U.S. SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D. C. 20549

                                 FORM 10-KSB

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

                For the fiscal year ended September 30, 2003

                       Commission File No.: 000-27997

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

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

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

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

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

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

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

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

      The revenues for the issuer's fiscal year ended September 30, 2003 are
$12,991,000

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was sold, as of a specified date within the last 60 days.
On December 10, 2003: $14,667,362.

      State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. The Company had
1,586,374 shares outstanding as of December 10, 2003.

                     DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Annual Report to Shareholders for the year ended
September 30, 2003 are incorporated by reference into Part II of this Form
10-KSB.

      Portions of the Proxy Statement for the 2004 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-
KSB.

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


<PAGE>


                              TABLE OF CONTENTS

                                                                    Page
                                                                    ----

FORWARD LOOKING STATEMENTS                                           (i)

U.S. SECURITIES AND EXCHANGE COMMISSION                                1

PART I                                                                 1
  ITEM 1.   BUSINESS                                                   1
  ITEM 2.   DESCRIPTION OF PROPERTY                                   39
  ITEM 3.   LEGAL PROCEEDINGS                                         40
  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       40

PART II                                                               40
  ITEM 5.   MARKET FOR THE COMPANY COMMON STOCK AND RELATED
            STOCKHOLDER MATTERS                                       40
  ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS                       40
  ITEM 7.   FINANCIAL STATEMENTS                                      40
  ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE                       41
  ITEM 8A.  CONTROLS AND PROCEDURES                                   41

PART III                                                              41
  ITEM 9.   DIRECTORS AND PRINCIPAL OFFICERS                          41
  ITEM 10.  EXECUTIVE COMPENSATION                                    41
  ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT                                                41
  ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS            42
  ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                          42
  ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                    44

  SIGNATURES                                                          45

  CERTIFICATIONS                                                      48


<PAGE>


Forward Looking Statements

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

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

      *  conditions which effect general and local economies;

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

      *  changes in accounting principles, policies, or guidelines;

      *  changes in legislation or regulation; and

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

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


<PAGE>  i


PART I

ITEM 1. BUSINESS

General

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

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

      Unless otherwise indicated, the information presented in this Annual
Report on Form 10-KSB represents the consolidated activity of the Company
and its subsidiary for the year ended September 30, 2003.

      At September 30, 2003, total assets were $256.1 million, deposits were
$215.9 million and total stockholders' equity was $28.7 million.

Market Area

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

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

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


<PAGE>  1


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

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

Business Strategy

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

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

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


<PAGE>  2


Lending Activities

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

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

<TABLE>
<CAPTION>

                                                                        At September 30,
                               --------------------------------------------------------------------------------------------------
                                      2003                2002                2001                2000                1999
                               ------------------  ------------------  ------------------  ------------------  ------------------
                                         Percent             Percent             Percent             Percent             Percent
                                Amount   of Total   Amount   of Total   Amount   of Total   Amount   of Total   Amount   of Total
                                ------   --------   ------   --------   ------   --------   ------   --------   ------   --------
                                                                     (Dollars in thousands)


                            <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>       <c>
Real estate loans:
  Fixed rate mortgages         $ 65,170   44.84%   $ 47,599   35.01%   $ 53,431   39.42%   $ 47,964   41.68%   $52,674    56.12%
  Variable rate mortgages        48,287   33.23%     54,096   39.78%     55,859   41.21%     52,233   45.38%    30,485    32.48%
  Commercial                     17,290   11.90%     20,092   14.78%     13,149    9.70%      6,309    5.48%     3,198     3.41%
  Home equity lines-of-credit    10,303    7.09%      8,792    6.47%      6,931    5.11%      4,027    3.50%     3,598     3.83%
                               --------  ------    --------  ------    --------  ------    --------  ------    -------   ------
      Total real estate loans   141,050   97.06%    130,579   96.04%    129,370   95.44%    110,533   96.04%    89,955    95.84%
                               --------  ------    --------  ------    --------  ------    --------  ------    -------   ------

Consumer loans:
  Personal                          564    0.39%        983    0.72%      1,196    0.88%        911    0.79%       571     0.61%
  Deposit secured                   358    0.24%        509    0.37%        652    0.48%        676    0.59%       651     0.69%
  Home improvement                   68    0.05%        171    0.13%        759    0.56%        118    0.10%       199     0.21%
                               --------  ------    --------  ------    --------  ------    --------  ------    -------   ------
      Total consumer loans          990    0.68%      1,663    1.22%      2,607    1.92%      1,705    1.48%     1,421     1.51%
                               --------  ------    --------  ------    --------  ------    --------  ------    -------   ------

Commercial loans:
  Commercial lines-
   of-credit                      1,824    1.25%      2,549    1.87%      1,783    1.32%      1,403    1.22%     1,029     1.10%
  Commercial installment          1,461    1.01%      1,182    0.87%      1,795    1.32%      1,450    1.26%     1,457     1.55%
                               --------  ------    --------  ------    --------  ------    --------  ------    -------   ------
      Total commercial loans      3,285    2.26%      3,731    2.74%      3,578    2.64%      2,853    2.48%     2,486     2.65%
                               --------  ------    --------  ------    --------  ------    --------  ------    -------   ------

Total loans                     145,325  100.00%    135,973  100.00%    135,555  100.00%    115,091  100.00%    93,862   100.00%
                                         ======              ======              ======              ======              ======

Adjusted by:
  Due to borrowers on
   incomplete loans              (3,550)             (2,866)               (480)               (543)            (1,013)
  Net deferred loan costs           223                 161                 136                 120                122
  Net premium (discount)
   on purchased loans               470                 538                 662                (235)                 0
  Allowance for loan loss          (911)               (926)               (916)               (874)              (879)
                               --------            --------            --------            --------            -------

  Net loans                    $141,557            $132,880            $134,957            $113,559            $92,092
                               ========            ========            ========            ========            =======
</TABLE>


<PAGE>  3


      Residential Mortgage Loans. The Bank's primary lending emphasis is the
origination of first mortgage loans secured by one- to four-family
properties that serve as the primary or secondary residence of the owner. As
of September 30, 2003, loans on one- to four-family residential properties
accounted for 78.1% of the Bank's total loan portfolio.

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

      The Bank currently offers loans that conform to underwriting standards
specified by Fannie Mae ("conforming loans") and also originates non-
conforming loans, as described below. These loans may be fixed-rate one- to
four-family mortgage loans or adjustable-rate one- to four-family mortgage
loans with maturities of between 5 and 30 years. The non-conforming loans
generally follow Fannie Mae guidelines except that the loan amount exceeds
Fannie Mae guidelines' maximum limit of $322,700. The average size of the
Bank's first mortgage loans originated during the year ended September 30,
2003 and the year ended September 30, 2002 was $193,967 and $194,800,
respectively. The average size of the Bank's first mortgage loans was
$137,064 at September 30,2003. The Bank is an approved seller/servicer for
Fannie Mae. From time to time, the Bank has sold loans in the secondary
market although such sales have been infrequent. The loans that the Bank
sells are all fixed-rate mortgage loans with terms of 30 years. Such loans,
however, continue to be serviced by the Bank.

      The Bank's originations of first mortgage loans amounted to $53.7
million in fiscal year 2003, $30.0 million in fiscal year 2002 and $20.9
million in fiscal year 2001. A significant number of the Bank's first
mortgage loan originations have been the result of refinancing of its
existing loans due to the relatively low interest rate levels over the past
three years.

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

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

      The Bank currently offers a variety of ARM loans secured by one- to
four-family residential properties that initially adjust after one year,
three years, five years, seven years, or ten years. After the initial
adjustment period, ARM loans adjust on an annual basis. The ARM loans that
the Bank currently originates have a maximum 30 year amortization period and
are subject to the same loan-to-value ratios applicable to fixed-rate
mortgage loans described above. The interest rates on ARM loans fluctuate
based upon a fixed spread above the average yield on United States treasury
securities and generally are subject to a maximum increase of 2% per
adjustment period and a limitation on the aggregate adjustment of 6% over
the life of the loan. The Bank originated $22.8 million and $16.7 million of
one-to-four family ARM loans in the years ended September 30, 2003 and 2002,
respectively. At September 30, 2003, 33.2% of the Bank's total loans
consisted of ARM loans, down from 39.8% at September 30, 2002.

