended September 30,
                                                -------------------------------------------------------------
                                                   2004         2003         2002         2001         2000
                                                   ----         ----         ----         ----         ----
                                                                        (In thousands)


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

  Balance outstanding beginning of year         $ 141,557    $ 132,880    $ 134,957    $ 113,559    $  92,092
                                                ---------    ---------    ---------    ---------    ---------

Originations and Purchased Loans:
  Mortgage loans:
    Residential                                    49,850       53,729       30,003       20,892       17,194
    Commercial                                      8,890        1,164        8,866        7,023        4,453
    Home equity lines-of-credit                    10,032        9,488        8,658        7,326        2,611
                                                ---------    ---------    ---------    ---------    ---------
      Total mortgage originations                  68,772       64,381       47,527       35,241       24,258
  Commercial loans                                  7,552        2,728        1,704        5,085        2,705
  Consumer loans                                      656        1,453        2,123        1,956        3,382
                                                ---------    ---------    ---------    ---------    ---------
      Total originations                           76,980       68,562       51,354       42,282       30,345
                                                ---------    ---------    ---------    ---------    ---------

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

Less:
  Principal repayments, unadvanced
   funds and other, net                           (47,688)     (55,835)     (53,421)     (30,326)     (21,674)
  Sale of mortgage loans, principal balance        (5,522)      (4,065)           0            0            0
  Provision for loan losses                           (70)           0           (8)         (48)           0
  Net loan charge-off (recoveries)                     31           15           (2)           6            5
  Transfers to foreclosed real estate                   0            0            0            0            0
                                                ---------    ---------    ---------    ---------    ---------
      Total deductions                            (53,249)     (59,885)     (53,431)     (30,368)     (21,669)
                                                ---------    ---------    ---------    ---------    ---------
  Net loan activity                                23,731        8,677       (2,077)      21,398       21,467
                                                ---------    ---------    ---------    ---------    ---------
      Loans, net, end of year                   $ 165,288    $ 141,557    $ 132,880    $ 134,957    $ 113,559
                                                =========    =========    =========    =========    =========
</TABLE>


<PAGE>


      The following table presents, as of September 30, 2004, the dollar
amount of all loans due after September 30, 2005, and whether such loans
have fixed or adjustable interest rates.

<TABLE>
<CAPTION>

                                      Due After September 30, 2005
                                    --------------------------------
                                     Fixed      Adjustable    Total
                                     -----      ----------    -----
                                              (In Thousands)


                                 <c>         <c>         <c>
Mortgage loans                      $ 62,339    $ 58,532    $120,871
Commercial mortgages loans            13,984       4,999      18,983
Home equity loans                        496           -         496
Consumer loans                           310           -         310
Commercial loans                       1,436          46       1,482
                                    --------    --------    --------
                                    $ 78,565    $ 63,577    $142,142
                                    ========    ========    ========
</TABLE>


<PAGE>  9


      Loan Commitments.  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 for the origination of
one- to four-family residential real estate loans, commercial loans and
commercial real estate loans.  Unadvanced funds on home equity lines-of-
credit and commercial lines-of-credit at September 30, 2004 represented
$13.7 million and $1.0 million, respectively.

      Loan Solicitation.  Loan originations are derived from a number of
sources, including the Bank's existing customers, referrals, realtors,
mortgage companies, advertising and "walk-in" customers at the Bank's
offices.  The Bank also employs two full-time "on the road" loan originators
who are available to meet with customers at their convenience.  During the
latter part of 2004, the Bank entered into correspondent contracts with a
number of mortgage brokers and lenders who present prospective customer loan
applications to the Bank for consideration.  Such loan applications are
reviewed by the Bank, and approval is subject to the loan meeting
established underwriting conditions and criteria.

      Loan Approval and Administrative  Procedures.  On an annual basis the
Board of Directors approves the Bank's lending policies, procedures, loan
approval limits, and outside, independent firms (such as appraisers), that
may be retained during the underwriting process.  Depending on the type and
size of the requested loan, coupled with the borrower's aggregate loan
balances with the Bank, loans may be approved by individual loan officers,
the LC or the EC.  Residential mortgage loan requests for one-to four-family
homes in amounts up to $1,000,000 may be approved by the LC. One-to four-
family mortgage requests greater than $1,000,000 require approval by the EC.
 Commercial and Industrial Loan (Commercial Real Estate, Term loans, Lines-
of-credit, etc.) requests up to $1,000,000 may be approved by the LC.
Commercial and Industrial loan requests exceeding $1,000,000 require
approval of the EC.  The Bank requires that all prospective borrowers
complete a loan application and sign documentation authorizing the release
of financial information to the Bank such as Credit reports, Personal
Financial Statements, Individual/Corporate Tax Returns, Financial
Statements, etc.  Upon receipt of the information, the Bank will proceed
with the underwriting process.  If necessary, the Bank may require
additional financial or credit related information from the applicant. The
Bank requires an appraisal for commercial and residential mortgage loans,
except in some cases where existing mortgages are being refinanced.
Appraisals are performed by licensed or certified third-party appraisal
firms and are reviewed by the Bank's lending department.  The Bank requires
title insurance on all mortgage loans, except for home equity credit lines
and fixed-rate home improvement loans.  For those exceptions, the Bank
requires evidence of previous title insurance.  The Bank requires borrowers
to obtain hazard insurance and may require borrowers to obtain flood
insurance prior to closing.  For properties with a private sewage disposal
system, the Bank also requires evidence of compliance with applicable laws.
 Further, if requested by the Bank, some borrowers are required to deposit
funds on a monthly basis to an escrow account for the future payment of real
estate taxes, and premium payments for flood insurance and private mortgage
insurance.

      Interest rates charged by the Bank on all loans are primarily
determined by competitive loan rates offered in its market area and interest
rate costs of the source of funding for the loan. The Bank may charge an
origination fee on new mortgage loans.  The origination fees, net of direct
origination costs, are deferred and amortized into income over the life of
the loan. At September 30, 2004, the amount of net deferred loan origination
costs was $389 thousand.

      Loan Maturity and Re-pricing.  The following table sets forth certain
information as of September 30, 2004 regarding the dollar amount of loans
maturing in the Bank's portfolio based on their contractual terms to
maturity.  Demand loans having no stated schedule of repayments and no
stated maturity, and overdrafts are reported as due in one year or less.
Adjustable and floating rate loans are included in the period in which
interest rates are next scheduled to adjust rather than the period in which
they contractually mature, and fixed-rate loans are included in the period
in which the final contractual repayment is due.  This table does not
include prepayments on scheduled principal amortizations.


<PAGE>  10


<TABLE>
<CAPTION>

                                                                  At September 30, 2004
                                  ------------------------------------------------------------------------------
                                           Mortgage Loans (1)
                                  -----------------------------------     Home
                                               Variable    Commercial    Equity
                                  Fixed Rate     Rate      Mortgage     Lines-of   Consumer  Commercial    Total
                                   Mortgages   Mortgages     Loans      -Credit     Loans      Loans       Loans
                                  ----------   ---------   ----------   --------   --------  ----------    -----
                                                                      (In thousands)


                                <c>         <c>         <c>         <c>          <c>       <c>        <c>
Amounts due:
  Within one year                  $  1,971    $  6,256    $  4,330    $ 10,799     $ 394     $ 1,062    $  24,812
  One to three years                    141       4,618       7,653           0       204         232       12,848
  Over three to five years              763       7,917       4,825           0        77         637       14,219
  Over five to ten years              8,669      42,450       5,103         496         0         560       57,278
  Over ten to twenty years           44,843         440       1,402           0         0           0       46,685
  Over twenty years                   7,923       3,107           0           0        29          53       11,112
                                   --------    --------    --------    --------     -----     -------    ---------
      Loans, gross                 $ 64,310    $ 64,788    $ 23,313    $ 11,295     $ 704     $ 2,544      166,954
                                   ========    ========    ========    ========     =====     =======
  Due to borrowers on
   Incomplete loans                                                                                         (1,507)
  Net deferred loan origination costs                                                                          389
  Net premium on purchased
   loans and indirect lending                                                                                  402
  Allowance for loan losses                                                                                   (950)
                                                                                                         ---------
      Loans, net                                                                                         $ 165,288
                                                                                                         =========

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

      Non-Performing Assets, Asset Classification and Allowances for Losses.
The Senior Lending Officer, working with other members of the LC,
continually monitors the status of all delinquent loans. On a monthly basis,
the Senior Lending Officer presents an update of the status of loans to both
the Bank's EC and Board of Directors. One of the Bank's primary tools
utilized to manage and control delinquent and problem loans is the Watched
Asset List (the "WAL"). This report identifies all loans or commitments that
are considered to have inherent collateral or cash flow deficiencies that
could result in a potential loss to the Bank if not properly supervised. The
subject loans are managed by the LC, which, together with the EC, may meet
more frequently to discuss the status of particular loans and to add or
delete loans from the Watch List, as is deemed appropriate. At September 30,
2004, the Bank had 4 loans which were 90 days or more past due which totaled
$121 thousand.  The Bank also had $1.4 million in assets classified as
substandard at September 30, 2004.  No assets were classified as special
mention, doubtful or loss.

