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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           --------------------------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
For the fiscal year ended March 31, 2003
                                       OR
[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                to
                               --------------    --------------

                           Commission File No. 0-25251

                             CENTRAL BANCORP, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

        MASSACHUSETTS                                           04-3447594
--------------------------------                             -------------------
 (State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)


399 HIGHLAND AVENUE, SOMERVILLE, MASSACHUSETTS                      02144
----------------------------------------------                    ----------
(Address of Principal Executive Offices)                          (Zip Code)

       Registrant's telephone number, including area code: (617) 628-4000
                                                           --------------

           Securities registered under Section 12(b) of the Act: NONE
                                                                 ----

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

                     COMMON STOCK, PAR VALUE $1.00 PER SHARE
                     ---------------------------------------
                                (Title of Class)

                              STOCK PURCHASE RIGHTS
                              ---------------------
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (l) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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
                                                  -----      -----

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment of this Form 10-K. [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes      No  X
                                        ---      ---

     The  aggregate  market value of voting stock held by  nonaffiliates  of the
registrant at June 20, 2003 was approximately $14.4 million based on the closing
sale price of the  registrant's  Common  Stock as listed on the Nasdaq  National
MarketSM as of  September  30, 2002  ($28.31 per share).  Solely for purposes of
this calculation, directors, executive officers and greater than 5% stockholders
are treated as affiliates.

     At June 20, 2003, the registrant had 1,663,133  shares of its Common Stock,
$1.00 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.  Portions  of the  Proxy  Statement  for  the  2003  Annual  Meeting  of
Stockholders (the "Proxy Statement") are incorporated by reference into Item 10,
Item 11, Item 12 Subparts (a) and (b) and Item 13 of Part III of this Form 10-K.

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<PAGE>
                              CENTRAL BANCORP, INC.

                           ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS


                                     PART I
                                                                            Page
                                                                            ----

Item 1.    Business.........................................................  3
Item 2.    Properties....................................................... 21
Item 3.    Legal Proceedings................................................ 22
Item 4.    Submission of Matters to a Vote of Security Holders.............. 24


                                     PART II

Item 5.    Market for the Registrant's Common Equity and Related
              Stockholder Matters..........................................  24
Item 6.    Selected Financial Data.........................................  25
Item 7.    Management's Discussion and Analysis of Financial Condition
              and Results of Operations....................................  26
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk......  32
Item 8.    Financial Statements and Supplementary Data.....................  33
Item 9.    Changes in and Disagreements With Accountants on Accounting
              and Financial Disclosure.....................................  60

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant..............  60
Item 11.   Executive Compensation..........................................  60
Item 12.   Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters............................  60
Item 13.   Certain Relationships and Related Transactions..................  61
Item 14.   Controls and Procedures.........................................  61

                                     PART IV

Item 15.   Exhibits, Financial Statement Schedules, and Reports on
              Form 8-K.....................................................  61
<PAGE>

                                     PART I

NOTE ON FORWARD-LOOKING STATEMENTS

     WHEN USED IN THIS ANNUAL  REPORT ON FORM 10-K,  THE WORDS OR PHRASES  "WILL
LIKELY   RESULT,"  "ARE  EXPECTED  TO,"  "WILL   CONTINUE,"  "IS   ANTICIPATED,"
"ESTIMATE,"   "PROJECT"  OR  SIMILAR   EXPRESSIONS   ARE  INTENDED  TO  IDENTIFY
"FORWARD-LOOKING  STATEMENTS"  WITHIN  THE  MEANING  OF THE  PRIVATE  SECURITIES
LITIGATION  REFORM ACT OF 1995. THE COMPANY  CAUTIONS READERS NOT TO PLACE UNDUE
RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
MADE, AND TO ADVISE READERS THAT VARIOUS FACTORS,  INCLUDING CHANGES IN REGIONAL
AND NATIONAL ECONOMIC CONDITIONS,  UNFAVORABLE  JUDICIAL DECISIONS,  SUBSTANTIAL
CHANGES IN LEVELS OF MARKET  INTEREST  RATES,  CREDIT AND OTHER RISKS OF LENDING
AND INVESTMENT  ACTIVITIES AND COMPETITIVE AND REGULATORY FACTORS,  COULD AFFECT
THE COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE COMPANY'S ACTUAL RESULTS
FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED.

     THE COMPANY DOES NOT UNDERTAKE AND SPECIFICALLY DISCLAIMS ANY OBLIGATION TO
UPDATE ANY  FORWARD-LOOKING  STATEMENTS TO REFLECT  OCCURRENCE OF ANTICIPATED OR
UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.

ITEM 1.  BUSINESS
-----------------

GENERAL

     THE  COMPANY.  Central  Bancorp,  Inc.  (the  "Company"),  a  Massachusetts
corporation,  was  organized  by  Central  Co-operative  Bank  (the  "Bank")  on
September  30, 1998,  to acquire all of the capital stock of the Bank as part of
its  reorganization  into the  holding  company  form of  ownership,  which  was
completed  on  January  8,  1999.   Upon   completion  of  the  holding  company
reorganization,  the  Company's  common  stock,  par value  $1.00 per share (the
"Common Stock"), became registered under the Securities Exchange Act of 1934, as
amended (the "Act"). The Company is a registered bank holding company subject to
regulation  and  examination  by the Board of Governors  of the Federal  Reserve
System (the "Federal  Reserve  Board").  The Company has no  significant  assets
other than the common  stock of the Bank,  loans to the  Bank's  Employee  Stock
Ownership  Plan  ("ESOP") and various other liquid assets in which it invests in
the ordinary  course of  business.  For that  reason,  substantially  all of the
discussion in this Annual  Report on Form 10-K relates to the  operations of the
Bank and its subsidiaries.

     THE BANK. Central Co-operative Bank ("Central" or the "Bank") was organized
as a Massachusetts chartered co-operative bank in 1915 and converted from mutual
to stock form in 1986. The primary  business of the Bank is to generate funds in
the  form  of  deposits  and use  the  funds  to  make  mortgage  loans  for the
construction,  purchase and refinancing of residential  properties,  and to make
loans on commercial real estate in its market area. In addition,  the Bank makes
a limited amount of consumer loans  including home  improvement  and secured and
unsecured  personal loans,  and commercial and industrial  loans.  The Bank also
maintains an investment portfolio of various types of debt securities, including
corporate bonds and mortgage-backed  securities,  and a limited amount of equity
securities.  In  fiscal  2002,  the  Bank  began to  offer  investment  services
(including  annuities) to its customers through a third party  broker-dealer and
its insurance affiliate.

     The Bank is headquartered in Somerville,  Massachusetts  and its operations
are  conducted  through  eight   full-service   office  facilities   located  in
Somerville,  Arlington,  Burlington,  Chestnut Hill, Malden, Melrose and Woburn,
Massachusetts,  a limited service high school branch in Worburn,  Massachusetts,
as well as over the Internet. Each full-service branch office also has a 24-hour
automated teller machine ("ATM").  The Bank is a member of the Federal Home Loan
Bank ("FHLB") of Boston and its deposits are insured to applicable limits by the
Bank  Insurance  Fund  ("BIF")  of the  Federal  Deposit  Insurance  Corporation
("FDIC").

     All Massachusetts  chartered  co-operative banks are required to be members
of the Share  Insurance  Fund.  The Share  Insurance  Fund  maintains  a deposit
insurance  fund which insures all deposits in member banks which are not covered
by federal  insurance,  which in the case of the Bank are its deposits in excess
of $100,000  per  insured  account.  In past  years,  a premium of 1/24 of 1% of
insured deposits has been assessed annually on member banks such as the Bank for
this deposit insurance. However, no premium has been assessed in recent years.

                                       3
<PAGE>
     The  Company's  and Bank's main office is located at 399  Highland  Avenue,
Somerville,  Massachusetts  02144 and their telephone  number is (617) 628-4000.
The Bank also maintains a website at www.centralbk.com.
                                     -----------------

     The  operations  of  the  Bank  and  savings   institutions  are  generally
influenced  by overall  economic  conditions,  the related  monetary  and fiscal
policies of the federal  government,  and the  regulatory  policies of financial
institution regulatory authorities,  including the Massachusetts Commissioner of
Banks (the "Commissioner"), the Federal Reserve Board and the FDIC.

MARKET AREA

     All of the  Bank's  offices  are  located  in the  northwestern  suburbs of
Boston,  which are its principal  market area for deposits.  The majority of the
properties securing the Bank's loans are located in Middlesex County. The Bank's
market area consists of established  suburban areas and includes portions of the
Route 128 high-technology corridor.

COMPETITION

     The Bank's  competition  for savings  deposits has  historically  come from
other  co-operative  banks,  savings banks,  savings and loan  associations  and
commercial  banks  located  in  Massachusetts   generally,  and  in  the  Boston
metropolitan area, specifically.  With the advent of interstate banking the Bank
also faces competition from  out-of-state  banking  organizations.  In the past,
during times of high interest rates,  the Bank has also  experienced  additional
significant  competition for investors' funds from short-term money market funds
and other  corporate and government  securities.  The Bank has faced  continuing
competition from other financial intermediaries for deposits.

     The Bank competes for deposits  principally  by offering  depositors a wide
variety of savings  programs,  convenient  branch  locations,  24-hour automated
teller machines, Internet banking, preauthorized payment and withdrawal systems,
tax-deferred retirement programs, and other miscellaneous services such as money
orders,  travelers'  checks and safe deposit boxes.  The Bank does not rely upon
any individual, group or entity for a material portion of its deposits.

     The  Bank's  competition  for real  estate  loans  comes  principally  from
mortgage banking companies,  co-operative  banks and savings banks,  savings and
loan associations, commercial banks, insurance companies and other institutional
lenders. The Bank competes for loan originations  primarily through the interest
rates and loan fees it charges  and the  efficiency  and  quality of services it
provides borrowers,  real estate brokers and builders. The competition for loans
encountered  by the Bank,  as well as the types of  institutions  with which the
Bank competes, varies from time to time depending upon certain factors including
the  general  availability  of  lendable  funds and  credit,  general  and local
economic  conditions,  current interest rate levels,  volatility in the mortgage
markets and other factors which are not readily predictable.

     Bank regulation is undergoing  significant  change with an increased number
of bank mergers and acquisitions, changes in the products and services banks can
offer,  and  involvement  in non-banking  activities by bank holding  companies.
Recent  legislation  and  regulations  have  expanded  the  activities  in which
depository  institutions  may  engage  and  reduced  or  eliminated  some of the
competitive  advantages which thrift institutions  formerly held over commercial
banks, such as interest rate differentials  which permitted thrift  institutions
to offer a higher rate of interest to attract deposits.  The ability of the Bank
to successfully  compete will depend upon how successfully it can respond to the
rapidly  evolving   competitive,   regulatory,   technological  and  demographic
developments affecting its operations.


                                       4
<PAGE>

LENDING ACTIVITIES

     The Bank offers residential mortgage and home equity loans, commercial real
estate loans,  construction  loans,  commercial and industrial loans,  personal,
home improvement,  and various other types of consumer loans. For the year ended
March 31, 2003, the Bank originated  loans totaling  $186.0  million,  including
$3.9 million of purchased  loans.  Of the total loans  originated  during fiscal
2003,  $118.4  million,  or 63.7%,  were  residential  mortgage  loans and $48.5
million,  or 26.1%,  were  commercial  mortgage loans. No loans were sold during
fiscal 2002 and 2001 in the secondary  market.  During 2003, the Bank sold $35.7
million of current year  residential  mortgage  loan  originations.  The sale of
loans in the  secondary  market allows the Bank to continue to make loans during
periods when savings  flows  decline or funds are not  otherwise  available  for
lending purposes and to manage interest rate risk. The Bank's net loan portfolio
increased by $18.8  million,  or 5.1%, to $387.2  million at March 31, 2003 from
$368.4 million at March 31, 2002. The increase occurred,  despite the continuing
high level of loan  refinancing  activity due to an increase in  originations of
residential and commercial real estate loans and construction loans.

     LOAN PORTFOLIO COMPOSITION.  The following table summarizes the composition
of the  Bank's  loan  portfolio  by type of loan and the  percentage  each  type
represents of the total loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                           AT MARCH 31,
                               -------------------------------------------------------------------------------------------------
                                     2003                 2002                 2001               2000              1999
                               -----------------    ----------------   -----------------   ----------------  --------------
                               AMOUNT        %      AMOUNT       %     AMOUNT        %     AMOUNT       %    AMOUNT      %
                               ------      -----    ------     -----   ------      -----   ------     -----  ------     ---
                                                                       (DOLLARS IN THOUSANDS)
<S>                            <C>         <C>      <C>         <C>    <C>         <C>     <C>         <C>   <C>        <C>
 Mortgage loans:
  Residential..................$237,296    60.8%    $246,045    66.2%  $ 248,459   71.9%   $ 243,570   76.1% $ 212,659  75.8%
  Commercial................... 107,140    27.4       87,013    23.4      69,949   20.2       54,228   16.9     48,756  17.4
  Construction.................  30,294     7.8       20,998     5.6       9,152    2.6        9,765    3.1      5,269   1.9
  Second mortgage and
    home equity................   9,128     2.3        9,154     2.5      10,977    3.2        7,403    2.3      7,462   2.7
                               --------   -----     --------   -----   ---------  -----    ---------  -----   --------  ----
    Total mortgage loans....... 383,858    98.3      363,210    97.7     338,537   97.9      314,966   98.4    274,146  97.8
                               --------   -----     --------   -----   ---------  -----    ---------  -----  --------- -----

Other loans:
  Commercial and industrial....   5,319     1.4        6,901     1.9       4,979    1.4        3,349    1.1      4,391   1.6
  Consumer.....................   1,287     0.3        1,596     0.4       2,277    0.7        1,698    0.5      1,809   0.6
                               --------   -----     --------    ----   ---------   ----    ---------   ----  ---------  ----
    Total other loans..........   6,606     1.7        8,497     2.3       7,256    2.1        5,047    1.6      6,200   2.2
                               --------    ----     --------    ----   ---------   ----    ---------   ----  ---------  ----
    Total loans................ 390,464   100.0%     371,707   100.0%    345,793  100.0%     320,013  100.0%   280,346 100.0%
                                          =====                =====              =====               =====            =====

Less:
  Allowance for loan losses....   3,284                3,292               3,106               2,993             2,913
                               --------             --------           ---------           ---------         ---------
    Loans, net.................$387,180             $368,415           $ 342,687           $ 317,020         $ 277,433
                               ========             ========           =========           =========         =========
</TABLE>

                                       5
<PAGE>

     LOAN PORTFOLIO SENSITIVITY. The following table sets forth certain maturity
information  as of March 31, 2003  regarding the dollar amount of commercial and
industrial  loans  as  well  as  construction  loans  in the  Bank's  portfolio,
including  scheduled  repayments of  principal,  based on  contractual  terms to
maturity.  Demand loans,  loans having no schedule of  repayments  and no stated
maturity and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                          DUE AFTER
                                       DUE WITHIN         ONE THROUGH       DUE AFTER
                                        ONE YEAR          FIVE YEARS        FIVE YEARS          TOTAL
                                       ----------         -----------       ----------          -----
                                                         (IN THOUSANDS)
<S>                                    <C>                <C>               <C>               <C>
Construction loans..................   $   25,838         $    2,624        $    1,832        $   30,294
Commercial and industrial loans.....        4,485                670               164             5,319
                                       ----------         ----------        ----------        ----------
     Total..........................   $   30,323         $    3,294        $    1,996        $   35,613
                                       ==========         ==========        ==========        ==========
</TABLE>

     Of  construction  loans and commercial  and industrial  loans maturing more
than one year after  March 31,  2003,  $3.8  million  have fixed  rates and $1.5
million, have floating or variable rates.

     RESIDENTIAL  LENDING.  The Bank's  residential  mortgage loans at March 31,
2003 totaled $237.3 million,  or 60.8%, of the total loan portfolio.  Fixed-rate
residential  mortgages totaled $178.6 million, or 75.3%, of the residential loan
portfolio and  adjustable  rate loans totaled $58.7  million,  or 24.7%,  of the
residential loan portfolio.

     With the  implementation of its mortgage banking initiative in fiscal 2003,
whereby the Bank is seeking to increase its origination of residential  mortgage
loans  and to  generate  additional  noninterest  income  via loan  sale  gains,
management  regularly  assesses the  desirability  of holding  newly  originated
long-term,  fixed rate residential mortgage loans in its portfolio.  A number of
factors are evaluated to determine  whether or not to hold such loans including,
current and  projected  liquidity,  current  and  projected  interest  rate risk
profile, projected growth in other interest-earning assets, e.g. commercial real
estate loans, and projected interest rates. In light of these factors,  the Bank
sold $35.7 million of 15 and 30 year fixed rate  residential  mortgage  loans in
the secondary  market while retaining $68.0 million of fiscal 2003  originations
of such loans in portfolio.  With the rate on the 30 year fixed rate residential
mortgage  loan  reaching  a  45-year  low  in  2003,  the  Company   experienced
significant  refinancing  activity.  Customers who  refinanced  their  mortgages
generally refinanced their existing home loans with either a 15 or 30 year fixed
rate mortgage loan.  These market  conditions lead to a continuing  shift to the
fixed rate component of the Bank's residential mortgage loan portfolio.

     The Bank's  adjustable-rate  residential mortgage loans have a maximum term
of 30 years, and allow for periodic interest rate  adjustments.  The Bank prices
the initial rate  competitively but generally avoids initial deep discounts from
contracted  indices  and  margins.  The  Bank  has  adopted  the  U.S.  Treasury
Securities  Index,  adjusted to a constant maturity of one to five years, as its
primary index.  The margin at which  adjustable-rate  loans are generally set is
2.875  percentage  points over the stated index.  Interest rate  adjustments  on
adjustable mortgage loans are capped at two percentage points per adjustment and
six percentage points over the life of the loan.