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


<PAGE>  4


volume of ARM loans sufficient to maintain or perhaps increase the
proportion these loans represent when compared against the aggregate
residential loan portfolio.

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

      The Bank's home equity lines-of-credit, which totaled $10.3 million,
or 7.1% of total loans at September 30, 2003, are adjustable-rate loans
secured by a first or second mortgage on owner-occupied one- to four-family
residences located in the Bank's market area. Interest rates on home equity
credit lines are based upon the "prime rate" as published in the "Money
Rates" section of the Wall Street Journal (the "index") with a minimum
monthly principal payment of one-half of 1% of the outstanding principal
balance of the loan. The maximum credit line available is equal to (i) the
lesser of $250,000 or 80% of the Bank's appraisal of the property, or (ii)
50% of the tax assessment on the property. In each case, these amounts are
reduced by the first mortgage balance. Such loans also have a maximum term
of 15 years. The underwriting standards applicable to these loans generally
are the same as one- to four-family first mortgage loans, except that the
combined loan-to-value ratio, including the balance of the first mortgage,
cannot exceed 80% of the appraised value of the property.

      In conjunction with the Bank's residential mortgage lending, the Bank
offers construction loans to the future occupants of single family homes. At
September 30, 2003, $2.2 million of the Bank's total loan portfolio
consisted of gross residential construction loans. Unadvanced funds on these
loans amounted to $1.3 million at September 30, 2003. These loans typically
have a term of twelve months and are structured to become permanent loans
upon the completion of construction. All such loans are secured by first
liens on the property and are subject to a maximum loan-to-value ratio of
80%, which is based upon the "as completed" valuation of the property.
During the construction period, the interest rate for construction loans to
individuals is equal to the index. Loans involving construction financing
present a greater risk than loans for the purchase of existing homes since
collateral values and construction costs can only be estimated at the time
the loan is approved.

      Commercial Real Estate Loans. At September 30, 2003, commercial real
estate mortgage loans totaled $17.3 million, or 11.9% of total loans. These
loans are generally secured by office buildings, condominiums, retail
establishments and churches located within the Bank's market area.

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

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

      Loans secured by commercial real estate properties are generally
larger and involve a greater degree of credit risk than one- to four-family
residential mortgage loans. Such loans typically involve large balances to
single borrowers or groups of related borrowers. Because payments on loans
secured by


<PAGE>  5


commercial real estate properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. If
the cash flow from the project decreases, or if leases are not obtained or
renewed, the borrower's ability to repay the loan may be impaired.

      The Bank's real estate loan portfolio also includes construction loans
to builders and developers of residential properties within the Bank's
market area. At September 30, 2003, $1.7 million of the Bank's total loan
portfolio consisted of gross commercial construction loans. Unadvanced funds
on these loans amounted to $938 thousand.

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

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

      Consumer Loans. At September 30, 2003, $1.0 million, or 0.68 % of the
Bank's total loans, consisted of consumer loans such as personal, deposit
secured and fixed-rate home improvement loans. Consumer loans generally have
shorter terms to maturity, which reduces the Bank's exposure to changes in
interest rates. Consumer loans also carry higher rates of interest than do
one- to four-family residential mortgage loans. In addition, the Bank
believes that offering consumer loan products helps to expand and create
stronger ties to the Bank's existing customer base by increasing the number
of customer relationships and providing cross-marketing opportunities.

      The Bank's personal loans consist of unsecured loans to individuals
and secured loans for the purchase of new and used automobiles. The Bank's
unsecured loans have a maximum term of 48 months. The terms of the Bank's
automobile loans generally are determined by the age and condition of the
vehicle. At September 30, 2003, the Bank's personal loans totaled $564
thousand , or 0.39% of total loans.

      The Bank also makes loans secured by deposit accounts up to 90% of the
amount of the depositor's savings account balance. The rate for such loans
is 2.0% higher than the rate paid on regular savings accounts and 3.0%
higher than the rate paid on term deposits. Deposit secured loans totaled
$358 thousand, or 0.24% of total loans at September 30, 2003.

      The Bank offers fixed-rate home improvement loans in amounts equal to
that available for home equity credit line loans as discussed above. These
loans are secured by owner-occupied one- to four-family residences for terms
of up to 10 years. At September 30, 2003, these loans totaled $68 thousand,
or 0.05% of total loans. Interest rates on fixed-rate home improvement loans
are periodically set by the Bank's Loan Committee (the "LC"), consisting of
the Bank's President & Chief Executive Officer, Senior Vice President &
Treasurer and the Senior Vice President & Senior Loan Officer, after
consultation with the Executive Committee (the "EC"), and are based on
market conditions. The underwriting terms and procedures applicable to these
loans are substantially the same as for the Bank's home equity credit line
loans.

      Commercial Loans. The Bank has made a commitment to small business
lending by developing certain products and services for the small- and
medium-sized businesses located in the Bank's market


<PAGE>  6


area. Such services are designed to give business owners borrowing
opportunities for, among other things, modernization, inventory, equipment,
consolidation and working capital. In addition, the Bank has tailored
certain products and services, such as its business checking accounts and
treasury and tax loan service, to better serve the needs of local
businesses. The Bank also is an approved lender of the Small Business
Administration. At September 30, 2003, $3.3 million, or 2.26%, of the Bank's
total loans consisted of commercial loans. The Bank expects that commercial
loans will comprise a growing portion of its total loan portfolio in the
future.

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

      The Bank's commercial services are administered by the Bank's loan
department. The Bank has an experienced commercial loan officer with
considerable commercial lending expertise, including many years of banking
experience in Massachusetts and personal ties to Westborough. The Bank
recently added several experienced, qualified individuals to the commercial
lending department. These include a seasoned commercial lender who is
familiar with the Bank's market area, an experienced commercial loan
assistant with in-depth knowledge of the Bank's core processing system, and
a senior credit analyst with extensive national and international banking
experience. The Bank also intends to add additional qualified lending and
support staff as the size and complexity of the commercial portfolio change.

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

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


<PAGE>  7


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

<TABLE>
<CAPTION>

                                                              For the Year Ended September 30,
                                                ------------------------------------------------------------
                                                  2003         2002         2001         2000         1999
                                                ------------------------------------------------------------
                                                                       (In thousands)


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

  Balance outstanding beginning of year         $132,880     $134,957     $113,559     $ 92,092     $ 82,348
                                                --------     --------     --------     --------     --------

Originations and Purchased Loans:
  Mortgage loans:
    Residential                                   53,729       30,003       20,892       17,194       31,280
    Commercial                                     1,164        8,866        7,023        4,453        1,583
    Home equity lines-of-credit                    9,488        8,658        7,326        2,611        3,198
                                                --------     --------     --------     --------     --------
      Total mortgage originations                 64,381       47,527       35,241       24,258       36,061
  Commercial loans                                 2,728        1,704        5,085        2,705        1,987
  Consumer loans                                   1,453        2,123        1,956        3,382        1,825
                                                --------     --------     --------     --------     --------
      Total originations                          68,562       51,354       42,282       30,345       39,873
                                                --------     --------     --------     --------     --------

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

Less:
  Principal repayments, unadvanced
   funds and other, net                          (55,835)     (53,421)     (30,326)     (21,674)     (30,077)
  Sale of mortgage loans, principal balance       (4,065)           0            0            0            0
  Provision for loan losses                            0           (8)         (48)           0          (45)
  Net loan charge-off (recoveries)                    15           (2)           6            5           (7)
  Transfers to foreclosed real estate                  0            0            0            0            0
                                                --------     --------     --------     --------     --------
      Total deductions                           (59,885)     (53,431)     (30,368)     (21,669)     (30,129)
                                                --------     --------     --------     --------     --------
  Net loan activity                                8,677       (2,077)      21,398       21,467        9,744
                                                --------     --------     --------     --------     --------
    Loans, net, end of year                     $141,557     $132,880     $134,957     $113,559     $ 92,092
                                                ========     ========     ========     ========     ========
</TABLE>


<PAGE>  8


      The following table presents, as of September 30, 2003, the dollar
amount of all loans due after September 30, 2004, and whether such loans
have fixed or adjustable interest rates.