      The Bank had $121 thousand and $634 thousand non-performing assets at
September 30, 2004 and 2003, respectively.


<PAGE>  11


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

<TABLE>
<CAPTION>

                                                                  At September 30,
                                                      ----------------------------------------
                                                      2004     2003     2002     2001     2000
                                                      ----     ----     ----     ----     ----
                                                               (Dollars in thousands)


                                                   <c>      <c>      <c>      <c>      <c>
Non-accrual first mortgage loans                      $ 42     $204     $140       $0       $0
Non-accrual consumer and other loans                    79      430        0        0        0
Accruing loans delinquent 90 days or more                0        0        0        0        0
                                                      ----     ----     ----       --       --
      Total non-performing and delinquent loans        121      634      140        0        0
Foreclosed real estate, net                              0        0        0        0        0
                                                      ----     ----     ----       --       --
      Total non-performing assets and delinquent
       loans                                          $121     $634     $140       $0       $0
                                                      ====     ====     ====       ==       ==

Non-performing and delinquent loans to total loans    0.07%    0.45%    0.11%    0.00%    0.00%
Non-performing assets and delinquent loans to
 total assets                                         0.05%    0.25%    0.06%    0.00%    0.00%
</TABLE>

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

      Impaired loans generally are individually assessed to determine
whether a loan's carrying value is not in excess of the fair value of the
collateral or the present value of the loan's cash flows.  Groups of smaller
balance loans, however, are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual consumer loans
for impairment disclosures.  The Bank had $300 thousand of loans classified
as impaired at September 30, 2004.  There were $814 thousand of loans
classified as impaired at September 30, 2003 and none at September 30, 2002.

      Troubled debt restructuring generally involves a modification of terms
of a borrower's debt and can affect the carrying value of a loan.  At
September 30, 2004, 2003 and 2002, the Bank had no loans classified as
troubled debt restructuring.

      Foreclosed real estate consists of property the Bank acquired through
foreclosure or deed in lieu of foreclosure.  Foreclosed real estate
properties are initially recorded at the lower of the investment in the loan
or fair value.  Thereafter, the Bank carries foreclosed real estate at fair
value less estimated selling costs, net of a valuation allowance account
established through provisions charged to income, which result from the
ongoing periodic valuations of foreclosed real estate properties.  The Bank
had no foreclosed real estate at September 30, 2004, 2003 and 2002.


<PAGE>  12


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

<TABLE>
<CAPTION>

                                            At or for the Years Ended September 30,
                                        ------------------------------------------------
                                        2004       2003       2002       2001       2000
                                        ----       ----       ----       ----       ----
                                                     (Dollars in thousands)


                                   <c>        <c>        <c>        <c>        <c>
Balance at beginning of year            $911       $926       $916       $874       $879
                                        ----       ----       ----       ----       ----
Provision for loan losses                 70          0          8         48          0
                                        ----       ----       ----       ----       ----
Charge-off:
  Mortgage loans                           0          0          0          0          0
  Commercial Loans                       (33)         0          0          0          0
  Consumer loans                          (2)       (19)       (11)       (10)        (6)
                                        ----       ----       ----       ----       ----
      Total charge-offs                  (35)       (19)       (11)       (10)        (6)
Recoveries                                 4          4         13          4          1
                                        ----       ----       ----       ----       ----
Balance at end of year                  $950       $911       $926       $916       $874
                                        ====       ====       ====       ====       ====

Net charge-offs/(recoveries) for
 the year                               $ 31       $ 15       $ (2)      $  6       $  5

Ratio of net charge-offs/(recoveries)
 to average loans outstanding
 during the year                       0.021%     0.011%    -0.001%     0.005%     0.005%

Allowance for loan losses as a
 percent of total loans before the
 allowance for loan losses              0.57%      0.64%      0.69%      0.67%      0.76%

Allowance for loan losses as a
 percent of non-performing loans      785.12%    143.69%    661.43%      0.00%      0.00%
</TABLE>

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


<PAGE>  13


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

<TABLE>
<CAPTION>

                                                                      At September 30,
                            -------------------------------------------------------------------------------------------------------
                                  2004                 2003                 2002                 2001                 2000
                            -------------------  -------------------  -------------------  -------------------  -------------------
                                     Percent of           Percent of           Percent of           Percent of           Percent of
                                      Loans in             Loans in             Loans in             Loans in             Loans in
                                      Category             Category             Category             Category             Category
                            Dollar    to Total   Dollar    to Total   Dollar    to Total   Dollar    to Total   Dollar    to Total
                            Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans
                            ------   ----------  ------   ----------  ------   ----------  ------   ----------  ------   ----------
                                                                 (Dollars are in thousands)


                        <c>        <c>       <c>        <c>       <c>        <c>       <c>        <c>       <c>        <c>
Real estate-mortgage:
  Residential (1)          $    280    84.10%   $    159    85.16%   $    133    81.25%   $    165    85.74%   $    347    90.56%
  Commercial                     89    13.96%        138    11.90%         41    14.78%         39     9.70%        212     5.48%
Commercial                      434     1.52%        487     2.26%        643     2.74%        606     2.64%         70     2.48%
Consumer                          4     0.42%         18     0.68%         24     1.22%         28     1.92%        163     1.48%
Unallocated                     143     0.00%        109     0.00%         85     0.00%         78     0.00%         82     0.00%
                           --------   ------    --------   ------    --------   ------    --------   ------    --------   ------
      Total Allowance
       for loan losses     $    950   100.00%   $    911   100.00%   $    926   100.00%   $    916   100.00%   $    874   100.00%
                           ========   ======    ========   ======    ========   ======    ========   ======    ========   ======

Gross Loans                $166,238             $142,468             $133,806             $135,873             $114,433
Allowance as % of Gross
 Loans                                  0.57%                0.64%                0.69%                0.67%                0.76%

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

      The allowance for loan loss was $950 thousand at September 30, 2004 as
compared to $911 thousand at September 30, 2003.

      With regard to determining how the allowance for loan loss is
allocated to various categories of loans, specific individual loans selected
to appear on the Bank's WAL have been identified by the line officer
(relationship manager) and reviewed by management as having a defined
weakness, such as insufficient cash flow, inadequate collateral, irregular
payment history, etc., which could jeopardize the contractual repayment of
the loan.  Potential loss factors are quantified utilizing a "discount
factor" against the collateral held for a specific loan or a related group
of loans.  All substandard loan factors are decided by the line officer that
has intimate knowledge of the loan relationship and the collateral
supporting the obligation.  The discounts can range from 0% to 100%,
depending on the nature of the collateral and the circumstances behind the
loan classification.  The discounted collateral value is then compared with
the outstanding loan balance to determine the adequacy of the specific
allowance for loan loss allocated.  This method of allocating the allowance
for loan loss was implemented for the fiscal year ended September 30, 2001.
 In prior years, such analysis was not as specific because the amount and
characteristics of our commercial loan portfolio were relatively small in
relation to other categories of loans.  As a result of implementing this
revised method, while the total allowance for loan loss has not changed
dramatically, there has been a significant change in the percentage and
dollar amounts allocated within each category of loans.  Management believes
this quantitative approach is more acceptable and better reflects the
changes which have occurred in the Bank's loan portfolio.  The remaining
loans not subject to individual review, are evaluated as related,
homogeneous, groups according to specific loan categories.  Residential real
estate mortgage loans generally fall into this category of homogeneous
groups.  Loss factors are assigned to each related, homogeneous, group
according to factors such as historical losses, delinquency trends, peer
group comparisons, industry and economic data and loss percentages generally
used by banking regulators for similarly graded loans.


<PAGE>  14


      The allowance for loan loss allocated to residential real estate
mortgage loans increased by $121 thousand to $280 thousand at September 30,
2004 as compared to $159 thousand at September 30, 2003.  The increase is
mainly a result of an increase of $16.3 million aggregate balances of
homogeneous loans in this group, less any which may have been specifically
identified on the Bank's WAL.  Most of the $16.3 million increase in
residential real estate mortgage loans was in the variable-rate mortgage
loans and home equity lines-of-credit categories which, during the current
period of generally rising interest rates, have a higher inherent repayment
risk, due to the effect that higher mortgage payments have upon a borrower's
capacity to pay debt.  Such loss characteristics, which exist throughout the
long-term life of such loans, are less obvious in generally favorable
economic conditions.

