Exhibit 13.1

                     2002 Annual Report to Shareholders

The year 2002 was one of continued growth and expansion for Westborough
Financial Services Inc. and its wholly owned subsidiary, Westborough Bank.
During the year we completed the construction of and occupied our new
Operations Center, and at the same time converted our core data processing
system to a new vendor. It was truly a year of challenge and change.

Looking at the company's financial performance, activity in the broad stock
market impacted our company in two ways. The consolidated financial
statements for the year ended September 30, 2002 reflect a decrease in net
income of $419 thousand (30 percent) to a level of $979 thousand as
compared to $1.4 million for the prior fiscal year. This decrease in net
income was the result of losses sustained in our securities portfolio;
specifically in our common stock portfolio.

The loss in the stock portfolio was tempered with the use of capital loss
carry backs to lessen our federal income tax liability. Operating expenses
increased by $469 thousand (6.7 percent) to $7.4 million primarily as a
result of increases in salaries and increases and data processing expenses,
both reflecting our ongoing investments in people and technology. The
Company's net interest income, however, increased by $1.3 million (18.8
percent) as a result of the general decline in interest rates.

Looking at the consolidated balance sheet, our assets grew $15.6 mil (6.9
percent) to $241.3 million at September 30, 2002 from $225.7 million at
September 30, 2001. This continued growth was due, in some respects, to
many customers transferring money from a declining and volatile stock
market to the safety of insured bank deposits.

During the year, intense competition and an extremely low interest rate
environment combined to limit growth in our residential real estate loan
portfolio. While the total loan portfolio declined $2.1 million (1.5 percent)
we were able to increase our commercial loan portfolio by $5.1 million (30.3
percent) to $21.8 million. Building relationships with small business in the
communities we serve continues to be a key strategic objective for our company.

It is not unusual in our business that national events have a direct impact
on our company and the way we do business. During the year, the corporate
world came under fire for transgressions that have compromised business
ethics and the trust and integrity for all of those in business and their
customers. Perhaps the most disconcerting aspect of this environment is the
declining level of trust in the leadership of all organizations. Readers of
this annual report can be assured of financial information reporting that
is accurate with integrity second to none. Throughout our 133-year history,
we have remained committed to the highest standards of business ethics. We
fully recognize the trust our customers have placed in us and it is for
this reason that we have grown and been able to serve our communities year
after year. We remain a trusted corporate neighbor and will continually
strive to grow as a leader in our community. Fulfilling our mission has
never been something we take lightly; we have always set high standards for
the way we conduct our business.

On July 30, 2002, President Bush signed the Sarbanes-Oxley Act. The Act
implements a broad range of corporate governance and accounting measures
for public companies designed to promote honesty and transparency in
corporate America and better protect investors from the type of corporate
wrongdoing that occurred in, among others, Enron and WorldCom. Banking has
always been a highly regulated industry but with Sarbanes-Oxley the
spotlight has been focused on many corporate governance issues and business
practices we have taken for granted. The level of responsibility and
liability for executive officers and board members has been raised
significantly. Management and the Board of Directors have begun a detailed
evaluation of our corporate governance structure and board and management
succession issues. We agree with the spirit of the Act and we are prepared to
comply with new SEC rules and regulations as they are announced in the coming
months.

As a community bank, members of our staff are active in many local
organizations and activities, some of which are highlighted in this annual
report. From volunteering at the Senior Center, coaching Little League
teams or staffing a Chamber of Commerce booth at a local holiday
celebration, our staff gives of their personal time to help make the
communities where we live and work a better place. This same dedication and
team spirit to provide superior customer service is seen every day
throughout our bank. Our bank is made greater and more profitable through
higher levels of customer satisfaction. By giving our customers more
attention and better resources we can expand our services far beyond four
walls. By knowing our customers we continue to build loyalty and trust,
which lead to customer growth, retention and profitable relationships.

The success our company and the bank have enjoyed over many years is due in
no small part to the dedication and leadership of our Board of Directors.
Over the years, these men and women have provided guidance and set the
strategic direction of the bank along with their ongoing commitment to our
customers and the communities we serve. This year, Mr. Earl H. Hutt, a
board member who began a relationship with the Bank as a Corporator in
1963, is retiring. Earl has been a member of the Board of Directors for 14
years and has served on the Audit Committee for 10 years, the last three as
its Chairman. We will miss his keen perception and thoughtful monitoring of
our financial activities.

On behalf of the Board of Directors, our management team and staff, we
pledge our continued commitment to our customers, community and
shareholders.

                                               /s/ Joseph F. MacDonough
                                                        President & CEO

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

<TABLE>
<CAPTION>

                                                               At September 30,
                                                      ----------------------------------
                                                          2002         2001         2000
                                                      --------     --------     --------
Consolidated Balance Sheet Data                                ($ in thousands)


                                                   <c>          <c>          <c>
Total assets                                          $241,273     $225,675     $205,976
Loans, net                                             132,880      134,957      113,559
Investment securities                                   76,888       65,514       70,119
Total deposits                                         202,063      185,098      163,405
Federal Home Loan Bank advances                          9,500       12,000       16,500
Stockholders' equity                                    27,989       26,912       24,716
Allowance for loan losses                                  926          916          874
Non-accrual loans                                          140            0            0
Non-performing assets                                      140            0            0

<CAPTION>

                                                      For Twelve Months Ended September 30,
                                                      -------------------------------------
                                                          2002         2001         2000
                                                      --------     --------     --------
Consolidated Statement of Income                      ($ in thousands, except per share data)



                                                   <c>          <c>          <c>
Total interest and dividend income                      $13,871      $14,135    $11,991
Total interest expense                                    5,358        6,927      5,525
                                                        -------------------------------
      Net interest income                                 8,513        7,208      6,466
Provision for loan losses                                     8           48          0
                                                        -------------------------------
      Net interest income, after provision
       for loan losses                                    8,505        7,160      6,466
                                                        -------------------------------
Customer service fees                                       439          658        355
Income from covered call options                              0           16        425
Gain (loss) on securities, net                             (466)         710        177
Miscellaneous                                               200          160        138
                                                        -------------------------------
      Total other income                                    173        1,544      1,095
                                                        -------------------------------
Total operating expenses                                  7,446        6,977      5,830
                                                        -------------------------------

Income before income taxes and cumulative
 effect of change in accounting principle                 1,232        1,727      1,731
Income taxes                                                253          476        480
                                                        -------------------------------

Income before cumulative effect of change
 in accounting principle                                    979        1,251      1,251
Cumulative effect of change in accounting
 principle, net of $76 of related tax
 effect, for the adoption of a new accounting
 standard for covered call options
 ($09 per dilutive share)                                     0          147          0
                                                        -------------------------------
Net income                                              $   979      $ 1,398    $ 1,251
                                                        ===============================

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

<CAPTION>

                                                      For Twelve Months Ended September 30,
                                                      -------------------------------------
Performance Ratios                                         2002         2001         2000
                                                        -------      -------      -------


                                                     <c>          <c>          <c>
Return on average assets                                  0.42%        0.64%        0.68%
Return on average stockholders' equity                    3.59%        5.49%        5.70%
Dividend payout ratio (1)                                31.84%       22.18%          na
Average stockholders' equity to average assets           11.70%       11.69%       11.88%
Net interest rate spread (2)                              3.52%        2.93%        3.19%
Net interest margin (3)                                   3.94%        3.53%        3.73%
Operating expenses as a percent of average assets         3.19%        3.20%        3.16%
Average interest-bearing assets to average
 interest bearing liabilities                           116.82%      117.68%      116.88%
Efficiency ratio (4)                                     81.36%       86.93%       83.78%

<FN>
<F1>  Dividend payout ratio represents dividends declared per share
      divided by dilutive earnings per share.
<F2>  Net interest rate spread represents the difference between the
      weighted average yield on interest-earning assets and the weighted
      average cost of interest-bearing liabilities.
<F3>  Net interest margin represents net interest income as a percentage
      of average interest-earning assets.
<F4>  Efficiency ratio represents total operating expenses divided by the
      sum of net interest income, customer service fees and miscellaneous
      income.
</FN>

<CAPTION>

                                                            At September 30,
                                                ----------------------------------------
Asset Quality Ratios:                                 2002           2001           2000
                                                ----------     ----------     ----------


                                             <c>            <c>            <c>
Non-performing loans as a percent of loans           0.11%          0.00%          0.00%
Non-performing assets as a percent of total
 assets                                              0.06%          0.00%          0.00%
Allowance for loan losses as a percent of
 total loans before the allowance for loan
 losses                                              0.69%          0.67%          0.76%

Capital Ratio and other data:
Equity to assets at end of period                   11.60%         11.93%         12.00%
Number of shares outstanding at end of
 period                                         1,581,574      1,581,374      1,581,374

Number of:
Full-service offices (1)                                5              5              5
Full-time equivalent employees                         76             70             69

<FN>
<F1>  The number of full service offices does not include our branch at the
      Willows.
</FN>
</TABLE>


Westborough Financial Services, Inc.
Stockholder information

Common stock information:
On September 30, 2002, there were 1,581,574 shares of common stock issued
and outstanding and approximately 721 stockholders, not including persons
or entities holding stock in nominee or street name through brokers or
banks. The Company's stock is not actively traded, although the stock is
quoted on the OTC Electronic Bulletin Board under the symbol "WFSM."

The table below reflects the stock and dividend payment by quarter of the
Company's stock for fiscal year ended September 30, 2002. The information
set forth below was provided to management of the Company by certain
securities firms affecting transactions in the Company's stock on an agency
basis. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

<TABLE>
<CAPTION>

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


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

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

Annual Meeting
The annual meeting of shareholders will be held on Thursday, January 30,
2003 at 3 p.m., local time. The meeting will take place at Wyndham
Westborough Hotel located at 5400 Computer Drive, Westborough.


                                10KSB REPORT

A copy of the form 10-KSB as filed with the Securities and Exchange
Commission will be furnished without charge to stockholders upon written
request. Please write
                                     to:
                          John L. Casagrande, Clerk
                    Westborough Financial Services, Inc.
                            100 East Main Street
                            Westborough, MA 01581

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

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

                            Independent Auditors
                            Wolf & Company, P.C.
                           One International Place
                              Boston, MA 02110
                               (617) 439-9700

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

                                 MEMBER FDIC
                                 MEMBER DIF
                            EQUAL HOUSING LENDER
                           www.westboroughbank.com


         Management's Discussion and Analysis of Financial Condition
                          and Results of Operations

Forward Looking Statements

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

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

      *     conditions which effect general and local economies;
      *     changes in interest rates, deposit flows, demand for mortgages
            and other loans, real estate values and competition;
      *     changes in accounting principles, policies, or guidelines;
      *     changes in legislation or regulation; and
      *     other economic, competitive, governmental, regulatory, and
            technological factors affecting our operations, pricing,
            products and services.

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


<PAGE>  1


General

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

      Unless otherwise indicated, the information presented herein
represents the consolidated activity of the Company and its subsidiary for
the fiscal year ended September 30, 2002. The following discussion and
analysis should be read in conjunction with the consolidated financial
statements and related notes that are included within this report.

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

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

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

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

Business Strategy

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


<PAGE>  2


      *     continue to focus on expanding its residential lending and
            retail banking franchise, and increasing the number of
            households served within its market area;
      *     expand its commercial banking products and services for small-
            and medium-sized businesses, as a means to increase the yield
            on its loan portfolio and to attract lower cost transaction
            deposit accounts;
      *     expand its branch network to increase its market share;
      *     increase the use of alternative delivery channels, such as on-
            line and telephonic banking; and
      *     offer a variety of uninsured products and services as a means
            to compete for an increased share of its customers' financial
            service business.

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

Asset/Liability Management; Market Risk Analysis

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

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

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


<PAGE>  3


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

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

      At September 30, 2002, the Company's cumulative one-year gap
position, which measures the difference between the amount of interest-
earning assets maturing or re-pricing within one year, and interest-bearing
liabilities maturing or re-pricing within one year, was a negative 13.42%
of total assets. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive
assets. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities.
Accordingly, during a period of rising interest rates, an institution with
a negative gap position generally would not be in as favorable a position,
compared to an institution with a positive gap, to invest in higher
yielding assets. The resulting yield on an institution's assets generally
would increase at a slower rate than the increase in its cost of interest-
bearing liabilities. Conversely, during a period of falling interest rates,
an institution with a negative gap would tend to experience a re-pricing of
its assets at a slower rate than its interest-bearing liabilities which,
consequently, would generally result in its net interest income growing at
a faster rate than an institution with a positive gap position.