<TABLE>
<CAPTION>

                                         Due After September 30, 2004
                                      -----------------------------------
                                       Fixed      Adjustable      Total
                                      -----------------------------------
                                                (In thousands)

      
                             <c>          <c>           <c>
      Fixed rate mortgages            $61,665      $     0       $ 61,665
      Variable rate mortgages               0       43,238         43,238
      Commercial mortgage loans        12,572        1,360         13,932
      Home equity lines-of-credit         832            0            832
      Consumer loans                      600            0            600
      Commercial loans                  1,194          232          1,426
                                      -------      -------       --------
            Total loans               $76,863      $44,830       $121,693
                                      =======      =======       ========
</TABLE>


<PAGE>  9


      Loan Commitments. The Bank generally makes loan commitments to
borrowers not exceeding 45 days. At September 30, 2003, the Bank had $7.2
million in loan commitments outstanding, primarily for the origination of
one- to four-family residential real estate loans, commercial loans and
commercial real estate loans. Unadvanced funds on home equity lines-of-
credit and commercial lines-of-credit at September 30, 2003 represented
$11.4 million and $1.3 million, respectively.

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

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

      Interest rates charged by the Bank on all loans are primarily
determined by competitive loan rates offered in its market area and interest
rate costs of the source of funding for the loan. The Bank may charge an
origination fee on new mortgage loans. The origination fees, net of direct
origination costs, are deferred and amortized into income over the life of
the loan. At September 30, 2003, the amount of net deferred loan origination
costs was $223 thousand.

      Loan Maturity and Re-pricing. The following table sets forth certain
information as of September 30, 2003 regarding the dollar amount of loans
maturing in the Bank's portfolio based on their contractual terms to
maturity. Demand loans having no stated schedule of repayments and no stated
maturity, and overdrafts are reported as due in one year or less. Adjustable
and floating rate loans are included in the period in which interest rates
are next scheduled to adjust rather than the period in which they
contractually mature, and fixed-rate loans are included in the period in
which the final contractual repayment is due. This table does not include
prepayments on scheduled principal amortizations.


<PAGE>  10


<TABLE>
<CAPTION>

                                                                      At September 30, 2003
                                          ---------------------------------------------------------------------------------------
                                                   Mortgage Loans (1)
                                          -------------------------------------      Home
                                                        Variable     Commercial     Equity
                                          Fixed Rate      Rate        Mortgage     Lines of    Consumer    Commercial     Total
                                          Mortgages     Mortgages      Loans        Credit      Loans        Loans        Loans
                                          ---------------------------------------------------------------------------------------
                                                                               (In thousands)


                                        <c>           <c>          <c>          <c>           <c>         <c>         <c>
Amounts due:
  Within one year                          $ 1,280       $ 5,049      $ 2,033      $ 9,471       $390        $1,859      $ 20,082
  One to three years                            73         4,092        2,129            0        375           206         6,875
  Over three to five years                   2,268         3,465        8,682            0        154           185        14,754
  Over five to ten years                     6,490        34,314          864          832          3           216        42,719
  Over ten to twenty years                  44,863         1,367        2,257            0          0           626        49,113
  Over twenty years                          7,971             0            0            0         68           193         8,232
                                           -------       -------      -------      -------       ----        ------      --------
      Loans, gross                         $62,945       $48,287      $15,965      $10,303       $990        $3,285       141,775
                                           =======       =======      =======      =======       ====        ======
  Net deferred loan origination costs                                                                                         223
  Net premium on purchased loans                                                                                              470
  Allowance for loan losses                                                                                                  (911)
                                                                                                                         --------
      Loans, net                                                                                                         $141,557
                                                                                                                         ========

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

      Non-Performing Assets, Asset Classification and Allowances for Losses.
The Senior Lending Officer, working with other members of the LC,
continually monitors the status of all delinquent loans. On a monthly basis,
the Senior Lending Officer presents an update of the status of loans to both
the Bank's EC and Board of Directors. One of the Bank's primary tools
utilized to manage and control delinquent and problem loans is the Watched
Asset List (the "WAL"). This report identifies all loans or commitments that
are considered to have inherent collateral or cash flow deficiencies that
could result in a potential loss to the Bank if not properly supervised. The
subject loans are managed by the LC, which, together with the EC, may meet
more frequently to discuss the status of particular loans and to add or
delete loans from the Watch List, as is deemed appropriate. At September 30,
2003, the Bank had 4 loans 90 days or more past due which totaled $495
thousand. The Bank also had $1.5 million in assets classified as substandard
at September 30, 2003. No assets were classified as special mention,
doubtful or loss.

      The Bank had $634 thousand and $140 thousand non-performing assets at
September 30, 2003 and 2002, respectively.


<PAGE>  11


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

<TABLE>
<CAPTION>

                                                                                 At September 30,
                                                                     -----------------------------------------
                                                                     2003     2002     2001     2000     1999
                                                                     ----------------------------------------
                                                                              (Dollars in thousands)

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

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

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

      Impaired loans generally are individually assessed to determine
whether a loan's carrying value is not in excess of the fair value of the
collateral or the present value of the loan's cash flows. Groups of smaller
balance loans, however, are collectively evaluated for impairment.
Accordingly, the Bank does not separately identify individual consumer loans
for impairment disclosures. The Bank had $814 thousand of loans classified
as impaired at September 30, 2003. There were no loans classified as
impaired at September 30, 2002 and 2001.

      Troubled debt restructuring generally involves a modification of terms
of a borrower's debt and can effect the carrying value of a loan. At
September 30, 2003, 2002 and 2001, the Bank had no loans classified as
troubled debt restructuring.

      Foreclosed real estate consists of property the Bank acquired through
foreclosure or deed in lieu of foreclosure. Foreclosed real estate
properties are initially recorded at the lower of the investment in the loan
or fair value. Thereafter, the Bank carries foreclosed real estate at fair
value less estimated selling costs, net of a valuation allowance account
established through provisions charged to income, which result from the
ongoing periodic valuations of foreclosed real estate properties. The Bank
had no foreclosed real estate at September 30, 2003, 2002 and 2001.


<PAGE>  12


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

<TABLE>
<CAPTION>

                                                    At or for the Years Ended September 30,
                                                ------------------------------------------------
                                                 2003       2002      2001      2000       1999
                                                ------------------------------------------------
                                                             (Dollars in thousands)

       
                                      <c>        <c>        <c>       <c>       <c>
       Balance at beginning of year             $  926     $  916     $ 874     $ 879     $  827
                                                ------     ------     -----     -----     ------
       Provision for loan losses                     0          8        48         0         45
                                                ------     ------     -----     -----     ------
       Charge-off:
         Mortgage loans                              0          0         0         0          0
         Commercial Loans                            0          0         0         0          0
         Consumer loans                            (19)       (11)      (10)       (6)        (6)
                                                ------     ------     -----     -----     ------
             Total charge-offs                     (19)       (11)      (10)       (6)        (6)
      Recoveries                                     4         13         4         1         13
                                                ------     ------     -----     -----     ------
      Balance at end of year                    $  911     $  926     $ 916     $ 874     $  879
                                                ======     ======     =====     =====     ======

      Net charge-offs/(recoveries) for
       the year                                 $   15     $   (2)    $   6     $   5     $   (7)

      Ratio of net charge-offs/(recoveries)
       to average loans outstanding
       during the year                           0.011%    -0.001%    0.005%    0.005%    -0.008%

      Allowance for loan losses as a
       percent of total loans before the
       allowance for loan losses                  0.64%      0.69%    0.67%      0.76%      0.95%

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

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


<PAGE>  13


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

<TABLE>
<CAPTION>

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


                         <c>        <c>            <c>        <c>            <c>        <c>
Real estate-mortgage:
  Residential (1)           $159        85.16%        $133        81.25%        $165        85.74%
  Commercial                 138        11.90%          41        14.78%          39         9.70%
Commercial                   487         2.26%         643         2.74%         606         2.64%
Consumer                      18         0.68%          24         1.22%          28         1.92%
Unallocated                  109         0.00%          85         0.00%          78         0.00%
                            ----       ------         ----       ------         ----       ------
      Total Allowance
       for loan losses      $911       100.00%        $926       100.00%        $916       100.00%
                            ====       ======         ====       ======         ====       ======