      The allowance for loan loss allocated to commercial real estate
mortgage loans declined by $49 thousand to $89 thousand at September 30,
2004 as compared to an allowance for loan loss of $138 thousand at September
30, 2003.  While the balance of loans in this category increased by $6.0
million, to $23.3 million at September 30, 2004, the decrease in allocation
of the allowance for loan loss in this category of loans was primarily due
to increased credit quality.

      Primarily as a result of a decline in commercial loan balances and
portfolio risk characteristics, the amount of allowance for loan loss
allocated to commercial loans decreased to $434 thousand at September 30,
2004 as compared to $487 thousand at September 30, 2003.

      The allowance for loan loss allocated to consumer loans declined by
$14 thousand, to $4 thousand at September 30, 2004 as compared to a balance
of $18 thousand at September 30, 2003 and primarily reflects a decline in
the balance of personal loans.  At September 30, 2004, the balance of
personal loans was $322 thousand, as compared to $564 thousand at September
30, 2003.

      The allowance designated as unallocated was $143 thousand at September
30, 2004 as compared to an unallocated balance of $109 thousand at September
30, 2003.  The unallocated component of the allowance is maintained to cover
uncertainties that could affect management's estimate of probable losses and
also reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating allocated and general
losses in the loan portfolio.  The Company has no established range into
which the unallocated portion of the allowance should fall.  The amount of
the unallocated allowance at September 30, 2004 is considered by management
to be reasonable.

      Although the management of the Bank believes that it has established
and maintained the allowance for loan losses at adequate levels, future
additions may be necessary if economic and other conditions in the future
differ substantially from the current operating environment.  Management
believes its policies with respect to the methodology for its determination
of the allowance for loan losses involve a higher degree of complexity and
require management to make difficult and subjective judgments, which often
require assumptions or estimates about highly uncertain matters.  Changes in
these judgments, assumptions or estimates could cause reported results to
differ materially.  This critical policy and its application are
periodically reviewed with the Audit Committee and our Board of Directors.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's loan and foreclosed real
estate portfolios and the related allowance for loan losses and valuation
allowance for foreclosed real estate.  The FDIC, in conjunction with the
other federal banking agencies, has adopted an inter-agency policy statement
on allowance for loan losses and lease losses.  The policy statement
provides guidance for financial institutions on both the responsibilities of
management for their assessment and establishment of adequate allowances and
guidance for banking agency examiners to use in determining the adequacy of
general valuation guidelines.

Investment Activities

      The Company's Board of Directors reviews and approves the investment
policy on an annual basis.  The President and Chief Executive Officer, and
the Senior Vice President and Treasurer, as


<PAGE>  15


authorized by the Board, implement this policy.  Management reports
securities transactions to the Board for review and approval on a monthly
basis.

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

      At September 30, 2004, with the exception of securities of the Federal
agencies and corporations, the Company had no securities of any issuer where
the aggregate market and book value of the securities of such issuer,
exceeded 10 percent of stockholders' equity.

      At September 30, 2004 and September 30, 2003, the Bank's liquidity
ratio was 69.5% and 90.2%, respectively.  The decline in the liquidity
percents was due primarily to a combination of an increase in loan growth,
coupled with a decline in investment securities to support such loan growth.
 For information regarding the carrying values, yields and maturities of the
Bank's securities, see "Carrying Values, Yields and Maturities" further on
in this section.

      At September 30, 2004,  the fair value of the Federal agency
securities portfolio totaled $21.5 million, or 74.9% of stockholders'
equity.  This portfolio consists primarily of securities with maturities of
one to five years.  Some of the agency debentures are callable and call
provisions vary following a minimum holding period.  The Bank generally does
not purchase structured notes, and at September 30, 2004, there were no
structured notes in the Bank's portfolio.

      At September 30, 2004, the portfolio of other debt obligations,
excluding mortgage-backed securities, totaled $18.1 million.  The Bank's
policy generally requires that investment in corporate debt obligations be
limited to corporate bonds with an "A" rating or better by at least one
nationally recognized rating service at the time of purchase.

      At September 30, 2004, the Bank's mortgage-backed securities, all of
which were classified as available for sale, totaled $33.0 million, or 12.5%
of total assets. The Bank generally purchases mortgage-backed securities as
a means to deploy excess liquidity at more favorable yields than other
investment alternatives.  In addition, mortgage-backed securities generate
positive interest rate spreads with minimal administrative expense and lower
the Bank's overall credit risk due to the fact that they are directly or
indirectly insured or guaranteed.   Purchases of mortgage-backed securities
may decline in the future if the Bank continues to experience an increase in
loans.  Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk.  However, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to
collateralize the Bank's borrowings.  In general, mortgage-backed securities
issued or guaranteed by Fannie Mae, Freddie Mac and GNMA are weighted at no
more than 20% for risk-based capital purposes, compared to the 50% risk-
weighting assigned to most non-securitized residential mortgage loans.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, they remain subject to the risk of a fluctuating interest rate
environment.  Along with other factors, such as the geographic distribution
of the underlying mortgage loans, changes in interest rates may alter the
prepayment rate of those mortgage loans and affect both the prepayment rates
and value of mortgage-backed securities.

      The fair market value of the marketable equity securities portfolio
totaled $407 thousand at September 30, 2004.  These securities consisted of
common stock.  Under the Bank's investment policy, the aggregate amount of
common stock that it may purchase may not exceed 13% of its total securities


<PAGE>  16


portfolio.  The Bank's policy also has limitations against acquiring
concentrations of such securities in any one issuer or industry.  The Bank
purchases marketable equity securities as growth investments that can
provide the opportunity for capital appreciation that is taxed on a more
favorable basis than operating income.  There can be no assurance that
investment in marketable equity securities will appreciate in value and,
therefore, such investments involve higher risk than U.S. Government or
federal agency securities.  At September 30, 2004, pre-tax net unrealized
loss on marketable equity securities amounted to $3 thousand.

      Unless otherwise noted with respect to certain securities or required
by regulators or accounting standards, the Bank classifies securities
available for sale at the date of purchase.  Available for sale securities
are reported at fair market value.  The Bank currently has no securities
classified as trading or held to maturity.


<PAGE>  17


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

<TABLE>
<CAPTION>

                                                For the Year Ended September 30,
                                               ----------------------------------
                                                 2004         2003         2002
                                                 ----         ----         ----
                                                     (Dollars In Thousands)


                                            <c>          <c>          <c>
Beginning balance                              $ 88,840     $ 76,888     $ 65,514
  Purchases                                      32,029       55,022       27,735
  Maturities                                     (6,790)      (4,955)      (4,600)
  Sales and calls                               (30,525)     (22,754)      (5,868)
  Principal repayments                           (6,285)     (14,788)      (6,892)
  Premium and (discount) amortization, net         (522)        (333)         (95)
  Change in net unrealized gains/(losses)        (1,746)        (240)       1,094
                                               --------     --------     --------
Ending balance                                 $ 75,001     $ 88,840     $ 76,888
                                               ========     ========     ========
</TABLE>

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

<TABLE>
<CAPTION>

                                                              At September 30,
                                      --------------------------------------------------------------
                                              2004                  2003                  2002
                                      ------------------    ------------------    ------------------
                                      Amortized    Fair     Amortized    Fair     Amortized    Fair
                                        Cost       Value      Cost       Value      Cost       Value
                                      ---------    -----    ---------    -----    ---------    -----
                                                           (Dollars in thousands)


                                    <c>        <c>        <c>        <c>        <c>        <c>
Debt securities:
  Federal agency obligations           $21,549    $21,514    $28,806    $29,295    $22,830    $23,451
  Banking and finance obligations       12,442     12,645     18,329     19,070     15,898     16,990
  Other bonds and obligations            5,299      5,433      7,030      7,358     11,720     12,174
                                       -------    -------    -------    -------    -------    -------
      Total debt securities             39,290     39,592     54,165     55,723     50,448     52,615
                                       -------    -------    -------    -------    -------    -------
Mortgage-backed and mortgage-
 related securities:
  FHLMC                                  9,866      9,816      7,609      7,674      4,553      4,710
  FNMA                                  21,620     21,602     19,435     19,719     11,663     12,173
  GNMA                                     427        423        628        630        968        983
  Other                                  1,122      1,119      1,380      1,394        258        285
                                       -------    -------    -------    -------    -------    -------
      Total mortgage-backed and
       mortgage-related securities      33,035     32,960     29,052     29,417     17,442     18,151
                                       -------    -------    -------    -------    -------    -------
Marketable equity securities               410        407      2,403      2,450      5,538      4,872
FHLB stock                               2,042      2,042      1,250      1,250      1,250      1,250
                                       -------    -------    -------    -------    -------    -------
      Total Securities                 $74,777    $75,001    $86,870    $88,840    $74,678    $76,888
                                       =======    =======    =======    =======    =======    =======
</TABLE>