      The following table sets forth the amortized cost of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 2002,
which is anticipated by the Company, based upon certain assumptions, to re-
price or mature in each of the future time periods shown. Except as stated
below, the amount of assets and liabilities shown which re-price or mature
during a particular period were determined in accordance with the earlier
term to re-pricing/call date or the contractual maturity of the asset or
liability. The table sets forth an approximation of the projected re-
pricing of assets and liabilities at September 30, 2002, on the basis of
contractual maturities, anticipated prepayments and scheduled rate
adjustments within a three-month period and subsequent projected time
intervals. The loan amounts in the table reflect principal balances
expected to be redeployed and/or re-priced as a result of contractual
amortization and as a result of contractual rate adjustments on adjustable-
rate loans.


<PAGE>  4


<TABLE>
<CAPTION>

                                                         Amounts Maturing or Re-pricing as of September 30, 2002
GAP Table                            ----------------------------------------------------------------------------------------------
                                     less than 3     3 to 6     6 months      1 to       3 to        5 to        over
                                        months       months     to 1 year    3 years    5 years    10 years    10 years     Total
                                     ----------------------------------------------------------------------------------------------
                                                                            ($ in thousands)


                                    <c>          <c>         <c>          <c>        <c>        <c>         <c>         <c>
Interest-earning Assets (1)
  Short-term investments (2)           $13,958      $      0    $      0     $     0    $     0    $     0     $      0    $ 13,958
  Investment securities (3)              6,122         1,516      12,218      25,524     12,471        886            0      58,737
  Mortgage and asset
   backed securities                         0           130           0       2,254      2,947      4,341        8,479      18,151
  Loans (4)                             13,048         1,463      10,818      25,208     17,248     60,607        5,414     133,806
                                       --------------------------------------------------------------------------------------------
  Total interest-earning assets        $33,128      $  3,109    $ 23,036     $52,986    $32,666    $65,834     $ 13,893    $224,652
                                       --------------------------------------------------------------------------------------------

Interest-bearing Liabilities:
  NOW accounts (5)                     $ 1,703      $  1,703    $  1,704     $ 1,703    $     0    $     0     $ 10,220    $ 17,033
  Regular and other savings
   accounts (5)                          9,620         9,621       9,620       9,621          0          0       57,723      96,205
  Money market deposit accounts (5)        526           526         526         526          0          0        3,155       5,259
  Certificate of deposit accounts       24,918        15,137      13,338       9,680          0          0            0      63,073
  Federal Home Loan Bank
   borrowings (6)                            0             0       2,500       5,000          0      2,000            0       9,500
  Mortgage escrow deposits                 198             0           0           0          0          0            0         198
                                       --------------------------------------------------------------------------------------------
  Total interest-bearing
   liabilities                         $36,965      $ 26,987    $ 27,688     $26,530    $     0    $ 2,000     $ 71,098    $191,268
                                       --------------------------------------------------------------------------------------------

Interest sensitivity gap               $(3,837)     $(23,878)   $ (4,652)    $26,456    $32,666    $63,834     $(57,205)   $ 33,384
Cumulative interest
 sensitivity gap                       $(3,837)     $(27,715)   $(32,367)    $(5,911)   $26,755    $90,589     $ 33,384

Cumulative interest sensitivity
 gap as a percent of total assets        -1.59%       -11.49%     -13.42%      -2.45%     11.09%     37.55%       13.84%

Cumulative interest sensitivity
 gap as a percent of total
 interest-earning assets                 -1.71%       -12.34%     -14.41%      -2.63%     11.91%     40.32%       14.86%

Cumulative interest sensitivity
 gap as a percent of total
 interest-bearing liabilities            -2.01%       -14.49%     -16.92%      -3.09%     13.99%     47.36%       17.45%

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


<PAGE>  5


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

      The following table sets forth certain information relating to the
Company's financial condition and net interest income at and for the years
ended September 30, 2002, 2001, and 2000, and reflects the average yield on
assets and average cost of liabilities for the periods indicated. Such
yields and costs are derived by dividing interest and dividend income or
interest expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from
average daily balances. The yields include fees and costs, which are
considered adjustments to yields.


<PAGE>  6


<TABLE>
<CAPTION>

                                                                For the Year Ended September 30,
                                -------------------------------------------------------------------------------------------------
                                             2002                             2001                             2000
                                ------------------------------   ------------------------------   -------------------------------
                                                      Average                          Average                           Average
                                Average               Yield or   Average               Yield or    Average               Yield or
                                Balance    Interest     Cost     Balance    Interest     Cost      Balance    Interest     Cost
                                -------------------------------------------------------------------------------------------------
                                                                        ($ in thousands)


                             <c>         <c>        <c>       <c>         <c>        <c>       <c>         <c>        <c>
Assets:
Interest-earning assets:
  Short-term investments (1)    $ 11,956    $   209      1.75%   $ 11,781    $   591      5.02%   $  7,898    $   471      5.96%
  Investment Securities (2)       68,194      4,068      5.97%     71,016      4,440      6.25%     67,911      4,247      6.25%
  Loans (3)                      136,118      9,594      7.05%    121,247      9,104      7.51%     97,410      7,273      7.47%
                                --------    -------              --------    -------              --------    -------
    Total interest-earning
     assets                      216,268     13,871      6.41%    204,044     14,135      6.93%    173,219     11,991      6.92%
                                            -------                          -------                          -------
  Non-interest-earning
   assets                         16,795                           13,708                           11,524
                                --------                         --------                         --------
    Total Assets                $233,063                         $217,752                         $184,743
                                ========                         ========                         ========

Liabilities and Equity:
Interest-bearing
 liabilities:
  NOW accounts                  $ 17,032    $    73      0.43%   $ 16,353    $    83      0.51%   $ 14,514    $    73      0.50%
  Savings accounts (4)            86,667      1,899      2.19%     74,646      2,344      3.14%     69,239      2,324      3.36%
  Money market deposit
   accounts                        5,903        101      1.71%      5,196        102      1.96%      6,346        138      2.17%
  Certificate of deposit
   accounts                       63,848      2,509      3.93%     61,019      3,345      5.48%     52,765      2,691      5.10%
                                 -------    -------               -------     ------               -------     ------
    Total interest-bearing
     deposits                    173,450      4,582      2.64%    157,214      5,874      3.74%    142,864      5,226      3.66%
  Borrowed funds                  11,677        776      6.65%     16,178      1,053      6.51%      5,335        299      5.60%
                                --------    -------              --------     ------              --------    -------
    Total interest-bearing
     liabilities                 185,127      5,358      2.89%    173,392      6,927      4.00%    148,199      5,525      3.73%
                                --------    -------              --------    -------              --------    -------

  Non-interest bearing
   deposits                       18,156                           16,315                          12,546
  Other non-interest-bearing
   liabilities                     2,517                            2,597                           2,059
                                --------                         --------                         -------
    Total non-interest-
     bearing liabilities          20,673                           18,912                          14,605
                                --------                         --------                         -------

    Total liabilities            205,800                          192,304                         162,804
    Total stockholders'
     equity                       27,263                           25,448                          21,939
                                --------                         --------                         -------

    Total liabilities and
     stockholders' equity       $233,063                         $217,752                         $184,743
                                ========                         ========                         ========

Net interest income                         $ 8,513                          $ 7,208                          $ 6,466
                                            =======                          =======                          =======
Net interest rate spread (5)                            3.52%                             2.93%                            3.19%
                                                      ======                            ======                         ========
Net interest margin (6)                                 3.94%                             3.53%                            3.73%
                                                      ======                            ======                         ========
Ratio of interest earning
 assets to interest-bearing
 liabilities                                          116.82%                           117.68%                          116.88%
                                                      ======                            ======                           ======
<FN>
--------------------
<F1>  Short-term investments include federal funds, money market mutual
      funds and interest earning amounts in the Federal Home Loan Bank of
      Boston.
<F2>  All investment securities are considered available for sale.
<F3>  Loans are net of deferred loan origination costs (fees), allowance
      for loan losses, discount/premium on purchased loans and unadvances
      funds.
<F4>  Savings accounts include the balance in mortgagors' escrow accounts.
<F5>  Net interest rate spread represents the difference between the
      weighted average yield on interest-earning assets and the weighted
      average cost of interest-bearing liabilities.
<F6>  Net interest margin represents net interest income as a percentage of
      average interest-earning assets.
</FN>
</TABLE>


<PAGE>  7


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

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

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

<TABLE>
<CAPTION>

                                            Year Ended September 30, 2002       Year Ended September 30, 2001
                                               Compared to Year Ended              Compared to Year Ended
                                                 September 30, 2001                  September 30, 2000
                                                 Increase (Decrease)                 Increase (Decrease)
                                            ------------------------------      -----------------------------
                                                       Due to                              Due to
                                            ------------------------------      -----------------------------
                                            Volume       Rate          Net      Volume       Rate       Net
                                            -----------------------------------------------------------------
                                                                    ($ In thousands)


                                       <c>         <c>          <c>         <c>         <c>       <c>
Interest-earning assets:
  Short-term investments (1)              $    9      $   (391)    $  (382)    $  204      $ (84)    $  120
  Investment Securities (2)                 (173)         (199)       (372)       194         (1)       193
  Loans (3)                                1,071          (581)        490      1,790         41      1,831
                                          -----------------------------------------------------------------
      Total interest-earning assets          907        (1,171)       (264)     2,188        (44)     2,144
                                          -----------------------------------------------------------------

Interest-bearing liabilities:
  NOW accounts                                 3           (13)        (10)         9          1         10
  Savings accounts (4)                       338          (783)       (445)       175       (155)        20
  Money market deposit accounts               13           (14)         (1)       (23)       (13)       (36)
  Certificate of deposit accounts            149          (985)       (836)       442        212        654
                                          -----------------------------------------------------------------
      Total interest-bearing deposits        503        (1,795)     (1,292)       603         45        648
  Borrowed funds                            (299)           22        (277)       699         55        754
                                          -----------------------------------------------------------------
      Total interest-bearing liabilities     204        (1,773)     (1,569)     1,302        100      1,402
                                          -----------------------------------------------------------------
Net change in net interest income          $ 703      $    602     $ 1,305     $  886      $(144)    $  742
                                           ================================================================

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


<PAGE>  8


Comparison of Financial Condition at September 30, 2002 and September 30,
2001

      As a result of continued growth in deposits, the Company's total
assets increased by $15.6 million, or 6.91%, to $241.3 million at September
30, 2002 from $225.7 million at September 30, 2001. Net loans during this
period declined by $2.1 million, or 1.54%, to $132.9 million at September
30, 2002, from $135.0 million at September 30, 2001. The loan decline was
primarily due to a net decline in fixed-rate mortgage loans on real estate,
as a result of the current low interest rate environment that encouraged
increased loan payoffs and refinancing. Securities available for sale and
cash and cash equivalents increased by $15.4 million, to $94.9 million at
September 30, 2002 as compared to $79.5 million at September 30, 2001 due
primarily to the investment of funds provided from deposit growth. Banking
premises and equipment increased by $2.7 million to $5.5 million at
September 30, 2002 as compared to $2.9 million at September 30, 2001
primarily as a result of the completion of the Company's administrative
office building and progress payments made on the construction of a branch
office in the town of Shrewsbury, Massachusetts. Asset quality remained
strong, with $140 thousand of non-performing assets at September 30, 2002.

      Total deposits increased by $17.0 million, or 9.17%, to $202.1
million at September 30, 2002 from $185.1 million at September 30, 2001.
Most of this increase was attributable to increases in variable-rate tiered
accounts and regular savings accounts. In the current low interest rate and
volatile investment environment, deposit customers preferred to place their
deposits in stable accounts that offer higher liquidity. As a result of the
payment of outstanding advances from the Federal Home Loan Bank of Boston,
advances declined by $2.5 million during this period.

      Total stockholders' equity increased by $1.1 million, or 4.00%, to
$28.0 million at September 30, 2002 from $26.9 million at September 30,
2001. This increase is mainly due to net income of $979 thousand for fiscal
year ended September 30, 2002, plus a $715 thousand increase in net
unrealized gains on securities considered available for sale.
Alternatively, stockholders' equity was reduced by the payment of cash
dividends of $316 thousand and a $475 thousand purchase of 22,139 shares of
the Company's common stock by the Recognition and Retention Plan ("RRP")
Trust.