     Residential  loans may be granted as construction  loans or permanent loans
on residential  properties.  Construction  loans on  owner-occupied  residential
properties  may convert to residential  loans at fixed or adjustable  rates upon
completion of  construction.  Loans secured by one- to  four-family  residential
properties are typically  written in amounts up to 80% of the appraised value of
the residential property. The Bank generally requires private mortgage insurance
for loans in excess of 80% of appraised value. The maximum  loan-to-value  ratio
on owner occupied residential properties is 95%. The maximum loan-to-value ratio
on non-owner occupied residential properties is 80%.

     COMMERCIAL  REAL  ESTATE  AND  CONSTRUCTION  LENDING.  The Bank  originates
permanent and  construction  loans on commercial  real estate.  Commercial  real
estate  loans are  typically  secured  by  income-producing  properties  such as
apartment buildings,  office buildings,  industrial buildings and various retail
properties  and are written  with either  fixed or  adjustable  interest  rates.
Commercial  real estate  loans with fixed  interest  rates have terms  generally
ranging  from one to five years.  As of March 31, 2003,  commercial  real estate
loans totaled $107.1 million and constituted 27.4% of the total loan portfolio.

                                       6
<PAGE>

     Commercial  real  estate  loans may be made for up to 80% of the  appraised
value of the property up to $5.0 million,  the Bank's "house  lending limit" for
an individual  borrower.  Commercial real estate loans currently  offered by the
Bank have terms of one to 20 years.  Title insurance,  fire,  casualty insurance
and flood  insurance  are required in amounts  sufficient  to protect the Bank's
interest,  where  applicable.  In some cases,  commercial real estate loans were
granted in participation with other lenders.

     The Bank's construction loans totaled $30.3 million, or 7.8%, of the Bank's
loan  portfolio at March 31, 2003.  Construction  loans are short-term in nature
and have maturities  ranging from six months to two years. The Bank grants loans
to construct residential and commercial real estate, as well as land development
for individual  residential lots. Currently,  construction loans are made for up
to 80% of the projected  value of the completed  property,  based on independent
appraisals.  Funds are disbursed based on a schedule of completed work presented
to  the  Bank  and  confirmed  by  physical  inspection  of  the  property  by a
construction consultant and only after receipt of title updates.

     The Bank also originates loans for the construction of single-family  homes
for resale by  professional  builders.  The Bank also lends to  individuals  for
construction of one- to four-family homes which they intend to occupy. Borrowers
are required to have a firm contract with a qualified builder or developer or to
have  demonstrated  prior  home  building  experience.  Construction  loans  are
normally  made  for a term of not  more  than  eighteen  months  and  based on a
completed value of not more than 80%, as determined by an independent  certified
and licensed appraiser.

     The  continuing   planned  growth  in  commercial  real  estate  loans  and
construction loans in fiscal 2003, which aggregated $29.4 million,  or 27.2%, is
attributable to the addition of experienced  commercial lenders and expansion of
the  credit   administration   function  in  2002.  This  growth  was  aided  by
opportunities  created by the declining rate environment  which prevailed during
the year.

     SECOND  MORTGAGES  AND HOME  EQUITY  LINES OF CREDIT.  The Bank offers home
equity  lines of  credit  that are  secured  by the  borrower's  equity in their
primary  residence and may take the form of a first or second  mortgage.  Equity
loans  are made in  amounts  up to 80% of the  appraised  value  less any  first
mortgage.  Payment of  interest  is  required  monthly  and the rate is adjusted
monthly  based on  changes  in the Prime  Rate,  as  quoted  in the Wall  Street
Journal. Loans are not contingent upon proceeds being used for home improvement.
The Bank's  home equity  loans  outstanding,  and  amortizing  second  mortgages
totaled $9.1 million, or 2.3%, of the Bank's loan portfolio at March 31, 2003.

     COMMERCIAL AND INDUSTRIAL,  CONSUMER AND OTHER LOANS. The Bank's commercial
and industrial,  consumer and other loans totaled $6.6 million,  or 1.7%, of the
total loan  portfolio on March 31, 2003.  The Bank's  commercial  and industrial
portfolio  consists  primarily  of time,  demand and  line-of-credit  loans to a
variety of local small  businesses  generally done on a secured basis.  The Bank
engages in consumer lending primarily as an accommodation to existing customers.

     RISKS OF COMMERCIAL REAL ESTATE, CONSTRUCTION AND COMMERCIAL AND INDUSTRIAL
LENDING.  Commercial  real estate,  construction  and  commercial and industrial
lending entail  significant  additional  risks compared to residential  mortgage
lending.  The  repayment  of loans  secured by  income-producing  properties  is
typically  dependent on the successful  operation of the properties and thus may
be subject to a greater  extent to adverse  conditions  in the local real estate
market or in the economy generally. Construction loans involve additional risks,
because of the uncertainties  inherent in estimating  construction costs, delays
arising  from  labor  problems,  material  shortages,  and  other  unpredictable
contingencies,  which make it relatively  difficult to evaluate  accurately  the
total loan funds  required  to  complete a project,  and  related  loan-to-value
ratios. Commercial and industrial loans are generally not secured by real estate
and may involve greater risks than other types of lending.  Because  payments on
such loans are often  dependent  on the  successful  operation  of the  business
involved,  repayment of such loans may be subject to a greater extent to adverse
conditions in the economy. For more information see " -- Non-Performing Assets."

     ORIGINATION  FEES AND OTHER FEES. The Bank currently  collects  origination
fees on some of the real estate loan products offered. Fees to cover the cost of
appraisals,  credit  reports,  and other direct costs are also  collected.

                                       7
<PAGE>

Loan  origination  fees  collected  vary in  proportion  to the level of lending
activity as well as competitive and economic conditions.

     The Bank  imposes  late  charges on all loans with the  exception of equity
lines of credit and loans secured by deposits. The Bank also collects prepayment
premiums and partial  release fees on  commercial  real estate and  construction
loans where such items are negotiated as part of the loan agreement.

     LOAN  SOLICITATION AND PROCESSING.  Loan originations come from a number of
sources.  Residential real estate loans are  attributable to walk-in  customers,
existing customers,  real estate brokers,  third party originators and builders.
The  Bank  also  utilizes  both  in-house  and  traveling   originators  in  the
origination of residential  real estate loans.  Commercial real estate loans are
originated by the Bank's team of five commercial  loan officers.  Consumer loans
result from walk-in customers and depositors.

     Each loan originated by the Bank is  underwritten  by lending  personnel of
the Bank or qualified  independent  contract  underwriters.  Individual  lending
officers,  a committee of loan officers and the Bank's  Security  Committee have
the authority to approve loans up to various limits.  Applications  are received
in  each  of the  offices  of  the  Bank.  Independent  certified  and  licensed
appraisers  are used to  appraise  the  property  intended to secure real estate
loans.  The Bank's  underwriting  criteria are designed to minimize the risks of
each loan. There are detailed guidelines  concerning the types of loans that may
be made, the nature of the  collateral,  the  information  that must be obtained
concerning the loan applicant and follow-up  inspections of collateral after the
loan is made.

     NON-PERFORMING  ASSETS.  The Bank notifies a borrower of a delinquency when
any payment  becomes 15 days past due.  Repeated  contacts  are made if the loan
remains  delinquent  for 30 days or more.  The Bank will consider  working out a
payment  schedule  with a borrower to clear a  delinquency,  if  necessary.  If,
however,  a borrower is unwilling  or unable to resolve such a default  after 60
days, the Bank will generally proceed to foreclose and liquidate the property to
satisfy the debt.

     Loans on which the accrual of interest has been discontinued are designated
as  non-accrual  loans.  Accrual of  interest on loans and  amortization  of net
deferred loan fees or costs are discontinued either when reasonable doubt exists
as to the full and timely  collection of interest or  principal,  or when a loan
becomes  contractually  past due 90 days with respect to interest or  principal.
When a loan is placed on non-accrual status, all interest previously accrued but
not collected is reversed  against  current  period  interest  income.  Interest
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of  management,  the
loans are estimated to be fully collectable as to both principal and interest.

     The Bank has instituted  additional procedures to closely monitor loans and
bring  potential  problems to  management's  attention  early in the  collection
process.  The Bank  prepares a monthly  watch list of  potential  problem  loans
including   currently   performing   loans.  The  Senior  Loan  Officer  reviews
delinquencies  with the  Security  Committee  of the Board of Directors at least
monthly.  Due to the high priority  given to monitoring  asset  quality,  Senior
Management is involved in the early detection and resolution of problem loans.

                                       8
<PAGE>

     The  following  table sets  forth  information  with  respect to the Bank's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
                                                                            AT MARCH 31,
                                                ------------------------------------------------------------------
                                                  2003          2002          2001           2000           1999
                                                --------      --------      -------        --------       --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                             <C>           <C>           <C>            <C>            <C>
Loans accounted for on a non-accrual basis,
   non-performing loans......................   $    --       $    --       $     --       $    235       $  419
Restructured loans...........................        --            --             --             --           --
Real estate acquired by foreclosure..........        --            --             --             --           --
                                                -------       -------       --------       --------       ------

   Non-performing assets.....................   $    --       $    --       $     --       $    235       $  419
                                                =======       =======       ========       ========       ======

Impaired loans, accruing.....................   $    --       $    --       $     --       $     --       $   --

Non-performing loans to total loans..........      0.00%        0.00%           0.00%          0.07%        0.15%

Non-performing assets to total assets........      0.00%        0.00%           0.00%          0.06%        0.12%
</TABLE>

     At March 31,  2003,  there  were no loans  where  known  information  about
possible credit problems of borrowers  caused  management to have serious doubts
as to the ability of such borrowers to comply with present loan repayment terms.

     ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained at a
level which management  considers  adequate to provide for probable losses based
on an evaluation of known and inherent risks in the portfolio.  Such  evaluation
for each of the periods reported includes  identification of adverse  situations
which may affect the ability of certain  borrowers to repay, a review of overall
portfolio  size,  quality,   composition  and  an  assessment  of  existing  and
anticipated  economic  conditions.  Regular  reviews of the loan  portfolio  are
performed  to  identify  loans  for which  specific  allowance  allocations  are
considered   prudent.   Specific   allocations   are  made  based  on  the  risk
classification  assigned  to  individual  loans.   Additionally,   general  risk
allocations  are determined by formula  whereby the loan portfolio is stratified
by loan type and by risk rating category.  Loss factors are then applied to each
strata based on various  considerations  including  historical loss  experience,
delinquency  trends,   current  economic  conditions,   industry  standards  and
regulatory   guidelines.   While   management  uses  available   information  in
establishing the allowance for loan losses,  future adjustments to the allowance
may  be  necessary  if  economic   conditions  differ   substantially  from  the
assumptions  used in making the  evaluations.  Additions  to the  allowance  are
charged to earnings and realized losses,  net of recoveries,  are charged to the
allowance.

     Various  regulatory  agencies,  as an  integral  part of their  examination
process, periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to  recognize  additions  to the  allowance  based on their
judgment of information available to them at their examination date.

                                       9
<PAGE>
     The  following  table  presents  activity in the  allowance for loan losses
during the years indicated.
<TABLE>
<CAPTION>
                                                                        YEARS ENDED MARCH 31,
                                                --------------------------------------------------------------------
                                                  2003            2002          2001          2000           1999
                                                --------        --------      --------      --------        -------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                             <C>           <C>           <C>            <C>            <C>
Balance at beginning of year.................   $  3,292        $   3,106     $    2,993     $    2,913     $    2,886
                                                --------        ---------     ----------     ----------     ----------

Charge-offs:
  Residential mortgage.......................         --               --             --             --            (88)
  Commercial mortgage........................         --               --             --             --             --
  Other loans................................        (21)              (4)            (4)            (9)           (11)
                                                --------        ---------     -----------    ----------     ----------
    Total charge-offs........................        (21)              (4)            (4)            (9)           (99)
                                                --------        ---------     -----------    ----------     ----------

Recoveries:
  Residential mortgage.......................         --               80             60              9             78
  Commercial mortgage........................         --              103             48             36             36
  Other loans................................         13                7              9             44             12
                                                --------        ---------     ----------     ----------     ----------
    Total recoveries.........................         13              190            117             89            126
                                                --------        ---------     ----------     ----------     ----------

Net (charge-offs) recoveries.................         (8)             186            113             80             27
Provision....................................         --               --             --             --             --
                                                --------        ---------     ----------     ----------     ----------
Balance at end of year.......................   $  3,284        $   3,292     $    3,106     $    2,993     $    2,913
                                                ========        =========     ==========     ==========     ==========

Average loans outstanding during the year....   $378,502        $ 335,271     $  341,732     $  300,089     $  287,513
Ratio of net charge-offs to average loans....         nm            n/a            n/a            n/a            n/a
Total loans outstanding at end of year.......   $390,464        $ 371,707     $  345,793     $  320,013     $  280,346
Ratio of allowance for loan
  losses to loans at end of year.............       0.84%            0.89%          0.90%         0.94%           1.04%
</TABLE>

     The allowance for loan losses is available for offsetting  credit losses in
connection  with any loan, but is internally  allocated among loan categories as
part of the process  for  evaluating  the  adequacy  of the  allowance  for loan
losses.  The following table presents the allocation of the Bank's allowance for
loan losses, by type of loan, at the dates indicated.
<TABLE>
<CAPTION>
                                                            AT MARCH 31,
                              --------------------------------------------------------------------------------
                                      2003                         2002                         2001
                              ----------------------       ---------------------        ----------------------
                                            % OF                         % OF                        % OF
                                          LOANS TO                     LOANS TO                    LOANS TO
                              AMOUNT     TOTAL LOANS       AMOUNT     TOTAL LOANS       AMOUNT     TOTAL LOANS
                              ------     -----------       ------     -----------       ------     -----------
                                                              (DOLLARS IN THOUSANDS)
<S>                           <C>             <C>          <C>             <C>          <C>               <C>
Mortgage loans:
  Residential mortgage......  $    583        60.8%        $    636        66.2%        $ 1,637           71.9%
  Commercial mortgage.......     2,009        27.4            1,956        23.4           1,058           20.2
  Construction..............       457         7.8              462         5.6             169            2.6
  Second mortgage and
    home equity.............        94         2.3               98         2.5             163            3.2
                              --------        ----         --------        ----         -------           ----
    Total mortgage loans....     3,143        98.3            3,152        97.7           3,027           97.9
Other loans.................       141         1.7              140         2.3              79            2.1
                              --------        ----         --------        ----         -------           ----
    Total...................  $  3,284       100.0%        $  3,292       100.0%        $ 3,106          100.0%
                              ========       =====         ========       =====         =======          =====
</TABLE>

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                 AT MARCH 31,
                              --------------------------------------------------
                                     2000                         1999
                              ----------------------       ---------------------
                                             % OF                         % OF
                                           LOANS TO                     LOANS TO
                              AMOUNT     TOTAL LOANS       AMOUNT     TOTAL LOANS
                              ------     -----------       ------     -----------
                                            (DOLLARS IN THOUSANDS)
<S>                           <C>             <C>          <C>             <C>
Mortgage loans:
  Residential mortgage......  $  1,333        76.1%        $  1,120        75.8%
  Commercial mortgage.......     1,202        16.9            1,556        17.4
  Construction..............       198         3.1               92         1.9
  Second mortgage and
    home equity.............       178         2.3               58         2.7
                              --------        ----         --------        ----
    Total mortgage loans....     2,911        98.4            2,826        97.8
Other loans.................        82         1.6               87         2.2
                              --------        ----         --------        ----
    Total...................  $  2,993       100.0%        $  2,913       100.0%
                              ========       =====         ========       =====
</TABLE>

INVESTMENT ACTIVITIES

     The  primary  objectives  of the  investment  portfolio  are to  achieve  a
competitive  rate of return  over a  reasonable  period  of time and to  provide
liquidity. As a  Massachusetts-chartered  bank, the Bank is authorized to invest
in various  obligations of federal and state  governmental  agencies,  corporate
bonds and other  obligations  and,  within  certain  limits,  marketable  equity
securities. The Bank's investment policy requires that corporate debt securities
be rated as "investment grade" at the time of purchase. The Bank's investment in
marketable   equity  securities  is  generally  limited  to  large,  well  known
corporations  whose shares are actively traded.  The size of the Bank's holdings
in an  individual  company's  stock is also limited by policy.  A portion of the
Bank's  investment  portfolio  consists  of  mortgage-backed   securities  which
represent interests in pools of residential  mortgages.  Such securities include
securities  issued and guaranteed by the Federal National  Mortgage  Association
("FNMA"),  Federal Home Loan Mortgage Corporation ("FHLMC"),  and the Government
National  Mortgage  Association  ("GNMA")  as  well as  collateralized  mortgage
obligations ("CMOs") issued primarily by FNMA and FHLMC.

     Investments  are classified as either held to maturity,  available for sale
or trading.  Investments  classified as trading  securities are reported at fair
value  with  unrealized  gains and  losses  included  in  earnings.  Investments
classified  as available  for sale are reported at fair value,  with  unrealized
gains and losses  reported  as a separate  component  of  stockholders'  equity.
Securities  held to maturity are carried at amortized  cost.  At March 31, 2003,
all of the Bank's marketable investments were classified as available for sale.