<PAGE>  18


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

<TABLE>
<CAPTION>

                                                                      At September 30,
                                 ----------------------------------------------------------------------------------------
                                              2004                          2003                          2002
                                 ----------------------------  ----------------------------  ----------------------------
                                 Amortized  Percent of  Fair   Amortized  Percent of  Fair   Amortized  Percent of  Fair
                                    Cost    Total (1)   Value     Cost    Total (1)   Value     Cost    Total (1)   Value
                                 ---------  ----------  -----  ---------  ----------  -----  ---------  ----------  -----
                                                                  (Dollars in thousands)


                               <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>
Mortgage-backed and mortgage-
 related securities:
  FHLMC                           $ 9,866    29.87%   $ 9,816   $ 7,609    26.19%   $ 7,674   $ 4,553    26.10%   $ 4,710
  FNMA                             21,620    65.44%    21,602    19,435    66.90%    19,719    11,663    66.86%    12,173
  GNMA                                427     1.29%       423       628     2.16%       630       968     5.55%       983
  Other                             1,122     3.40%     1,119     1,380     4.75%     1,394       258     1.49%       285
                                  -------   ------    -------   -------   ------    -------   -------   ------    -------
Total mortgage-backed and
 mortgage-related securities      $33,035   100.00%   $32,960   $29,052   100.00%   $29,417   $17,442   100.00%   $18,151
                                  =======   ======    =======   =======   ======    =======   =======   ======    =======

<FN>
<F1>  Based on amortized cost
</FN>
</TABLE>


<PAGE>  19


      Carrying Values, Yields and Maturities.  The table below presents
information regarding the carrying values, weighted average yields and
contractual maturities of debt securities at September 30, 2004.  Mortgage-
backed securities are presented by issuer.  Yields on tax exempt obligations
were not computed on a tax equivalent basis.

<TABLE>
<CAPTION>

                                                                          September 30, 2004
                                 --------------------------------------------------------------------------------------------------
                                                     More than One Year More than Five Years
                                  One Year or Less      to Five Years       to Ten Years     More than Ten Years       Total
                                 ------------------  ------------------ -------------------- ------------------- ------------------
                                           Weighted            Weighted            Weighted            Weighted            Weighted
                                 Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Average
                                  Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield
                                 --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
                                                                      (Dollars in thousands)


                               <c>       <c>      <c>        <c>      <c>       <c>      <c>        <c>      <c>        <c>
Debt securities:
  Federal agency obligations      $  591    3.00%    $20,923    3.64%    $    -    0.00%    $     -    0.00%    $21,514    3.62%
  Banking and finance
   obligations                     3,239    7.11%      9,406    6.38%         -    0.00%          -    0.00%     12,645    6.57%
  Other bonds and obligations      1,066    5.91%      3,980    5.42%       387    4.00%          -    0.00%      5,433    5.42%
                                  ------             -------             ------             -------             -------
      Total debt securities        4,896    6.35%     34,309    4.60%       387    4.00%          -    0.00%     39,592    4.81%
                                  ------             -------             ------             -------             -------
Mortgage-backed and mortgage-
 related securities:
  FHLMC                                -    0.00%        244    5.00%     2,450    4.45%      7,122    4.09%      9,816    4.20%
  FNMA                                 -    0.00%      3,835    5.03%     1,395    5.03%     16,372    4.33%     21,602    4.50%
  GNMA                                 -    0.00%          -    0.00%         -    0.00%        423    3.71%        423    3.71%
  Other                                -    0.00%          -    0.00%         -    0.00%      1,119    3.95%      1,119    3.95%
                                  ------             -------             ------             -------             -------
      Total mortgage-backed
       and mortgage-related
       securities                      -    0.00%      4,079    5.02%     3,845    4.66%     25,036    4.23%     32,960    4.38%
                                  ------             -------             ------             -------             -------
Total                             $4,896    6.35%    $38,388    4.64%    $4,232    4.60%    $25,036    4.23%    $72,552    4.62%
                                  ======             =======             ======             =======             =======
</TABLE>


<PAGE>  20


Deposit Activity and Other Sources of Funds

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

      Deposits.  The Bank offers a variety of deposit accounts having a
range of interest rates and terms. The Bank currently offers regular savings
deposits, NOW accounts, personal and business demand accounts, money market
accounts and certificates of deposit.  The Bank also offers Individual
Retirement Accounts ("IRA's"), which at September 30, 2004 totaled $8.7
million.

      Deposit flows are influenced significantly by general and local
economic conditions, changes in prevailing interest rates, pricing of
deposits and competition.  The Bank's deposits are primarily obtained from
areas surrounding its offices, and the Bank relies primarily on paying
competitive rates, service and long-standing relationships with customers to
attract and retain these deposits.  The Bank also has developed deposit
products to attract and retain individual and commercial depositors.  One
such product is a "step-up" certificate of deposit which allows a customer
the one-time opportunity to increase their rate on the certificate of
deposit for the remaining term of the deposit.  Other programs involve the
introduction of commercial deposit products tailored to small- and medium-
sized businesses, such as the Bank's business and commercial checking
accounts.  The Bank does not use brokers to obtain deposits.

      When the Bank determines its deposit rates, it considers local
competition, U.S. Treasury securities offerings and the rates charged on
other sources of funds.  Core deposits (defined as total savings accounts,
NOW accounts, money market accounts and demand accounts) represented 77.2%
of total deposits at September 30, 2004.  At September 30, 2004,
certificates of deposit with remaining terms to maturity of less than one
year  represented 16.2% of total deposits at September 30, 2004.

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

<TABLE>
<CAPTION>

                                        For the Years Ended September 30,
                                     --------------------------------------
                                        2004          2003          2002
                                        ----          ----          ----
                                             (Dollars In Thousands)


                                  <c>           <c>           <c>
Beginning balance                    $ 215,898     $ 202,063     $ 185,098
Net deposits                            (6,512)       10,542        12,410
Interest paid on deposit accounts        2,324         3,293         4,555
                                     ---------     ---------     ---------
Ending Balance                       $ 211,710     $ 215,898     $ 202,063
                                     =========     =========     =========
Total (decrease) increase in
 deposit accounts                    $  (4,188)    $  13,835     $  16,965
Percentage (decrease) increase           -1.94%         6.85%         9.17%
</TABLE>


<PAGE>  21


      At September 30, 2004, the Bank had $10.8 million in certificates of
deposit with balances of $100,000 and over maturing as follows:

<TABLE>
<CAPTION>

                                             At September 30, 2004
                                             ---------------------
                                                         Weighted
                                                          Average
                                              Amount       Rate
                                              ------     --------
                                            (Dollars in thousands)


                                          <c>           <c>
Maturity Period:
  Three months or less                       $  2,459      1.59%
  Over three months through six months            892      1.73%
  Over six months through 12 months             3,106      2.18%
  Over 12 months                                4,355      3.12%
                                             --------
Total                                        $ 10,812      2.39%
                                             ========
</TABLE>

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

<TABLE>
<CAPTION>

                                                                               At September 30,
                                          -----------------------------------------------------------------------------------------
                                                       2004                          2003                          2002
                                          -----------------------------  ----------------------------  ----------------------------
                                                               Weighted                      Weighted                      Weighted
                                                     Percent   Average             Percent   Average             Percent   Average
                                                     of total  Nominal             of total  Nominal             of total  Nominal
                                           Amount    deposits   Rate     Amount    deposits   Rate     Amount    deposits   Rate
                                           ------    --------  --------  ------    --------  --------  ------    --------  --------
                                                                             (Dollars in thousands)