<CAPTION>

                                          At September 30,
                           -----------------------------------------------
                                   2000                      1999
                           -----------------------------------------------
                                      Percent of                Percent of
                                       Loans in                  Loans in
                                       Category                  Category
                           Dollar      to Total      Dollar      to Total
                           Amount       Loans        Amount       Loans
                           -----------------------------------------------
                                     (Dollars are in thousands)


                         <c>        <c>            <c>        <c>
Real estate-mortgage:
  Residential (1)           $347        90.56%        $279        92.43%
  Commercial                 212         5.48%         176         3.41%
Commercial                    70         2.48%          60         2.65%
Consumer                     163         1.48%         149         1.51%
Unallocated                   82         0.00%         215         0.00%
                            ----       ------         ----       ------
      Total Allowance
       for loan losses      $874       100.00%        $879       100.00%
                            ====       ======         ====       ======

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

      With regard to determining how the allowance for loan loss is
allocated to various categories of loans, individual loans selected to
appear on the Bank's WAL have been identified by the line officer
(relationship manager) and reviewed by management as having a defined
weakness, such as insufficient cash flow, inadequate collateral, irregular
payment history, etc., which could jeopardize the contractual repayment of
the loan. Potential loss factors are quantified utilizing a "discount
factor" against the collateral held for a specific loan(s). All substandard
loan factors are decided by the line officer that has intimate knowledge of
the loan relationship and the collateral supporting the obligation. The
discounts can range from 0% to 100%, depending on the nature of the
collateral and the circumstances behind the loan classification. The
discounted collateral value is then compared with the outstanding loan
balance to determine what allowance for loan loss allocation is considered
appropriate. This method of allocating the allowance for loan loss was
implemented for the fiscal year ended September 30, 2001. In prior years,
such analysis was not as specific because the amount and characteristics of
our commercial loan portfolio was relatively small in relation to other
categories of loans. As a result of implementing this revised method, while
the total allowance for loan loss has not changed dramatically, there has
been a significant change in the percentage and dollar amounts allocated
within each category of loans. Management believes this quantitative
approach is more acceptable and better reflects the changes which have
occurred in the Bank's loan portfolio. The allowance for loan loss was $911
thousand at September 30, 2003 as compared to $926 thousand at September 30,
2002. As a result of a decline in commercial loan balances and portfolio
risk characteristics, the amount of allowance for loan loss allocated to
commercial loans decreased to $487 thousand at September 30, 2003 as
compared to $643 thousand at September 30, 2002.

      The remaining loans not subject to individual review, are evaluated as
related, homogeneous, groups, according to specific loan categories.
Residential real estate mortgage loans generally fall into this category of
homogeneous groups. Loss factors are assigned to each related, homogeneous
group according to factors such as historical losses, peer group
comparisons, industry and economic data and loss percentages generally used
by banking regulators for similarly graded loans. The allowance for loan
loss allocated to residential real estate mortgage loans increased by $26
thousand to $159 thousand at September 30, 2003 as compared to $133 thousand
at September 30, 2002. The increase is mainly a result


<PAGE>  14


of an increase in the aggregate balance of homogeneous loans in this group,
less any which may have been specifically identified on the Bank's WAL. The
allowance for loan loss allocated to commercial real estate mortgage loans
increased by $97 thousand to $138 thousand at September 30, 2003 as
compared to an allowance for loan loss of $41 thousand at September 30,
2002. While the balance of loans in this category declined by $2.9 million,
to $17.3 million at September 30, 2003, the increase in allocation of the
allowance for loan loss to this category of loans was due to a net decline
in the estimated collateral valuation of the underlying loans. An
unallocated component is maintained to cover uncertainties that could
affect management's estimate of probable losses and also reflects the
margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating allocated and general losses in the loan
portfolio.

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

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

Investment Activities

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

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

      At September 30, 2003, with the exception of securities of the Federal
agencies and corporations, the Company had no securities of any issuer where
the aggregate market and book value of the securities of such issuer,
exceeded 10 percent of stockholders' equity.

      At September 30, 2003 and September 30, 2002, the Bank's liquidity
ratio was 90.2 % and 80.5%, respectively. For information regarding the
carrying values, yields and maturities of the Bank's securities, see
"Carrying Values, Yields and Maturities" further on in this section.

      At September 30, 2003, the fair value of the Federal agency securities
portfolio totaled $29.3 million, or 102.0% of stockholders' equity. This
portfolio consists primarily of securities with maturities of one to five
years. Some of the agency debentures are callable and call provisions vary
following a minimum holding period. The Bank generally does not purchase
structured notes, and at September 30, 2003, there were no structured notes
in the Bank's portfolio.

      At September 30, 2003, the portfolio of other debt obligations,
excluding mortgage-backed securities, totaled $26.4 million. The Bank's
policy generally requires that investment in corporate debt obligations be
limited to corporate bonds with an "A" rating or better by at least one
nationally recognized rating service at the time of purchase.


<PAGE>  15


      At September 30, 2003, the Bank's mortgage-backed securities, all of
which were classified as available for sale, totaled $29.4 million, or 11.5%
of total assets. The Bank generally purchases mortgage-backed securities as
a means to deploy excess liquidity at more favorable yields than other
investment alternatives. In addition, mortgage-backed securities generate
positive interest rate spreads with minimal administrative expense and lower
the Bank's overall credit risk due to the fact that they are directly or
indirectly insured or guaranteed. Purchases of mortgage-backed securities
may decline in the future if the Bank experiences an increase in demand for
one-to four-family mortgage loans. The Bank did not sell any of its
mortgage-backed securities during fiscal year 2003.

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

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

      The fair market value of the marketable equity securities portfolio
totaled $2.5 million at September 30, 2003. These securities consisted of
$666 thousand of common stock, $265 thousand of preferred stock and $1.5
million of trust preferred securities . Under the Bank's investment policy,
the aggregate amount of common stock that it may purchase may not exceed 13%
of its total securities portfolio. The Bank's policy also has limitations
against acquiring concentrations of such securities in any one issuer or
industry. The Bank purchases marketable equity securities as growth
investments that can provide the opportunity for capital appreciation that
is taxed on a more favorable basis than operating income. There can be no
assurance that investment in marketable equity securities will appreciate in
value and, therefore, such investments involve higher risk than U.S.
Government or federal agency securities. At September 30, 2003, pre-tax net
unrealized gain on marketable equity securities amounted to $47 thousand.

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


<PAGE>  16


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

<TABLE>
<CAPTION>

                                               For the Year Ended September 30,
                                               ---------------------------------
                                                 2003        2002         2001
                                               ---------------------------------
                                                    (Dollars In Thousands)


                                            <c>          <c>         <c>
Beginning balance                              $ 76,888     $65,514     $ 70,119
  Purchases                                      55,022      27,735       26,696
  Maturities                                     (4,955)     (4,600)     (10,310)
  Sales and calls                               (22,754)     (5,868)     (19,531)
  Principal repayments                          (14,788)     (6,892)      (3,205)
  Premium and (discount) amortization, net         (333)        (95)          32
  Recognition of expired options                      0           0           16
  Change in net unrealized gains/(losses)          (240)      1,094        1,697
  Write-down                                          0           0            0
                                               --------     -------     --------
Ending balance                                 $ 88,840     $76,888     $ 65,514
                                               ========     =======     ========
</TABLE>

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

<TABLE>
<CAPTION>

                                                                   At September 30,
                                       -------------------------------------------------------------------------
                                               2003                      2002                      2001
                                       -------------------------------------------------------------------------
                                       Amortized      Fair       Amortized      Fair       Amortized      Fair
                                         Cost         Value        Cost         Value        Cost         Value
                                       -------------------------------------------------------------------------
                                                                (Dollars in thousands)