Comparison of Financial Condition at September 30, 2001 and September 30,
2000

      Total assets increased by $19.7 million, or 9.56%, to $225.7 million
at September 30, 2001 from $206.0 million at September 30, 2000. Net loans
during this period increased by $21.4 million, or 18.84%, to $135.0 million
at September 30, 2001, from $113.6 million at September 30, 2000. The loan
increase was primarily due to increased loans originated or purchased,
which were secured by real estate. Investment securities decreased by $4.6
million, to $65.5 million at September 30, 2001, from $70.1 million at
September 30, 2000. The investment securities decline was attributable in
part to the utilization of proceeds from investment security sales and
maturities to meet new loan funding requirements and for the payment of
$4.5 million of scheduled maturities of FHLB advances. Asset quality
remained strong, with no non-performing assets for each of the years ended
September 30, 2001 and September 30, 2000.

      Total deposits increased by $21.7 million, or 13.3%, to $185.1
million at September 30, 2001 from $163.4 million at September 30, 2000.
Most of this increase was attributable to increases in certificates of
deposits, regular savings accounts and checking accounts.

      Total stockholders' equity increased by $2.2 million, or 8.88%, to
$26.9 million at September 30, 2001 from $24.7 million at September 30,
2000. This increase is mainly due to net income of $1.4 million for fiscal
year ended September 30, 2001, plus, a $1.1 million increase in net
unrealized gains on securities considered available for sale.
Alternatively, stockholders' equity was reduced by the payment of cash
dividends of $316 thousand.


<PAGE>  9


Comparison of Operating Results for the Years Ended September 30, 2002 and
2001

      Net Income. The Company reported earnings per share (dilutive) for
the fiscal year ended September 30, 2002 of $0.63 on net income of $979
thousand. For the comparative fiscal year ended September 30, 2001, the
Company reported earnings per share (dilutive) of $0.90 on net income of
$1.4 million. The $419 thousand decline in net income was primarily the
result of current year net losses on the sale of securities, a decline of
income from customer service fees, an increase in operating expenses and a
decline in the cumulative effect of a change in accounting principle. These
areas were offset, to a lesser extent, by an increase in net interest
income. The Company's return on average assets for the year ended September
30, 2002 was 0.42% compared to 0.64% for the year ended September 30, 2001.

      Interest and Dividend Income. Interest and dividend income declined
by $264 thousand or 1.87%, to $13.9 million for the year ended September
30, 2002 from $14.1 million for the year ended September 30, 2001. The
decrease in interest and dividend income was mainly the result of a decline
in the earnings rate earned on interest earning assets offset, to a lesser
extent, by an increase in the volume of interest earning assets. The
average rate earned on interest earning assets was 6.41% on average earning
assets of $216.3 million and 6.93% on average interest earning assets of
$204.0 for the years ended September 30, 2002 and 2001, respectively. The
Federal Reserve Bank's, Federal Open Market Committee, ("FOMC") reduced the
discount rate by 1.25 percentage points during the fiscal year ended
September 30, 2002. This generally declining interest rate environment
translated into declining rates earned on loans, investment securities and
short-term investments. Additionally, some loan customers renegotiated
existing loan rates that, accordingly, lowered rates earned by the Company
on those loans.

      The average balance of loans for the year ended September 30, 2002
was $136.1 million, earning 7.05% for the year. This compares to an average
balance of loans for the year ended September 30, 2001 of $121.2 million,
earning 7.51% for the year. The average balance of investment securities
for the year ended September 30, 2002 was $68.2 million, earning 5.97% for
the year. This compares to an average balance of investments for the year
ended September 30, 2001 of $71.0 million, earning 6.25% for the year.
Finally, the average balance of short-term investments for the year ended
September 30, 2002 was $12.0 million, earning 1.75% for the year. This
compares to an average balance of short-term investments for the year ended
September 30, 2001 of $11.8 million, earning 5.02% for the year.

      Interest Expense. Interest expense declined by $1.6 million, or
22.65%, to $5.4 million for the year ended September 30, 2002 from $6.9
million for the year ended September 30, 2001. Interest expense declined
mainly due to a decline in the average rate paid on interest-bearing
liabilities offset, to a lesser extent, by an increase in the average
volume of interest-bearing liabilities. The previously mentioned FOMC
interest rate reductions allowed the Company to reduce rates paid on NOW,
savings, money market deposit and certificates of deposit accounts. The
average volume of interest-bearing deposits increased to $173.5 million
with a cost of 2.64% for the year ended September 30, 2002 as compared to
$157.2 million with a cost of 3.74% for the year ended September 30, 2001.
The average volume of borrowed funds from the FHLB decreased during the
year ended September 30, 2002 to $11.7 million, with a cost of 6.65%, from
an average balance of $16.2 million, with a cost of 6.51% for the year
ended September 30, 2001.

      Net Interest Income. Generally declining interest rates resulted in a
decline in the Company's interest expenses on deposits and borrowings and,
to a lesser extent, to a decline in interest income on loans and
investments. Net interest income increased by $1.3 million for the year
ended September 30, 2002, or 18.10%, to $8.5 million from $7.2 million for
the year ended September 30, 2001. The increase is attributed to the
combination of a decrease of $1.6 million in total interest expense offset,
to a lesser extent, by a decrease of $264 thousand in total interest and
dividend income. The Bank's net interest rate spread increased to 3.52% for
the year ended September 30, 2002 from 2.93% for the comparative year ended
September 30, 2001.


<PAGE>  10


      The average yield on interest-earning assets declined to 6.41% for
the year ended September 30, 2002 as compared to 6.93% for the year ended
September 30, 2001 and the average volume of interest-earning assets
increased to $216.3 million for the year ended September 30, 2002 as
compared to $204.0 million for the year ended September 30, 2001. The
average cost of interest-bearing liabilities declined to 2.89% for the year
ended September 30, 2002, from 4.00% for the year ended September 30, 2001.
The average volume of interest-bearing liabilities increased to $185.1
million for the year ended September 30, 2002 as compared to $173.4 million
for the year ended September 30, 2001.

      Provision for Loan Losses. The Company recorded an $8 thousand
provision for loan losses for the year ended September 30, 2002 as compared
to a $48 thousand provision for the year ended September 30, 2001. The
provision for loan losses is a result of management's periodic analysis of
risks inherent in its loan portfolio from time to time, as well as the
adequacy of the allowance for loan losses. It is the Bank's policy to
provide valuation allowances for estimated losses on loans based upon past
loss experience, current trends in the level of delinquent and specific
problem loans, loan concentrations to single borrowers, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current and anticipated economic conditions in
our market area. Accordingly, the evaluation of the adequacy of the
allowance for loan losses is not based directly on the level of non-
performing loans. The allowance for loan losses, in management's opinion,
is sufficient to cover losses in the Bank's loan portfolio at this time. As
the Bank expands its commercial lending activities, management believes
that growth in the provision for loan losses may be likely. Additionally,
while the Bank believes it has excellent loan quality, with $140 thousand
of non-accrual loans and non-performing assets at September 30, 2002, the
Bank recognizes that it is located in a market and geographic area that is
considered in the high technology and financial services belt. The Bank's
loan portfolio is representative of such demographics. Unemployment rates
in Massachusetts and its area have increased and commercial property
vacancy rates have also risen. While Bank management believes that its
current level of allowance for loan losses is adequate, there can be no
assurance that the allowance will be sufficient to cover loan losses or
that future adjustments to the allowance will not be necessary if economic
and/or other conditions differ substantially from the economic and other
conditions considered by management in evaluating the adequacy of the
current level of the allowance.

      Other Income. Other income consists primarily of fee income for bank
services, gains and losses from the sale of securities and income from
bank-owned life insurance. For the year ended September 30, 2002, the
Company reported a net loss on the sale of securities of $466 thousand as
compared to a net gain on the sale of securities of $710 thousand for the
year ended September 30, 2001. During the quarter ended September 30, 2002,
the Company sold, at a loss, certain common stock holdings of financial
services and technology companies. The resultant capital loss will receive
favorable tax treatment, since the Company will be able to carry back the
current year loss three years, to a period in which it had paid taxes on
capital gains. With regard to the Company's common stock holdings, its
internal investment policy requires it to either write-down to market
value, or sell, any common stock issue that has sustained a continuous
decline in market value of 50% or more, for a period of 9 months or more.
While the aforementioned common stock sales did not meet the criteria for
such write-down or sale at September 30, 2002, the Company felt such common
stock was nearing the 9-month measurement period, and it decided to incur
such losses to utilize the previously mentioned three-year tax loss carry-
back, which would have expired at the end on its September 30, 2002 tax
year. Although the management of the Bank believes that it has established
and maintained an adequate accounting policy as it relates to investment
impairment, such judgments involve a higher degree of complexity and
require management to make difficult and subjective judgments that often
require assumptions or estimates about highly uncertain matters. Changes in
these judgments, assumptions or estimates could cause reported results to
differ materially. This critical policy and its application are
periodically reviewed with the Audit Committee and our Board of Directors.
Also, during the year ended September 30, 2002, income from customer
service fees declined by $219 thousand as compared to the previous year
primarily as a result of a decline in income from the sale of non-deposit
investment products. Miscellaneous income increased by $40


<PAGE>  11


thousand to $200 thousand for the year ended September 30, 2002 mainly due
to an increase in income from bank-owned life insurance.

      Operating Expenses. Operating expenses increased by $469 thousand, to
$7.4 million for the year ended September 30, 2002 as compared to $7.0
million for the previous year ended September 30, 2001 primarily as a
result of increases in salaries and benefits expenses, increases in data
processing expenses relating to the Company's recent conversion to an
enhanced data processing and information system and also due to its move
into the addition to the Bank's main office. These expenses were offset, to
a lesser extent, by a decline in marketing expenses, professional fees and
other general and administrative expenses. Salary and employee benefits
expenses increased by $319 thousand, or 8.93%, to $3.9 million for the year
ended September 30, 2002 as compared to $3.6 million for the year ended
September 30, 2001. Most of this increase was a result of staff additions,
the use of temporary help, normal salary increases for existing staff,
increases in health insurance premiums, incentive payments for staff
involved in the Bank's data processing conversion and increases in
retirement benefit costs. Occupancy and equipment expenses increased by
$117 thousand, or 11.94%, to $1.1 million for the year ended September 30,
2002 as compared to $1.0 million for the year ended September 30, 2001.
During the recent year, the Company moved into its addition to the main
office and, as a result, depreciation, maintenance, equipment, utility and
related costs increased from the previous year. Data processing expenses
increased by $252 thousand, or 56.12%, to $701 thousand for the year ended
September 30, 2002 as compared to $449 thousand for the year ended
September 30, 2001. The Company converted to a new data processing system
in March 2002, and one-time, non-recurring conversion costs of $44 thousand
related to that conversion. Marketing expenses declined by $65 thousand, to
$220 thousand for the year ended September 30, 2002 mainly due to the
increased in-house production of marketing materials. Professional fees
declined by $54 thousand, to $282 thousand for the year ended September 30,
2002 due to a decline in the level of legal expenses. Other general and
administrative expenses declined by $100 thousand, to $1.3 million for the
year ended September 30, 2002 mainly as a result of a decrease in costs
associated with outside consulting services.

      Income Taxes. Reflecting the lower level of income before income
taxes and cumulative change in accounting principle, the provision for
income taxes declined by $223 thousand to $253 thousand for the year ended
September 30, 2002 as compared to $476 thousand for the year ended
September 30, 2001, resulting in an effective tax rate of 20.54% and 27.56%
for the years ended September 30, 2002 and 2001, respectively. The Bank
utilizes security investment subsidiaries to substantially reduce state
income taxes and receives the benefit of a dividends received deduction on
common stock. Additionally, the Bank receives favorable tax treatment from
the increase in the cash surrender value of bank-owned life insurance.


<PAGE>  12


Comparison of Operating Results for the Years Ended September 30, 2001 and
2000

      Net Income. The Company reported earnings per share (dilutive) for
the fiscal year ended September 30, 2001 of $0.90 on net income of $1.4
million. Earnings per share data for the comparative period ended September
30, 2000 is not applicable since the Company's stock commenced trading on
February 16, 2000. For the year ended September 30, 2001, net income
increased $147 thousand or 11.8%, to $1.4 million as compared to $1.3
million for the year ended September 30, 2000. This increase was primarily
the result of increases in net interest income of $742 thousand, customer
service fees of $303 thousand, the after-tax cumulative effect of a change
in accounting principle relating to covered call options of $147 thousand,
and net investment gains of $124 thousand, offset, to a lesser extent, by
an increase in operating expenses of $1.1 million. The Bank's return on
average assets for the year ended September 30, 2001 was 0.64% compared to
0.68% for the year ended September 30, 2000.