                                       <c>        <c>        <c>     <c>        <c>        <c>     <c>        <c>        <c>
Non-interest bearing accounts             $ 25,131    11.87%    0.00%   $ 19,740     9.14%    0.00%   $ 20,393    10.09%    0.00%
NOW accounts                                20,044     9.47%    0.10%     19,093     8.84%    0.10%     17,033     8.43%    0.25%
Savings accounts:
  Regular                                   39,932    18.86%    0.40%     44,103    20.43%    0.50%     42,173    20.87%    1.73%
  Tiered-rate                               72,242    34.12%    1.55%     73,525    34.06%    1.42%     54,133    26.80%    2.32%
                                          --------   ------             --------   ------             --------   ------
      Total savings accounts               112,174    52.99%    1.14%    117,628    54.49%    1.08%     96,306    47.67%    2.06%
                                          --------   ------             --------   ------             --------   ------
Money market deposit accounts                6,139     2.90%    1.00%      5,247     2.43%    1.00%      5,259     2.60%    1.98%
                                          --------   ------             --------   ------             --------   ------
      Total non-certificate accounts       163,488    77.22%    0.83%    161,708    74.90%    0.83%    138,991    68.79%    1.53%
                                          --------   ------             --------   ------             --------   ------
Certificates of deposit accounts:
  Due within 1 year                         34,183    16.15%    1.84%     42,544    19.71%    2.15%     53,392    26.42%    3.27%
  Over 1 year through 3 years               12,090     5.71%    2.63%     11,646     5.39%    2.82%      9,680     4.79%    3.89%
  Over 3 years                               1,949     0.92%    3.28%          -     0.00%    0.00%          -     0.00%    0.00%
                                          --------   ------             --------   ------             --------   ------
      Total certificate accounts            48,222    22.78%    2.08%     54,190    25.10%    2.29%     63,072    31.21%    3.37%
                                          --------   ------             --------   ------             --------   ------
      Total deposits                      $211,710   100.00%    1.12%   $215,898   100.00%    1.19%   $202,063   100.00%    2.11%
                                          ========   ======             ========   ======             ========   ======
</TABLE>


<PAGE>  22


      Borrowings.  The Bank borrows funds from the FHLB for use in
connection with its management of liquidity, interest rate sensitivity of
its assets and liabilities, as well as to fund loan growth and for other
general purposes.  Over the past year, the Bank has increased its advances
from the FHLB in response to a decline in deposit sources of funds and
increased lending activity.  The advances are collateralized by certain of
the Bank's mortgage loans and by its investment in stock of the FHLB.  The
maximum amount the FHLB will advance to its members, including the Bank,
fluctuates from time to time in accordance with FHLB policies.  At September
30, 2004, the Bank had $21.5 million in outstanding advances from the FHLB
and had the capacity to increase outstanding advances to $88.2 million based
on the Bank's qualified collateral available to the FHLB.  The Bank expects
to continue to borrow from the FHLB.

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

<TABLE>
<CAPTION>

                                       At or for the Years Ended September 30,
                                       ---------------------------------------
                                            2004        2003       2002
                                            ----        ----       ----
                                               (Dollars in thousands)


                                       <c>         <c>        <c>
Federal Home Loan Bank advances:
  Average balance outstanding             $ 16,215    $ 9,500    $ 11,677
  Maximum amount outstanding at any
   month-end during the year              $ 31,000    $ 9,500    $ 12,000
  Balance outstanding at end of year      $ 21,500    $ 9,500    $  9,500
  Weighted average interest rate
   during the year                            3.94%      6.42%       6.65%
  Weighted average interest rate
   end of year                                3.37%      5.36%       6.58%
</TABLE>

      Of the FHLB advances outstanding at September 30, 2004, $3,500 of
these advances are short-term advances with original maturities of less than
one year at a weighted average interest rate of 1.92%.

      The average balance outstanding was $305, the maximum balance
outstanding at any month-end during the year was $3,500 and the weighted
average interest rate during the year was 1.92%.


<PAGE>  23


Selected Financial Ratios and Other Data

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

<TABLE>
<CAPTION>

                                                             At or for the Years Ended September 30,
                                                             ---------------------------------------
Selected Financial Ratios and Other Data (1)                     2004         2003         2002
                                                                 ----         ----         ----


                                                          <c>          <c>          <c>
Performance Ratios:
  Return on average assets                                        0.46%        0.38%        0.42%
  Return on average stockholders' equity                          4.14%        3.39%        3.59%
  Average stockholders' equity to average assets                 11.10%       11.36%       11.70%
  Stockholders' equity to assets at end of year                  10.87%       11.21%       11.60%
  Net interest rate spread (2)                                    3.32%        3.24%        3.51%
  Net interest margin (3)                                         3.53%        3.52%        3.93%
  Average interest-earning assets to average
   interest-bearing liabilities                                 117.19%      116.40%      116.82%
  Operating expenses as a percent of average assets               3.05%        3.03%        3.19%
  Efficiency ratio (4)                                           83.81%       85.00%       81.36%
Regulatory Capital Ratios: (5)
  Total risk-based capital                                       20.97%       20.68%       19.27%
  Tier 1 risk-based capital                                      20.29%       20.02%       18.61%
  Regulatory tier 1 leverage capital                             10.79%       10.91%       11.11%
Asset Quality Ratios:
  Non-performing loans as a percent of loans                      0.07%        0.45%        0.11%
  Non-performing assets as a percent of total assets              0.05%        0.25%        0.06%
  Allowance for loan losses as a percent of total
   loans before the allowance for loan losses                     0.57%        0.64%        0.69%
Number of:
  Full-service offices (6)                                           4            5            5
  Full-time equivalent employees                                    68           74           76
Share Data:
  Basic number of weighted average shares outstanding        1,541,927    1,530,003    1,540,103
  Dilutive number of weighted average shares outstanding     1,563,727    1,548,849    1,558,622
  Basic earnings per share                                       $0.77        $0.63        $0.64
  Dilutive earnings per share                                    $0.76        $0.62        $0.63
  Dividends declared per share                                   $0.20        $0.20        $0.20
  Dividend payout ratio (7)                                     26.23%       32.07%       31.84%

<FN>
<F1>  Asset Quality and Regulatory Capital Ratios are end of year ratios.
<F2>  Net interest rate spread represents the difference between the
      weighted average yield on interest-earning assets and the weighted
      average cost of interest-bearing liabilities.
<F3>  Net interest margin represents net interest income as a percentage of
      average interest-earning assets.
<F4>  Efficiency ratio represents total operating expenses divided by the
      sum of net interest income, customer service fees and miscellaneous
      income.
<F5>  Ratios are based on consolidation.
<F6>  The number of full service offices does not include the Bank's branch
      at the Willows retirement community.
<F7>  Dividend payout ratio represents dividends declared per share divided
      by dilutive earnings per share.
</FN>
</TABLE>


<PAGE>  24


Competition

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

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

Employees

      At September 30, 2004, the Bank had 57 full-time and 11 part-time
employees.  None of the Bank's employees is represented by a collective
bargaining agreement.  Management of the Bank believes that it enjoys
excellent relations with its personnel.

Subsidiary Activities

      Eli Whitney Security Corporation.  Eli Whitney Security Corporation is
a wholly-owned subsidiary of the Bank.  Eli Whitney was established in 1995
as a Massachusetts security corporation for the purpose of buying, selling
and holding  securities on its own behalf and not as a broker.  The income
earned on Eli Whitney's securities is subject to a significantly lower rate
of state tax than that assessed on income earned on securities maintained by
the Bank.  At September 30, 2004, Eli Whitney had total assets of $43.1
million, virtually all of which were in securities.

      The Hundredth Corporation.  The Hundredth Corporation is a wholly-
owned subsidiary of the Bank. The Hundredth Corporation was established in
1991 for the investment in real or personal property. At September 30, 2004,
The Hundredth Corporation had total assets of $989 thousand.  Its largest
investment consists of $958 thousand of land on which the Bank  constructed
its expanded Maple Avenue, Shrewsbury Branch office.


<PAGE>  25


FEDERAL AND STATE TAXATION

Federal Taxation

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

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

      Distributions.  To the extent that the Bank makes non-dividend
distributions to shareholders, such distributions will be considered to
result in distributions from the Bank's base year reserve, i.e., its reserve
as of October 31, 1988, to the extent thereof and then from its supplemental
reserve for losses on loans, and an amount based on the amount distributed
will be included in the Bank's taxable income.  Non-dividend distributions
include distributions in excess of the Bank's current and accumulated
earnings and profits, distributions in redemption of stock and distributions
in partial or complete liquidation.  However, dividends paid out of the
Bank's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not constitute non-dividend distributions
and, therefore, will not be included in the Bank's income.

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

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

State Taxation

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

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


<PAGE>  26


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

REGULATION

General

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

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

      The following references to the laws and regulations under which the
Bank, the MHC and the Company are regulated are brief summaries thereof, do
not purport to be complete, and are qualified in their entirety to reference
to such laws and regulations.

Financial Services Modernization Legislation

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

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

Massachusetts Banking Regulation

      Activity Powers.  The Bank derives its lending, investment and other
activity powers primarily from the applicable provisions of the
Massachusetts banking laws and its related regulations.  Under these laws
and regulations, savings banks, including the Bank, generally may, invest in
(a) real estate mortgages;


<PAGE>  27


(b) consumer and commercial loans; (c) specific types of debt securities,
including certain corporate debt securities and obligations of federal,
state and local governments and agencies; (d) certain types of corporate
equity securities; and (e) certain other assets.