     The  following  table  sets  forth  a  summary  of  the  Bank's  investment
securities,  as well as the percentage such  investments  comprise of the Bank's
total assets, at the dates indicated.
<TABLE>
<CAPTION>
                                                                              AT MARCH 31,
                                                           --------------------------------------------------
                                                               2003              2002                2001
                                                               -----            ------               ----
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                         <C>                 <C>                <C>
  U. S. Government and agency obligations.................  $    8,247          $   13,996         $   19,051
  Corporate bonds.........................................      38,727              38,568              5,245
  Mortgage-backed securities..............................      12,056              18,340             19,314
  Marketable equity securities............................       2,081               2,980              5,778
                                                            ----------          ----------         ----------
      Total investment securities.........................  $   61,111          $   73,884         $   49,388
                                                            ==========          ==========         ==========

      Percentage of total assets..........................        12.8%               15.8%              11.0%
                                                                  ====                ====               ====
</TABLE>

                                       11
<PAGE>

At March 31, 2003, the Bank owned securities  issued by several companies having
a book value that  exceeded  10% of the  Company's  stockholders'  equity.  Such
securities  consisted  primarily  of  debt  obligations.   The  following  table
summarizes  the aggregate  book and market value of the Bank's  holdings of each
issuer.
<TABLE>
<CAPTION>
     ISSUER                          BOOK VALUE        MARKET VALUE
     ------                          ----------        ------------
                                           (DOLLARS IN THOUSANDS)
<S>                                  <C>                <C>
AT&T                                 $  5,216.3         $  5,417.5
Ford Motor Credit                       5,082.9            4,930.0
GMAC                                    5,143.8            5,267.9
Boeing Capital Corp.                    5,034.7            5,235.6
Hewlett Packard                         4,982.2            5,445.8
DaimlerChrysler                         4,015.8            4,265.2
</TABLE>

     The following  table sets forth the scheduled  maturities,  amortized cost,
market  values and average  yields for the Bank's debt  securities  at March 31,
2003.
<TABLE>
<CAPTION>
                              ONE YEAR OR LESS    ONE TO FIVE YEARS    FIVE TO TEN YEARS   MORE THAN TEN YEARS
                             ------------------   ------------------   ------------------  -------------------
                             AMORTIZED  AVERAGE   AMORTIZED  AVERAGE   AMORTIZED  AVERAGE  AMORTIZED  AVERAGE
                                COST     YIELD      COST      YIELD      COST      YIELD     COST      YIELD
                             ---------  -------   ---------  -------   ---------  -------  ---------  -------
                                                           (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>       <C>        <C>      <C>          <C>     <C>        <C>
U.S. government and agency
  securities................ $   --        -- %    $ 2,000    6.10%    $ 6,000      6.27%   $    --     -- %
Corporate bonds.............    501       6.57      31,248    6.89       5,163      7.80         --     --
Mortgage-backed securities..     --        --          666    6.89       1,586      7.87      9,588    6.30
                             ------                -------             -------              -------
      Total................  $  501                $33,914             $12,749              $ 9,588
                             ======                =======             =======              ========


<CAPTION>
                                TOTAL INVESTMENT PORTFOLIO
                               ---------------------------
                               AMORTIZED  MARKET   AVERAGE
                                 COST     VALUE     YIELD
                               ---------  ------   ------
                                (DOLLARS IN THOUSANDS)
<S>                            <C>        <C>        <C>
U.S. government and agency
  securities................  $  8,000   $  8,247   6.23%
Corporate bonds.............    36,912     38,727   7.01
Mortgage-backed securities..    11,840     12,056   6.55
                              --------   --------
      Total................   $ 56,752   $ 59,030
                              ========   ========
</TABLE>

                                       12
<PAGE>
DEPOSITS AND BORROWED FUNDS

     GENERAL.  Savings  accounts and other types of deposits have  traditionally
been an  important  source of the Bank's  funds for use in lending and for other
general business purposes. In addition to deposits,  the Bank derives funds from
loan  repayments,   loan  sales,  borrowings  and  from  other  operations.  The
availability  of funds is influenced by the general level of interest  rates and
other market  conditions.  Scheduled  loan  repayments  are a relatively  stable
source  of  funds  while  deposit  inflows  and  outflows  vary  widely  and are
influenced by prevailing interest rates and money market conditions.  Borrowings
may be used on a short-term  basis to compensate  for  reductions in deposits or
deposit  inflows at less than projected  levels and may be used on a longer term
basis to support expanded lending activities.

     DEPOSITS.  Consumer  deposits  are  attracted  principally  from within the
Bank's  market  area  through  the  offering  of a broad  selection  of  deposit
instruments  including demand deposit accounts,  NOW and Preferred NOW accounts,
money market deposit accounts,  regular savings accounts,  term deposit accounts
and retirement  savings plans. The Bank has historically not actively  solicited
or  advertised  for deposits  outside of its market area or  solicited  brokered
deposits.  During  fiscal  2003,  the Bank did enter into a retail CD  brokerage
agreement with a major  brokerage  firm and considers  this  arrangement to be a
secondary  source of liquidity.  The Bank attracts  deposits  through its branch
office  network,  automated  teller  machines,  the Internet and by paying rates
competitive with other Massachusetts financial institutions.

     DEPOSIT ACCOUNTS.  The following table shows the distribution of the Bank's
deposit  accounts at the dates indicated and the weighted  average rate paid for
each category of account for the years indicated.
<TABLE>
<CAPTION>
                                                            YEARS ENDED MARCH 31,
                                       ----------------------------------------------------------------
                                                    2003                           2002
                                       -----------------------------    -----------------------------
                                                             AVERAGE                          AVERAGE
                                       AVERAGE      % OF      RATE      AVERAGE    % OF        RATE
                                       BALANCE    DEPOSITS    PAID      BALANCE   DEPOSITS     PAID
                                       -------    --------   -------    -------   --------    -------
                                                           (DOLLARS IN THOUSANDS)
<S>                                   <C>          <C>        <C>      <C>          <C>        <C>
Demand deposit accounts.............  $  29,586    10.7%        --  %  $  24,535     9.0%        --%
NOW accounts........................     37,271    13.4        .64        36,177    13.2       1.12
Passbook and other savings
    accounts........................     70,489    25.4       1.10        67,322    24.7       1.32
Money market deposit accounts.......     33,695    12.1       1.83        16,869     6.2       1.75
Term deposit certificates...........    106,572    38.4       3.72       127,906    46.9       5.13
                                      ---------   -----                ---------   -----

    Total deposits..................  $ 277,613   100.0%      2.02%    $ 272,809   100.0%      2.98%
                                      =========   =====                =========   =====
<CAPTION>
                                         YEARS ENDED MARCH 31,
                                        --------------------------
                                                   2001
                                        --------------------------
                                                           AVERAGE
                                        AVERAGE    % OF     RATE
                                        BALANCE   DEPOSITS  PAID
                                        -------   -------- -------
                                         (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>     <C>
Demand deposit accounts.............    $ 20,382     7.5%      --%
NOW accounts........................      32,312    12.0     1.29
Passbook and other savings
    accounts........................      62,018    22.9     2.03
Money market deposit accounts.......      17,200     6.4     2.22
Term deposit certificates...........     138,223    51.2     5.81
                                        --------    ----

    Total deposits..................    $270,135   100.0%    3.73%
                                        ========   =====
</TABLE>
                                       13
<PAGE>

     TIME  DEPOSITS IN EXCESS OF $100,000.  The  following  table  indicates the
amount of the Bank's time deposits of $100,000 or more by time  remaining  until
maturity as of March 31, 2003 (in thousands).


        Maturity Period:
           Three months or less.................... $   4,055
           Three through six months................     7,584
           Six through twelve months...............     8,696
           Over twelve months......................     5,924
                                                    ---------
                 Total............................. $  26,259
                                                    =========

     BORROWINGS.  From  time to time the  Bank  borrows  funds  from the FHLB of
Boston.  All  advances  from the FHLB of Boston are secured by a blanket lien on
residential  first mortgage  loans,  certain  investment  securities and all the
Bank's  stock in the FHLB of Boston.  At March 31,  2003,  the Bank had advances
outstanding  from the FHLB of Boston  of $144.4  million.  Proceeds  from  these
advances were primarily used to fund the Bank's loan growth.  Additional sources
of borrowed  funds  include The  Co-operative  Central Bank Reserve Fund and the
Federal Reserve System.

     The following  table sets forth certain  information  regarding  borrowings
from the FHLB of Boston, including short-term borrowings under a line of credit,
at the dates and for the periods indicated.
<TABLE>
<CAPTION>
                                                                                 AT OR FOR THE
                                                                              YEARS ENDED MARCH 31,
                                                                -------------------------------------------------
                                                                   2003               2002               2001
                                                                ---------           ---------          --------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                                             <C>                 <C>                <C>
Amounts outstanding at end of period.........................   $ 144,400           $ 164,000          $121,000
Weighted average rate at end of period.......................        4.81%               4.39%             5.84%
Maximum amount of borrowings outstanding
  at any month end...........................................   $ 165,500           $ 164,000          $121,000
Approximate average amounts outstanding......................   $ 155,590           $ 124,680          $111,980
Approximate weighted average rate during the year............        4.67%               5.41%             6.18%

</TABLE>

SUBSIDIARIES

     In April 1998,  the Bank  established  Central  Securities  Corporation,  a
Massachusetts  corporation,  as a wholly  owned  subsidiary  of the Bank for the
purpose of  engaging  exclusively  in buying,  selling and  holding,  on its own
behalf,  securities  that may be held  directly  by the  Bank.  This  subsidiary
corporation holds U.S. Treasury notes, Government agency obligations,  corporate
bonds and mortgage-backed  securities and qualifies under Section 38B of Chapter
63 of the Massachusetts General Laws as a Massachusetts security corporation.

     In July 1999, the Bank established  Central Preferred  Capital  Corporation
("CPCC"),  a Massachusetts  corporation  which has elected to be taxed as a real
estate  investment  trust ("REIT") for federal and  Massachusetts  tax purposes.
CPCC holds  mortgage  loans which were  previously  originated by the Bank.  For
additional information, see Note 8 of Notes to Consolidated Financial Statements
under "Item 8. Financial Statements and Supplementary Data."


                                       14
<PAGE>
                           REGULATION AND SUPERVISION

REGULATION AND SUPERVISION OF THE COMPANY

     GENERAL. The Company is a bank holding company subject to regulation by the
Federal  Reserve  Board under the Bank Holding  Company Act of 1956,  as amended
(the "BHCA").  As a result, the activities of the Company are subject to certain
limitations,  which are described below. In addition, as a bank holding company,
the Company is required to file annual and  quarterly  reports  with the Federal
Reserve Board and to furnish such additional  information as the Federal Reserve
Board may require  pursuant to the BHCA.  The Company is also subject to regular
examination by the Federal Reserve Board.

     ACTIVITIES.  With  certain  exceptions,  the BHCA  prohibits a bank holding
company from acquiring  direct or indirect  ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding  company,
or from  engaging  directly  or  indirectly  in  activities  other than those of
banking,   managing  or  controlling   banks,  or  providing  services  for  its
subsidiaries.  The principal  exceptions to these  prohibitions  involve certain
non-bank  activities which, by statute or by Federal Reserve Board regulation or
order,  have been  identified as activities  closely  related to the business of
banking. The activities of the Company are subject to these legal and regulatory
limitations  under the BHCA and the related Federal  Reserve Board  regulations.
Notwithstanding   the  Federal   Reserve  Board's  prior  approval  of  specific
nonbanking  activities,  the  Federal  Reserve  Board  has the  power to order a
holding company or its  subsidiaries to terminate any activity,  or to terminate
its  ownership or control of any  subsidiary,  when it has  reasonable  cause to
believe  that the  continuation  of such  activity or such  ownership or control
constitutes  a serious risk to the financial  safety,  soundness or stability of
any bank subsidiary of that holding company.

     Effective  with the  enactment  of the  Gramm-Leach-Bliley  Act (the "G-L-B
Act") on November 12, 1999, bank holding  companies whose financial  institution
subsidiaries  are well  capitalized  and  well  managed  and  have  satisfactory
Community  Reinvestment  Act  ("CRA")  records  can elect to  become  "financial
holding companies" which are permitted to engage in a broader range of financial
activities  than are  permitted to bank  holding  companies.  Financial  holding
companies  are  authorized  to engage  in,  directly  or  indirectly,  financial
activities.  A  financial  activity  is an activity  that is: (i)  financial  in
nature;  (ii)  incidental to an activity  that is financial in nature;  or (iii)
complementary  to a  financial  activity  and that  does  not pose a safety  and
soundness  risk. The G-L-B Act includes a list of activities  that are deemed to
be  financial  in nature.  Other  activities  also may be decided by the Federal
Reserve  Board to be  financial  in nature or  incidental  thereto  if they meet
specified criteria.  A financial holding company that intends to engage in a new
activity  or to acquire a company to engage in such an  activity  is required to
give prior notice to the Federal  Reserve  Board.  If the activity is not either
specified in the G-L-B Act as being a financial activity or one that the Federal
Reserve  Board has  determined  by rule or regulation to be financial in nature,
the prior approval of the Federal Reserve Board is required.

     ACQUISITIONS.  Under the BHCA, a bank holding company must obtain the prior
approval of the Federal  Reserve Board before (1)  acquiring  direct or indirect
ownership or control of any voting  shares of any bank or bank  holding  company
if,  after  such  acquisition,  the  bank  holding  company  would  directly  or
indirectly  own or control more than 5% of such  shares;  (2)  acquiring  all or
substantially all of the assets of another bank or bank holding company;  or (3)
merging  or  consolidating  with  another  bank  holding  company.  Satisfactory
financial  condition,   particularly  with  regard  to  capital  adequacy,   and
satisfactory  CRA ratings  generally  are  prerequisites  to  obtaining  federal
regulatory approval to make acquisitions.

     Under the BHCA,  any company  must obtain  approval of the Federal  Reserve
Board prior to acquiring control of the Company or the Bank. For purposes of the
BHCA,  "control" is defined as ownership of more than 25% of any class of voting
securities of the Company or the Bank,  the ability to control the election of a
majority of the  directors,  or the  exercise of a  controlling  influence  over
management  or policies of the Company or the Bank.  In addition,  the Change in
Bank  Control  Act and the related  regulations  of the  Federal  Reserve  Board
require any person or persons acting in concert  (except for companies  required
to make  application  under the BHCA), to file a written notice with the Federal
Reserve  Board before such person or persons may acquire  control of the Company
or the Bank.  The Change in Bank  Control  Act defines  "control"  as the power,
directly  or  indirectly,  to vote 25% or more of any  voting  securities  or to
direct the management or policies of a bank holding company or an insured bank.

                                       15
<PAGE>

     Under  Massachusetts  banking  law,  prior  approval  of the  Massachusetts
Division of Banks is also  required  before any person may acquire  control of a
Massachusetts  bank  or  bank  holding  company.   Massachusetts  law  generally
prohibits a bank holding company from acquiring control of an additional bank if
the bank to be acquired has been in  existence  for less than three years or, if
after such acquisition,  the bank holding company would control more than 30% of
the FDIC-insured deposits in the Commonwealth of Massachusetts.

     CAPITAL  REQUIREMENTS.  The Federal  Reserve  Board has adopted  guidelines
regarding  the capital  adequacy of bank holding  companies,  which require bank
holding  companies  to  maintain  specified  minimum  ratios of capital to total
assets and capital to risk-weighted  assets.  See "Regulation and Supervision of
the Bank -- Capital Requirements."

     DIVIDENDS. The Federal Reserve Board has the power to prohibit dividends by
bank holding companies if their actions  constitute unsafe or unsound practices.
The Federal  Reserve Board has issued a policy  statement on the payment of cash
dividends by bank holding companies, which expresses the Federal Reserve Board's
view that a bank holding  company  should pay cash  dividends only to the extent
that the  company's net income for the past year is sufficient to cover both the
cash  dividends and a rate of earnings  retention  that is  consistent  with the
company's capital needs,  asset quality,  and overall financial  condition.  The
Federal Reserve Board also indicated that it would be  inappropriate  for a bank
holding company  experiencing  serious financial problems to borrow funds to pay
dividends. Under the prompt corrective action regulations adopted by the Federal
Reserve Board pursuant to the Federal Deposit Insurance Corporation  Improvement
Act of 1991  ("FDICIA"),  the Federal  Reserve Board may prohibit a bank holding
company from paying any dividends if the holding  company's  bank  subsidiary is
classified as "undercapitalized." See "Regulation and Supervision of the Bank --
Prompt Corrective Regulatory Action."

     STOCK  REPURCHASES.  As a bank holding company,  the Company is required to
give  the  Federal  Reserve  Board  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,  is equal to
10% or more of the Company's  consolidated  net worth. The Federal Reserve Board
may disapprove  such a purchase or redemption if it determines that the proposal
would violate any law, regulation,  Federal Reserve Board order,  directive,  or
any condition  imposed by, or written agreement with, the Federal Reserve Board.
This   requirement   does  not  apply  to  bank  holding   companies   that  are
"well-capitalized," received one of the two highest examination ratings at their
last examination and are not the subject of any unresolved supervisory issues.