      Interest and Dividend Income. Interest and dividend income increased
by $2.1 million or 17.88%, to $14.1 million for the year ended September
30, 2001 from $12.0 million for the year ended September 30, 2000. The
increase in interest and dividend income was mainly the result of a higher
average volume of interest-earning assets. The average volume of interest-
earning assets for the year ended September 30, 2001 was $204.0 million
earning a rate of 6.93% as compared to $173.2 million earning a rate of
6.92% for the year ended September 30, 2000. The Bank experienced continued
growth in real estate lending and invested additional cash flows into
investments. The average balance of loans for the year ended September 30,
2001 was $121.2 million, earning 7.51% for the year. This compares to an
average balance of loans for the year ended September 30, 2000 of $97.4
million, earning 7.47% for the year. The average balance of investment
securities for the year ended September 30, 2001 was $71.0 million, earning
6.25% for the year. This compares to an average balance of investments for
the year ended September 30, 2000 of $67.9 million, earning 6.25% for the
year. Finally, the average balance of short-term investments for the year
ended September 30, 2001 was $11.8 million, earning 5.02% for the year.
This compares to an average balance of short-term investments for the year
ended September 30, 2000 of $7.9 million, earning 5.96% for the year.

      Interest Expense. Interest expense increased by $1.4 million, or
25.38%, to $6.9 million for the year ended September 30, 2001 from $5.5
million for the year ended September 30, 2000. Interest expense increased
due to a higher volume of interest-bearing liabilities and, to a lesser
extent, by an increase in the average rate of interest paid on such
interest-bearing liabilities. The average volume of interest-bearing
liabilities was $173.4 million with a cost of 4.00% for the year ended
September 30, 2001 as compared to $148.2 million with a cost of 3.73% for
the year ended September 30, 2000. The average volume of borrowed funds
from the FHLB increased during the year ended September 30, 2001 to $16.2
million with a cost of 6.51%, up from an average balance of $5.3 million
with a cost of 5.60% for the year ended September 30, 2000. The average
volume of interest-bearing deposits increased to $157.2 million with a cost
of 3.74% for the year ended September 30, 2001 as compared to $142.9
million with a cost of 3.66% for the year ended September 30, 2000.

      Net Interest Income. Net interest income increased by $742 thousand
for the year ended September 30, 2001, or 11.48%, to $7.2 million from $6.5
million for the year ended September 30, 2000. The increase is attributed
to the combination of an increase in interest and dividend income of $2.1
million and an increase in interest expense of $1.4 million. The Bank's net
interest rate spread decreased to 2.93% for the year ended September 30,
2001 from 3.19% for the comparative year ended September 30, 2000.

      The average yield on interest-earning assets increased to 6.93% for
the year ended September 30, 2001 as compared to 6.92% for the year ended
September 30, 2000 and the average volume of interest-earning assets
increased to $204.0 million for the year ended September 30, 2001 as
compared to $173.2 million for the year ended September 30, 2000. The
average cost of interest-bearing liabilities


<PAGE>  13


increased to 4.00% for the year ended September 30, 2001, from 3.73% for
the year ended September 30, 2000. The average volume of interest-bearing
liabilities increased to $173.4 million for the year ended September 30,
2001 as compared to $148.2 million for the year ended September 30, 2000.

      Provision for Loan Losses. The Bank recorded a $48 thousand provision
for loan losses for the year ended September 30, 2001 as compared to no
provision for the year ended September 30, 2000. As the Bank expands its
commercial lending activities, management believes that increases in the
provision are likely, since commercial lending generally has a higher
degree of risk compared to lending secured by residential, one-to-four
family dwellings.

      Other Income. Other income consists primarily of fee income for bank
services, gains and losses from the sale of securities, income from the
writing of covered call options on common stock held in the Bank's stock
portfolio and income from bank-owned life insurance. Total other income
increased by $449 thousand, to $1.5 million for the year ended September
30, 2001 compared to $1.1 million for the year ended September 30, 2000.
Net gains on the sale of securities available for sale increased by $533
thousand, to $710 thousand, for the year ended September 30, 2001 as
compared to $177 thousand for the year ended September 30, 2000. Also,
other income increased due to a significantly higher level of customer
service fees earned from the sale on non-insured, investment products. For
the year ended September 30, 2001, income from writing covered options
declined by $409 thousand to $16 thousand as compared to $425 thousand for
the year ended September 30, 2000. At September 30, 2001, the Bank had no
outstanding options written on common stock held in its portfolio.

      Operating Expenses. For the year ended September 30, 2001, operating
expenses increased $1.1 million, or 19.67%, to $7.0 million from $5.8
million for the year ended September 30, 2000. The increase was primarily
due to a $612 thousand increase in salary and benefits expenses associated
with incentive payments to support the sale of non-insured, investment
products, plus, increased supplemental employee retirement plan expenses
and expenses for personnel to support training and information technology.
The year ended September 30, 2001, also reflects increased expenses
relating to legal, accounting, transfer agent, publishing and other costs
associated with the Company's first annual meeting of its stockholders.
Operating expenses also reflect the increased cost of the Bank's plan to
update its computers along with the associated increases in data processing
costs. The Bank replaced many older computers with newer equipment in order
to allow for the migration to more efficient transaction processing
systems, use of electronic mail and Internet services and to provide
enhanced customer services. Other general and administrative services
increased due to increases in directors' fees, expenses associated with the
development and maintenance of the Bank's web site, the increased use of
the telephone and postage and increased expenses for office supplies.

      Income Taxes. Reflecting the slightly lower level of income before
income taxes and cumulative change in accounting principle, the provision
for income taxes declined by $4 thousand to $476 thousand for the year
ended September 30, 2001 as compared to $480 thousand for the year ended
September 30, 2000, resulting in an effective tax rate of 27.56% and 27.73%
for the years ended September 30, 2001 and 2000, respectively. The Bank
utilizes security investment subsidiaries to substantially reduce state
income taxes and receives the benefit of a dividends received deduction on
common stock. Additionally, the Bank receives favorable tax treatment from
the increase in the cash surrender value of Bank-owned life insurance.

      Change in Accounting Principle. In June 1998, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which, as amended by SFAS Nos. 137 and
138, is effective for all fiscal years beginning after June 15, 2000. This
Statement establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative
instruments embedded in other contracts, and requires that an entity
recognize all derivatives as assets or liabilities in the balance sheet and
measure them at fair value. The Company adopted these new


<PAGE>  14


accounting standards on October 1, 2000. Adoption of these Statements by
the Company required that changes in the fair value of covered call options
be recognized in net income and resulted in pre-tax earnings in the amount
of $223 thousand during year ended September 30, 2001.


<PAGE>  15


Liquidity and Capital Resources

      The term "liquidity" refers to the Bank's ability to generate
adequate amounts of cash to fund loan originations, deposit withdrawals and
operating expenses. The Bank's primary sources of funds are deposits,
scheduled amortization and prepayments of loan principal and mortgage-
backed securities, maturities and calls of investment securities and funds
provided by the Bank's operations. From time to time, the Bank has utilized
borrowing from the FHLB as part of its management of interest rate risk. At
September 30, 2002, the Bank had $9.5 million in outstanding borrowings.

      The Bank generally makes loan commitments to borrowers not exceeding
45 days. At September 30, 2002, the Bank had $5.7 million in loan
commitments outstanding, primarily for the origination of one- to four-
family residential real estate loans, commercial loans and commercial real
estate loans. Unadvanced funds on home equity lines of credit and
commercial lines of credit at September 30, 2002 represented $9.5 million
and $2.1 million, respectively. Total deposits increased $17.0 million,
$21.7 million, and $13.3 million, during the years ended September 30,
2002, 2001 and 2000, respectively. The level of deposit flows is affected
by interest rates offered by the Bank, products offered by competitors and
other factors. Certificate of deposit accounts scheduled to mature within
one year were $53.4 million at September 30, 2002. Based on the Bank's
deposit retention experience and current pricing strategy, the Bank
anticipates that a significant portion of these certificates of deposit
will remain with the Bank. The Bank is committed to maintaining a strong
liquidity position; therefore, it monitors its liquidity position on a
daily basis. The Bank also periodically reviews liquidity information
prepared by the Federal Deposit Insurance Corporation (the "FDIC"),
Depositors Insurance Fund and other available reports that compare the
Bank's liquidity with banks in its peer group. The Bank anticipates that it
will have sufficient funds to meet its current funding commitments.
Further, the Bank does not have any balloon or other payments due on any
long-term obligations or any off-balance sheet items other than the
commitments.

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

<TABLE>
<CAPTION>

                                          As of September 30, 2002
                             --------------------------------------------------
                                                        Minimum
                              Actual                  For Capital
                             Capital    Percent of      Adequacy     Percent of
                              Amount    Assets (1)      Purposes       Assets
                             --------------------------------------------------
                                           (Dollars in thousands)


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

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

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


<PAGE>  16


Impact of Inflation and Changing Prices

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

Critical Accounting Policies

      The Notes to our Audited Consolidated Financial Statements for the
year ended September 30, 2002 included in our Annual Report contain a
summary of our significant accounting policies. We believe our policies
with respect to the methodology for our determination of the allowance for
loan losses, asset impairment judgments and other than temporary declines
in the value of our securities, involve a higher degree of complexity and
require management to make difficult and subjective judgments, which often
require assumptions or estimates about highly uncertain matters. Changes in
these judgments, assumptions or estimates could cause reported results to
differ materially. The Audit Committee and our Board of Directors
periodically review these critical policies and their application.


<PAGE>  17


Directors of the Company and the Bank

      Nelson P. Ball is the owner of Ball Financial Services, Co., located
in Westborough, Massachusetts. He has served as a financial services
consultant for over 35 years and is affiliated with Commonwealth Financial
Networks, a member of the National Association of Securities Dealers, Inc.

      Edward S. Bilzerian is retired from Bilzerian Consulting Group, Inc.,
a privately held company located in Worcester, Massachusetts, specializing
in small business turnarounds, where he served as president. Prior to that,
he was Vice President of Marketing and Finance at Bay State Abrasive's
Division of Dresser Industries. He has been self-employed for over 16
years. Mr. Bilzerian also serves as a member of the Worcester Airport
Commission and Chairman of the Worcester Health and Hospital Authority.

      David E. Carlstrom has served as President of Carlstrom Pressed Metal
Co., Inc. for over 25 years. Carlstrom Pressed Metal is a contract
manufacturer of light and heavy metal stampings located in Westborough,
Massachusetts.

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

      William W. Cotting, Jr. has been an attorney in private practice for
over 20 years. His practice is located in Northborough, Massachusetts.

      Robert G. Daniel was employed in various capacities, including
President and Treasurer, at Carlson Daniel Insurance Agency, Inc., located
in Westborough, Massachusetts from 1958 to 1994. Mr. Daniel sold insurance
from 1994 to 1996 for Allied American Agency following its acquisition of
Carlson Daniel Insurance. From 1996 to 1999, Mr. Daniel served as President
and Treasurer of Westborough Insurance Agency, Inc., a non-active
corporation used as a vehicle for payments from Allied American as
negotiated in connection with the acquisition of Carlson Daniel.
Westborough Insurance Agency, Inc. dissolved in 1999.

      Earl H. Hutt has served as an investment advisor and portfolio
manager for private industry for over 20 years.

      Walter A. Kinell, Jr. has served as Chairman of the Board for
Westborough Bank since 1994 and for Westborough Financial Services since
its inception in 2000. Mr. Kinell joined Westborough Bank in 1959 as an
assistant treasurer, became President and Chief Executive Officer in 1969
and retired from this position in 1994.

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

      Roger B. Leland has practiced estate, tax and real estate law at
Leland Law Associates for over 30 years. During that time, he also served
as an insurance broker, selling life and casualty insurance products,
through Leland Insurance Agency, Inc. Leland Law Associates and Leland
Insurance Agency are located in Northborough, Massachusetts.


<PAGE>  18


      Joseph F. MacDonough has served as President and Chief Executive
Officer of Westborough Bank since 1994 and of Westborough Financial
Services since its inception in 2000. He joined Westborough Bank in 1981
and served as Vice President and Treasurer until his appointment as
President. Mr. MacDonough serves on the Board of Trustees of The Savings
Bank Employees' Retirement Association and is a certified public
accountant.

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

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

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

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


<PAGE>  19


                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                    WESTBOROUGH FINANCIAL SERVICES, INC.


Independent Auditors' Report                                         F-1

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

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

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

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

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


<PAGE>


                        INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Westborough
Financial Services, Inc. and subsidiary as of September 30, 2002 and 2001,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
September 30, 2002.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Westborough Financial Services, Inc. and subsidiary as of September 30, 2002
and 2001, and the results of their operations and their cash flows for each
of the years in the three-year period ended September 30, 2002, in
conformity with accounting principles generally accepted in the United
States of America.

/s/ Wolf & Company, P.C.