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

      Community Reinvestment Act.  The Bank is also subject to provisions of
the Massachusetts banking laws that, like the provisions of the federal
Community Reinvestment Act ("CRA"), impose continuing and affirmative
obligations upon a banking institution organized in Massachusetts to serve
the credit needs of its local communities ("Massachusetts CRA").  The
obligations of the Massachusetts CRA are similar to those imposed by the
CRA, with the exception of the assigned exam ratings.  Massachusetts banking
law provides for an additional exam rating of "high satisfactory" in
addition to the federal CRA ratings of "outstanding," "satisfactory," "needs
to improve" and "substantial noncompliance."  The Division has adopted
regulations to implement the Massachusetts CRA that are based on the CRA.
See "Federal Banking Regulation Community Reinvestment Act."  The Division
is required to consider a bank's Massachusetts CRA rating when reviewing the
bank's application to engage in certain transactions, including mergers,
asset purchases and the establishment of branch offices or automated teller
machines, and provides that such assessment may serve as a basis for the
denial of any such application.  The Massachusetts CRA requires the Division
to assess a bank's compliance with the Massachusetts CRA and to make such
assessment available to the public.  The Bank's most recent Massachusetts
CRA rating, received by letter, dated February 11, 2003, from the Division
was a rating of "Satisfactory."

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

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

      Dividends.  Under the Massachusetts banking laws, a stock savings bank
may, subject to several limitations, declare and pay a dividend on its
capital stock, which is the bank's common stock and any preferred stock, out
of the bank's net profits.  A dividend may not be declared, credited or paid
by a stock savings bank so long as there is any impairment of capital stock.
No dividend may be declared on the


<PAGE>  28


bank's common stock for any period other than for which dividends are
declared upon preferred stock, except as authorized by the Commissioner of
Banks of the Commonwealth of Massachusetts (the "Commissioner").  The
approval of the Commissioner is also required for a stock savings bank to
declare a dividend, if the total of all dividends declared by the savings
bank in any calendar year shall exceed the total of its net profits for that
year combined with its retained net profits of the preceding two years, less
any required transfer to surplus or a fund for the retirement of any
preferred stock.

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

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

Federal Banking Regulation

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

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

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

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

      The FDIC regulations also require that savings banks meet a risk-based
capital standard.  The risk-based capital standard requires the maintenance
of a ratio of total capital (which is defined as the sum of Tier 1 capital
and Tier 2 capital) to risk-weighted assets of at least 8% and a ratio of
Tier 1 capital to risk-weighted assets of at least 4%.  In determining the
amount of risk-weighted assets, all assets, plus


<PAGE>  29


certain off balance sheet items, are multiplied by a risk-weight of 0% to
100%, based on the risks the FDIC believes are inherent in the type of asset
or item.

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

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

<TABLE>
<CAPTION>

                                                              As of September 30, 2004
                                          ----------------------------------------------------------------------
                                                                                         Minimum to be Well
                                                               Minimum for Capital    Capitalized under Prompt
                                               Actual           Adequacy Purposes   Corrective Action Provisions
                                          ------------------   -------------------  ----------------------------
                                           Amount     Ratio      Amount     Ratio        Amount     Ratio
                                           ------     -----      ------     -----        ------     -----
                                                               (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 and Company were considered "well
capitalized" under FDIC guidelines.

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

      The FDIC has authority under Federal law to appoint a conservator or
receiver for an insured bank under certain circumstances.  The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for
an insured state bank if that bank is "critically undercapitalized."  For
this purpose, "critically undercapitalized" means having a ratio of tangible
capital to total assets of less than 2%.  The FDIC may also appoint a
conservator or receiver for a state bank on the basis of the institution's
financial condition or upon the occurrence of certain events, including: (a)
insolvency (whereby the assets of the bank are less than its liabilities to
depositors and others); (b) substantial dissipation of assets or earnings
through violations of law or unsafe or unsound practices; (c) existence of
an unsafe or unsound condition


<PAGE>  30


to transact business; (d) likelihood that the bank will be unable to meet
the demands of its depositors or to pay its obligations in the normal course
of business; and (e) insufficient capital or the incurring or likely
incurring of losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital without
federal assistance.

      Deposit Insurance.  Pursuant to the Federal Deposit Insurance
Corporation Improvement Act (the "FDICIA"), the FDIC established a system
for setting deposit insurance premiums based upon the risks a particular
bank or savings association posed to its deposit insurance funds.  Under the
risk-based deposit insurance assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending six months before
the assessment period.  The three capital categories are (1) well
capitalized, (2) adequately capitalized and (3) undercapitalized.  With
respect to the capital ratios, institutions are classified as well
capitalized, adequately capitalized or undercapitalized using ratios that
are substantially similar to the prompt corrective action capital ratios
discussed below.  The FDIC also assigns an institution to a supervisory
subgroup based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information that the FDIC
determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds which may include information
provided by the institution's state supervisor.

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

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

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

      Effective April 1, 2003, the Federal Reserve Board, or FRB, rescinded
its interpretations of Sections 23A and 23B of the FRA and replaced these
interpretations with Regulation W.  Regulation W makes various changes to
existing law regarding Sections 23A and 23B, including expanding the


<PAGE>  31


definition of what constitutes an affiliate subject to Sections 23A and 23B
and exempting certain subsidiaries of state-chartered banks from the
restrictions of Sections 23A and 23B.  Under Regulation W, all transactions
entered into on or before December 12, 2002, which either became subject to
Sections 23A and 23B solely because of Regulation W, and all transactions
covered by Sections 23A and 23B, the treatment of which will change solely
because of Regulation W, became subject to Regulation W on July 1, 2003.
All other covered affiliate transactions became subject to Regulation W on
April 1, 2003.  The Federal Reserve Board expects each depository
institution that is subject to Sections 23A and 23B to implement policies
and procedures to ensure compliance with Regulation W.  We do not expect
that the changes made by Regulation W will have a material adverse effect on
our business.

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

      Real Estate Lending Policies.  FDIC regulations require that state-
chartered non-member banks adopt and maintain written policies that
establish appropriate limits and standards for extensions of credit that are
secured by liens or interests in real estate or are made for the purpose of
financing permanent improvements to real estate.  These policies must
establish loan portfolio diversification standards, prudent underwriting
standards, including loan-to-value limits that are clear and measurable,
loan administration procedures and documentation, approval and reporting
requirements.  We believe the Bank's real estate lending policies reflect
the Interagency Guidelines for Real Estate Lending Policies that have been
adopted by the federal bank regulators.

      Community Reinvestment Act.  Under the Community Reinvestment Act (the
"CRA"), any insured depository institution, including the Bank, has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including
low- and moderate-income neighborhoods.  The CRA does not establish specific
lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community.  The
CRA requires the FDIC, in connection with its examination of a savings bank,
to assess the depository institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of
certain applications by such institution, including applications for
additional branches and acquisitions.  Among other things, the current CRA
evaluation system focuses on three tests: (1) a lending test, to evaluate
the institution's record of making loans in its service areas; (2) an
investment test, to evaluate the institution's record of investing in
community development projects, affordable housing, and programs benefiting
low or moderate income individuals and businesses; and (3) a service test,
to evaluate the institution's delivery of services through its branches,
ATMs and other offices.  For a small bank, which is a bank with less than
$250 million in assets in the year prior to the CRA examination, such as the
Bank, the CRA assessment will be based on: (a) the bank's loan-to-deposit
ratio; (b) the percentage of the bank's loans and any other appropriate
lending related activities located in the bank's assessment areas; (c) the
bank's record of lending to, and other appropriate lending related
activities for borrowers of different income levels and businesses and farms
of different sizes; (d) the geographic distribution of the bank's loans; and
(e) the bank's record in acting in response to written complaints about the
bank's performance in helping to meet the credit needs of its assessment
areas.  The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating
system and requires public disclosure of an institution's CRA rating.  The
Bank received a "satisfactory" rating in its CRA examination conducted by
the FDIC on March 22, 2004.

      Safety and Soundness Standards.  Pursuant to the requirements of
FDICIA, each federal banking agency, including the FDIC, has adopted
guidelines establishing general standards relating to internal controls,
information and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, asset quality, earnings,
and compensation, fees and benefits.  In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage
the risks


<PAGE>  32


and exposures specified in the guidelines.  The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer,
employee, director, or principal stockholder.