                                     <c>          <c>         <c>           <c>         <c>           <c>
Debt securities:
  U.S. Government obligations           $     -      $     -     $     -       $     -     $ 2,099       $ 2,108
  Federal agency obligations             28,806       29,295      22,830        23,451       9,130         9,571
  Banking and finance obligations        18,329       19,070      15,898        16,990      18,542        19,478
  Other bonds and obligations             7,030        7,358      11,720        12,174       9,260         9,590
                                        -------      -------     -------       -------     -------       -------
      Total debt securities              54,165       55,723      50,448        52,615      39,031        40,747
                                        -------      -------     -------       -------     -------       -------
Mortgage-backed and mortgage-
 related securities:
  FHLMC                                   7,609        7,674       4,553         4,710       2,276         2,361
  FNMA                                   19,435       19,719      11,663        12,173      11,788        12,150
  GNMA                                      628          630         968           983       1,459         1,469
  Other                                   1,380        1,394         258           285       1,698         1,763
                                        -------      -------     -------       -------     -------       -------
      Total mortgage-backed and
       mortgage-related securities       29,052       29,417      17,442        18,151      17,221        17,743
                                        -------      -------     -------       -------     -------       -------
Asset-backed securities                       -            -           -             -         119           120
Marketable equity securities              2,403        2,450       5,538         4,872       6,927         5,804
FHLB stock                                1,250        1,250       1,250         1,250       1,100         1,100
                                        -------      -------     -------       -------     -------       -------
      Total Securities                  $86,870      $88,840     $74,678       $76,888     $64,398       $65,514
                                        =======      =======     =======       =======     =======       =======
</TABLE>


<PAGE>  17


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

<TABLE>
<CAPTION>

                                                                          At September 30,
                                  ------------------------------------------------------------------------------------------------
                                               2003                             2002                             2001
                                  ------------------------------------------------------------------------------------------------
                                               Percent                          Percent                          Percent
                                  Amortized      of       Fair     Amortized      of       Fair     Amortized      of       Fair
                                    Cost      Total (1)   Value      Cost      Total (1)   Value      Cost      Total (1)   Value
                                  ------------------------------------------------------------------------------------------------
                                                                       (Dollars in thousands)


                                <c>         <c>       <c>        <c>         <c>       <c>        <c>         <c>       <c>
Mortgage-backed and
 mortgage-related securities:
  FHLMC                            $ 7,609      26.19%   $ 7,674    $ 4,553      26.10%   $ 4,710    $ 2,276      13.22%   $ 2,361
  FNMA                              19,435      66.90%    19,719     11,663      66.86%    12,173     11,788      68.45%    12,150
  GNMA                                 628       2.16%       630        968       5.55%       983      1,459       8.47%     1,469
  Other                              1,380       4.75%     1,394        258       1.49%       285      1,698       9.86%     1,763
                                   -------     ------    -------    -------     ------    -------    -------     ------    -------
Total Mortgage-backed and
 mortgage-related securities       $29,052     100.00%   $29,417    $17,442     100.00%   $18,151    $17,221     100.00%   $17,743
                                   =======     ======    =======    =======     ======    =======    =======     ======    =======

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


<PAGE>  18


      Carrying Values, Yields and Maturities. The table below presents
information regarding the carrying values, weighted average yields and
contractual maturities of debt securities at September 30, 2003. Mortgage-
backed securities are presented by issuer. Yields on tax exempt obligations
were not computed on a tax equivalent basis.

<TABLE>
<CAPTION>

                                                                         September 30, 2003
                                 --------------------------------------------------------------------------------------------------
                                                         More than           More than
                                                          One Year           Five Years          More than
                                  One Year or Less     to Five Years        to Ten Years         Ten Years             Total
                                 --------------------------------------------------------------------------------------------------
                                           Weighted            Weighted            Weighted            Weighted            Weighted
                                 Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Average   Carrying  Average
                                 Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield     Amount    Yield
                                 --------------------------------------------------------------------------------------------------
                                                                       (Dollars in thousands)


                               <c>       <c>      <c>        <c>       <c>       <c>      <c>        <c>      <c>        <c>
Debt securities:
  U.S. Government obligations     $    -    0.00%    $     -    0.00%     $    -    0.00%    $     -    0.00%    $     -    0.00%
  Federal agency obligations           -    0.00%     27,127    3.95%      2,168    6.54%          -    0.00%     29,295    4.15%
  Banking and finance obligations  4,434    6.41%     14,636    6.59%          -    0.00%          -    0.00%     19,070    6.55%
  Other bonds and obligations      2,538    6.27%      3,925    5.74%        895    3.97%          -    0.00%      7,358    5.71%
                                  ------             -------              ------             -------             -------
      Total debt securities        6,972    6.36%     45,688    4.95%      3,063    5.79%          -    0.00%     55,723    5.17%
                                  ------             -------              ------             -------             -------
Mortgage-backed and mortgage-
 related securities:
  FHLMC                                -    0.00%        488    5.00%      4,466    4.04%      2,720    4.73%      7,674    4.35%
  FNMA                                 -    0.00%      1,861    5.97%      2,084    5.12%     15,774    4.30%     19,719    4.54%
  GNMA                                 -    0.00%          -    0.00%          -    0.00%        630    4.95%        630    4.95%
  Other                                -    0.00%          -    0.00%          -    0.00%      1,394    4.12%      1,394    4.12%
                                  ------             -------              ------             -------             -------
  Total mortgage-backed and
   mortgage-related securities         -    0.00%      2,349    5.76%      6,550    4.38%     20,518    4.36%     29,417    4.48%
                                  ------             -------              ------             -------             -------
Asset-backed securities                -    0.00%          -    0.00%          -    0.00%          -    0.00%          -    0.00%
                                  ------             -------              ------             -------             -------
      Total                       $6,972    6.36%    $48,037    4.99%     $9,613    4.83%    $20,518    4.36%    $85,140    4.93%
                                  ======             =======              ======             =======             =======
</TABLE>


<PAGE>  19


Deposit Activity and Other Sources of Funds

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

      Deposits. The Bank offers a variety of deposit accounts having a range
of interest rates and terms. The Bank currently offers regular savings
deposits, NOW accounts, personal and business demand accounts, money market
accounts and certificates of deposit. The Bank also offers Individual
Retirement Accounts ("IRA's"), which at September 30, 2003 totaled $ 9.4
million.

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

      When the Bank determines its deposit rates, it considers local
competition, U.S. Treasury securities offerings and the rates charged on
other sources of funds. Core deposits (defined as total savings accounts,
NOW accounts, money market accounts and demand accounts) represented 74.9%
of total deposits at September 30, 2003. At September 30, 2003, certificates
of deposit with remaining terms to maturity of less than one year
represented 19.7% of total deposits at September 30, 2003.

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

<TABLE>
<CAPTION>

                                              For the Years Ended September 30,
                                              ----------------------------------
                                                2003         2002         2001
                                              ----------------------------------
                                                    (Dollars In Thousands)

      
                                     <c>          <c>          <c>
      Beginning balance                       $202,063     $185,098     $163,405
        Net deposits                            10,564       12,383       15,819
        Interest paid on deposit accounts        3,271        4,582        5,874
                                              --------     --------     --------
      Ending Balance                          $215,898     $202,063     $185,098
                                              ========     ========     ========
      Total increase in deposit accounts      $ 13,835     $ 16,965     $ 21,693
      Percentage increase                         6.85%        9.17%       13.28%
</TABLE>


<PAGE>  20


      At September 30, 2003, the Bank had $11.8 million in certificates of
deposit with balances of $100,000 and over maturing as follows:

<TABLE>
<CAPTION>

                                                 At September 30, 2003
                                                 ----------------------
                                                              Weighted
                                                              Average
                                                 Amount         Rate
                                                 ----------------------
                                                 (Dollars in thousands)

      
                                        <c>           <c>
      Maturity Period:
        Three months or less                     $ 3,106       1.95%
        Over three months through six months       1,679       2.27%
        Over six months through 12 months          4,370       2.08%
        Over 12 months                             2,693       3.09%
                                                 -------
      Total                                      $11,848       2.30%
                                                 =======
</TABLE>

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

<TABLE>
<CAPTION>

                                                                           At September 30,
                                       ----------------------------------------------------------------------------------------
                                                   2003                          2002                          2001
                                       ----------------------------------------------------------------------------------------
                                                           Weighted                      Weighted                      Weighted
                                                 Percent   Average             Percent   Average             Percent   Average
                                                 of total  Nominal             of total  Nominal             of total  Nominal
                                        Amount   deposits    Rate     Amount   deposits    Rate     Amount   deposits    Rate
                                       ----------------------------------------------------------------------------------------
                                                                        (Dollars in thousands)