     SARBANES-OXLEY  ACT OF 2002. On July 30, 2002,  the  Sarbanes-Oxley  Act of
2002 ("SOX") was signed into law which mandated a variety of reforms intended to
address corporate and accounting fraud. SOX contained provisions which amend the
Securities  Exchange Act of 1934,  as amended (the "Act") and  provisions  which
directed the SEC to promulgate  rules.  The resultant law and regulations  under
the Act as of the time of this  annual  report  is set  forth  in the  following
paragraphs.  SOX  provides  for  the  establishment  of  a  new  Public  Company
Accounting  Oversight  Board  ("PCAOB"),  which will enforce  auditing,  quality
control and independence  standards for firms that audit Securities and Exchange
Commission  ("SEC")-reporting  companies  and will be  funded  by fees  from all
SEC-reporting  companies.  SOX imposed higher standards for auditor independence
and restricts  provision of consulting  services by auditing  firms to companies
they audit.  Any  non-audit  services  being  provided  to an audit  client will
require  preapproval  by the Company's  audit  committee  members.  In addition,
certain  audit  partners  must  be  rotated  periodically.  SOX  requires  chief
executive officers and chief financial officers, or their equivalent, to certify
to the  accuracy of periodic  reports  filed with the SEC,  subject to civil and
criminal  penalties if they  knowingly or willfully  violate this  certification
requirement. In addition, under SOX, counsel will be required to report evidence
of a material  violation of the securities laws or a breach of fiduciary duty by
a company to its chief  executive  officer or its chief legal  officer,  and, if
such  officer does not  appropriately  respond,  to report such  evidence to the
audit  committee  or other  similar  committee  of the board of directors or the
board itself.

     Longer  prison  terms  will also be  applied to  corporate  executives  who
violate federal  securities laws, the period during which certain types of suits
can be brought against a company or its officers has been extended,  and bonuses
issued  to  top  executives  prior  to  restatement  of  a  company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate  misconduct.  Executives  are  also  prohibited  from  trading  during
retirement  plan  "blackout"  periods,  and  loans  to  company  executives  are
restricted.  In addition, a provision directs that civil penalties levied by the
SEC as a result  of any  judicial  or  administrative  action  under  the Act be

                                       16
<PAGE>

deposited in a fund for the benefit of harmed investors. Directors and executive
officers  must also  report  most  changes  in their  ownership  of a  company's
securities  within two  business  days of the change,  and as of the end of June
2003, all ownership reports must be electronically filed.

     SOX also  increases  the  oversight  and  authority of audit  committees of
publicly traded  companies.  Audit committee members must be independent and are
barred from accepting  consulting,  advisory or other compensatory fees from the
issuer. In addition, all SEC-reporting  companies must disclose whether at least
one member of the committee is an audit  committee  "financial  expert" (as such
term is  defined  by the SEC rules) and if not,  why not.  Audit  committees  of
publicly  traded  companies  will have authority to retain their own counsel and
other advisors funded by the company. Audit committees must establish procedures
for the receipt,  retention and treatment of complaints regarding accounting and
auditing  matters and  procedures  for  confidential,  anonymous  submission  of
employee concerns regarding  questionable  accounting or auditing matters. It is
the  responsibility  of the  audit  committee  to  hire,  oversee  and  work  on
disagreements with the Company's independent auditor.

     Beginning  six months  after the SEC  determines  that the PCAOB is able to
carry  out its  functions,  it will be  unlawful  for any  person  that is not a
registered  public  accounting firm ("RPAF") to audit an SEC-reporting  company.
Under the Act, a RPAF is prohibited from performing  statutorily  mandated audit
services  for a  company  if  such  company's  chief  executive  officer,  chief
financial officer,  comptroller,  chief accounting officer or any person serving
in equivalent  positions has been employed by such firm and  participated in the
audit of such company during the one-year period  preceding the audit initiation
date.  SOX also  prohibits  any  officer or  director  of a company or any other
person  acting  under their  direction  from  taking any action to  fraudulently
influence,  coerce,  manipulate or mislead any  independent  public or certified
accountant  engaged in the audit of the Company's  financial  statements for the
purpose of rendering the financial statement's  materially  misleading.  The SEC
has  prescribed  rules  requiring  inclusion of an internal  control  report and
assessment by management in the annual report to shareholders.  SOX requires the
RPAF that  issues  the audit  report  to  attest to and  report on  management's
assessment of the Company's  internal controls.  In addition,  SOX requires that
each financial  report required to be prepared in accordance with (or reconciled
to) generally accepted accounting  principles and filed with the SEC reflect all
material correcting adjustments that are identified by a RPAF in accordance with
generally  accepted  accounting  principles and the rules and regulations of the
SEC.

     Although  the  Company  anticipates  it will  incur  additional  expense in
complying with the provisions of the Act and the related rules,  management does
not expect that such  compliance  will have a material  impact on the  Company's
financial condition or results of operations.

REGULATION AND SUPERVISION OF THE BANK

     GENERAL.  The Bank is subject to extensive  regulation by the  Commissioner
and the FDIC.  The lending  activities  and other  investments  of the Bank must
comply  with  various  regulatory   requirements.   The  Commissioner  and  FDIC
periodically  examine the Bank for compliance with these requirements.  The Bank
must file reports with the  Commissioner  and the FDIC describing its activities
and  financial   condition.   The  Bank  is  also  subject  to  certain  reserve
requirements  promulgated by the Federal  Reserve Board.  This  supervision  and
regulation is intended  primarily for the protection of  depositors.  Certain of
these regulatory requirements are referred to below or appear elsewhere herein.

     CAPITAL  REQUIREMENTS.  Under FDIC regulations,  state-chartered banks that
are not members of the Federal Reserve System are required to maintain a minimum
leverage  capital  requirement  consisting of a ratio of Tier 1 capital to total
assets of 3% if the FDIC determines that the institution is not  anticipating or
experiencing  significant  growth and has  well-diversified  risk,  including no
undue interest rate risk exposure, excellent asset quality, high liquidity, good
earnings and in general a strong banking  organization,  rated composite 1 under
the Uniform  Financial  Institutions  Rating System (the CAMELS  rating  system)
established by the Federal Financial  Institutions  Examination Council. For all
but the most highly rated  institutions  meeting the conditions set forth above,
the minimum leverage capital ratio is 3% plus an additional  "cushion" amount of
at least 100 to 200 basis points with a minimum leverage capital  requirement of
not less than 4%.  Tier 1 capital  is the sum of  common  stockholders'  equity,
noncumulative  perpetual  preferred  stock  (including any related  surplus) and
minority  interests in consolidated  subsidiaries,  minus all intangible  assets
(other than certain mortgage and non-mortgage servicing

                                       17
<PAGE>
assets, purchased credit card relationships and qualifying supervisory goodwill)
minus  identified  losses,  disallowed  deferred tax assets and  investments  in
financial subsidiaries and certain non-financial equity investments.

     In  addition  to the  leverage  ratio (the ratio of Tier 1 capital to total
assets),  state-chartered  nonmember  banks  must  maintain  a minimum  ratio of
qualifying  total  capital  to  risk-weighted  assets of at least 8% of which at
least four percentage  points must be Tier 1 capital.  Qualifying  total capital
consists of Tier 1 capital plus Tier 2 or  supplementary  capital items.  Tier 2
capital items include  allowances for loan losses in an amount of up to 1.25% of
risk-weighted  assets,  cumulative  preferred  stock and preferred  stock with a
maturity of over 20 years,  certain other capital  instruments  and up to 45% of
pretax net unrealized holding gains on equity securities.  The includable amount
of Tier 2 capital  cannot exceed the  institution's  Tier 1 capital.  Qualifying
total  capital is further  reduced  by the amount of the bank's  investments  in
banking  and  finance  subsidiaries  that are not  consolidated  for  regulatory
capital  purposes,  reciprocal  cross-holdings  of capital  securities issued by
other banks, most intangible assets and certain other deductions. Under the FDIC
risk-weighting  system,  all of a bank's  balance  sheet  assets  and the credit
equivalent  amounts of certain  off-balance  sheet items are  assigned to one of
four broad risk weight  categories from 0% to 100%,  based on the risks inherent
in the type of assets or item.  The aggregate  dollar amount of each category is
multiplied  by the  risk  weight  assigned  to that  category.  The sum of these
weighted values equals the bank's risk-weighted assets.

     At March 31, 2003, the Bank's ratio of Tier 1 capital to average assets was
6.77%,  its ratio of Tier 1 capital to  risk-weighted  assets was 10.07% and its
ratio of total risk-based capital to risk-weighted assets was 11.08%.

     DIVIDEND  LIMITATIONS.  The Bank may not pay dividends on its capital stock
if its  regulatory  capital  would  thereby  be reduced  below the  amount  then
required  for the  liquidation  account  established  for the benefit of certain
depositors of the Bank at the time of its conversion to stock form.

     Earnings of the Bank  appropriated  to bad debt  reserves  and deducted for
Federal  income tax purposes are not available for payment of cash  dividends or
other distributions to stockholders without payment of taxes at the then current
tax rate by the Bank on the amount of earnings  removed  from the  reserves  for
such  distributions.  The Bank  intends to make full use of this  favorable  tax
treatment and does not  contemplate  use of any earnings in a manner which would
limit the Bank's bad debt deduction or create federal tax liabilities.

     Under FDIC  regulations,  the Bank is  prohibited  from  making any capital
distributions if after making the distribution, the Bank would have: (i) a total
risk-based  capital  ratio of less than 8.0%;  (ii) a Tier 1 risk-based  capital
ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.

     DEPOSIT INSURANCE.  The Bank is required to pay assessments to the FDIC for
insurance  of its  deposits  by the BIF  based on a  percentage  of its  insured
deposits.  Under the Federal Deposit  Insurance Act, the FDIC is required to set
semi-annual assessments for BIF-insured institutions at a rate determined by the
FDIC to be  necessary  to maintain the  designated  reserve  ratio of the BIF at
1.25% of  estimated  insured  deposits  or at a  higher  percentage  of  insured
deposits that the FDIC determines to be justified for that year by circumstances
raising a significant risk of substantial future losses to the BIF. In the event
the BIF  should  fail to meet the  statutory  reserve  ratio,  the FDIC would be
required to set  semi-annual  assessments for BIF members that are sufficient to
increase the reserve ratio to 1.25% within one year or in  accordance  with such
other  schedule  that the FDIC adopts by regulation to restore the reserve ratio
in not more than 15 years.

     The assessment rate for an insured depository  institution is determined by
the assessment risk classification assigned to the institution by the FDIC based
on the  institution's  capital level and supervisory  evaluations.  Based on the
data reported to regulators for date closest to the last day of the fourth month
preceding the semi-annual assessment period, institutions are assigned to one of
three  capital   groups  --  well   capitalized,   adequately   capitalized   or
undercapitalized  --  using  the  same  percentage  criteria  as in  the  prompt
corrective action  regulations.  See "-- Prompt Corrective  Regulatory  Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other  information  as the FDIC  determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance  fund.
                                       18
<PAGE>
     The FDIC has  adopted an  assessment  schedule  for BIF  deposit  insurance
pursuant to which the assessment rate for well-capitalized institutions with the
highest  supervisory  ratings have been reduced to zero and  institutions in the
worst risk  assessment  classification  will be assessed at the rate of 0.27% of
insured deposits. At March 31, 2003, the Bank is considered well capitalized. In
addition,  FDIC-insured institutions are required to pay assessments to the FDIC
to help  fund  interest  payments  on  certain  bonds  issued  by the  Financing
Corporation ("FICO"), an agency of the federal government established to finance
takeovers  of  insolvent   thrifts.   Until   December  31,  1999,   BIF-insured
institutions  were  required to pay FICO  assessments  at one-fifth  the rate at
which Savings Association  Insurance Fund ("SAIF") members were assessed.  After
December 31, 1999, both BIF and SAIF members have been assessed at the same rate
for FICO payments.

     The FDIC has announced that the BIF reserve ratio had fallen below 1.25% as
of March 31,  2003.  The FDIC has  further  indicated  that in the event the BIF
reserve ratio is expected to remain below the designated  reserve ratio when the
FDIC  establishes  the assessment  rate for the first half of 2003 this fall, it
will require BIF-insured banks to begin paying a premium for deposit insurance.

     All Massachusetts  chartered  co-operative banks are required to be members
of the Share  Insurance  Fund.  The Share  Insurance  Fund  maintains  a deposit
insurance  fund which insures all deposits in member banks which are not covered
by federal  insurance,  which in the case of the Bank are its deposits in excess
of $100,000  per  insured  account.  In past  years,  a premium of 1/24 of 1% of
insured deposits has been assessed annually on member banks such as the Bank for
this deposit insurance. However, no premium has been assessed in recent years.

     PROMPT  CORRECTIVE  REGULATORY  ACTION.   Federal  banking  regulators  are
required to take prompt corrective action if an insured  depository  institution
fails to satisfy  certain  minimum  capital  requirements,  including a leverage
limit,  a  risk-based  capital   requirement,   and  any  other  measure  deemed
appropriate by the federal banking regulators for measuring the capital adequacy
of an insured  depository  institution.  All  institutions,  regardless of their
capital levels,  are restricted  from making any capital  distribution or paying
any management  fees if the  institution  would  thereafter  fail to satisfy the
minimum levels for any of its capital requirements. An institution that fails to
meet the minimum level for any relevant  capital  measure (an  "undercapitalized
institution")  may be: (i) subject to increased  monitoring  by the  appropriate
federal  banking  regulator;  (ii)  required  to  submit an  acceptable  capital
restoration plan within 45 days; (iii) subject to asset growth limits;  and (iv)
required to obtain prior regulatory approval for acquisitions, branching and new
lines of businesses.  The capital  restoration  plan must include a guarantee by
the institution's holding company that the institution will comply with the plan
until  it has been  adequately  capitalized  on  average  for  four  consecutive
quarters, under which the holding company would be liable up to the lesser of 5%
of the  institution's  total  assets  or  the  amount  necessary  to  bring  the
institution into capital  compliance as of the date it failed to comply with its
capital  restoration plan. A "significantly  undercapitalized"  institution,  as
well as any  undercapitalized  institution  that does not  submit an  acceptable
capital   restoration   plan,   may  be  subject  to   regulatory   demands  for
recapitalization,  broader  application of  restrictions  on  transactions  with
affiliates,  limitations  on interest  rates paid on deposits,  asset growth and
other  activities,   possible   replacement  of  directors  and  officers,   and
restrictions on capital  distributions  by any bank holding company  controlling
the institution. Any company controlling the institution may also be required to
divest  the  institution  or  the  institution   could  be  required  to  divest
subsidiaries.  The senior executive officers of a significantly undercapitalized
institution may not receive  bonuses or increases in compensation  without prior
approval and the  institution is prohibited from making payments of principal or
interest on its  subordinated  debt. In their  discretion,  the federal  banking
regulators  may also  impose  the  foregoing  sanctions  on an  undercapitalized
institution if the regulators determine that such actions are necessary to carry
out the purposes of the prompt corrective provisions.  If an institution's ratio
of tangible  capital to total assets falls below the  "critical  capital  level"
established by the appropriate  federal banking regulator,  the institution will
be subject to conservatorship or receivership within specified time periods.

                                       19
<PAGE>
     Under  the  implementing   regulations,   the  federal  banking  regulators
generally  measure an  institution's  capital adequacy on the basis of its total
risk-based  capital  ratio  (the  ratio of its total  capital  to  risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio (the  ratio of its core  capital to
adjusted total assets).  The following  table shows the capital ratios  required
for the various prompt corrective action categories.
<TABLE>
<CAPTION>
                                                     ADEQUATELY                                   SIGNIFICANTLY
                           WELL CAPITALIZED          CAPITALIZED         UNDERCAPITALIZED        UNDERCAPITALIZED
                           ----------------          -----------         ----------------        ----------------
<S>                        <C>                       <C>                 <C>                     <C>
Total risk-based
    capital ratio          10.0% or more             8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio           6.0% or more             4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio              5.0% or more             4.0% or more *      Less than 4.0% *        Less than 3.0%
<FN>
-----------
*  3.0% if institution has a composite 1 CAMELS rating.
</FN>
</TABLE>
A "critically  undercapitalized"  institution is defined as an institution  that
has a ratio of  "tangible  equity" to total  assets of less than 2.0%.  Tangible
equity is defined as core capital plus cumulative perpetual preferred stock (and
related  surplus) less all intangible  assets other than qualifying  supervisory
goodwill  and  certain  purchased   mortgage  servicing  rights.  The  FDIC  may
reclassify a well capitalized  depository  institution as adequately capitalized
and may require an adequately  capitalized  or  undercapitalized  institution to
comply with the supervisory actions applicable to institutions in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically undercapitalized) if the FDIC determines, after notice
and an opportunity for a hearing,  that the savings  institution is in an unsafe
or unsound  condition or that the  institution  has received and not corrected a
less-than-satisfactory rating for any CAMELS rating category.

     PATRIOT  ACT.  The  Patriot  Act  is  intended  to   strengthen   U.S.  law
enforcement's and the intelligence  communities' abilities to work cohesively to
combat terrorism on a variety of fronts. The potential impact of the Patriot Act
on financial  institutions  of all kinds is  significant  and wide ranging.  The
Patriot Act contains sweeping anti-money  laundering and financial  transparency
laws and imposes various  regulations  including  standards for verifying client
identification  at  account  opening,  and rules to  promote  cooperation  among
financial  institutions,  regulators and law enforcement entities in identifying
parties that may be involved in terrorism or money laundering.

     LOANS TO EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS. Loans to
directors,  executive officers and principal  stockholders of a state non-member
bank  like  the  Bank  must be made on  substantially  the  same  terms as those
prevailing  for  comparable  transactions  with  persons  who are not  executive
officers, directors,  principal stockholders or employees of the Bank unless the
loan is made pursuant to a compensation or benefit plan that is widely available
to  employees  and does not  favor  insiders.  Loans to any  executive  officer,
director and principal  stockholder together with all other outstanding loans to
such person and affiliated  interests generally may not exceed 15% of the bank's
unimpaired  capital and surplus and all loans to such persons may not exceed the
institution's  unimpaired  capital and unimpaired  surplus.  Loans to directors,
executive officers and principal stockholders,  and their respective affiliates,
in  excess of the  greater  of  $25,000  or 5% of  capital  and  surplus  (up to
$500,000) must be approved in advance by a majority of the board of directors of
the bank with any "interested"  director not participating in the voting.  State
non-member  banks are  prohibited  from  paying the  overdrafts  of any of their
executive  officers or directors  unless  payment is made pursuant to a written,
pre-authorized interest-bearing extension of credit plan that specifies a method
of  repayment or transfer of funds from  another  account at the bank.  Loans to
executive  officers may not be made on terms more  favorable than those afforded
other  borrowers and are restricted as to type,  amount and terms of credit.  In
addition,  Section 106 of the BHCA  prohibits  extensions of credit to executive
officers,   directors,  and  greater  than  10%  stockholders  of  a  depository
institution  by  any  other  institution  which  has  a  correspondent   banking
relationship  with the  institution,  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.