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

      Prompt Corrective Action.  FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
The FDIC, as well as the other federal banking regulators, adopted
regulations governing the supervisory actions that may be taken against
undercapitalized institutions.  The regulations establish five categories,
consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized."  Generally, an institution will be treated as "well
capitalized" if its ratio of total capital to risk-weighted assets is at
least 10%, its ratio of Tier 1 capital to risk-weighted assets is at least
6%, its ratio of Tier 1 capital to total assets is at least 5%, and it is
not subject to any order or directive by the FDIC to meet a specific capital
level.  An institution will be treated as "adequately capitalized" if its
ratio of total capital to risk-weighted assets is at least 8%, its ratio of
Tier 1 capital to risk-weighted assets is at least 4%, and its ratio of Tier
1 capital to total assets is at least 4% (3% if the bank receives the
highest rating under the Uniform Financial Institutions Rating System) and
it is not a well-capitalized institution.  An institution that has total
risk-based capital of less than 8%, Tier 1 risk-based-capital of less than
4% or a leverage ratio that is less than 4% (or less than 3% if the
institution is rated a composite "1" under the Uniform Financial
Institutions Rating System) will be treated as "undercapitalized."  An
institution that has total risk-based capital of less than 6%, Tier 1
capital of less than 3% or a leverage ratio that is less than 3% will be
treated as "significantly undercapitalized," and an institution that has a
tangible capital to assets ratio equal to or less than 2% would be deemed to
be "critically undercapitalized."

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

      Loans to a Bank's Insiders.  A bank's loans to its executive officers,
directors, any owner of 10% or more of its stock (each, an "insider") and
any of certain entities affiliated to any such person (an insider's related
interest) are subject to the conditions and limitations imposed by Section
22(h) of the Federal Reserve Act and the FRB's Regulation O thereunder.
Under these restrictions, the aggregate amount of the loans to any insider
and the insider's related interests may not exceed the loans-to-one-borrower
limit applicable to national banks, which is comparable to the loans-to-one-
borrower limit applicable to the Bank's loans.  See "Massachusetts Banking
Regulation Loans-to-One Borrower Limitations."  All loans by a bank to all
insiders and insiders' related interests in the aggregate may not


<PAGE>  33


exceed the bank's unimpaired capital and unimpaired retained earnings.  With
certain exceptions, loans to an executive officer, other than loans for the
education of the officer's children and certain loans secured by the
officer's residence, may not exceed the lesser of  (1) $100,000 or (2) the
greater of $25,000 or 2.5% of the bank's capital and unimpaired retained
earnings.  Regulation O also requires that any proposed loan to an insider
or a related interest of that insider be approved in advance by a majority
of the Board of Directors of the bank, with any interested director not
participating in the voting, if such loan, when aggregated with any existing
loans to that insider and the insider's related interests, would exceed
either (1) $500,000 or (2) the greater of $25,000 or 5% of the bank's
unimpaired capital and retained earnings.  Generally, such loans must be
made on substantially the same terms as, and follow credit underwriting
procedures that are not less stringent than, those that are prevailing at
the time for comparable transactions with other persons.  An exception is
made for extensions of credit made pursuant to a benefit or compensation
plan of a bank that is widely available to employees of the bank and that
does not give any preference to insiders of the bank over other employees of
the bank.

      Section 402 of the Sarbanes-Oxley Act of 2002 prohibits the extension
of personal loans to directors and executive officers of issuers (as defined
in Sarbanes-Oxley).  The prohibition, however, does not apply to mortgages
advanced by an insured depository institution, such as the Bank, that are
subject to the insider lending restrictions of Section 22(h) of the Federal
Reserve Act.

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

Federal Home Loan Bank System

      The Bank is a member of the FHLB of Boston.  The FHLB system consists
of twelve regional Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB"). The Federal Home
Loan Banks provide a central credit facility primarily for member
institutions.  As part of a borrowing arrangement with the FHLB, the Bank is
required to invest in classes of common stock of the FHLB in an amount
determined on the basis of the Bank's residential mortgage loans and
borrowings from the FHLB. The stock is redeemable at par and earns dividends
declared at the discretion of the FHLB.  At September 30, 2004, the Bank's
investment in the common stock of the FHLB was $2.0 million.

      The FHLB serves as a reserve or central bank for its member
institutions within its assigned region.  It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHFB
System. It offers advances to members in accordance with policies and
procedures established by the FHLB and the Board of Directors of the FHLB.

      Federal Home Loan Bank System Modernization Act of 1999.  Title 6 of
the GLBA, entitled the Federal Home Loan Bank System Modernization Act of
1999 ("FHLB Modernization Act"), has amended the FHLB Act by allowing for
voluntary membership and modernizing the capital structure and governance of
the FHLB system.  The new capital structure established under the FHLB
Modernization Act set forth new leverage and risk-based capital requirements
based on permanence of capital.  It also requires some minimum investment in
FHLB stock of all member entities.  Capital includes retained earnings and
two forms of stock:  Class A stock redeemable within six months written
notice and Class B stock redeemable within five years written notice.  The
FHLB Modernization Act also reduced the period of time in which a member
exiting the FHLB system must stay out of the system.

      Pursuant to regulations promulgated by the FHFB, as required by the
GLBA, the FHLB of Boston adopted, and the FHFB had approved, a capital plan
that changed the foregoing minimum stock ownership requirements for FHLB of
Boston stock.  Under the new capital plan, each member of the FHLB of Boston
must maintain a minimum investment in FHLB of Boston capital stock in an
amount equal to the sum of


<PAGE>  34


(i) 0.35% of member eligible collateral (subject to a minimum of $10,000 and
a maximum of $25,000,000, per member), and (ii) 4.50% of the member's
activity-based assets.

      As a member, the Bank is required to purchase and maintain stock in
the FHLB.  At September 30, 2004, the Bank was in compliance with this
requirement.

Holding Company Regulation

      Federal Regulation.  The MHC and the Company are governed as bank
holding companies under the BHCA.  Bank holding companies are subject to
examination, regulation and periodic reporting under the BHCA, as
administered by the FRB.  The FRB has adopted capital adequacy guidelines
for bank holding companies on a consolidated basis substantially similar to
those of the FDIC for the Bank.  As of September 30, 2004, the Company's
total capital and Tier 1 capital ratios for the MHC and the Company exceed
these minimum capital requirements.

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

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

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

      The status of the Company and the MHC as registered bank holding
companies under the BHCA does not exempt them from certain federal and state
laws and regulations applicable to corporations generally, including,
without limitation, certain provisions of the federal securities laws.

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


<PAGE>  35


      Under the FDICIA, depository institutions are liable to the FDIC for
losses suffered or anticipated by the FDIC in connection with the default of
a commonly controlled depository institution or any assistance provided by
the FDIC to such an institution in danger of default.  This law would
potentially be applicable to the Company if it ever acquired, as a separate
subsidiary, a depository institution in addition to the Bank.

Acquisition of the Company

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

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

Dividend Waivers by the MHC

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

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

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


<PAGE>  36


dividends would reduce the percentage of the converted company's shares of
common stock issued to public stockholders in connection with any such
transaction.

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

USA PATRIOT Act

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

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

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

      *     Bank regulators have issued a Joint Final Rule that provides for
            minimum standards with respect to customer identification and
            verification.  The rules require financial institutions to
            establish a program specifying procedures for obtaining
            identifying information from customers seeking to open new
            accounts.  This identifying information would be essentially the
            same information currently obtained by most financial
            institutions for individual customers generally.  A financial
            institution's program would also have to contain procedures to
            verify the identity of customers within a reasonable period of
            time, generally through the use of the same forms of identity
            verification currently in use, such as through driver's
            licenses, passports, credit reports and other similar means.

      *     Section 312 requires financial institutions that establish,
            maintain, administer or manage private banking accounts or
            correspondent accounts in the United States for non-United
            States persons or their representatives (including foreign
            individuals visiting the United States) to establish
            appropriate, specific and where necessary, enhanced due
            diligence policies, procedures and controls designed to detect
            and report money laundering.  A final rule under Section 312 was
            issued by the Treasury Department on September 26, 2002.  The
            rule states that a due diligence program is reasonable if it
            comports with existing best practices standards for banks that
            maintain correspondent accounts for foreign banks and evidences
            good faith efforts to incorporate due diligence procedures for
            accounts posing increased risk of money laundering.  In
            addition, an enhanced due diligence program is reasonable if it
            comports with best practices standards and


<PAGE>  37


            focuses enhanced due diligence measures on those correspondent
            accounts posing a particularly high risk of money laundering
            based on the bank's overall assessment of the risk posed by the
            foreign correspondent bank.  Finally, a private banking due
            diligence program must be reasonably designed to detect and
            report money laundering and the existence of proceeds of foreign
            corruption.  Such a program is reasonable if it focuses on those
            private banking accounts that present a high risk of money
            laundering.