                                    <c>       <c>        <c>      <c>       <c>        <c>      <c>       <c>        <c>
Non-interest bearing accounts          $ 19,740    9.14%    0.00%    $ 20,393   10.09%    0.00%    $ 17,496    9.45%    0.00%
NOW accounts                             19,093    8.84%    0.10%      17,033    8.43%    0.25%      18,178    9.82%    0.50%
Savings accounts:
  Regular                                44,103   20.43%    0.50%      42,173   20.87%    1.73%      35,890   19.39%    2.20%
  Tiered-rate                            73,525   34.06%    1.42%      54,133   26.80%    2.32%      44,286   23.93%    2.82%
                                       --------  ------              --------  ------              --------  ------
      Total savings accounts            117,628   54.49%    1.08%      96,306   47.67%    2.06%      80,176   43.32%    2.54%
                                       --------  ------              --------  ------              --------  ------
Money market deposit accounts             5,247    2.43%    1.00%       5,259    2.60%    1.98%       5,494    2.97%    1.97%
                                       --------  ------              --------  ------              --------  ------
      Total non-certificate accounts    161,708   74.90%    0.83%     138,991   68.79%    1.53%     121,344   65.56%    1.84%
                                       --------  ------              --------  ------              --------  ------
Certificates of deposit accounts:
  Due within 1 year                      42,544   19.71%    2.15%      53,392   26.42%    3.27%      52,378   28.30%    5.02%
  Over 1 year through 3 years            11,646    5.39%    2.82%       9,680    4.79%    3.89%      11,370    6.14%    5.00%
  Over 3 years                                -    0.00%    0.00%           -    0.00%    0.00%           6    0.00%    4.88%
                                       --------  ------              --------  ------              --------  ------
      Total certificate accounts         54,190   25.10%    2.29%      63,072   31.21%    3.36%      63,754   34.44%    5.02%
                                       --------  ------              --------  ------              --------  ------
      Total deposits                   $215,898  100.00%    1.19%    $202,063  100.00%    2.11%    $185,098  100.00%    2.94%
                                       ========  ======              ========  ======              ========  ======
</TABLE>


<PAGE>  21


      Borrowings. The Bank borrows funds from the FHLB for use in connection
with its management of the interest rate sensitivity of its assets and
liabilities, as well as to fund certain loans and for other general
purposes. The advances are collateralized by certain of the Bank's mortgage
loans and by its investment in stock of the FHLB. The maximum amount the
FHLB will advance to its members, including the Bank, fluctuates from time
to time in accordance with FHLB policies. At September 30, 2003, the Bank
had $9.5 million in outstanding advances from the FHLB and had the capacity
to increase that amount to $80.7 million based on the Bank's qualified
collateral available to the FHLB. The Bank expects to continue to borrow
from the FHLB.

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

<TABLE>
<CAPTION>

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


                                     <c>        <c>         <c>
Federal Home Loan Bank advances:
  Average balance outstanding           $9,500     $11,677     $16,178
  Maximum amount outstanding at any


   month-end during the year            $9,500     $12,000     $16,500
  Balance outstanding at end of year    $9,500     $ 9,500     $12,000
  Weighted average interest rate
   during the year                        6.42%       6.65%       6.51%
  Weighted average interest rate
   end of year                            5.36%       6.58%       6.65%
</TABLE>


<PAGE>  22


Selected Financial Ratios and Other Data

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

<TABLE>
<CAPTION>

                                                                           At or for the
                                                                     Years Ended September 30,
                                                              ----------------------------------------
Selected Financial Ratios and Other Data                         2003           2002           2001
                                                              ----------------------------------------


                                                           <c>            <c>           <c>
  Performance Ratios:
  Return on average assets                                          0.38%          0.42%         0.64%
  Return on average stockholders' equity                            3.39%          3.59%         5.49%
  Average stockholders' equity to average assets                   11.36%         11.70%        11.69%
  Stockholders' equity to assets at end of year                    11.21%         11.60%        11.93%
  Net interest rate spread (1)                                      3.25%          3.52%         2.93%
  Net interest margin (2)                                           3.52%          3.94%         3.53%
  Average interest-bearing assets to average
   interest-bearing liabilities                                   116.40%        116.82%       117.68%
  Operating expenses as a percent of average assets                 3.03%          3.19%         3.20%
  Efficiency ratio (3)                                             85.00%         81.36%        86.93%

  Regulatory Capital Ratios: (4)
    Total risk-based capital                                       20.68%         19.27%        19.38%
    Tier 1 risk-based capital                                      20.02%         18.61%        18.70%
    Regulatory tier 1 leverage capital                             10.91%         11.11%        11.51%

  Asset Quality Ratios:
    Non-performing loans as a percent of loans                      0.45%          0.11%         0.00%
    Non-performing assets as a percent of total assets              0.25%          0.06%         0.00%
    Allowance for loan losses as a percent of total loans
     before the allowance for loan losses                           0.64%          0.69%         0.67%

  Number of:
    Full-service offices (5)                                           5              5             5
    Full-time equivalent employees                                    74             76            70

    Share Data:

    Basic number of weighted average shares outstanding        1,530,003      1,540,103     1,540,518
    Dilutive number of weighted average shares outstanding     1,548,849      1,558,622     1,550,588
    Basic earnings per share                                  $     0.63     $     0.64    $     0.91
    Dilutive earnings per share                               $     0.62     $     0.63    $     0.90
    Dividends declared per share                              $     0.20     $     0.20    $     0.20

<FN>
--------------------
<F1>  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.
<F2>  Net interest margin represents net interest income as a percentage of
      average interest-earning assets.
<F3>  Efficiency ratio represents total operating expenses divided by the
      sum of net interest income, customer service fees and miscellaneous
      income.
<F4>  Ratios are based on consolidation.
<F5>  The number of full service offices does not include the Bank's branch
      at the Willows retirement community.
</FN>
</TABLE>


<PAGE>  23


Competition

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

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

Employees

      At September 30, 2003, the Bank had 63 full-time and 16 part-time
employees. None of the Bank's employees is represented by a collective
bargaining agreement. Management of the Bank believes that it enjoys
excellent relations with its personnel.

Subsidiary Activities

      Eli Whitney Security Corporation. Eli Whitney Security Corporation is
a wholly-owned subsidiary of the Bank. Eli Whitney was established in 1995
as a Massachusetts security corporation for the purpose of buying, selling
and holding securities on its own behalf and not as a broker. The income
earned on Eli Whitney's securities is subject to a significantly lower rate
of state tax than that assessed on income earned on securities maintained by
the Bank. At September 30, 2003, Eli Whitney had total assets of $42.2
million, virtually all of which were in securities.

      The Hundredth Corporation. The Hundredth Corporation is a wholly-owned
subsidiary of the Bank. The Hundredth Corporation was established in 1991
for the investment in real or personal property. At September 30, 2003, The
Hundredth Corporation had total assets of $992 thousand. Its largest
investment consists of $958 thousand of land on which the Bank constructed
its expanded Maple Avenue, Shrewsbury Branch office.


<PAGE>  24


FEDERAL AND STATE TAXATION

Federal Taxation

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

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

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

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

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

State Taxation

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

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


<PAGE>  25


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

REGULATION

General

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

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

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

Financial Services Modernization Legislation

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

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

Massachusetts Banking Regulation

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


<PAGE>  26


securities and obligations of federal, state and local governments and
agencies; (d) certain types of corporate equity securities; and (e) certain
other assets.

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

      Community Reinvestment Act. The Bank is also subject to provisions of
the Massachusetts banking laws that, like the provisions of the federal
Community Reinvestment Act ("CRA"), impose continuing and affirmative
obligations upon a banking institution organized in Massachusetts to serve
the credit needs of its local communities ("Massachusetts CRA"). The
obligations of the Massachusetts CRA are similar to those imposed by the
CRA, with the exception of the assigned exam ratings. Massachusetts banking
law provides for an additional exam rating of "high satisfactory" in
addition to the federal CRA ratings of "outstanding," "satisfactory," "needs
to improve" and "substantial noncompliance." The Division has adopted
regulations to implement the Massachusetts CRA that are based on the CRA.
See "Federal Banking Regulation -- Community Reinvestment Act." The Division
is required to consider a bank's Massachusetts CRA rating when reviewing the
bank's application to engage in certain transactions, including mergers,
asset purchases and the establishment of branch offices or automated teller
machines, and provides that such assessment may serve as a basis for the
denial of any such application. The Massachusetts CRA requires the Division
to assess a bank's compliance with the Massachusetts CRA and to make such
assessment available to the public. The Bank's most recent Massachusetts CRA
rating, received by letter, dated February 20, 2003, from the Division was a
rating of "Satisfactory."