     TRANSACTIONS  WITH AFFILIATES.  A state non-member bank or its subsidiaries
may not engage in "covered  transactions"  with any one  affiliate  in an amount
greater  than 10% of such bank's  capital  stock and  surplus,  and for all such
transactions with all affiliates a state non-member bank is limited to an amount
equal to 20% of capital
                                       20
<PAGE>

stock and surplus. All such transactions must also be on terms substantially the
same, or at least as favorable, to the bank or subsidiary as those provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase  of  assets,  issuance  of a  guarantee  and  similar  other  types  of
transactions.  An affiliate of a state  non-member bank is any company or entity
which  controls or is under common control with the state  non-member  bank and,
for  purposes  of the  aggregate  limit on  transactions  with  affiliates,  any
subsidiary that would be deemed a financial  subsidiary of a national bank. In a
holding company  context,  the parent holding company of a state non-member bank
(such as the  Company) and any  companies  which are  controlled  by such parent
holding  company  are  affiliates  of the state  non-member  bank.  The BHCA and
Regulation W further prohibit a depository  institution from extending credit to
or offering any other services,  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,  subject to certain limited
exceptions.

     MASSACHUSETTS  STATE LAW. As a  Massachusetts-chartered  co-operative bank,
the Bank is subject to the applicable  provisions of  Massachusetts  law and the
regulations of the Commissioner adopted thereunder. The Bank derives its lending
and investment  powers from these laws,  and is subject to periodic  examination
and reporting requirements by and of the Commissioner.  In addition, the Bank is
required to make  periodic  reports to the  Co-operative  Central Bank. In 1990,
legislation was enacted  permitting  banks nationwide to enter the Bank's market
area and  compete  for  deposits  and loan  originations.  The  approval  of the
Massachusetts  Commissioner  of  Banks  is  required  prior  to  any  merger  or
consolidation, or the establishment or relocation of any office facility.

EMPLOYEES

     At March 31, 2003,  the Company and the Bank  employed 94 full-time  and 36
part-time  employees.  The Company's and Bank's employees are not represented by
any  collective  bargaining  agreement.  Management  of  the  Company  and  Bank
considers its relations with its employees to be good.

ITEM 2.  PROPERTIES
-------------------

     The Bank owns all its  offices,  except the  Burlington  and Malden  branch
offices,  and the loan and operations  centers  located in Somerville.  Net book
value includes the cost of land, buildings and improvements as well as leasehold
improvements, net of depreciation and/or amortization. At March 31, 2003, all of
the Bank's  offices were in reasonable  condition and met the business  needs of
the Bank. The following table sets forth the location of the Bank's offices,  as
well as certain  information  relating  to these  offices  as of March 31,  2003
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                                                     NET BOOK
                                                                          YEAR                        VALUE AT
                  OFFICE LOCATION                                         OPENED                 MARCH 31, 2003
                  ---------------                                         ------                 --------------
            <S>                                                           <C>                      <C>
            MAIN OFFICE
            399 Highland Avenue
            Somerville, MA.............................................    1974                     $    273

            BRANCH OFFICES:
            175 Broadway
            Arlington, MA..............................................    1982                          123

            85 Wilmington Road
            Burlington, MA.............................................    1978(a)                         2

            1192 Boylston Street
            Chestnut Hill (Brookline), MA..............................    1954                          127

            137 Pleasant Street
            Malden, MA.................................................    1975(b)                        22

            846 Main Street
            Melrose, MA................................................    1994                          163
</TABLE>
                                       21
<PAGE>
<TABLE>
<CAPTION>
                                                                                                     NET BOOK
                                                                          YEAR                        VALUE AT
                  OFFICE LOCATION                                         OPENED                 MARCH 31, 2003
                  ---------------                                         ------                 --------------
            <S>                                                           <C>                      <C>
            275 Main Street
            Woburn, MA.................................................    1980                     $    459

            198 Lexington Street
            Woburn, MA.................................................    1974                          163

            Woburn High School
            Woburn, MA.................................................    2002(c)                        37

            OPERATIONS CENTER
            17 Inner Belt Road
            Somerville, MA.............................................    1994(d)                         8

            COMMERCIAL LOAN CENTER
            401 Highland Avenue........................................    2002(e)                        51
            Somerville, MA

            RESIDENTIAL LOAN CENTER
            403 Highland Avenue
            Somerville, MA.............................................    2002(f)                        51
<FN>
_______________
(a)  The lease for the Burlington branch expires in 2007 with no renewal option.
(b)  The lease for the  Malden  branch  expires in 2005 with an option to extend
     the lease for one ten-year term.
(c)  The lease for the  Woburn  High  School  branch is for one year,  renewable
     annually.
(d)  The lease for the Operations Center expires in 2005 with no renewal option.
(e)  The lease for the Commercial  Loan Center expires in 2006 with an option to
     extend for one three-year term.
(f)  The lease for the Residential Loan Center expires in 2005 with an option to
     extend for one three-year term.
</FN>
</TABLE>

     At March 31, 2003, the net book value of the Bank's  premises and equipment
was $1.9 million.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     The Bank from time to time is involved as plaintiff or defendant in various
legal actions  incident to its  business.  Except as described  herein,  none of
these actions are believed to be material,  either individually or collectively,
to the  results of  operations  and  financial  condition  of the Company or any
subsidiary.

     The Bank has been named as  defendant  in a civil suit filed March 28, 2002
in Middlesex  Superior Court under the caption Yi v. Central Bank in which it is
                                               ------------------
alleged,  inter  alia,  that the Bank  committed  an unfair or  deceptive  trade
          -----  ----
practice by failing to pay surplus foreclosure  proceeds to a junior lien holder
in 1994.  The plaintiff  seeks damages of $165,000  plus  statutory  interest of
approximately $175,000 and has applied for a multiple damage award under Chapter
93A of the Massachusetts General Laws which provides for up to treble damages if
a violation is found to be willful or knowing.  While the Bank  believes that it
has  meritorious  defenses to all such claims and intends to  vigorously  defend
against  them,  a  settlement  offer has been made to the  plaintiffs'  counsel,
however, no response has been received.

     The  Company and certain  present and former  directors  have been named in
related  federal  and  state  court  lawsuits  brought  by PL  Capital,  LLC and
affiliates  ("PL  Capital")  and also by  Lawrence  B.  Seidman  and  affiliates
("Seidman"),  respectively, current and former stockholders, in which PL Capital
has  challenged  actions by the  directors  including,  among  other  things,  a
decision  on  setting  the date for  closing of the polls for voting at the 2002
Annual Meeting and the directors'  decision following that Annual Meeting not to
seek the sale of the  Company.  PL  Capital  and  Seidman  have  challenged  the
directors'  determination  that PL Capital and Seidman secretly acted in concert
in violation of the Company's Shareholder Rights Agreement ("Rights Plan").

                                       22
<PAGE>
     After a review and  recommendation  by a Special  Committee of the Board of
Directors,  the  Board of  Directors  determined  on  January  28,  2003 that PL
Capital,  which owned 9.8% of Central Bancorp shares, had secretly coordinated a
November  4, 2002 block  trade to place 8.3% of  Company's  common  stock in the
hands  of  Seidman,   Joseph  Stilwell   ("Stilwell")  and  Robert   Reichenbach
("Reichenbach"),   thereby   exceeding  the  10%  ownership  limit  set  by  the
Shareholder  Rights  Plan.  As a  result,  the  Special  Committee  and Board of
Directors  determined  that  PL  Capital,   Seidman,  Stilwell  and  Reichenbach
(collectively,  the "PL  Capital-Seidman  Group") constitute an Acquiring Person
under the Rights Plan. Seidman and PL Capital  immediately  commenced actions in
the Massachusetts  Superior Court for Suffolk County to enjoin implementation of
the Rights  Plan,  which once  implemented  would  provide  an  issuance  of one
additional  share of common stock for each share  presently  owned to all of the
Company's   shareholders   other  than  the  PL   Capital-Seidman   Group.   The
Massachusetts  Superior Court entered an ex parte temporary  restraining  order,
                                         -- -----

later extended to a preliminary injunction,  enjoining the Company and its Board
of Directors  from  implementing  the Rights Plan  pending  trial on the merits.
Following expedited  proceedings in Massachusetts  federal and state courts, the
parties  have  asked  for  rulings  on  the  legal  standard  applicable  to the
directors'  decisions  challenged  by PL Capital  and  Seidman and on whether PL
Capital and Seidman can avoid  application  of the Rights Plan to them by virtue
of Seidman's sale of all of his shares in the Company. Seidman sold those shares
immediately  after his motion for  summary  judgment  in the  federal  court was
denied  and  contemporaneously  with the  federal  court's  order that the legal
standard on the  applicable  Rights Plan claims be determined by the state court
and that trial then proceed as scheduled in the state court. (On February 11 and
February  26, 2003,  respectively,  the Company and its  directors  entered into
settlement  agreements  with  Stilwell  and  Reichenbach  (and their  respective
affiliates) and the litigation was subsequently  dismissed with respect to those
parties only.)

     PL Capital's  initial  complaint was filed on October 1, 2002 in the United
States District Court for the District of Massachusetts  and amended on November
12, 2002,  challenging,  respectively,  the decisions of the Company's  Board of
Directors  concerning  setting  a date  for  closing  the  polls on  voting  for
directors at the 2002 Annual Meeting and the Board of Directors' decision not to
seek sale of the Company.  (PL Capital's  amended  complaint also challenged the
directors'  decision to re-elect Marat E. Santini and John F. Gilgun, Jr. rather
than  PL  Capital's  nominees  to  the  Board  of the  Bank  and  the  Company's
reimbursement of legal fees for Joseph and John Doherty,  and alleged unfair and
deceptive trade practices within the meaning of Chapter 93A of the Massachusetts
General Laws.) PL Capital's  requests for relief were opposed by the Company and
its  directors  and were denied by the court and dismissed on November 13, 2002.
PL Capital  and  Seidman  subsequently  filed  complaints  in the  Massachusetts
Superior  Court for Suffolk  County on January 30 and 31, 2003  challenging  the
directors'  Rights Plan decision of January 28, 2003,  but the state court found
that PL Capital and Seidman  had  apparently  failed to inform the Court that PL
Capital had filed related  action in federal court (see above) and was already a
party  there to  identical  claims  concerning  the Rights  Plan.  (The  Special
Committee had filed in federal court on January 28, 2003,  seeking a declaratory
judgment  that its  decision  under the Rights  Plan  complied  with  applicable
Massachusetts  law, to prevent  such  circumvention  by PL Capital or  Seidman.)
Acccordingly,  PL Capital and Seidman were ordered by the state court to proceed
in federal court, where PL Capital had initiated action in October 2002.

     PL Capital and Seidman have filed  additional  claims in the federal  court
challenging other decisions made by the Company's directors. PL Capital's claims
in the federal court against the Company, its directors, the Central Cooperative
Bank Employee Stock  Ownership Plan Trust (the "ESOP") and the Joseph R. Doherty
Family Limited  Partnership,  L.P. also  challenge the directors'  approval of a
loan from the  Company to the ESOP and  allege  interference  with PL  Capital's
voting rights as a result of the ESOP's purchase of Reichenbach's  shares of the
Company's common stock (in connection with Reichenbach's  decision to settle out
of the  litigation).  PL  Capital  further  alleges  that John  Doherty,  Joseph
Doherty,  the Joseph R. Doherty  Family Limited  Partnership,  L.P. and the ESOP
(and its trustees) violated Section 13(d) of the Securities Exchange Act of 1934
("Exchange  Act") by allegedly  failing to disclose  certain  relationships  and
purported  motives in connection with their ownership of the Company's stock. PL
Capital also seeks a declaratory  judgment that former director Garrett Goodbody
and director Richard Fates are entitled to indemnification from the Company with
respect to the litigation.  PL Capital seeks declaratory and injunctive  relief,
money  damages and  attorneys'  fees.  Seidman  has also  alleged in the federal
court,   in  addition  to  claims   concerning   the   directors'   Rights  Plan
determination,  claims  similar to PL  Capital's  alleging  violation of Section
13(d) of the Exchange Act by John  Doherty and Joseph  Doherty and  interference
with Seidman's  voting rights by virtue of the ESOP's purchase of  Reichenbach's
shares of the Company's  common  stock.  Seidman  seeks  declaratory  relief and
attorneys'  fees.  The Company has also sought a declaratory  judgment from both
the state and federal courts seeking to resolve those  litigations  (and, in the
federal court, the Company has

                                       23
<PAGE>
also alleged that PL Capital and Seidman  violated Section 13(d) of the Exchange
Act by failing to disclose to the Company,  its  shareholders  and the investing
public their coordinated ownership of the Company's stock).

The Company believes that all of PL Capital's and Seidman's claims are without
merit and intends to defend them vigorously.


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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year covered by this report.


                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS
--------------------------------------------------------------------------------

     The Company's common stock is quoted on the Nasdaq National  MarketSM under
the symbol "CEBK." At March 31, 2003,  there were 1,662,433 shares of the common
stock outstanding and approximately 249 holders of record.  The foregoing number
of holders does not reflect the number of persons or entities who held the stock
in nominee or "street name" through  various  brokerage  firms. In October 1996,
the Company  established  a quarterly  cash  dividend  policy and made its first
dividend  distribution  on November  15, 1996;  it has paid cash  dividends on a
quarterly basis since initiating the dividend program.

     The  following  tables  list the high and low prices  for the Common  Stock
during  each  quarter of fiscal  2003 and fiscal  2002 as reported by the Nasdaq
National MarketSM,  and the amounts and payable dates of the cash dividends paid
during  each  quarter  of fiscal  2003 and  fiscal  2002.  The stock  quotations
constitute interdealer prices without retail markups,  markdowns or commissions,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
         COMMON STOCK PRICES                                                 CASH DIVIDENDS (PAYABLE DATES)

         Fiscal 2003                  High           Low                        Fiscal 2003      Amount
         --------------------------------------------------------               -----------------------
         <S>                        <C>             <C>                         <C>               <C>
         6/30/02                    $31.95          $26.50                      5/17/02           $0.10
         9/30/02                     33.50           28.05                      8/16/02            0.10
         12/31/02                    31.50           28.31                      11/15/02           0.12
         3/31/03                     36.55           30.11                      2/14/03            0.12

         Fiscal 2002                  High           Low                        Fiscal 2002      Amount
         --------------------------------------------------------               ------------------------
         6/30/01                    $26.00          $17.50                      5/18/01           $0.10
         9/30/01                     27.75           21.50                      8/17/01            0.10
         12/31/01                    26.99           21.00                      11/16/01           0.10
         3/31/02                     29.75           25.00                      2/15/02            0.10
</TABLE>

                                       24
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

<TABLE>
<CAPTION>
                                                               AT OR FOR THE YEAR ENDED MARCH 31,
                                                -------------------------------------------------------------
                                                  2003           2002         2001         2000        1999
                                                --------       --------     --------     --------    --------
                                                   (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>          <C>          <C>          <C>          <C>
BALANCE SHEET
Total assets................................   $ 477,208    $  468,219   $  449,337   $  409,557   $  364,696
Total loans.................................     390,464       371,707      345,793      320,013      280,346
Investments:
    Available for sale......................      61,111        73,884       49,388       68,316       68,881
    Held to maturity........................          --            --           --           --           --
Deposits....................................     287,959       261,907      287,167      258,339      266,463
Borrowings..................................     144,576       164,000      121,000      111,000       57,000
Total stockholders' equity..................      39,443        38,954       38,212       37,397       38,742

Shares outstanding..........................       1,662         1,633        1,684        1,810        1,967

STATEMENTS OF OPERATIONS
Net interest and dividend income............   $  17,257    $   14,413   $   13,914   $   13,375   $   11,947
Provision for loan losses...................          --            --           --           --           --
Net gain (loss) from sale and write-down of
    investment securities...................        (308)         (150)         680        1,013          580
Gain on sale of loans.......................         796            --           --           --           --
Other non-interest income...................         917           838          608          656          788
Total non-interest expenses.................      13,877        10,464       10,330        9,345        8,773
Income before cumulative effect of
    accounting change.......................       2,187         2,860        3,109        3,567        2,682
Net income..................................       2,187         2,860        3,109        3,333        2,682
Earnings per common share after cumulative
    effect of accounting change - diluted...        1.37          1.72         1.81         1.77         1.38

SELECTED RATIOS
Interest rate spread........................         3.29%       2.85%         2.80%        3.11%        2.97%
Net yield on interest-earning assets........         3.71        3.36          3.38         3.64         3.29
Equity-to-assets............................         8.27        8.32          8.50         9.13        10.62
Return on average assets before
    cumulative effect of change in
    accounting principle....................         0.46        0.65          0.74         0.94         0.72
Return on average stockholders' equity
    before cumulative effect of change in
    accounting principle....................         5.52        7.62          8.11         9.49         7.12
Dividend payout ratio.......................        33.24       23.39         22.42        20.67        23.45
</TABLE>

                                       25
<PAGE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

GENERAL

     The operations of the Company and its  subsidiary,  the Bank, are generally
influenced  by overall  economic  conditions,  the related  monetary  and fiscal
policies of the federal  government  and the  regulatory  policies of  financial
institution  regulatory  authorities,  including the  Commissioner,  the Federal
Reserve Board and the FDIC.