Boston, Massachusetts
November 1, 2002


<PAGE>  F-1


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS

                         September 30, 2002 and 2001

                           (Dollars in thousands)

                                   ASSETS

<TABLE>
<CAPTION>
                                                     2002            2001
                                                     ----            ----


                                               <c>             <c>
Cash and due from banks                           $   5,295       $   5,040
Federal funds sold                                   11,136           7,668
Short-term investments                                2,822           2,400
                                                  ---------       ---------
      Total cash and cash equivalents                19,253          15,108

Securities available for sale, at fair value         75,638          64,414
Federal Home Loan Bank stock, at cost                 1,250           1,100
Loans, net of allowance for loan losses of
 $926 in 2002 and $916 in 2001                      132,880         134,957
Banking premises and equipment, net                   5,524           2,859
Accrued interest receivable                           1,341           1,315
Deferred income taxes                                    22             285
Bank-owned life insurance                             4,122           3,924
Due from broker                                           -           1,032
Other assets                                          1,243             681
                                                  ---------       ---------

                                                  $ 241,273       $ 225,675
                                                  =========       =========

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                          $ 202,063       $ 185,098
Federal Home Loan Bank advances                       9,500          12,000
Mortgagors' escrow accounts                             198             229
Accrued expenses and other liabilities                1,523           1,436
                                                  ---------       ---------
      Total liabilities                             213,284         198,763
                                                  ---------       ---------

Commitments and contingencies (Notes 6 and 12)

Stockholder's equity:
  Preferred stock - $.01 par value, 1,000,000
   shares authorized, none outstanding                    -               -
  Common stock - $.01 par value, 5,000,000
   shares authorized, 1,581,574 and 1,581,374
   shares issued and outstanding in 2002
   and 2001, respectively                                16              16
  Additional paid-in capital                          4,583           4,549
  Retained earnings                                  22,676          22,013
  Accumulated other comprehensive income              1,439             724
  Unearned compensation - RRP (22,139 shares)          (365)              -
  Unearned compensation - ESOP (36,096 and 39,043
   shares, respectively)                               (360)           (390)
                                                  ---------       ---------
      Total stockholders' equity                     27,989          26,912
                                                  ---------       ---------

                                                  $ 241,273       $ 225,675
                                                  =========       =========
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-2


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF INCOME

                  (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                          Years Ended September 30,
                                                     ------------------------------------
                                                       2002          2001          2000
                                                       ----          ----          ----


                                                  <c>           <c>           <c>
Interest and dividend income:
  Interest and fees on loans                         $  9,594      $  9,104      $  7,273
  Interest and dividends on securities:
    Taxable interest                                    3,659         3,996         3,787
    Non-taxable interest                                   70            64            64
    Dividends                                             339           380           396
  Interest on federal funds sold                          145           456           309
  Interest on short-term investments                       64           135           162
                                                     --------      --------      --------
      Total interest and dividend income               13,871        14,135        11,991
                                                     --------      --------      --------

Interest expense:
  Interest on deposits                                  4,582         5,874         5,226
  Interest on borrowings                                  776         1,053           299
                                                     --------      --------      --------
      Total interest expense                            5,358         6,927         5,525
                                                     --------      --------      --------

Net interest income                                     8,513         7,208         6,466
Provision for loan losses                                   8            48             -
                                                     --------      --------      --------

Net interest income, after provision for loan
 losses                                                 8,505         7,160         6,466
                                                     --------      --------      --------

Other income:
  Customer service fees                                   439           658           355
  Income from expired covered call options                  -            16           425
  Gain (loss) on securities, net                         (466)          710           177
  Miscellaneous                                           200           160           138
                                                     --------      --------      --------
      Total other income                                  173         1,544         1,095
                                                     --------      --------      --------

Operating expenses:
  Salaries and employee benefits                        3,892         3,573         2,961
  Occupancy and equipment expenses                      1,097           980           854
  Data processing expenses                                701           459           319
  Advertising                                             220           285           300
  Professional fees                                       282           336           219
  Other general and administrative expenses             1,254         1,344         1,177
                                                     --------      --------      --------
      Total operating expenses                          7,446         6,977         5,830
                                                     --------      --------      --------
                                 (continued)
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-3


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF INCOME (Concluded)

                  (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                          Years Ended September 30,
                                                     ------------------------------------
                                                       2002          2001          2000
                                                       ----          ----          ----



                                                  <c>           <c>           <c>
Income before income taxes and cumulative effect
 of change in accounting principle                      1,232         1,727         1,731
Provision for income taxes                                253           476           480
                                                     --------      --------      --------
Income before cumulative effect of change in
 accounting principle                                     979         1,251         1,251
Cumulative effect of change in accounting
 for covered call options, net of $76 of tax
 effects ($.09 per dilutive share)                          -           147             -
                                                     --------      --------      --------

Net income                                           $    979      $  1,398      $  1,251
                                                     ========      ========      ========

Earnings per share:
  Basic                                              $   0.64      $   0.91           N/A
  Diluted                                            $   0.63      $   0.90           N/A
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-4


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

               Years Ended September 30, 2002, 2001, and 2000

                           (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      Accumulated
                                              Additional                  Other         Unearned        Unearned          Total
                                     Common    Paid-in     Retained   Comprehensive   Compensation-   Compensation-   Stockholders'
                                     Stock     Capital     Earnings   Income (Loss)        RRP            ESOP            Equity
                                     ------   ----------   --------   -------------   -------------   -------------   -------------


                                   <c>      <c>         <c>           <c>              <c>            <c>             <c>
Balance at September 30, 1999         $ -      $    -      $19,680       $ (399)          $   -          $   -           $19,281
                                                                                                                         --------

Comprehensive income:
  Net income                            -           -        1,251            -               -              -             1,251
  Change in net unrealized gain
   (loss) on securities available
   for sale, after reclassification
   adjustment and tax effects           -           -            -           47               -              -                47
                                                                                                                         --------
      Total comprehensive income                                                                                           1,298
                                                                                                                         --------
Net proceeds from sale of common
 stock                                 16       4,542            -            -               -              -             4,558
Purchase of ESOP shares (44,200
 shares)                                -           -            -            -               -           (442)             (442)
ESOP shares committed to be
 released (2,210 shares)                -          (1)           -            -               -             22                21
                                      ---      ------      -------       ------           -----          -----           --------

Balance at September 30, 2000          16       4,541       20,931         (352)              -           (420)           24,716
                                                                                                                         --------

Comprehensive income:
  Net income                            -           -        1,398            -               -              -             1,398
  Change in net unrealized gain
   (loss) on securities available
   for sale, after reclassification
   adjustment and tax effects           -           -            -        1,076               -              -             1,076
                                                                                                                         --------
      Total comprehensive income                                                                                           2,474
                                                                                                                         --------
Cash dividends declared ($.20 per
 share)                                 -           -         (316)           -               -              -              (316)
ESOP shares released and committed
 to be released (2,947 shares)          -           8            -            -               -             30                38
                                      ---      ------      -------       ------           -----          -----           --------

Balance at September 30, 2001          16       4,549       22,013          724               -           (390)           26,912
                                                                                                                         --------

Comprehensive income:
  Net income                            -           -          979            -               -              -               979
  Change in net unrealized gain
   (loss) on securities available
   for sale, after reclassification
   adjustment and tax effects           -           -            -          715               -              -               715
                                                                                                                         --------
      Total comprehensive income                                                                                           1,694
                                                                                                                         --------
Cash dividends declared ($.20 per
 share)                                 -           -         (316)           -               -              -              (316)
ESOP shares released and committed
 to be released (2,947 shares)          -          31            -            -               -             30                61
Purchase of RRP shares (22,139)         -           -            -            -            (431)             -              (431)
Amortization of RRP stock               -           -            -            -              66              -                66
Issuance of common stock under
 stock option plan, net of tax
 benefits                               -           3            -            -               -              -                 3
                                      ---      ------      -------       ------           -----          -----           --------

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

See accompanying notes to consolidated financial statements.


<PAGE>  F-5


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                           (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                     Years Ended September 30,
                                                                ------------------------------------
                                                                  2002          2001          2000
                                                                  ----          ----          ----


                                                             <c>           <c>           <c>
Cash flows from operating activities:
  Net income                                                    $    979      $  1,398      $  1,251
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Provision for loan losses                                          8            48             -
    Net amortization (accretion) of securities                        95           (32)          (29)
    Amortization of net deferred loan costs and premiums
     (discounts)                                                     (25)          (20)           26
    Depreciation and amortization expense                            509           401           361
    Loss (gain) on sales and calls of securities, net                466          (710)         (279)
    Write-down of securities                                           -             -           102
    Recognition of expired covered call options                        -           (16)         (425)
    Decrease (increase) in accrued interest receivable               (26)            2          (187)
    Deferred income tax benefit                                     (116)          (25)          (62)
    ESOP shares released and committed to be released                 61            38            21
    Amortization of RRP stock                                         66             -             -
    Increase in bank-owned life insurance                           (181)         (174)         (140)
    Other, net                                                      (475)          345           556
                                                                --------      --------      --------
      Net cash provided by operating activities                    1,361         1,255         1,195
                                                                --------      --------      --------

Cash flows from investing activities:
  Activity in available-for-sale securities:
    Sales and calls                                                5,402        19,209         5,725
    Maturities                                                     5,632        10,310         5,102
    Purchases                                                    (27,585)      (26,499)      (19,048)
    Principal payments                                             6,892         3,205         3,304
  Purchase of Federal Home Loan Bank stock                          (150)         (197)          (53)
  Loan (originations) principal payments,net                       2,094       (11,942)       (8,702)
  Loans purchased                                                      -        (9,484)      (12,791)
  Purchase of banking premises and equipment, net                 (3,174)       (1,068)         (829)
  Purchase of bank-owned life insurance                              (17)       (1,000)          (87)
                                                                --------      --------      --------
      Net cash used by investing activities                      (10,906)      (17,466)      (27,379)
                                                                --------      --------      --------
                                 (continued)
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-6


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

              CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)

                           (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                     Years Ended September 30,
                                                                ------------------------------------
                                                                  2002          2001          2000
                                                                  ----          ----          ----


                                                             <c>           <c>           <c>
Cash flows from financing activities:
  Net increase in deposits                                        16,965        21,693        13,294
  Proceeds from Federal Home Loan Bank advances                        -             -        12,500
  Repayment of Federal Home Loan Bank advances                    (2,500)       (4,500)            -
  Net increase (decrease) in mortgagors' escrow accounts             (31)          (18)           16
  Net proceeds received from stock offering                            -             -         4,558
  Purchase of ESOP shares                                              -             -          (442)
  Purchase of RRP shares, net                                       (431)            -             -
  Issuance of common stock under stock option plan,
   net of tax benefits                                                 3             -             -
  Dividends paid                                                    (316)         (316)            -
                                                                --------      --------      --------
      Net cash provided by financing activities                   13,690        16,859        29,926
                                                                --------      --------      --------

Net change in cash and cash equivalents                            4,145           648         3,742

Cash and cash equivalents at beginning of year                    15,108        14,460        10,718
                                                                --------      --------      --------

Cash and cash equivalents at end of year                        $ 19,253      $ 15,108      $ 14,460
                                                                ========      ========      ========

Supplemental cash flow information:
  Interest paid on deposits                                     $  4,555      $  5,876      $  5,225
  Interest paid on Federal Home Loan Bank advances                   791         1,072           214
  Income taxes paid                                                  556           514           513
  Due from broker                                                      -         1,032             -
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>  F-7


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                Years Ended September 30, 2002, 2001 and 2000
                (Dollars in thousands, except per share data)

1.    REORGANIZATION AND STOCK OFFERING

Westborough Savings Bank (the "Bank") was founded in 1869 as a Massachusetts
chartered mutual savings bank.  On February 15, 2000, the Bank reorganized
into a two-tiered mutual holding company structure pursuant to the Bank's
Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan (the "Reorganization"). In connection with
the Reorganization, (i) the Bank formed Westborough Bancorp, MHC (the
"MHC"), a Massachusetts chartered mutual holding company which is the
majority owner of the Westborough Financial Services, Inc. (the "Company"),
(ii) the Bank converted from mutual to stock form, changing its name from
"Westborough Savings Bank" to "The Westborough Bank," and issued 100% of its
capital stock to the Company; and (iii) the Company issued shares of its
common stock, $0.01 par value per share (the "Common Stock") to the public
at a price of $10.00 per share (the "Stock Offering").  The Company issued
1,581,374 shares of the Common Stock in the Stock Offering, of which 35% of
these shares, or 553,481 shares, were sold to the public, including
depositors of the Bank and the Company's Employee Stock Ownership Plan, and
65% of these shares, or 1,027,893 shares, were issued to the MHC.  Effective
October 23, 2000, the MHC and the Company changed their classification from
bank holding companies to financial holding companies.  Additionally, during
2001 the Company established a Stock Option Plan and a Recognition and
Retention Plan.