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

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

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


<PAGE>  27


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

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

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

Federal Banking Regulation

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

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

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

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

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


<PAGE>  28


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

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

      The following table shows the Leverage , Tier 1 risk-based capital,
and Total risk-based capital ratios, for the Bank and consolidated Company,
at September 30, 2003:

<TABLE>
<CAPTION>

                                                           As of September 30, 2003
                                              ---------------------------------------------------
                                                                         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     Bank       $27,286      19.95%      $10,942           8.00%
                                   Company    $28,291      20.68%      $10,944           8.00%
      Tier 1 risk-based capital    Bank       $26,374      19.28%      $ 5,471           4.00%
                                   Company    $27,380      20.02%      $ 5,472           4.00%

      Tier 1 leverage capital      Bank       $26,374      10.59%      $ 7,472           3.00%
                                   Company    $27,380      10.91%      $10,041           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, 2003, the Bank and Company were considered "well
capitalized" under FDIC guidelines.

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

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


<PAGE>  29


pay its obligations in the normal course of business; and (e) insufficient
capital or the incurring or likely incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect
of replenishment of capital without federal assistance.

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

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

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

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

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


<PAGE>  30


subsidiaries of state-chartered banks from the restrictions of Sections 23A
and 23B.

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

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

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

      Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), any insured depository institution, including the Bank, has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including
low- and moderate-income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community. The
CRA requires the FDIC, in connection with its examination of a savings bank,
to assess the depository institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of
certain applications by such institution, including applications for
additional branches and acquisitions. Among other things, the current CRA
evaluation system focuses on three tests: (1) a lending test, to evaluate
the institution's record of making loans in its service areas; (2) an
investment test, to evaluate the institution's record of investing in
community development projects, affordable housing, and programs benefiting
low or moderate income individuals and businesses; and (3) a service test,
to evaluate the institution's delivery of services through its branches,
ATMs and other offices. For a small bank, which is a bank with less than
$250 million in assets in the year prior to the CRA examination, such as the
Bank, the CRA assessment will be based on: (a) the bank's loan-to-deposit
ratio; (b) the percentage of the bank's loans and any other appropriate
lending related activities located in the bank's assessment areas; (c) the
bank's record of lending to, and other appropriate lending related
activities for borrowers of different income levels and businesses and farms
of different sizes; (d) the geographic distribution of the bank's loans; and
(e) the bank's record in acting in response to written complaints about the
bank's performance in helping to meet the credit needs of its assessment
areas. The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating
system and requires public disclosure of an institution's CRA rating. The
Bank received a "satisfactory" rating in its CRA examination conducted by
the FDIC on March 1, 1999.

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


<PAGE>  31


guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice
and describe compensation as excessive when the amounts paid are
unreasonable or disproportionate to the services performed by an executive
officer, employee, director, or principal stockholder.

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

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

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

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


<PAGE>  32


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

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

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

Federal Home Loan Bank System

      The Bank is a member of the FHLB System, which consists of 12 regional
Federal Home Loan Banks subject to supervision and regulation by the Federal
Housing Finance Board ("FHFB"). The Federal Home Loan Banks provide a
central credit facility primarily for member institutions. As a member of
the FHLB, the Bank is required to acquire and hold shares of capital stock
in the FHLB in an amount equal to 1% of the aggregate unpaid principal of
its home mortgage loans, home purchase contracts, and similar obligations,
but not less than $500. The Bank was in compliance with this requirement
with an investment in FHLB stock at September 30, 2003, of $1,250,000.

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

      Federal Home Loan Bank System Modernization Act of 1999. Title 6 of
the GLBA, entitled the Federal Home Loan Bank System Modernization Act of
1999 ("FHLB Modernization Act"), has amended the FHLB Act by allowing for
voluntary membership and modernizing the capital structure and governance of
the FHLB system. The new capital structure established under the FHLB
Modernization Act sets forth new leverage and risk-based capital
requirements based on permanence of capital. It also requires some minimum
investment in FHLB stock of all member entities. Capital will include
retained earnings and two forms of stock: Class A stock redeemable within
six months written notice and Class B stock redeemable within five years
written notice. The FHLB Modernization Act provides a transition period to
the new capital regime, which will not be effective until the FHLB enacts
implementing regulations. The FHLB Modernization Act also reduces the period
of time in which a member exiting the FHLB system must stay out of the
system.

      Pursuant to regulations promulgated by the FHFB, as required by the
GLBA, the FHLB of Boston has adopted, and the FHFB has approved, a capital
plan that changes the foregoing minimum stock


<PAGE>  33


ownership requirements for FHLB of Boston stock. Under the new capital plan,
each member of the FHLB of Boston must maintain a minimum investment in FHLB
of Boston capital stock in an amount equal to the sum of (i) .35% of member
eligible collateral (subject to a minimum of $10,000 and a maximum of
$25,000,000, per member), and (ii) 4.50% of the member's activity-based
assets.

      As a member, the Bank is required to purchase and maintain stock in
the FHLB. At September 30, 2003, the Bank was in compliance with this
requirement.

Holding Company Regulation

      Federal Regulation. The MHC and the Company are governed as bank
holding companies under the BHCA. Bank holding companies are subject to
examination, regulation and periodic reporting under the BHCA, as
administered by the FRB. The FRB has adopted capital adequacy guidelines for
bank holding companies on a consolidated basis substantially similar to
those of the FDIC for the Bank. As of September 30, 2003, the Company's
total capital and Tier 1 capital ratios for the MHC and the Company exceed
these minimum capital requirements.

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

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

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

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

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


<PAGE>  34


become a financial holding company.

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

Acquisition of the Company

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

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

Dividend Waivers by the MHC

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

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

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


<PAGE>  35


rules, regulations and policies of the Division and the plan of
reorganization. In addition, if the MHC converted to stock form in the
future, (commonly referred to as a second-step conversion), any waived
dividends would reduce the percentage of the converted company's shares of
common stock issued to public stockholders in connection with any such
transaction.

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

USA PATRIOT Act

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

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

      *     Pursuant to Section 352, all financial institutions must
            establish anti-money laundering programs that include, at
            minimum: (i) internal policies, procedures, and controls, (ii)
            specific designation of an anti-money laundering compliance
            officer, (iii) ongoing employee training programs, and (iv) an
            independent audit function to test the anti-money laundering
            program. Interim final rules implementing Section 352 were
            issued by the Treasury Department on April 29, 2002 and were
            subsequently amended on November 6, 2002 and November 14, 2002.
            Such rules state that a financial institution is in compliance
            with Section 352 if it implements and maintains an anti-money
            laundering program that complies with the anti-money laundering
            regulations of its federal functional regulator.

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

      *     Section 312 requires financial institutions that establish,
            maintain, administer, or manage private banking accounts or
            correspondent accounts in the United States for non-United
            States persons or their representatives (including foreign
            individuals visiting the United States) to establish


<PAGE>  36


            appropriate, specific, and, where necessary, enhanced due
            diligence policies, procedures, and controls designed to detect
            and report money laundering. A final rule under Section 312 was
            issued by the Treasury Department on September 26, 2002. The
            rule states that a due diligence program is reasonable if it
            comports with existing best practices standards for banks that
            maintain correspondent accounts for foreign banks and evidences
            good faith efforts to incorporate due diligence procedures for
            accounts posing increased risk of money laundering. In addition,
            an enhanced due diligence program is reasonable if it comports
            with best practices standards and focuses enhanced due diligence
            measures on those correspondent accounts posing a particularly
            high risk of money laundering based on the bank's overall
            assessment of the risk posed by the foreign correspondent bank.
            Finally, a private banking due diligence program must be
            reasonably designed to detect and report money laundering and
            the existence of proceeds of foreign corruption. Such a program
            is reasonable if it focuses on those private banking accounts
            that present a high risk of money laundering. The deadline for
            compliance with this rule, as extended, was March 31, 2003.