     The Bank  monitors its  exposure to earnings  fluctuations  resulting  from
market  interest  rate  changes.  Historically  the  Bank's  earnings  have been
vulnerable  to  changing  interest  rates  due to  differences  in the  terms to
maturity or repricing of its assets and  liabilities.  For example,  in a rising
interest rate  environment,  the Bank's net interest income and net income could
be  negatively  affected  as   interest-sensitive   liabilities   (deposits  and
borrowings)  could adjust more quickly to rising  interest rates than the Bank's
interest-sensitive assets (loans and investments).

     The  following is a discussion  and  analysis of the  Company's  results of
operations  for the last three fiscal years and its  financial  condition at the
end of fiscal  years 2003 and 2002.  Management's  discussion  and  analysis  of
financial condition and results of operations should be read in conjunction with
the consolidated financial statements and accompanying notes.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

     Management's  discussion and analysis of the Company's  financial condition
and results of operations  are based on the  consolidated  financial  statements
which are prepared in accordance with accounting  principles  generally accepted
in the United States of America.  The  preparation of such financial  statements
requires  management to make estimates and assumptions  that affect the reported
amounts of assets, liabilities,  revenues and expenses and related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates its
estimates,  including those related to the allowance for loan losses. Management
bases its estimates on historical  experience  and on various other  assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis in making  judgments about the carrying values of assets that are
not readily  apparent from other  sources.  Actual results could differ from the
amount  derived from  management's  estimates and  assumptions  under  different
assumptions or conditions.


     Management  believes  the  allowance  for loan losses  policy is a critical
accounting  policy that required the most significant  estimates and assumptions
used in the preparation of the consolidated financial statements.  The allowance
for  loan  losses  is  based  on  management's  evaluation  of the  level of the
allowance  required  in  relation  to the  estimated  loss  exposure in the loan
portfolio.  Management  believes the  allowance for loan losses is a significant
estimate  and  therefore  regularly  evaluates  it for  adequacy  by taking into
consideration factors such as prior loan loss experience, the character and size
of the  loan  portfolio,  business  and  economic  conditions  and  management's
estimation of future losses. The use of different estimates or assumptions could
produce  different  provisions  for  loan  losses.  Refer to the  discussion  of
Allowance  for  Loan  Losses  in  the  Business  Section  and  Notes  1 and 4 to
Consolidated  Financial  Statements for a detailed  description of  management's
estimation process and methodology related to the allowance for loan losses.

RESULTS OF OPERATIONS

     The Company  reported net income of $2.2 million or $1.37 per diluted share
for fiscal 2003,  as compared to $2.9  million,  or $1.72 per diluted  share for
fiscal 2002 and $3.1 million or $1.81 per diluted share for fiscal 2001.

     The  Company's  earnings  in fiscal  2003 were  adversely  affected  by two
significant items,  namely, state legislation (the "REIT legislation") passed in
March 2003 that  retroactively  eliminated the dividends  received  deduction on
dividends  received from the Bank's REIT  subsidiary  and legal fees incurred in
connection with litigation with certain of the Company's shareholders.

                                       26
<PAGE>

     The REIT legislation resulted in an increase in the Company's provision for
income  taxes of $835  thousand in the fourth  quarter of fiscal  2003.  In June
2003, a group of banks negotiated a settlement with the Massachusetts Department
of  Revenue  ("DOR")  and,  as a result,  the Bank will  recognize  in the first
quarter of fiscal 2004 a reduction in the  Company's  provision for income taxes
of $374 thousand.

     The legal fees associated  with the litigation  with certain  shareholders,
who  initially  filed suit  against the Company in October  2002  following  the
annual meeting of  shareholders,  totaled  approximately  $875 thousand,  net of
taxes.  The Company has coverage under its  directors'  and officers'  liability
insurance  policy for  reimbursement  of legal  fees,  subject  to  limitations,
incurred in connection with this litigation. The extent of coverage is currently
being  resolved with the insurance  carrier.  At March 31, 2003, the Company had
not  received  any  insurance  reimbursement  and,  accordingly,  net income was
reduced to the extent of legal fees incurred.

     The Company's  earnings  decrease for fiscal 2002 compared with fiscal 2001
was primarily due to write-downs  of $642 thousand in certain equity  securities
which had  experienced  a decline in fair value judged by management to be other
than temporary, partially offset by higher net interest income.


     INTEREST RATE SPREAD.  The Company's and the Bank's  operating  results are
significantly  affected  by its net  interest  spread,  which is the  difference
between the yield on loans and investments and the interest cost of deposits and
borrowings.  The interest  spread is affected by economic  conditions and market
factors  that  influence  interest  rates,  loan demand and deposit  flows.  The
following table present average balances, interest income and expense and yields
earned  or  rates  paid  on all  interest-earning  assets  and  interest-bearing
liabilities for the years indicated.
<TABLE>
<CAPTION>
                                                        YEARS ENDED MARCH 31,
                                    -----------------------------------------------------------------
                                                 2003                              2002
                                    -------------------------------    ------------------------------
                                    AVERAGE                  YIELD/    AVERAGE                 YIELD/
                                    BALANCE    INTEREST       COST     BALANCE    INTEREST      COST
                                    -------    --------      ------    -------    --------     ------
                                                           (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>            <C>      <C>        <C>           <C>
ASSETS:
Interest-earning assets:
  Mortgage loans.................   $370,505   $24,952        6.73%    $ 327,743  $23,567       7.19%
  Other loans....................      7,997       586        7.33         7,528      670       8.90
                                    --------   -------                 ---------  -------
      Total loans................    378,502    25,538        6.75       335,271   24,237       7.23
  Short-term investments.........      7,620       125        1.64        22,076      866       3.92
  Investment securities..........     78,928     4,466        5.66        71,427    4,170       5.84
                                    --------   -------                 ---------  -------
      Total investments..........     86,548     4,591        5.30        93,503    5,036       5.39
                                    --------   -------                 ---------  -------
      Total interest-earning
        assets...................    465,050    30,129        6.48       428,774   29,273       6.83
                                               -------                            -------
Allowance for loan losses .......     (3,287)                             (3,234)
Non-interest-earning assets......     14,406                              14,951
                                    --------                           ---------
      Total  assets..............   $476,169                           $ 440,491
                                    ========                           =========

LIABILITIES AND STOCKHOLDERS'
  EQUITY:
Interest-bearing liabilities:
  Deposits.......................   $248,027   $ 5,601        2.26     $ 248,274    8,119       3.27
  Short-term borrowings..........        505         9        1.78           477       10       2.10
  Advances from FHLB of Boston...    155,085     7,262        4.68       124,203    6,731       5.42
                                    --------   -------                 ---------  -------
      Total interest-bearing
         liabilities.............    403,617    12,872        3.19       372,954   14,860       3.98
                                               -------        ----                -------       ----
Non-interest-bearing deposits....     29,586                              24,535
Other liabilities................      3,371                               4,481
                                    --------                           ---------
       Total liabilities.........    436,574                             401,970
Stockholders' equity.............     39,595                              38,521
                                    --------                           ---------
      Total liabilities and
         stockholders' equity....   $476,169                           $ 440,491
                                    ========                           =========
Net interest and dividend income.              $17,257                            $14,413
                                               =======                            =======
Interest rate spread.............                             3.29%                             2.85%
                                                              ====                              ====
Net yield on interest-earning
  assets.........................                             3.71%                             3.36%
                                                              ====                              ====

<CAPTION>
                                        YEARS ENDED MARCH 31,
                                     -----------------------------
                                                 2001
                                     -----------------------------
                                     AVERAGE                YIELD/
                                     BALANCE     INTEREST    COST
                                     -------     --------   ------
                                        (DOLLARS IN THOUSANDS)
<S>                                   <C>        <C>          <C>
ASSETS:
Interest-earning assets:
  Mortgage loans.................     $ 334,513  $  25,613    7.66%
  Other loans....................         7,219        716    9.92
                                      ---------  ---------
      Total loans................       341,732     26,329    7.70
  Short-term investments.........         7,457        487    6.53
  Investment securities..........        62,998      4,101    6.51
                                      ---------  ---------
      Total investments..........        70,455      4,588    6.51
                                      ---------  ---------
      Total interest-earning
        assets...................       412,187     30,917    7.50
                                                 ---------
Allowance for loan losses .......        (3,042)
Non-interest-earning assets......        13,676
                                      ---------
      Total  assets..............     $ 422,821
                                      =========

LIABILITIES AND STOCKHOLDERS'
  EQUITY:
Interest-bearing liabilities:
  Deposits.......................     $ 249,753     10,087    4.04
  Short-term borrowings..........           874         58    6.64
  Advances from FHLB of Boston...       111,106      6,858    6.17
                                      ---------  ---------
      Total interest-bearing
         liabilities.............       361,733     17,003    4.70
                                                 ---------    ----
Non-interest-bearing deposits....        20,382
Other liabilities................         2,383
                                      ---------
       Total liabilities.........       384,498
Stockholders' equity.............        38,323
                                      ---------
      Total liabilities and
         stockholders' equity....     $ 422,821
                                      =========
Net interest and dividend income.                $  13,914
                                                 =========
Interest rate spread.............                             2.80%
                                                              ====
Net yield on interest-earning
  assets.........................                             3.38%
                                                              ====
</TABLE>
                                       27
<PAGE>

     RATE/VOLUME  ANALYSIS.  The  effect on net  interest  income of  changes in
interest  rates and  changes  in the  amounts  of  interest-earning  assets  and
interest-bearing  liabilities  is shown in the following  table.  Information is
provided on changes for the fiscal years  indicated  attributable  to changes in
interest  rates and  changes  in  volume.  Changes  due to  combined  changes in
interest rates and volume are allocated  between  changes in rate and changes in
volume proportionally to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
                                              2003    VS.    2002                 2002    VS.   2001
                                         -----------------------------      -----------------------------
                                                CHANGES DUE TO                    CHANGES DUE TO
                                             INCREASE (DECREASE) IN:            INCREASE (DECREASE) IN:
                                         -----------------------------      -----------------------------
                                         VOLUME       RATE       TOTAL      VOLUME      RATE        TOTAL
                                         ------       ----       -----      ------      ----        -----
                                                                    (IN THOUSANDS)
<S>                                      <C>         <C>        <C>         <C>        <C>         <C>
Interest income:
  Mortgage loans.......................  $ 2,953     $(1,568)   $  1,385    $  (508)   $(1,538)    $(2,046)
  Other loans..........................       40        (124)        (84)        30        (76)        (46)
                                         -------     -------    --------    -------    -------     -------
      Total income from loans..........    2,993      (1,692)      1,301       (478)    (1,614)     (2,092)
                                         -------     -------    --------    -------    -------     -------
  Short-term investments...............     (393)       (348)       (741)       639       (260)        379
  Investment securities................      428        (132)        296        516       (447)         69
                                         -------     -------    --------    -------    -------     -------
      Total income from investments....       35        (480)       (445)     1,155       (707)        448
                                         -------     -------    --------    -------    -------     -------
      Total interest and dividend
        income.........................    3,028      (2,172)        856        677     (2,321)     (1,644)
                                         -------     -------    --------    -------    -------     -------

Interest expense:
  Deposits.............................       (8)     (2,510)     (2,518)       (60)    (1,908)     (1,968)
  Short-term borrowings................        1          (2)         (1)       (19)       (29)        (48)
  Advances from FHLB of Boston.........    1,529        (998)        531        758       (885)       (127)
                                         -------     -------    --------    -------    -------     -------
      Total interest expense...........    1,522      (3,510)     (1,988)       679     (2,822)     (2,143)
                                         -------     -------    --------    -------    -------     -------

Net interest and dividend income.......  $ 1,506     $ 1,338    $  2,844    $    (2)   $   501     $   499
                                         =======     =======    ========    =======    =======     =======
</TABLE>

     INTEREST  AND  DIVIDEND  INCOME.  The Company  experienced  a $2.8  million
overall  increase in net interest  and dividend  income for the year ended March
31, 2003  compared to fiscal 2002.  Interest  income on loans  increased by $1.3
million  to $25.5  million  due to a $43.2  million  increase  in  average  loan
balances  partially  offset by a 48 basis  point  decline  in the  average  rate
earned.  During fiscal 2003, the Bank commenced its mortgage banking  initiative
and sought to increase its  origination  of  residential  mortgage  loans and to
eliminate the purchase of such loans.  With the  continuing  decline of interest
rates which reached a forty-year low in fiscal 2003, the Bank was able to double
its origination of such loans to $118.4 million of which $35.7 million were sold
in the secondary  market.  The Bank has continued to emphasize  commercial  real
estate  lending in order to diversify  the loan  portfolio  and improve  overall
portfolio yield.  Interest and dividend income on investments  decreased by $445
thousand in fiscal 2003 due  primarily  to a 9 basis point  decrease in the rate
earned on  investments  and a $7.0  million  decrease in the average  balance of
investments.  The  overall  total  average  balance of  interest-earning  assets
increased  by $36.3  million  from fiscal 2002 to fiscal  2003,  and the average
yield on all  interest-earning  assets  decreased by 35 basis points between the
two fiscal years.

     The Bank  experienced a $499 thousand  overall increase in net interest and
dividend  income for the year ended  March 31,  2002  compared  to fiscal  2001.
Interest  income on loans  decreased by $2.1  million to $24.2  million due to a
$6.5 million  decrease in average loan  balances and a 47 basis point decline in
the average  rate  earned.  During  fiscal year 2002,  the Bank  originated  and
purchased new loans amounting to $157.9 million,  including $84.0 million during
the fourth quarter of the year. With declining  interest  rates,  management had
decided to slow down the origination of fixed-rate  residential loans during the
first half of the year.  During the second half of the year, the Bank priced its
residential  loans  more  competitively  which  increased   origination  volume.
Additionally,  interest and  dividend  income on  investments  increased by $448
thousand in fiscal 2002 due  primarily to an $23.0  million  increase in average
total balances of investments  partially offset by a 112 basis point decrease in
the  rate  earned  on   investments.   The  overall  total  average  balance  of
interest-earning  assets  increased by $16.6  million from fiscal 2001 to fiscal
2002, and the average yield on all interest-earning assets decreased by 67 basis
points between the two fiscal years.

                                       28
<PAGE>

     INTEREST EXPENSE.  For fiscal 2003,  interest expense on deposits decreased
by $2.5 million from $8.1 million in fiscal 2002 to $5.6 million in fiscal 2003.
The decrease can be attributed  primarily to a 101 basis point  reduction in the
cost of deposits in fiscal 2003  reflecting the series of reductions in interest
rates initiated by the Federal Reserve Board beginning in January 2001. Interest
expense  on  borrowings  increased  $530  thousand  as the  average  balance  of
borrowings  rose to $155.6 million during fiscal 2003 from $124.7 million during
fiscal 2002,  which was partially offset by a decrease of 74 basis points in the
rate paid on these borrowings to 4.67% in fiscal 2003 from 5.41% in fiscal 2002.
There  was an  overall  increase  in the  average  balance  of  interest-bearing
liabilities of $30.7 million during fiscal 2003 compared to fiscal 2002.

     For fiscal  2002,  interest  expense on deposits  decreased by $2.0 million
from $10.1  million in fiscal 2001 to $8.1 million in fiscal 2002.  The decrease
can be  attributed  primarily  to a 77  basis  point  reduction  in the  cost of
deposits in fiscal 2002  reflecting  the series of reductions in interest  rates
initiated  by the  Federal  Reserve  Board  beginning  in  January  2001 and the
repricing of nearly 70% of certificates of deposit outstanding at March 31, 2001
in fiscal 2002.  Interest  expense on borrowings  decreased $175 thousand as the
average  balance of borrowings  rose to $124.7  million  during fiscal 2002 from
$112.0 million  during fiscal 2001,  which was more than offset by a decrease of
77 basis  points in the rate paid on these  borrowings  to 5.41% in fiscal  2002
from 6.18% in fiscal 2001.  There was an overall increase in the average balance
of interest-bearing  liabilities of $11.2 million during fiscal 2002 compared to
fiscal 2001.

     PROVISION  FOR LOAN  LOSSES.  Due to the high  level of asset  quality,  as
measured  by low  delinquency  rates and the  absence of  non-performing  assets
during the past two years,  the Bank made no  provision  for loan losses  during
fiscal  2003,  2002 and  2001.  At March  31,  2003  and  2002,  the Bank had no
non-performing loans.

     NON-INTEREST  INCOME.  Total  non-interest  income for fiscal 2003 was $1.4
million, compared to $688 thousand during fiscal 2002. During the second half of
fiscal 2003, the Bank commenced its mortgage  banking  initiative and sold $35.7
million of fixed rate residential  mortgage loans in the secondary market. These
loans were sold on a servicing  released basis. The Bank realized a gain of $796
thousand  on the sale of these  loans.  Non-interest  income in fiscal  2003 was
adversely  affected by the  additional  write-down  of $803  thousand in certain
equity  securities,  which had  experienced a decline in fair value judged to be
other than temporary.

     Total  non-interest  income for fiscal 2002 was $688 thousand,  compared to
$1.3  million  during  fiscal  2001.  The primary  reason for the $600  thousand
decline in fiscal 2002 was the  write-down  of $642  thousand in certain  equity
securities which had experienced a decline in fair value judged to be other than
temporary  and a  decrease  in  gains  on  the  sale  of  securities.  Partially
offsetting this decrease was an increase in deposit service charges attributable
to an increase  in core  deposit  accounts  and,  for the first time,  brokerage
income  from the Bank's new  offering  of  investment  products  through a third
party.