As part of the Reorganization, the Bank has established a liquidation
account for the benefit of eligible and supplemental eligible account
holders.  The liquidation account will be reduced annually to the extent
that such account holders have reduced their qualifying deposits as of each
anniversary date.  Subsequent increases will not restore an account holder's
interest in the liquidation account.  In the event of a complete
liquidation, each eligible account holder will be entitled to receive
balances for accounts held by them.


<PAGE>  F-8


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of consolidation and presentation

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

      Use of estimates

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

      Business

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

      Reclassifications

Certain amounts in the 2001 and 2000 consolidated financial statements have
been reclassified to conform to the 2002 presentation.

      Cash equivalents

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

      Securities available for sale

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


<PAGE>  F-9


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Securities available for sale (concluded)

Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value
of securities that are deemed to be other than temporary are reflected in
earnings as realized losses.  In estimating other-than-temporary impairment
losses, management considers independent price quotations, projected target
prices of investment analysts within the short term and the financial
condition of the issuer.  Gains and losses on disposition of securities are
recorded on the trade date and computed by the specific identification
method.

      Loans

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

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

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

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

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


<PAGE>  F-10


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Loans (concluded)

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

      Allowance for loan losses

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

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

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

      Banking premises and equipment

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


<PAGE>  F-11


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Retirement plan

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

      Stock compensation plans

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the
award and is recognized over the service period, which is usually the
vesting period.  However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date
(or other measurement date) over the amount an employee must pay to acquire
the stock.  Stock options issued under the Company's stock option plan have
no intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them.  The Company has elected to
continue with the accounting methodology in Opinion No. 25 and, as a result,
has provided pro forma disclosures of net income and earnings per share and
other disclosures, as if the fair value based method of accounting had been
applied.  (See Note 11).

      Employee stock ownership plan ("ESOP")

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

      Advertising costs

All advertising costs are expensed as incurred.


<PAGE>  F-12


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

      Income taxes

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

      Earnings per common share

Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during
the period.  Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had
been issued, as well as any adjustment to income that would result from the
assumed issuance.  Potential common shares that may be issued by the Company
relate solely to outstanding stock options and are determined using the
treasury stock method.  At September 30, 2002 and 2001, there were no anti-
dilutive potential common shares.  Anti-dilutive potential common shares
would be excluded from dilutive earnings per share calculations.

Earnings per common share for the year ended September 30, 2002 and 2001 has
been computed based on the following:

<TABLE>
<CAPTION>
                                                               2002           2001
                                                               ----           ----


                                                          <c>            <c>
Average number of common shares outstanding                  1,540,103      1,540,518
Effect of dilutive options                                      18,519         10,070
                                                             ---------      ---------
Average number of common shares outstanding
 used to calculate diluted earnings per common share         1,558,622      1,550,588
                                                             =========      =========
</TABLE>


<PAGE>  F-13


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

      Comprehensive income

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

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

<TABLE>
<CAPTION>
                                                             Years Ended September 30,
                                                          -----------------------------
                                                           2002        2001        2000
                                                           ----        ----        ----


                                                       <c>         <c>         <c>
Change in net unrealized holding gains
 (losses) on securities available for sale                $  628      $2,407      $ 238
Reclassification adjustment for (gains) losses
 realized in income                                          466        (710)      (279)
Write-down of securities                                       -           -        102
                                                          ------      ------      -----
                                                           1,094       1,697         61

Tax effect                                                  (379)       (621)       (14)
                                                          ------      ------      -----

Net-of-tax amount                                         $  715      $1,076      $  47
                                                          ======      ======      =====
</TABLE>

      Change in accounting principle

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which, as amended by SFAS Nos. 137 and
138, is effective for fiscal years beginning after June 15, 2000.  This
Statement establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative instruments
embedded in other contracts, and requires that an entity recognize all
derivatives as assets or liabilities in the balance sheet and measure them
at fair value.  Adoption of these Statements by the Company on October 1,
2000 required that changes in fair value of covered call options be
recognized in net income and resulted in pre-tax earnings in the amount of
$223 during the year ended September 30, 2001.


<PAGE>  F-14


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

3.    RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain average balances on hand or with the
Federal Reserve Bank.  At September 30, 2002, the reserve balance amounted
to $844.

4.    SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated fair value of securities available for
sale, at September 30, 2002 and 2001, with gross unrealized gains and
losses, is as follows:

<TABLE>
<CAPTION>
                                                    September 30, 2002
                                     ------------------------------------------------
                                                    Gross         Gross
                                     Amortized    Unrealized    Unrealized     Fair
                                       Cost         Gains         Losses       Value
                                     ---------    ----------    ----------     -----


                                   <c>           <c>           <c>         <c>
Federal agency obligations            $22,830       $  651        $ (30)      $23,451
Banking and finance obligations        15,898        1,092            -        16,990
Mortgage-backed securities             17,442          709            -        18,151
Other bonds and obligations            11,720          482          (28)       12,174
                                      -------       ------        -----       -------
      Total debt securities            67,890        2,934          (58)       70,766
Marketable equity securities            5,538          132         (798)        4,872
                                      -------       ------        -----       -------

      Total securities
       available for sale             $73,428       $3,066        $(856)      $75,638
                                      =======       ======        =====       =======
</TABLE>

<TABLE>
<CAPTION>
                                                    September 30, 2001
                                     ------------------------------------------------
                                                    Gross         Gross
                                     Amortized    Unrealized    Unrealized     Fair
                                       Cost         Gains         Losses       Value
                                     ---------    ----------    ----------     -----


                                   <c>           <c>           <c>          <c>
U.S. Government obligations           $ 2,099       $    9        $     -      $  2,108
Federal agency obligations              9,130          441              -         9,571
Banking and finance obligations        18,542          942             (6)       19,478
Mortgage-backed securities             17,221          523             (1)       17,743
Asset-backed securities                   119            1              -           120
Other bonds and obligations             9,260          339             (9)        9,590
                                      -------       ------        -------       -------
      Total debt securities            56,371        2,255            (16)       58,610
Marketable equity securities            6,927          322         (1,445)        5,804
                                      -------       ------        -------       -------

      Total securities
       available for sale             $63,298       $2,577        $(1,461)      $64,414
                                      =======       ======        =======       =======
</TABLE>


<PAGE>  F-15


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      SECURITIES AVAILABLE FOR SALE (concluded)

Proceeds from sales and calls of securities amounted to $5,402, $19,209 and
$5,725 for the years ended September 30, 2002, 2001 and 2000, respectively.
Gross realized gains amounted to $324, $1,296 and $290, respectively.  Gross
realized losses amounted to $790, $586 and $11, respectively.

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

<TABLE>
<CAPTION>
                                           September 30, 2002        September 30, 2001
                                          -------------------       -------------------
                                          Amortized     Fair        Amortized     Fair
                                            Cost        Value         Cost        Value
                                          ---------     -----       ---------     -----


                                       <c>          <c>          <c>          <c>
Within 1 year                             $ 4,962      $ 5,068      $ 4,102      $ 4,145
Over 1 year through 5 years                39,760       41,536       26,706       28,016
Over 5 years through 10 years               5,726        6,011        8,223        8,586
                                          -------      -------      -------      -------
                                           50,448       52,615       39,031       40,747
Mortgage and asset-backed securities       17,442       18,151       17,340       17,863
                                          -------      -------      -------      -------

                                          $67,890      $70,766      $56,371      $58,610
                                          =======      =======      =======      =======
</TABLE>

At September 30, 2002, a federal agency obligation with a carrying value of
$1,030 and fair value of $1,000 was pledged to secure public deposits.


<PAGE>  F-16


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

5.    LOANS

A summary of the balances of loans follows:

<TABLE>
<CAPTION>
                                              September 30,
                                         ----------------------
                                           2002          2001
                                           ----          ----


                                      <c>           <c>
Mortgage loans on real estate:
  Fixed rate                             $ 47,599      $ 53,431
  Variable rate                            54,096        55,859
  Commercial                               20,092        13,149
  Home equity lines-of-credit               8,792         6,931
                                         --------      --------

      Total mortgage loans                130,579       129,370
                                         --------      --------

Other loans:
  Personal loans                              983         1,196
  Deposit secured loans                       509           652
  Home improvement loans                      171           759
  Commercial lines-of-credit                2,549         1,783
  Commercial installment                    1,182         1,795
                                         --------      --------
      Total other loans                     5,394         6,185
                                         --------      --------

      Total loans                         135,973       135,555
                                         --------      --------

Due to borrowers on incomplete loans       (2,866)         (480)
Net deferred loan costs                       161           136
Premium on purchased loans, net               538           662
Allowance for loan losses                    (926)         (916)
                                         --------      --------

      Loans, net                         $132,880      $134,957
                                         ========      ========
</TABLE>

An analysis of the allowance for loan losses follows:

<TABLE>
<CAPTION>
                                         Years Ended September 30,
                                         -------------------------
                                         2002      2001      2000
                                         ----      ----      ----


                                      <c>       <c>       <c>
Balance at beginning of year             $916      $874      $879
Provision for loan losses                   8        48         -
Charge-offs                               (11)      (10)       (6)
Recoveries                                 13         4         1
                                         ----      ----      ----

Balance at end of year                   $926      $916      $874
                                         ====      ====      ====
</TABLE>


<PAGE>  F-17


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      LOANS (concluded)

The Bank has sold mortgage loans in the secondary mortgage market and has
retained the servicing responsibility and receives fees for the services
provided.  Total loans serviced for others at September 30, 2002 and 2001
amounted to $502 and $780, respectively.  There were no loans sold during
2002, 2001 and 2000.  Mortgage loans serviced for others are not included in
the accompanying consolidated balance sheets.

There were no impaired loans at or during the years ended September 30, 2002
and 2001.

At September 30, 2002 there was $140 in nonaccrual loans.  There were no
nonaccrual loans at September 30, 2001.

6.    BANKING PREMISES AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                        September 30,
                                                    --------------------         Estimated
                                                      2002         2001         Useful Lives
                                                      ----         ----         ------------


                                                 <c>          <c>            <c>
Banking premises:
  Land                                              $ 1,179      $   222
  Buildings                                           3,462        1,157        5 -40 years
  Leasehold improvements                                256          256        3 - 5 years
Equipment                                             3,472        2,600        3 - 7 years
Construction in progress                                370        1,343
                                                    -------      -------
                                                      8,739        5,578
Less accumulated depreciation and amortization       (3,215)      (2,719)
                                                    -------      -------

                                                    $ 5,524      $ 2,859
                                                    =======      =======
</TABLE>

Depreciation and amortization expense for the years ended September 30,
2002, 2001 and 2000 amounted to $509, $401 and $361, respectively.

Construction in progress represents additions to the main office building
and construction of a branch in Shrewsbury.  Estimated costs for completion
of these projects are $1,088 and are scheduled to be finished during the
year ended September 30, 2003.


<PAGE>  F-18


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

7.    DEPOSITS

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

<TABLE>
<CAPTION>
                                                   September 30,
                                              ----------------------
                                                2002          2001
                                                ----          ----


                                           <c>           <c>
Non-interest bearing accounts                 $ 20,393      $ 17,496
NOW accounts                                    17,033        18,178
Regular and other savings accounts              96,306        80,176
Money market deposit accounts                    5,259         5,494
                                              --------      --------
      Total non-certificate accounts           138,991       121,344
                                              --------      --------

Term certificates of $100,000 and over          14,723        14,439
Term certificates less than $100,000            48,349        49,315
                                              --------      --------
      Total certificate accounts                63,072        63,754
                                              --------      --------

      Total deposits                          $202,063      $185,098
                                              ========      ========
</TABLE>

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

<TABLE>
<CAPTION>
                                    September 30, 2002      September 30, 2001
                                    ------------------      ------------------
                                              Weighted                Weighted
                                               Average                 Average
                                    Amount      Rate        Amount      Rate
                                    ------    --------      ------    --------


                                <c>          <c>        <c>          <c>
Within 1 year                      $53,392      3.27%      $52,378      5.02%
Over 1 year through 3 years          9,680      3.89        11,370      5.00
Over 3 years                             -         -             6      4.88
                                   -------                 -------

                                   $63,072      3.36%      $63,754      5.02%
                                   =======                 =======
</TABLE>


<PAGE>  F-19


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

8.    FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank advances are as follows:

<TABLE>
<CAPTION>
                     Weighted
Maturing During      Average          September 30,
the Year Ending      Interest      -------------------
 September 30,         Rate         2002         2001
---------------      --------       ----         ----

     
               <c>         <c>         <c>
     2002              6.82%       $    -      $ 2,500
     2003              6.88         2,500        2,500
     2004              6.92         2,500        2,500
     2005              6.95         2,500        2,500
     2009*             4.88         2,000        2,000
                                   ------      -------

                                   $9,500      $12,000
                                   ======      =======

<FN>
*  Represents an advance callable on November 22, 2002.
</FN>
</TABLE>

The Bank also has a $2,999 available line of credit with the Federal Home
Loan Bank of Boston ("FHLB") at an interest rate the adjusts daily.
Borrowings under the line are limited to 2% of the Bank's total assets.  All
borrowings from the FHLB are secured by a blanket lien on qualified
collateral, defined principally as 75% of the carrying value of first
mortgage loans on owner-occupied residential property.  As of September 30,
2002 and 2001, there were no advances outstanding on the line of credit.