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

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

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

The Sarbanes-Oxley Act

      On July 30, 2002, President George W. Bush signed into law the
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act implements a broad range
of corporate governance and accounting measures for public companies
designed to promote honesty and transparency in corporate America and better
protect investors from the type of corporate wrongdoing that occurred in
Enron, WorldCom and similar companies. The Sarbanes-Oxley Act's principal
legislation includes:

      *     the creation of an independent accounting oversight board;

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

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

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

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

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

      *     requirement that companies disclose whether at least one member
            of the committee is a


<PAGE>  37


            "financial expert" (as such term will be defined by the
            Securities and Exchange Commission) and if not, why not;

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

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

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

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

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

      The SEC has been delegated the task of enacting rules to implement
various provisions with respect to, among other matters, disclosure in
periodic filings pursuant to the Securities Exchange Act. To date, the SEC
has implemented some of the provisions of the Sarbanes-Oxley Act. However,
the SEC continues to issue final rules, reports, and press releases. As the
SEC provides new requirements, we review those rules and comply as required.
Although we anticipate that we will incur additional expense in complying
with the provisions of the Sarbanes-Oxley Act and the resulting regulations,
management does not expect that such compliance will have a material impact
on our results of operations or financial condition.

Federal Securities Laws

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


<PAGE>  38


ITEM 2. DESCRIPTION OF PROPERTY

      The Company conducts its business at the main office of the Bank and
its five retail banking offices, four of which are full service branch
offices. As of September 30, 2003, these properties and leasehold
improvements owned by the Company and the Bank had an aggregate net book
value of $4.5 million.

<TABLE>
<CAPTION>

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

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

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

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

      23 Maple Avenue         Owned        5/12/03              N/A
      Shrewsbury, MA

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

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

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


<PAGE>  39


ITEM 3. LEGAL PROCEEDINGS

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

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

      No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
2003.

PART II

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

      Information relating to the market for the Company's common equity,
related stockholder matters and payment of dividends by the Company appears
in the 2003 Annual Report to Shareholders, which is attached to this Form
10-KSB as Exhibit 13, and is incorporated herein by reference.

      The table below reflects the stock trading price and dividend payment
frequency of the Company's stock for year ending September 30, 2003. The
quotations reflect inter-dealer prices, without mark-up, mark-down or
commissions, and may not represent actual transactions.

<TABLE>
<CAPTION>

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

      
                <c>          <c>            <c>                  <c>
      First Quarter      $24.00       $21.80         $22.58               $.05

      Second Quarter     $23.80       $23.00         $23.53               $.05
      Third Quarter      $30.00       $25.50         $28.85               $.05
      Fourth Quarter     $32.00       $28.65         $29.50               $.05
</TABLE>

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

      Certain of the above-captioned information appears under "Management's
Discussion and Analysis of Financial Condition and Results of Operation" in
the 2003 Annual Report to Shareholders, which is attached to this Form 10-
KSB as Exhibit 13, and is incorporated herein by reference.

ITEM 7. FINANCIAL STATEMENTS

      The following information appearing in the Company's 2003 Annual
Report to Shareholders, which is attached to this Form 10-KSB as Exhibit 13,
is incorporated herein by reference.

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

Independent Auditors' Report                            F-1

Consolidated Balance Sheets as of
 September 30, 2003 and 2002                            F-2

Consolidated Statements of Income for the
 Years Ended September 30, 2003, 2002 and 2001          F-3 to F-4

Consolidated Statements of Changes in


<PAGE>  40


Stockholders' Equity for the Years Ended
 September 30, 2003, 2002 and 2001                      F-5 to F-6

Consolidated Statements of Cash Flows for the
 Years Ended September 30, 2003, 2002 and 2001          F-7 to F-8

Notes to the Consolidated Financial Statements          F-9 to F-41

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

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

ITEM 8A. CONTROLS AND PROCEDURES

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

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

PART III

ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS

      The information relating to directors and executive officers of the
Company is incorporated herein by reference to the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on January 29, 2004, a
copy of which was filed with the SEC on December 19, 2003.

ITEM 10. EXECUTIVE COMPENSATION

      The information relating to executive compensation is incorporated
herein by reference to the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held on January 29, 2004, a copy of which was filed
with the SEC on December 19, 2003.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on January
29, 2004, a copy of which was filed with the SEC on December 19, 2003.


<PAGE>  41


      The following table sets forth the aggregate information of the
Company's equity compensation plans in effect as of September 30, 2003.

<TABLE>
<CAPTION>

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


                              <c>                     <c>                          <c>
                                   (a)                    (b)                           (c)
Equity compensation
 plans approved
 by security holders             38,700                  $11.48                       15,587

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

      Total                      38,700                  $11.48                       15,587
                                 ======                  ======                       ======

<FN>
Note (1) This amount represents 11,848 and 3,739 shares remaining to be
issued from the 2001 Stock Option Plan and the 2001 Recognition and
Retention Plan, respectively.
</FN>
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information relating to certain relationships and related
transactions is incorporated herein by reference to the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on January 29,
2004, a copy of which was filed with the SEC on December 19, 2003.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits.

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


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

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

3.2         Bylaws of Westborough Financial Services, Inc.*

3.3         Articles of Organization of The Westborough Bank*

3.4         Bylaws of The Westborough Bank*

3.5         Charter of Westborough Bancorp, MHC*

3.6         Bylaws of Westborough Bancorp, MHC*

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


<PAGE>  42


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

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

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

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

10.1(a)1    Amendment No. 2 to Employee Stock Ownership Plan of Westborough
            Financial Services, Inc.

10.1(b)     Form of ESOP Trust Agreement*

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

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

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

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

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

13.1        Annual Report of Westborough Financial Services, Inc.

14.1        Code of Ethics of Senior Financial Officers

21.1        Subsidiaries of the Registrant.*

23.1        Consent of Wolf & Company, P.C.

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

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

99.1        Proxy Statement for the 2004 Annual Meeting of Shareholders of
            Westborough Financial Services, Inc., previously filed with the
            SEC on December 19, 2003.

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


<PAGE>  43


      (b)   Reports on Form 8-K.

      The Company filed a report on form 8-K with the SEC on July 29, 2003
reporting its earnings for the period ended June 30, 2003.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information relating to principal accountant fees and services is
incorporated herein by reference to the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on January 29, 2004, a copy of
which was filed with the SEC on December 19, 2003.


<PAGE>  44


SIGNATURES

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

                                       WESTBOROUGH FINANCIAL SERVICES, INC.

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

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

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

/s/ Walter A. Kinell, Jr.        Chairman of the Board        December 29, 2003
-----------------------------    of Directors
Walter A. Kinell, Jr.


/s/ Joseph F. MacDonough         President, Chief Executive   December 29, 2003
-----------------------------    Officer and Director
Joseph F. MacDonough             (Principal Executive and
                                 Operating Officer)

/s/ James N. Ball                Director                     December 29, 2003
-----------------------------
James N. Ball

/s/ Nelson P. Ball               Director                     December 29, 2003
-----------------------------
Nelson P. Ball

/s/ Edward S. Bilzerian          Director                     December 29, 2003
-----------------------------
Edward S. Bilzerian

/s/ Nancy M. Carlson             Director                     December 29, 2003
-----------------------------
Nancy M. Carlson


/s/ David E. Carlstrom           Director                     December 29, 2003
-----------------------------
David E. Carlstrom

/s/ John L. Casagrande           Senior Vice President,       December 29, 2003
-----------------------------    Treasurer, Clerk and
                                 Director
John L. Casagrande               (Principal Financial and
                                 Accounting Officer)

/s/ Benjamin H. Colonero, Jr.    Director                     December 29, 2003
-----------------------------
Benjamin H. Colonero, Jr.

/s/ William W. Cotting, Jr.      Director                     December 29, 2003
-----------------------------
William W. Cotting, Jr.

/s/Robert G. Daniel              Director                     December 29, 2003
-----------------------------
Robert G. Daniel


<PAGE>  45


/s/ Robert A. Klugman            Director                     December 29, 2003
-----------------------------
Robert A. Klugman

/s/ Roger B. Leland              Director                     December 29, 2003
-----------------------------
Roger B. Leland

/s/ Paul F. McGrath              Director                     December 29, 2003
-----------------------------
Paul F. McGrath

/s/ Charlotte C. Spinney         Director                     December 29, 2003
-----------------------------
Charlotte C. Spinney

/s/ Phyllis A. Stone             Director                     December 29, 2003
-----------------------------
Phyllis A. Stone

/s/ James E. Tashjian            Director                     December 29, 2003
-----------------------------
James E. Tashjian


<PAGE>  46