      *     Effective December 26, 2001, financial institutions are
            prohibited from establishing, maintaining, administering or
            managing correspondent accounts for foreign shell banks (foreign
            banks that do not have a physical presence in any country), and
            will be subject to certain record keeping obligations with
            respect to correspondent accounts of foreign banks.

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

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

The Sarbanes-Oxley Act

      On July 30, 2002, President George W. Bush signed into law the
Sarbanes-Oxley Act of 2002.  The Sarbanes-Oxley Act implements a broad range
of corporate governance and accounting measures for public companies
designed to promote honesty and transparency in corporate America and
provide investors with greater protection from corporate misconduct.  The
Sarbanes-Oxley Act's principal legislation includes:

      *     the creation of an independent accounting oversight board;

      *     auditor independence provisions that restrict auditors from
            providing certain non-audit services to their audit clients;

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

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

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

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

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

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


<PAGE>  38


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

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

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

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

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

Federal Securities Laws

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


<PAGE>  39


ITEM 2.  DESCRIPTION OF PROPERTY

      The Company conducts its business at the main office of the Bank and
its five retail banking offices, four of which are full service branch
offices.  As of September 30, 2004, these properties and leasehold
improvements owned by the Company and the Bank had an aggregate net book
value of $4.4 million.

<TABLE>
<CAPTION>

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


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

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

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

  23 Maple Avenue             Owned             05/12/03           N/A
  Shrewsbury, MA

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

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


<PAGE>  40


ITEM 3.  LEGAL PROCEEDINGS

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

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

      No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
2004.


PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Information relating to the market for the Company's common equity,
related stockholder matters and payment of dividends by the Company appears
in the 2004 Annual Report to Shareholders, which is attached to this Form
10-KSB as Exhibit 13.1, and is incorporated herein by reference.

      The table below reflects the stock trading price and dividend payment
frequency of the Company's stock for year ending September 30, 2004.  The
quotations reflect inter-dealer prices, without mark-up, mark-down or
commissions, and may not represent actual transactions.

<TABLE>
<CAPTION>
                    High Price   Low Price   Average Price   Dividends per share
                    ----------   ---------   -------------   -------------------


                   <c>         <c>           <c>                <c>
First Quarter         $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>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      Certain of the above-captioned information appears under "Management's
Discussion and Analysis of Financial Condition and Results of Operation" in
the 2004 Annual Report to Shareholders, which is attached to this Form 10-
KSB as Exhibit 13.1, and is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS

      The following information appearing in the Company's 2004 Annual
Report to Shareholders, which is attached to this Form 10-KSB as Exhibit
13.1, is incorporated herein by reference.

<TABLE>
<CAPTION>

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


                                                        <c>
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 to F-4

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


<PAGE>  41


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

Notes to Consolidated Financial Statements                 F-8 to F-43
</TABLE>

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

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

ITEM 8A.  CONTROLS AND PROCEDURES

      Management, including the Company's President and Chief Executive
Officer and Senior Vice President, Treasurer and Clerk, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this report.  Based upon that evaluation, the Company's
President and Chief Executive Officer and Senior Vice President, Treasurer
and Clerk concluded that the disclosure controls and procedures were
effective, in all material respects, to ensure that information required to
be disclosed in the reports the Company files and submits under the Exchange
Act is recorded, processed, summarized and reported as and when required.

      There have been no changes in the Company's internal control over
financial reporting identified in connection with the evaluation that
occurred during the Company's last fiscal quarter that has materially
affected, or that is reasonably likely to materially affect, the Company's
internal control over financial reporting.

ITEM 8B.  OTHER INFORMATION

      None.

PART III

ITEM 9.  DIRECTORS AND PRINCIPAL OFFICERS

      The information relating to directors and executive officers of the
Company is incorporated  herein by reference to the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on January 27,
2005, a copy of which was filed with the SEC on December 27, 2004

ITEM 10.  EXECUTIVE COMPENSATION

      The information relating to executive compensation is incorporated
herein by reference to the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held on January 27, 2005, a copy of which was filed
with the SEC on December 27, 2004.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


<PAGE>  42


      The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on January
27, 2005, a copy of which was filed with the SEC on December 27, 2004.

      The following table sets forth the aggregate information of the
Company's equity compensation plans in effect as of September 30, 2004.

<TABLE>
<CAPTION>

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


                                    <c>                    <c>                            <c>
Equity compensation
plans approved
by security holders                    33,900                 $11.38                         16,987

Equity compensation
plans not approved by
security holders                         none                   none                           none
                                       ------                                                ------

Total                                  33,900                 $11.38                         16,987
                                       ======                                                ======

<FN>
Note (1)  This amount represents 13,248 and 3,739 shares remaining to be
          issued from the 2001 Stock Option Plan and the 2001 Recognition
          and Retention Plan, respectively.
</FN>
</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information relating to certain relationships and related
transactions is incorporated herein by reference to the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on January 27,
2005, a copy of which was filed with the SEC on December 27, 2004.

ITEM 13.  EXHIBITS

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

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

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

3.2      Bylaws of Westborough Financial Services, Inc.*

3.3      Articles of Organization of The Westborough Bank*

3.4      Bylaws of The Westborough Bank*

3.5      Charter of Westborough Bancorp, MHC*


<PAGE>  43


3.6      Bylaws of Westborough Bancorp, MHC*

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

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

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

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

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

10.1(a)1 Amendment No. 1 to Employee Stock Ownership Plan of Westborough
         Financial Services, Inc.***

10.1(b)  Form of ESOP Trust Agreement*

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

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

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

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

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

13.1     Annual Report of Westborough Financial Services, Inc.

14.1     Code of Ethics of Senior Financial Officers filed on December 27,
         2004 as part of the 2005 Proxy Statement (File No. 000-27997) is
         incorporated herein by reference.

21.1     Subsidiaries of the Registrant.*

23.1     Independent Registered Public Accounting Firm's Consent

31.1     Certificates of the CEO and CFO pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002

32.1     Certificates of the CEO and CFO pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002


<PAGE>  44


<FN>
*     Incorporated herein by reference to the Registration Statement on Form
      SB-2 (Registration No. 333-80075), as filed with the Securities and
      Exchange Commission on June 4, 1999, as amended.
**    Incorporated by reference to the Company's Form 10-KSB for the year
      ended September 30, 2001, as filed with the Securities and Exchange
      Commission on December 28, 2001.
***   Incorporated by reference to the Company's Form 10-KSB for the year
      ended September 30, 2003, as filed with the Securities and Exchange
      Commission on December 29, 2003.
</FN>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information relating to principal accountant fees and services is
incorporated herein by reference to the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 27, 2005, a copy of
which was filed with the SEC on December 27, 2004.


<PAGE>  45


SIGNATURES

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

                                       Westborough Financial Services, Inc.

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

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

<TABLE>
<CAPTION>

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


                               <c>                             <c>
/s/ Roger B. Leland               Chairman of the Board of        December 29, 2004
-----------------------------     Directors
Roger B. Leland

/s/ Joseph F. MacDonough          President, Chief Executive      December 29, 2004
-----------------------------     Officer and Director
Joseph F. MacDonough              (Principal Executive and
                                  Operating Officer)

/s/ James N. Ball                 Director                        December 29, 2004
-----------------------------
James N. Ball

/s/ Nelson P. Ball                Director                        December 29, 2004
-----------------------------
Nelson P. Ball

/s/ Edward S. Bilzerian           Director                        December 29, 2004
-----------------------------
Edward S. Bilzerian

/s/ Nancy M. Carlson              Director                        December 29, 2004
-----------------------------
Nancy M. Carlson

/s/ David E. Carlstrom            Director                        December 29, 2004
-----------------------------
David E. Carlstrom

/s/ John L. Casagrande            Senior Vice President,          December 29, 2004
-----------------------------     Treasurer, Clerk and Director
John L. Casagrande                (Principal Financial and
                                  Accounting Officer)

/s/ Benjamin H. Colonero, Jr.     Director                        December 29, 2004
-----------------------------
Benjamin H. Colonero, Jr.

/s/ William W. Cotting, Jr.       Director                        December 29, 2004
-----------------------------
William W. Cotting, Jr.


<PAGE>  46


/s/ Robert A. Klugman             Director                        December 29, 2004
-----------------------------
Robert A. Klugman

/s/ Paul F. McGrath               Director                        December 29, 2004
-----------------------------
Paul F. McGrath

/s/ Charlotte C. Spinney          Director                        December 29, 2004
-----------------------------
Charlotte C. Spinney

/s/ Phyllis A. Stone              Director                        December 29, 2004
-----------------------------
Phyllis A. Stone

/s/ James E. Tashjian             Director                        December 29, 2004
-----------------------------
James E. Tashjian
</TABLE>


<PAGE>  47