<PAGE>  F-20


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

9.    INCOME TAXES

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

<TABLE>
<CAPTION>
                                               Years Ended September 30,
                                              ---------------------------
                                               2002       2001       2000
                                               ----       ----       ----


                                           <c>        <c>        <c>
Current income tax provision:
  Federal                                     $ 341      $ 469      $ 510
  State                                          28         32         32
                                              -----      -----      -----
                                                369        501        542
                                              -----      -----      -----

Deferred income tax benefit:
  Federal                                       (88)       (11)       (54)
  State                                         (28)       (14)        (8)
                                              -----      -----      -----
                                               (116)       (25)       (62)
                                              -----      -----      -----

      Total provision for income taxes        $ 253      $ 476      $ 480
                                              =====      =====      =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                Years Ended September 30,
                                               ---------------------------
                                               2002       2001       2000
                                               ----       ----       ----


                                            <c>        <c>        <c>
Statutory rate                                 34.0%      34.0%      34.0%
Increase (decrease) resulting from:
  State taxes, net of federal tax benefit         -        0.7        0.9
  Dividends received deduction                 (5.6)      (4.3)      (4.6)
  Officers' life insurance                     (4.2)      (2.4)      (2.4)
  Municipal income                             (1.8)      (0.6)      (0.6)
  Other, net                                   (1.9)       0.2        0.4
                                               ----       ----       ----

      Effective tax rates                      20.5%      27.6%      27.7%
                                               ====       ====       ====
</TABLE>


<PAGE>  F-21


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      INCOME TAXES (continued)

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

<TABLE>
<CAPTION>
                                 September 30,
                               ----------------
                                2002       2001
                                ----       ----


                            <c>        <c>
Deferred tax asset:
  Federal                      $ 675      $ 622
  State                          233        214
                               -----      -----
                                 908        836
                               -----      -----

Deferred tax liability:
  Federal                       (835)      (494)
  State                          (51)       (57)
                               -----      -----
                                (886)      (551)
                               -----      -----

Net deferred tax asset         $  22      $ 285
                               =====      =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                               September 30,
                                                             ----------------
                                                              2002       2001
                                                              ----       ----


                                                          <c>        <c>
Employee benefit plans                                       $ 453      $ 385
Allowance for loan losses                                      454        447
Net unrealized gain/loss on securities available for sale     (771)      (392)
Depreciation and amortization                                  (46)       (88)
Net deferred loan costs                                        (66)       (56)
Other, net                                                      (2)       (11)
                                                             -----      -----

Net deferred tax asset                                       $  22      $ 285
                                                             =====      =====
</TABLE>


<PAGE>  F-22


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      INCOME TAXES (concluded)

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

<TABLE>
<CAPTION>
                                                           Years Ended September 30,
                                                          ---------------------------
                                                           2002       2001       2000
                                                           ----       ----       ----


                                                       <c>        <c>        <c>
Balance at beginning of year                              $ 285      $ 881      $ 833
Deferred tax benefit                                        116         25         62
Deferred tax effect on net unrealized (gain) loss
 on securities available for sale                          (379)      (621)       (14)
                                                          -----      -----      -----

Balance at end of year                                    $  22      $ 285      $ 881
                                                          =====      =====      =====
</TABLE>

There was no valuation reserve as of September 30, 2002 and 2001.

The federal income tax reserve for loan losses at the Bank's base year
amounted to $2,420.  If any portion of the reserve is used for purposes
other than to absorb loan losses, approximately 150% of the amount actually
used (limited to the amount of the reserve) would be subject to taxation in
the fiscal year in which used.  As the Bank intends to use the reserve to
only absorb loan losses, a deferred income tax liability of approximately
$990 has not been provided.

10.   STOCKHOLDER'S EQUITY

      Minimum Regulatory Capital Requirements

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


<PAGE>  F-23


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      STOCKHOLDER'S EQUITY (continued)

      Minimum Regulatory Capital Requirements (continued)

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to
average assets (as defined).  Management believes, as of September 30, 2002,
that the Company and the Bank meet all capital adequacy requirements to
which they are subject.

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

The Company's and the Bank's actual and minimum required capital amounts and
ratios as of September 30, 2002 and 2001 are as follows:

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


                                 <c>          <c>         <c>          <c>        <c>          <c>
September 30, 2002:
  Total capital (to risk
   weighted assets)
    Consolidated                    $26,810      19.27%      $11,128      8.00%          N/A        N/A
    Bank                             25,392      18.35        11,069      8.00       $13,837      10.00%

  Tier 1 capital (to risk
   weighted assets)
    Consolidated                     25,884      18.61         5,564      4.00           N/A        N/A
    Bank                             24,466      17.68         5,535      4.00         8,302       6.00

  Tier 1 capital (to average
   assets)
    Consolidated                     25,884      11.11         9,323      4.00           N/A        N/A
    Bank                             24,466      10.47         9,350      4.00        11,687       5.00
</TABLE>


<PAGE>  F-24


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      STOCKHOLDER'S EQUITY (concluded)

      Minimum Regulatory Capital Requirements (concluded)


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


                                 <c>          <c>         <c>          <c>        <c>          <c>
September 30, 2001:
  Total capital (to risk
   weighted assets)
    Consolidated                    $25,981      19.38%      $10,723      8.00%          N/A        N/A
    Bank                             24,323      18.15        10,720      8.00       $13,400      10.00%

  Tier 1 capital (to risk
   weighted assets)
    Consolidated                     25,065      18.70         5,362      4.00           N/A        N/A
    Bank                             23,407      17.47         5,360      4.00         8,040       6.00

  Tier 1 capital (to average
   assets)
    Consolidated                     25,065      11.51         8,710      4.00           N/A        N/A
    Bank                             23,407      10.48         8,933      4.00        11,166       5.00
</TABLE>

      Restrictions on Dividends, Loans and Advances

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

At September 30, 2002, the Bank's retained earnings available for the
payment of dividends was $14,323.  Accordingly, $11,069 of the Company's
equity in the net assets of the Bank was restricted at September 30, 2002.
Funds available for loans or advances by the Bank to the Company amounted to
$1,432.

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


<PAGE>  F-25


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

11.   EMPLOYEE BENEFIT PLANS

      Pension plan

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

<TABLE>
<CAPTION>
                                                   Plan Years Ended October 31,
                                                   ----------------------------
                                                         2002         2001
                                                         ----         ----
                                                     (Projected)


                                                    <c>          <c>
Change in plan assets:
  Fair value of plan assets at beginning of year       $ 2,458      $ 2,742
  Actual loss on plan assets                              (210)        (327)
  Employer contribution                                    108          100
  Benefits paid                                            (51)         (57)
                                                       -------      -------
  Fair value of plan assets at end of year               2,305        2,458
                                                       -------      -------

Change in benefit obligation:
  Benefit obligation at beginning of year                2,546        2,269
  Service cost                                             182          168
  Interest cost                                            169          170
  Actuarial gain                                            36           (4)
  Benefits paid                                            (51)         (57)
                                                       -------      -------
  Benefit obligation at end of year                      2,882        2,546
                                                       -------      -------

Funded status                                             (577)         (88)
Unrecognized net actuarial (gain) loss                     125         (343)
Transition liability                                        26           28
                                                       -------      -------

Accrued pension cost                                   $  (426)     $  (403)
                                                       =======      =======
</TABLE>


<PAGE>  F-26


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Pension plan (concluded)

The components of net periodic pension cost are as follows:

<TABLE>
<CAPTION>
                                    Plan Years Ended October 31,
                                    ----------------------------
                                     2002       2001       2000
                                     ----       ----       ----
                                 (Projected)


                                 <c>        <c>        <c>
Service cost                        $ 182      $ 168      $ 145
Interest cost                         169        170        153
Expected return on plan assets       (197)      (218)      (183)
Transition obligation                   2          3          3
Recognized net actuarial loss         (25)       (52)       (45)
                                    -----      -----      -----

                                    $ 131      $  71      $  73
                                    =====      =====      =====
</TABLE>

Total pension expense for the years ended September 30, 2002, 2001 and 2000
amounted to $132, $71 and $98, respectively.

For the plan years ended October 31, 2002 and 2001, actuarial assumptions
used in accounting were as follows:

<TABLE>
<CAPTION>
                                                         2002       2001
                                                         ----       ----
                                                     (Projected)


                                                      <c>        <c>
Discount rate on benefit obligations                     6.75%      7.00%
Expected long-term rate of return on plan assets         8.00       8.00
Annual salary increases                                  5.00       5.00
</TABLE>

      Incentive compensation plan

Management and employees of the Bank participate in an annual incentive
compensation plan which is based on a percentage of the Bank's annual net
profits (as defined) and other factors and objectives set forth and
administered by the Bank's Executive Committee.  Incentive compensation
expense for the years ended September 30, 2002, 2001 and 2000 amounted to
$64, $63 and $94, respectively.


<PAGE>  F-27


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      401(k) Plan

The Bank has a 401(k) Plan whereby each employee reaching the age of 21 and
having completed at least 1,000 hours of service in a twelve-month period,
beginning with date of employment, automatically becomes a participant in
the Plan.  Employees may contribute up to 75% of their compensation subject
to certain limits based on federal tax laws.  The Bank makes matching
contributions equal to 25% of the first 4% of an employee's compensation
contributed to the Plan.  All participants are fully vested.  For the years
ended September 30, 2002, 2001 and 2000, expense attributable to the Plan
amounted to $16, $17 and $14, respectively.

      Supplemental retirement plans

The Bank provides supplemental retirement benefits to certain executive
officers and Directors.  In connection with the supplemental retirement
plans, the Bank has purchased life insurance contracts and has entered into
split-dollar life insurance agreements with certain participants.  At
September 30, 2002 and 2001, the Bank has accrued $587 and $470,
respectively, relating to these plans.  For the years ended September 30,
2002, 2001, and 2000, expenses attributable to the plans amounted to $177,
$282, and $89, respectively.

      Deferred compensation plan

The Company has adopted a deferred compensation plan ("DCP") whereby the
Chief Executive Officer may defer all or a portion of his salary.  The
Company pays monthly interest on amounts deferred at an interest rate that
is determined annually.

      Employees' stock ownership plan

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


<PAGE>  F-28


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Employees' stock ownership plan (concluded)

At September 30, 2002, the remaining principal balance is payable as
follows:

<TABLE>
<CAPTION>
   Years Ending
   September 30,           Amount
   -------------           ------

      
                   <c>
      2003                  $ 19
      2004                    20
      2005                    22
      2006                    24
      2007                    26
      Thereafter             293
                            ----

                            $404
                            ====
</TABLE>

The Bank has committed to make contributions to the ESOP sufficient to
support the debt service of the loan. The loan is secured by the shares
purchased by the ESOP which are held in a suspense account for allocation
among the members as the loans are paid. Total compensation expense
applicable to the ESOP amounted to $61, $38 and $21 for the years ended
September 30, 2002, 2001 and 2000, respectively.

Shares held by the ESOP include the following:

<TABLE>
<CAPTION>
                                 September 30,
                              ------------------
                               2002        2001
                               ----        ----


                           <c>         <c>
Allocated                      5,894       2,947
Committed to be released       2,210       2,210
Unallocated                   36,096      39,043
                              ------      ------

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

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

The fair market value of unallocated shares at September 30, 2002 and 2001
was $805 and $693, respectively.


<PAGE>  F-29


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Stock option plan

On January 25, 2001, the Company's stockholders approved the Westborough
Financial Services, Inc. 2001 Stock Option Plan (the "Stock Option Plan").
Under the Stock Option Plan, the Company may grant options to its directors,
officers and employees for up to 55,348 shares of common stock.  Both
incentive stock options and non-qualified stock options may be granted under
the Stock Option Plan.  The exercise price of each option equals the market
price of the Company's stock on the date of grant and an option's maximum
term is ten years.  Options generally vest over a five-year period.