     NON-INTEREST EXPENSES.  Non-interest expenses increased $3.4 million during
fiscal 2003, as compared to the year ended March 31, 2002.  This increase is due
to increases in salaries and employee  benefits ($1.3 million),  data processing
expenses ($170 thousand),  professional  fees ($1.4 million),  advertising ($133
thousand) and other non-interest  expenses ($726 thousand),  partially offset by
the elimination of goodwill amortization ($288 thousand).

     Salaries and employee  benefits  increased by $1.3  million,  or 23.4%,  in
fiscal  2003 as  compared  to  fiscal  2002  due to  several  factors  including
additional  lending personnel in both the residential and commercial real estate
areas, an overall salary increase of approximately  4%,  additional ESOP expense
associated with shares acquired during the year and bonuses earned in connection
with the Bank's management  incentive  compensation plan (no bonuses were earned
in fiscal 2002).

     Data processing  expenses  increased by $170 thousand,  or 17.6%, in fiscal
2003 as compared to fiscal 2002 due primarily to volume related charges for both
data processing and item processing.

     Professional  fees  increased by $1.4 million in fiscal 2003 as compared to
fiscal 2002 due primarily to legal fees associated with pending  litigation with
certain of the Company's  shareholders and, to a lesser extent,  legal and other
professional  fees  incurred  in  connection  with  the  contested  election  of
directors at the 2002 annual meeting of stockholders. Professional fees incurred
for such  activities  aggregated  approximately  $1.65  million in fiscal  2003.

                                       29
<PAGE>
Exclusive of such costs,  professional fees would have been  approximately  $758
thousand in fiscal 2003.  Future legal fees  associated with this litigation are
likely to be significant.

     As previously  noted,  the Company has coverage  under its  directors'  and
officers' liability insurance policy for reimbursement of legal fees, subject to
limitations,   incurred  in  connection  with  the  shareholder  litigation.  No
reimbursement of legal fees was received in fiscal 2003. Management is currently
working  with its  insurance  carrier to ensure that the Company  receives  full
reimbursement  of all  legal  fees to which it is  entitled.  At this  time,  no
estimate of any future insurance recovery is available.

     Advertising expense increased by $133 thousand, or 51.0%, in fiscal 2003 as
compared  to fiscal  2002 due to  increased  promotion  of the  Bank's  expanded
residential and commercial real estate lending programs. During fiscal 2002, the
Bank had reduced its use of advertising to promote certificates of deposit.

     Other non-interest expenses increased by $726 thousand, or 59.9%, in fiscal
2003 as  compared  to fiscal  2002.  Such  increase  was due to several  factors
including the accrual for the Bank's portion of the estimated cost of resolution
of a  commercial  claim  filed in 2002,  as well as  increases  in ATM  expense,
memberships and contributions, communication costs and directors fees.

     Non-interest  expense  increased  $134  thousand  during  fiscal  2002,  as
compared to the year ended March 31, 2001.  Such  increase is  primarily  due to
increases in professional fees of $294 thousand and data processing service fees
of $119 thousand,  partially offset by decreases in advertising of $285 thousand
and  occupancy and  equipment  expenses of $68  thousand.  Salaries and employee
benefits, the largest component of non-interest expenses was virtually unchanged
during fiscal 2002.

     The increase in professional  fees of $294 thousand in fiscal 2002 compared
to fiscal 2001 was primarily due to increased  legal and consulting  costs.  The
increase in data  processing  service  fees was due to the  change,  in November
2000, to a new data  processing  system more  suitable to the Bank's needs.  The
decrease in  advertising  of $285  thousand  occurred as the Bank  curtailed its
regular promotion of certificates of deposit.

     Salaries and employee benefits expense decreased  approximately $9 thousand
during fiscal 2002 despite a $175 thousand  increase in ESOP expenses due to the
initial application of the fair value method of accounting for the allocation of
ESOP  shares  to  employees.  Prior to fiscal  2002,  compensation  expense  was
recognized as shares were allocated to ESOP participants'  accounts based on the
cost of such  shares  to the  ESOP.  In  future  periods,  compensation  expense
relating to the ESOP may be  significantly  affected by the market  value of the
Company's common stock.

     INCOME TAXES. The effective rates of income tax expense for the years ended
March  31,  2003,  2002 and 2001 were  54.3%,  38.3%  and  36.2%,  respectively.
Exclusive  of the impact of an  additional  state tax  provision,  as  described
below,  necessitated by recent tax  legislation,  the effective tax rate in 2003
would have been 36.8%.

     The Governor of  Massachusetts  signed  legislation on March 5, 2003, which
expressly disallows  deductions for dividends received from a REIT, resulting in
such dividends  being subject to state  taxation.  In addition,  the legislation
applies  retroactively to tax years ending on or after December 31, 1999. In the
fourth quarter of 2003,  the Company  provided  additional  income taxes of $835
thousand as a result of this  legislation.  Beginning  in May 2002,  the DOR had
sent assessment  notices and, later,  demand notices to Massachusetts  financial
institutions with REIT  subsidiaries  asserting that the state statute providing
for a 95% dividends received deduction on certain distributions did not apply to
dividends   received   from  a  REIT   subsidiary.   With  the  passage  of  the
aforementioned  legislation,  the focus of this disputed matter was changed from
an interpretation of tax law to the constitutionality of a retroactive change in
the law.

     Given  the  significant   financial   impact  of  this  issue  on  numerous
Massachusetts  financial  institutions and the  considerable  uncertainty of the
constitutionality of the retroactive provisions of the legislation, a settlement
was reached in June 2003 among the DOR and the  majority  of affected  financial
institutions. This settlement provides that 50% of all dividends received by the
Bank from its REIT  subsidiary  from 1999 through  December  2002 are subject to
state  income  taxes.  In  addition,  interest  on the  related  taxes  is to be
assessed. In settlement of this matter,

                                       30
<PAGE>

the Bank paid $431 thousand in June 2003 and also  recognized a reduction in its
accrued tax liabilities of $374 thousand,  which will increase net income by the
same amount in the first quarter of fiscal 2004.

     As a result of this legislation, the Company's effective tax rate is likely
to increase closer to the effective  statutory rate for Massachusetts  financial
institutions of approximately 40.9%.

FINANCIAL CONDITION

     Total assets at March 31, 2003 amounted to $477.2  million,  an increase of
$9.0  million from $468.2  million at March 31, 2002.  Total assets at March 31,
2002  amounted  to $468.2  million,  an increase  of $18.9  million  from $449.3
million at March 31,  2001.  During  fiscal  2003,  increases in the Bank's core
deposits were used to repay FHLB advances, which contributed to the modest asset
growth in fiscal 2003.

     Net loans  increased $18.8 million to $387.2 million at March 31, 2003 from
$368.4 million at March 31, 2002. At March 31, 2003,  mortgage loans were $383.9
million,  a $20.6 million increase from March 31, 2002. The increase in mortgage
loans was  entirely  attributable  to increases  in  commercial  real estate and
construction loans which increased $20.1 million and $9.3 million, respectively.
The  growth  in  commercial  real  estate  loans  and   construction   loans  is
attributable to the addition of experienced  commercial lenders and expansion of
the credit administration  function in recent years.  Residential mortgage loans
decreased  $8.7 million  during  fiscal 2003 and  represented  60.8% of loans at
March 31, 2003 compared to 66.2% at March 31, 2002. During fiscal 2003, the Bank
commenced  operation of its mortgage banking  initiative,  which resulted in the
sale of $35.7 million in fixed rate residential mortgage loans.

     Total  deposits  at March 31,  2003 were $288.0  million,  a $26.1  million
increase from $261.9 million one year earlier.  This increase is attributable to
core deposit growth of $31.3 million,  or 20.5%,  partially offset by a decrease
in certificates of deposit of $5.2 million.  The majority of core deposit growth
was in money market  accounts,  the highest  paying core deposit  account.  This
growth has been aided by the  introduction and promotion of the Bank's Community
Package Account  product,  low interest rates and the continuing  uncertainty in
the stock market.

     Advances from the FHLB of Boston  decreased to $144.4  million at March 31,
2003 from $161.0  million at March 31, 2002.  The Bank  decreased its borrowings
from the FHLB of Boston in fiscal  2003  consistent  with its intent of reducing
the utilization of FHLB advances.

     Stockholders'  equity  increased  to $39.4  million at March 31,  2003 from
$39.0  million at March 31, 2002 due to $3.8  million in  comprehensive  income,
$516  thousand  in  proceeds   from  option   exercises  and  $429  thousand  in
amortization  of unearned  ESOP  compensation.  The  increases  in these  equity
accounts were  substantially  offset by $3.6 million in ESOP stock purchases and
$727 thousand in dividends paid.

LIQUIDITY

     The Company's  primary  sources of liquidity  are  dividends  from its bank
subsidiary and repayments of the ESOP loans. In addition, the Company has access
to the capital markets to raise additional equity.

     The  Bank's   principal   sources  of  liquidity  are  customer   deposits,
amortization and repayments of loan and mortgage-backed security principal, FHLB
of Boston  advances and maturities of various other  investments.  These various
sources of liquidity, as well as the Bank's ability to sell residential mortgage
loans in the  secondary  market,  are  used to fund  deposit  withdrawals,  loan
originations and investments.

     Deposits have been a relatively stable source of funds for the Bank despite
significant competition. During fiscal 2003, deposit balances increased by $26.1
million to $288.0  million  from $261.9  million at March 31,  2002.  The mix of
deposits changed significantly during fiscal 2003 with term deposit certificates
decreasing  $5.2 million while core deposit  accounts  increased  $31.3 million.
This shift  occurred due to several  factors  including  the low  interest  rate
environment that prevailed  throughout the year, the Bank's emphasis of its core
deposit products and less aggressive pricing of term deposits.

                                       31
<PAGE>
     The Bank is a member of the FHLB of Boston  and has the  ability  to borrow
from the FHLB of Boston for any sound  business  purpose  for which the Bank has
legal  authority,  subject  to  such  regulations  and  limitations  as  may  be
prescribed.  At March 31, 2003 and 2002, the Bank had outstanding FHLB of Boston
advances of $144.4 million and $161.0 million,  respectively. The FHLB of Boston
advances are secured by a blanket lien on residential first mortgage loans, U.S.
Government and agency  securities and all stock in the FHLB of Boston.  At March
31, 2003, the Bank had approximately  $26.0 million in unused borrowing capacity
at the FHLB of Boston.

     The Bank also may obtain  funds from the Federal  Reserve Bank of Boston by
pledging  certain  of the  Bank's  notes and  drafts and is party to a retail CD
brokerage  agreement with a major brokerage firm. The Bank views these borrowing
facilities as secondary sources of liquidity and has had no need to use them.

     At March 31, 2003,  outstanding  commitments  to originate  mortgage  loans
totaled $33.3 million,  and  commitments  for  unadvanced  funds on home equity,
commercial and construction loans totaled $23.4 million.  At March 31, 2003, the
Bank also had $4.8 million in commitments to sell  residential  mortgage  loans.
Management  believes  that the Bank has  adequate  sources of  liquidity to fund
these commitments.

CAPITAL RESOURCES

     The Company and the Bank are required to maintain  minimum  capital  ratios
pursuant  to federal  banking  regulations.  The first  standard  establishes  a
risk-adjusted  ratio relating  capital to different  categories of balance sheet
assets and off-balance sheet obligations. Two categories of capital are defined:
Tier 1 or  core  capital  (stockholders'  equity)  and  Tier 2 or  supplementary
capital.  Total capital is the sum of both Tier 1 and Tier 2 capital.  According
to the standards, Tier 1 capital must represent at least 50% of qualifying total
capital.  At March 31, 2003, the minimum total risk-based capital ratio required
was 8.00%. The Company's and the Bank's risk-based total capital ratios at March
31, 2003 were 12.05% and 11.08%, respectively.

     To complement the risk-based  standards,  the FDIC adopted a leverage ratio
(adjusted  stockholders'  equity divided by total average  assets) of 3% for the
most highly rated banks and 4%-5% for all others.  The  leverage  ratio is to be
used in tandem with the risk-based  capital ratios as the minimum  standards for
banks.  The  Company's  and the  Bank's  leverage  ratios  were 7.41% and 6.77%,
respectively, at March 31, 2003.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------

     The Bank's earnings are largely dependent on its net interest income, which
is the difference between the yield on  interest-earning  assets and the cost of
interest-bearing  liabilities.  The Bank seeks to reduce its exposure to changes
in interest rate, or market risk,  through  active  monitoring and management of
its interest-rate  risk exposure.  The policies and procedures for managing both
on-  and   off-balance   sheet   activities   are   established  by  the  Bank's
asset/liability  management  committee ("ALCO").  The Board of Directors reviews
and approves the ALCO policy  annually and  monitors  related  activities  on an
ongoing basis.

     Market risk is the risk of loss from adverse  changes in market  prices and
rates.  The Bank's market risk arises primarily from interest rate risk inherent
in its lending, borrowing and deposit taking activities.

     The main  objective  in  managing  interest  rate risk is to  minimize  the
adverse  impact of changes in interest  rates on the Bank's net interest  income
and preserve capital,  while adjusting the Bank's  asset/liability  structure to
control  interest-rate  risk.  However,  a sudden and  substantial  increase  or
decrease in interest rates may adversely  impact earnings to the extent that the
interest rates borne by assets and  liabilities do not change at the same speed,
to the same extent, or on the same basis.

     The Bank quantifies its  interest-rate  risk exposure using a sophisticated
simulation  model.  Simulation  analysis is used to measure the  exposure of net
interest  income to changes in  interest  rates  over a specific  time  horizon.
Simulation analysis involves projecting future interest income and expense under
various  rate  scenarios.  The  simulation  is based on  actual  cash  flows and
assumptions of management  about the future changes in interest rates and levels
of activity (loan  originations,  loan  prepayments,  deposit  flows,  etc). The
assumptions are inherently uncertain and, therefore,  actual results will differ
from simulated  results due to timing,  magnitude and frequency of

                                       32
<PAGE>

interest rate changes as well as changes in market  conditions  and  strategies.
The net interest income  projection  resulting from use of actual cash flows and
management's assumptions is compared to net interest income projections based on
an immediate shift of 300 basis points upward and 100 basis points downward (150
basis points for 2002). The 2003 rate was lowered due to the continuing  decline
in interest  rates.  Internal  guidelines  on interest  rate risk state that for
every 100 basis points immediate shift in interest rates, estimated net interest
income over the next twelve months should decline by no more than 5%.

     The following  table indicates the estimated  exposure,  as a percentage of
estimated net interest  income,  for the twelve month period  following the date
indicated  assuming an immediate  and  parallel  shift for all market rates with
other  rates  adjusting  to  varying  degrees  in each  scenario  based  on both
historical and expected spread relationships:
<TABLE>
<CAPTION>
                                                                   March 31,
                                                               -----------------
                                                                2003      2002
                                                               ------    -------
<S>                                                            <C>       <C>
300 basis point increase in rates .....................        (7.6)%    (12.9)%
100 basis point decrease in rates (2003 only) .........        (2.0)%
150 basis point decrease in rates (2002 only) .........                    0.5%
</TABLE>

     For each one  percentage  point change in net  interest  income in the 2003
projections,  the effect on net income would be $105 thousand assuming a 40% tax
rate.