The Company applies APB Opinion 25 and related Interpretations in accounting
for the Stock Option Plan.  Accordingly, no compensation cost has been
recognized.  Had compensation cost for the Company's Stock Option Plan been
determined based on the fair value at the grant dates for awards under the
plan consistent with the method prescribed by SFAS No. 123, the Company's
net income and earnings per share would have been adjusted to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                 2002       2001
                                                 ----       ----


                           <c>               <c>        <c>
Net income                    As reported       $ 979      $1,398
                              Pro forma         $ 957      $1,377

Basic earnings per share      As reported       $0.64      $ 0.91
                              Pro forma         $0.62      $ 0.89

Diluted earnings per share    As reported       $0.63      $ 0.90
                              Pro forma         $0.61      $ 0.89
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model.  The weighted-average assumptions
used for grants during the year ended September 30, 2001 were dividend yield
of 1.9%, expected life of 10 years, expected volatility of 10.6%, and a
risk-free interest rate of 5.2%.


<PAGE>  F-30


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (continued)

      Stock option plan (concluded)

A summary of the status of the Company's stock option plan is presented
below:

<TABLE>
<CAPTION>
                                               2002                     2001
                                       --------------------     --------------------
                                                   Weighted                 Weighted
                                                   Average                  Average
                                                   Exercise                 Exercise
                                        Shares      Price        Shares      Price
                                        ------     --------      ------     --------


                                    <c>          <c>         <c>          <c>
Fixed Options:
  Outstanding at beginning of year      42,100      $10.31            -      $    -
  Granted                                    -           -       42,100       10.31
  Exercised                               (200)      10.31            -           -
                                       -------                  -------

  Outstanding at end of year            41,900      $10.31       42,100      $10.31
                                       =======                  =======

Options exercisable at year-end          8,220      $10.31            -      $    -
Weighted-average fair value of
 options granted during the year       $     -                  $  2.54
</TABLE>

      Recognition and retention plan

On January 25, 2001, the Company's stockholders approved the Company's
adoption of the Westborough Financial Services, Inc. 2001 Recognition and
Retention Plan (the "RRP"), which allows the Company to grant restricted
stock awards ("Awards") to certain officers, employees and outside
directors.  The RRP is authorized to acquire no more than 22,139 shares of
Common stock in the open market.  Shares generally vest at a rate of 20% per
year with the first vesting period ending April 30, 2002.  There were no
Awards granted during the year ended September 30, 2002.  During the year
ended September 30, 2001, Awards were granted with respect to 18,100 shares.
The aggregate purchase price of all shares acquired by the RRP has been
reflected as a reduction of stockholders' equity and amortized to
compensation expense as the Company's employees and directors become vested
in their stock awards.  For the year ended September 30, 2002, there were
1,000 shares distributed to employees.  There were no shares distributed to
employees or directors for the year ending September 30, 2001.  Compensation
expense relating to the RRP amounted to $66 and $44, for the years ended
September 30, 2002 and 2001, respectively.  Compensation expense is based on
the fair value of common stock on the purchase date.


<PAGE>  F-31


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      EMPLOYEE BENEFIT PLANS (concluded)

      Benefit restoration plan

In February 2000, the Company adopted a Benefit Restoration Plan ("BRP") in
order to provide the Chief Executive Officer with the benefits that would be
due to him under the defined benefit pension plan, the 401(k) Plan and the
ESOP if such benefits were not limited under the Internal Revenue Code.
Total expense related to the BRP amounted to $1 for the year ended September
30, 2002.  There were no expenses related to the plan during the years ended
September 30, 2001 and 2000.

12.   OTHER COMMITMENTS AND CONTINGENCIES

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

      Loan commitments

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

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


<PAGE>  F-32


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      OTHER COMMITMENTS AND CONTINGENCIES (continued)

      Loan commitments (concluded)

At September 30, 2002 and 2001, financial instruments whose contract amounts
represent credit risk consist of:

<TABLE>
<CAPTION>
                                                      2002        2001
                                                      ----        ----


                                                  <c>         <c>
Commitments to grant mortgage loans                  $5,656      $4,534
Unadvanced funds on home equity lines-of-credit       9,494       8,259
Unadvanced funds on commercial lines-of-credit        2,103       1,941
</TABLE>

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

      Operating lease commitments

Pursuant to the terms of noncancelable lease agreements in effect at
September 30, 2002, pertaining to banking premises and equipment, future
minimum rent commitments are as follows:

<TABLE>
<CAPTION>
   Years Ending
   September 30,        Amount
   -------------        ------

      
                <c>
      2003               $ 67
      2004                 40
      2005                  5
      2006                  1
                         ----

                         $113
                         ====
</TABLE>


<PAGE>  F-33


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      OTHER COMMITMENTS AND CONTINGENCIES (concluded)

      Operating lease commitments (concluded)

The leases contain options to extend for periods from two to ten years.  The
cost of such rentals is not included above.  Total rent expense for years
ended September 30, 2002, 2001 and 2000 amounted to $122, $162 and $148,
respectively.

      Employment and change in control agreements

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

      Contingencies

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

13.   RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank has granted loans to its
Directors.  At September 30, 2002 and 2001, the amount of such loans, which
exceeded $60 in the aggregate to each related party, was approximately $168
and $152, respectively.  Such loans are made in the ordinary course of
business at the Bank's normal credit terms, including interest rate and
collateral requirements, and do not represent more than a normal risk of
collection.  During the year ended September 30, 2002, total principal
additions were $24 and total principal payments were $8.


<PAGE>  F-34


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

14.   FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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


<PAGE>  F-35


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

      FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)

      Federal Home Loan Bank advances:  The fair value is based upon the
      Company's current incremental borrowing rate for a similar advance.

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

      Off-balance sheet instruments:  Fair values for off-balance sheet
      lending com-mitments are based on fees currently charged to enter into
      similar agreements, taking into account the remaining terms of the
      agreements and the counterparties' credit standing.  The estimated
      fair value of off-balance sheet financial instruments at September 30,
      2002 and 2001, was immaterial.

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

<TABLE>
<CAPTION>
                                                        September 30,
                                       --------------------------------------------------
                                                2002                        2001
                                       ----------------------      ----------------------
                                       Carrying        Fair        Carrying        Fair
                                        Amount         Value        Amount         Value
                                       --------        -----       --------        -----


                                    <c>           <c>           <c>           <c>
Financial assets:
  Cash and cash equivalents            $ 19,253      $ 19,253      $ 15,108      $ 15,108
  Securities available for sale          75,638        75,638        64,414        64,414
  Federal Home Loan Bank stock            1,250         1,250         1,100         1,100
  Loans, net                            132,880       140,105       134,957       139,649
  Accrued interest receivable             1,341         1,341         1,315         1,315

Financial liabilities:
  Deposits                              202,063       202,277       185,098       186,059
  Federal Home Loan Bank advances         9,500        10,221        12,000        12,596
</TABLE>


<PAGE>  F-36


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

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

<TABLE>
<CAPTION>
                                                           September 30,
                                                       --------------------
BALANCE SHEETS                                           2002         2001
--------------                                           ----         ----


                                                    <c>          <c>
Assets

Cash and due from bank                                 $   584      $ 1,005
Short-term investments                                     196          142
                                                       -------      -------
      Total cash and cash equivalents                      780        1,147
Investment in subsidiary                                26,763       25,343
Loan receivable - ESOP                                     404          422
Other assets                                                42            -
                                                       -------      -------

      Total assets                                     $27,989      $26,912
                                                       =======      =======

Liabilities and Stockholders' Equity

Liabilities                                            $     -      $     -
Stockholders' equity                                    27,989       26,912
                                                       -------      -------

      Total liabilities and stockholders' equity       $27,989      $26,912
                                                       =======      =======

<CAPTION>
                                                           Years Ended
                                                          September 30,
                                                       --------------------
STATEMENTS OF INCOME                                     2002         2001
--------------------                                     ----         ----


                                                    <c>          <c>
Income:
  Interest on short-term investments                   $     3      $     6
  Interest on loan - ESOP                                   32           34
                                                       -------      -------
      Total income                                          35           40
Operating expenses                                          89          120
                                                       -------      -------
Loss before income taxes and equity in
 undistributed net income of subsidiary                    (54)         (80)
Provision (credit) for income taxes                        (27)           1
                                                       -------      -------
Loss before undistributed net income
 of subsidiary                                             (27)         (81)
Equity in undistributed net income of subsidiary         1,006        1,479
                                                       -------      -------

      Net income                                       $   979      $ 1,398
                                                       =======      =======
</TABLE>


<PAGE>  F-37


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

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

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                                  September 30,
                                                              --------------------
STATEMENTS OF CASH FLOWS                                        2002         2001
------------------------                                        ----         ----


                                                           <c>          <c>
Cash flows from operating activities:
  Net income                                                  $   979      $ 1,398
  Adjustments to reconcile net income to net
   cash used by operating activities:
    Increase in other assets                                      (42)           -
    Equity in undistributed earnings of subsidiary             (1,006)      (1,479)
                                                              -------      -------
      Net cash used by operating activities                       (69)         (81)
                                                              -------      -------

Cash flows from investing activities:
  Principal paydowns received on ESOP loan                         18           20
                                                              -------      -------
      Net cash provided in investing activities                    18           20
                                                              -------      -------

Cash flows from financing activities:
  Dividends paid                                                 (316)        (316)
                                                              -------      -------
      Net cash used by financing activities                      (316)        (316)
                                                              -------      -------

Net change in cash and cash equivalents                          (367)        (377)

Cash and cash equivalents at beginning of year                  1,147        1,524
                                                              -------      -------

Cash and cash equivalents at end of year                      $   780      $ 1,147
                                                              =======      =======
</TABLE>


<PAGE>  F-38


             WESTBOROUGH FINANCIAL SERVICES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                (Dollars in thousands, except per share data)

16.   QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   Years Ended September 30,
                                   -------------------------------------------------------------------------------------------
                                                      2002                                            2001
                                   -------------------------------------------     -------------------------------------------
                                   Fourth       Third      Second       First      Fourth       Third      Second       First
                                   Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter
                                   -------     -------     -------     -------     -------     -------     -------     -------


                                <c>         <c>         <c>         <c>         <c>         <c>         <c>         <c>
Interest and dividend income       $ 3,466     $ 3,387     $ 3,501     $ 3,517     $ 3,616     $ 3,503     $ 3,506     $ 3,510
Interest expense                     1,280       1,267       1,311       1,500       1,664       1,740       1,763       1,760
                                   -------     -------     -------     -------     -------     -------     -------     -------

Net interest income                  2,186       2,120       2,190       2,017       1,952       1,763       1,743       1,750
Provision for loan losses                -           -           -           8          12          12          12          12
                                   -------     -------     -------     -------     -------     -------     -------     -------

Net interest income, after
 provision for loan losses           2,186       2,120       2,190       2,009       1,940       1,751       1,731       1,738

Gain (loss) on securities, net        (460)        (10)        (26)         30         137         257         264          52
All other income                       151         130         157         201         213         189         199         233
Operating expenses                   1,828       1,991       1,834       1,793       1,643       1,849       1,807       1,678
                                   -------     -------     -------     -------     -------     -------     -------     -------

Income before income taxes
 cummulative effect of change in
 accounting principle and               49         249         487         447         647         348         387         345

Provision (credit) for income
 taxes                                 (17)         45         109         116         189          89         106          92
                                   -------     -------     -------     -------     -------     -------     -------     -------

Income before cummulative
 effect of change in
 accounting principle                   66         204         378         331         458         259         281         253

Cumulative effect of change in
 accounting principle, net of
 tax effects ($.09 per dilutive
 share)                                  -           -           -           -           -           -           -         147
                                   -------     -------     -------     -------     -------     -------     -------     -------

Net income                         $    66     $   204     $   378     $   331     $   458     $   259     $   281     $   400
                                   =======     =======     =======     =======     =======     =======     =======     =======

Earnings per common share:
  Basic                            $  0.04     $  0.13     $  0.25     $  0.21     $  0.30     $  0.17     $  0.18     $  0.26
                                   =======     =======     =======     =======     =======     =======     =======     =======
  Diluted                          $  0.04     $  0.13     $  0.24     $  0.21     $  0.29     $  0.17     $  0.18     $  0.26
                                   =======     =======     =======     =======     =======     =======     =======     =======
</TABLE>


<PAGE>  F-39