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
                                                                            Page
                                                                            ----
Consolidated Balance Sheets...............................................  34

Consolidated Statements of Income.........................................  35

Consolidated Statement of Changes in Stockholders' Equity.................  36

Consolidated Statement of Cash Flows......................................  38

Notes to Consolidated Financial Statements................................  39

Independent Auditors' Report..............................................  59


                                       33
<PAGE>
                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                           Consolidated Balance Sheets
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                                 MARCH 31,
                                                                                  ---------------------------------
                                                                                     2003                  2002
                                                                                     ----                  ----
<S>                                                                               <C>                   <C>
ASSETS
Cash and due from banks                                                           $     5,996           $     5,109
Short-term investments                                                                  5,226                 2,455
                                                                                  -----------           -----------
     Cash and cash equivalents                                                         11,222                 7,564
                                                                                  -----------           -----------
Investment securities available for sale (amortized cost of $59,500
     in 2003 and $74,935 in 2002) (note 2)                                             61,111                73,884
Stock in Federal Home Loan Bank of Boston, at cost (notes 2 and 7)                      8,300                 8,300
The Co-operative Central Bank Reserve Fund (note 2)                                     1,576                 1,576
                                                                                  -----------           -----------
    Total investments                                                                  70,987                83,760
                                                                                  -----------           -----------
Loans (note 3)                                                                        390,464               371,707
Less allowance for loan losses (note 4)                                                 3,284                 3,292
                                                                                  -----------           -----------
     Net loans                                                                        387,180               368,415
                                                                                  -----------           -----------
Accrued interest receivable                                                             2,380                 2,530
Banking premises and equipment, net (note 5)                                            1,869                 1,836
Deferred tax asset, net (note 8)                                                          719                 1,289
Goodwill, net (note 1)                                                                  2,232                 2,232
Other assets                                                                              619                   593
                                                                                  -----------           -----------
    Total assets                                                                  $   477,208           $   468,219
                                                                                  ===========           ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits (note 6)                                                               $   287,959           $   261,907
  Federal Home Loan Bank advances (notes 2 and 7)                                     144,400               161,000
  Short-term borrowings                                                                   176                 3,000
  Advance payments by borrowers for taxes and insurance                                   999                 1,111
  Accrued expenses and other liabilities                                                4,231                 2,247
                                                                                  -----------           -----------
    Total liabilities                                                                 437,765               429,265
                                                                                  -----------           -----------
Commitments and Contingencies (notes 8, 9 and 12) Stockholders' equity (note
10):
  Preferred stock $1.00 par value; authorized 5,000,000 shares; none issued                --                    --
  Common stock $1.00 par value; authorized 15,000,000 shares;
     2,027,727 shares issued at March 31, 2003 and
     1,999,588 shares issued at March 31, 2002                                          2,028                 2,000
  Additional paid-in capital                                                           12,751                11,934
  Retained income                                                                      34,601                33,141
  Treasury stock (365,294 shares at March 31, 2003 and
      2002), at cost                                                                   (7,249)               (7,189)
  Accumulated other comprehensive income (loss)                                         1,002                  (626)
  Unearned compensation - ESOP (note 11)                                               (3,690)                 (306)
                                                                                  -----------           -----------
    Total stockholders' equity                                                         39,443                38,954
                                                                                  -----------           -----------
    Total liabilities and stockholders' equity                                    $   477,208           $   468,219
                                                                                  ===========           ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       34
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                           YEARS ENDED MARCH 31,
                                                              ---------------------------------------------
                                                                 2003              2002             2001
                                                              ----------        ----------       ----------
<S>                                                           <C>             <C>                <C>
Interest and dividend income:
  Mortgage loans                                              $   24,952      $   23,567         $  25,613
  Other loans                                                        586             670               716
  Short-term investments                                             125             866               487
  Investments                                                      4,466           4,170             4,101
                                                              ----------      ----------         ---------
    Total interest and dividend income                            30,129          29,273            30,917
                                                              ----------      ----------         ---------
Interest expense:
  Deposits                                                         5,601           8,119            10,087
  Advances from Federal Home Loan Bank of Boston                   7,262           6,731             6,858
  Short-term borrowings                                                9              10                58
                                                              ----------      ----------         ---------
    Total interest expense                                        12,872          14,860            17,003
                                                              ----------      ----------         ---------
    Net interest and dividend income                              17,257          14,413            13,914
Provision for loan losses (note 4)                                    --              --                --
                                                              ----------      ----------         ---------
    Net interest and dividend income after
      provision for loan losses                                   17,257          14,413            13,914
                                                              ----------      ----------         ---------
Non-interest income:
  Deposit service charges                                            571             492               428
  Net gains (losses) from sales and write-downs
      of investment securities (note 2)                             (308)           (150)              680
  Gain on sale of loans                                              796              --                --
  Brokerage income                                                    94             100                --
  Other income                                                       252             246               180
                                                              ----------      ----------         ---------
    Total non-interest income                                      1,405             688             1,288
                                                              ----------      ----------         ---------
Non-interest expenses:
  Salaries and employee benefits (note 11)                         6,862           5,562             5,571
  Occupancy and equipment (note 5)                                 1,137           1,124             1,192
  Data processing service fees                                     1,136             966               847
  Professional fees                                                2,410           1,051               757
  Advertising                                                        394             261               546
  Goodwill amortization (note 1)                                      --             288               288
  Other expenses                                                   1,938           1,212             1,129
                                                              ----------      ----------         ---------
    Total non-interest expenses                                   13,877          10,464            10,330
                                                              ----------      ----------         ---------
    Income before income taxes                                     4,785           4,637             4,872
Provision for income taxes (note 8)                                2,598           1,777             1,763
                                                              ----------      ----------         ---------
      Net income                                              $    2,187      $    2,860         $   3,109
                                                              ==========      ==========         =========

Earnings per common share (note 1)
    Basic                                                     $     1.38      $     1.73         $    1.81
                                                              ==========      ==========         =========
    Diluted                                                   $     1.37      $     1.72         $    1.81
                                                              ==========      ==========         =========

Weighted average common shares outstanding - basic                 1,584           1,650             1,717
Weighted average common and equivalent shares
   outstanding - diluted                                           1,599           1,665             1,719
</TABLE>

See accompanying notes to consolidated financial statements.

                                       35
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
           Consolidated Statements of Changes in Stockholders' Equity
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>

                                                                 ADDITIONAL
                                                  COMMON          PAID-IN       RETAINED       TREASURY
                                                   STOCK          CAPITAL        INCOME          STOCK
                                                   -----         ----------     --------       --------
     <S>                                           <C>            <C>           <C>           <C>
     Balance at March 31, 2000                     $ 1,970        $ 11,190      $ 28,538      $ (3,043)
     Net income                                         --              --         3,109            --
     Other comprehensive income net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               --              --            --            --

            Comprehensive income

     Purchase of treasury stock                         --              --            --        (2,187)
     Dividends paid ($.40 per share)                    --              --          (697)           --
     Amortization of unearned compensation - ESOP       --                            --            --
                                                   -------        --------      --------      --------

     Balance at March 31, 2001                     $ 1,970        $ 11,190      $ 30,950      $ (5,230)
     Net income                                         --              --         2,860            --
     Other comprehensive income net of tax:
         Unrealized (loss) on securities, net
           of reclassification adjustment               --              --            --            --

            Comprehensive income

     Purchase of shares by ESOP (note 11)               --              --            --            --
     Purchase of treasury stock                         --              --            --        (1,924)
     Dividends paid ($.40 per share)                    --              --          (669)           --
     Proceeds from exercise of stock options            30             462            --            --
     Amortization of unearned compensation - ESOP       --             175            --            --
     Other equity transactions                          --             107            --           (35)
                                                   -------        --------      --------      --------
     Balance at March 31, 2002                     $ 2,000        $ 11,934      $ 33,141      $ (7,189)
     Net income                                         --              --         2,187            --
     Other comprehensive income net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               --              --            --            --

            Comprehensive income

     Purchase of shares by ESOP (note 11)               --              --            --            --
     Proceeds from exercise of stock options            28             488            --            --
     Tax benefit of stock options                       --              66            --            --
     Director deferred compensation  transactions       --              45            --           (60)
     Dividends paid ($.44 per share)                    --              --          (727)           --
     Amortization of unearned compensation - ESOP       --             218            --            --
                                                   -------        -------       --------      --------
     Balance at March 31, 2003                     $ 2,028        $ 12,751      $ 34,601      $ (7,249)
                                                   =======        ========      ========      ========




<CAPTION>
                                                  ACCUMULATED
                                                      OTHER           UNEARNED           TOTAL
                                                  OMPREHENSIVE     COMPENSATION      STOCKHOLDERS'
                                                 INCOME (LOSS)         ESOP             EQUITY
                                                 -------------     ------------      -------------
     <S>                                           <C>              <C>                 <C>
     Balance at March 31, 2000                     $  (825)         $   (433)           $37,397
     Net income                                         --                --              3,109
     Other comprehensive income net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment              394                --                394
                                                                                        -------
            Comprehensive income                                                          3,503
                                                                                        -------
     Purchase of treasury stock                         --                --             (2,187)
     Dividends paid ($.40 per share)                    --                --               (697)
     Amortization of unearned compensation - ESOP       --               196                196
                                                   -------          --------            -------

     Balance at March 31, 2001                     $  (431)         $   (237)           $38,212
     Net income                                         --                --              2,860
     Other comprehensive income net of tax:
         Unrealized (loss) on securities, net
           of reclassification adjustment             (195)               --               (195)
                                                                                        -------
            Comprehensive income                                                          2,665
                                                                                        -------
     Purchase of shares by ESOP (note 11)               --              (199)              (199)
     Purchase of treasury stock                         --                --             (1,924)
     Dividends paid ($.40 per share)                    --                --               (669)
     Proceeds from exercise of stock options            --                --                492
     Amortization of unearned compensation - ESOP       --               130                305
     Other equity transactions                          --                --                 72
                                                   -------          --------            -------
     Balance at March 31, 2002                     $  (626)         $   (306)           $38,954
     Net income                                         --                --              2,187
     Other comprehensive income net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment            1,628                --              1,628
                                                                                        -------
            Comprehensive income                                                          3,815
                                                                                        -------
     Purchase of shares by ESOP (note 11)               --            (3,595)            (3,595)
     Proceeds from exercise of stock options            --                --                516
     Tax benefit of stock options                       --                --                 66
     Director deferred compensation  transactions       --                --                (15)
     Dividends paid ($.44 per share)                    --                --               (727)
     Amortization of unearned compensation - ESOP       --               211                429
                                                   -------          --------            -------
     Balance at March 31, 2003                     $ 1,002          $ (3,690)           $39,443
                                                   =======          ========            =======
</TABLE>

     See accompanying notes to consolidated financial statements.

                                       36
<PAGE>

The Bank's  other  comprehensive  income  (loss) and  related tax effect for the
years ended March 31 are as follows:
<TABLE>
<CAPTION>
                                                                                                     2003
                                                                                  -----------------------------------------
                                                                                   BEFORE-TAX    TAX (BENEFIT)   AFTER-TAX
 in thousands                                                                       AMOUNT         EXPENSE       AMOUNT
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>           <C>
 Unrealized gains (losses) on securities:
   Unrealized net holding gains during period                                     $  2,306         $  901        $ 1,405
   Less reclassification adjustment for net losses included  in net income             308             85            223
                                                                                  ----------------------------------------
             Other comprehensive income                                           $  2,614         $  986        $ 1,628
                                                                                  ========================================

<CAPTION>
                                                                                                     2002
                                                                                  -----------------------------------------
                                                                                   BEFORE-TAX    TAX (BENEFIT)   AFTER-TAX
 in thousands                                                                       AMOUNT         EXPENSE       AMOUNT
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>           <C>
 Unrealized gains (losses) on securities:
   Unrealized net holding gains during period                                     $   (451)        $ (163)       $  (288)
   Less reclassification adjustment for net losses included  in net income             150             57             93
                                                                                  ----------------------------------------
             Other comprehensive income                                           $   (301)        $ (106)       $  (195)
                                                                                  ========================================
<CAPTION>
                                                                                                     2001
                                                                                  -----------------------------------------
                                                                                   BEFORE-TAX    TAX (BENEFIT)   AFTER-TAX
 in thousands                                                                       AMOUNT         EXPENSE       AMOUNT
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>           <C>
 Unrealized gains (losses) on securities:
   Unrealized net holding gains during period                                     $  1,188)        $  360        $   828
   Less reclassification adjustment for net losses included  in net income            (680)          (246)          (434)
                                                                                  ----------------------------------------
             Other comprehensive income                                           $    508         $  114        $   394
                                                                                  ========================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       37
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                          YEARS ENDED MARCH 31,
                                                              ---------------------------------------------
                                                                 2003              2002             2001
                                                              ----------        ----------       ----------
<S>                                                           <C>             <C>                <C>
Cash flows from operating activities:
Net income                                                    $   2,187       $    2,860         $   3,109
   Adjustments to reconcile net income to net cash provided
      by operating activities
       Depreciation and amortization                                314              372               438
       Amortization of premiums and discounts                       269              176                86
       Amortization of goodwill                                      --              288               288
       Stock-based compensation                                     429              305               196
       Decrease (increase) in deferred tax assets, net             (462)            (380)              270
       Net (gains) losses from sales and write-downs of
           investment securities                                    308              150              (680)
       Gain on sale of loans                                       (796)              --                --
   Originations of loans held for sale                          (36,364)              --                --
   Proceeds from the sale of loans originated for sale           36,513               --                --
   (Increase) decrease in accrued interest receivable               150             (104)             (390)
   (Increase) decrease in other assets                              (26)             109              (507)
   Increase (decrease) in advance payments by borrowers for
       taxes and insurance                                         (112)            (109)              167
   Increase (decrease) in accrued expenses and other
       liabilities                                                2,043              509               (30)
                                                              ---------       ----------         ---------
       Net cash provided by operating activities                  4,453            4,176             2,947
                                                              ---------       ----------         ---------
Cash flows from investing activities:
  Net increase in loans                                         (18,110)         (25,728)          (25,667)
  Principal payments on mortgage-backed securities                7,426            7,246             4,069
  Purchases of investment securities                             (6,210)         (61,256)           (6,170)
  Proceeds from sales of investment securities                    7,638            2,885             3,955
  Maturities and redemptions of investment securities             6,000           26,000             4,000
  Purchase of stock in FHLB of Boston                                --           (2,150)             (350)
  Purchase of banking premises and equipment, net                  (346)            (190)             (238)
                                                              ---------       ----------         ---------
       Net cash used in investing activities                     (3,602)         (53,193)          (20,401)
                                                              ---------       ----------         ---------
Cash flows from financing activities:
  Net increase (decrease) in deposits                            26,052          (25,260)           28,828
  Proceeds from FHLB advances                                    39,000           65,000           152,000
  Repayments of FHLB advances                                   (55,600)         (25,000)         (142,000)
  Net increase (decrease) in short-term borrowings               (2,824)           3,000                --
  Proceeds from exercise of stock options                           516              492                --
  Purchase of treasury stock                                         --           (1,924)           (2,187)
  Payments of dividends                                            (727)            (669)             (697)
  Purchase of stock by ESOP                                      (3,595)            (199)               --
  Other equity transactions                                         (15)              72                --
                                                              ---------       ----------         ---------
       Net cash provided by financing activities                  2,807           15,512            35,944
                                                              ---------       ----------         ---------
       Net increase (decrease) in cash and cash equivalents       3,658          (33,505)          (18,490)
Cash and cash equivalents at beginning of year                    7,564           41,069            22,579
                                                              ---------       ----------         ---------
Cash and cash equivalents at end of year                      $  11,222       $    7,564         $  41,069
                                                              =========       ==========         =========

Supplemental disclosure of cash flow information:
 Cash paid during the period for:
         Interest                                             $  12,938       $   14,883         $  16,937
         Income taxes                                         $   2,820       $    1,715         $   1,850
</TABLE>

See accompanying notes to consolidated financial statements.

                                       38
<PAGE>

CENTRAL BANCORP, INC AND SUBSIDIARY

Notes to Consolidated Financial Statements

March 31, 2003


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying  consolidated financial statements include the accounts of
Central Bancorp,  Inc. (the  "Company"),  a Massachusetts  corporation,  and its
wholly-owned subsidiary, Central Co-operative Bank (the "Bank").

     The Bank was organized as a Massachusetts  chartered  co-operative  bank in
1915 and converted  from mutual to stock form in 1986.  The primary  business of
the Bank is to generate  funds in the form of deposits and use the funds to make
mortgage  loans for the  construction,  purchase and  refinancing of residential
properties,  and to make loans on commercial real estate in its market area. The
Bank is subject to competition from other financial institutions. The Company is
subject to the regulations of, and periodic examinations by, the Federal Reserve
Bank  ("FRB").  The Bank is also  subject to the  regulations  of, and  periodic
examination  by, the Federal  Deposit  Insurance  Corporation  ("FDIC")  and the
Massachusetts  Division of Banks.  The Bank's  deposits  are insured by the Bank
Insurance  Fund of the FDIC for deposits up to $100,000 and the Share  Insurance
Fund ("SIF") for deposits in excess of $100,000.

     The Company conducts its business through one operating segment, the Bank.

     The accompanying  consolidated  financial  statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America.  All  significant  intercompany  balances  and  transactions  have been
eliminated in consolidation. In preparing the consolidated financial statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and  liabilities as of the date of the balance sheet
and income and expenses  for the year.  Actual  results  could differ from those
estimates. Material estimates that are particularly susceptible to change relate
to the determination of the allowance for loan losses.

     Certain prior year amounts have been reclassified to conform to the current
year's  presentation.  The  following  is a  summary  of  the  more  significant
accounting policies adopted by the Bank.

     Cash and Due from Banks

     The Bank is required to maintain cash and reserve balances with the Federal
Reserve  Bank.  Such  reserves  are  calculated  based upon  deposit  levels and
amounted to approximately $3,241,000 at March 31, 2003.

     Investments

     Investments  are classified as either held to maturity,  available for sale
or trading.  Investments  classified as trading  securities are reported at fair
value,  with  unrealized  gains and losses  included  in  earnings.  Investments
classified  as available  for sale are reported at fair value,  with  unrealized
gains  and  losses  reported  as  other   comprehensive   income  (loss)  within
stockholders'  equity.  Securities  that the Bank has the  positive  intent  and
ability to hold to maturity are  classified  as held to maturity and reported at
amortized cost.

     Gains and losses on sales of securities are  recognized  when realized with
the cost  basis of  investments  sold  determined  on a  specific-identification
basis.  Premiums and discounts on investment and mortgage-backed  securities are
amortized  or accreted to interest  income over the actual or expected  lives of
the securities using the level-yield method.

     If a decline in fair value below the amortized  cost basis of an investment
is  judged to be other  than  temporary,  the cost  basis of the  investment  is
written down to fair value as a new cost basis and the amount of the  write-down
is included in the results of operations.

     Loans

     Loans  are  reported  at the  principal  amount  outstanding,  adjusted  by
unamortized  discounts,  premiums,  and net deferred loan origination  costs and
fees.  Loans  classified  as held for sale are stated at the lower of  aggregate
cost or market value. The Company enters into forward  commitments to sell loans
in order to reduce market risk associated with the origination of loans held for
sale. Market value is estimated based on outstanding investor

                                       39
<PAGE>
commitments  or, in the  absence of cash  commitments,  current  investor  yield
requirements.  Net  unrealized  losses,  if any, are provided for in a valuation
allowance by charges to operations.

     Loans on which the accrual of interest has been discontinued are designated
as  non-accrual  loans.  Accrual of  interest on loans and  amortization  of net
deferred loan fees or costs are discontinued either when reasonable doubt exists
as to the full and timely  collection of interest or  principal,  or when a loan
becomes  contractually  past due 90 days with respect to interest or  principal.
The accrual on some loans,  however, may continue even though they are more than
90 days past due if management deems it appropriate, provided that the loans are
well  secured  and in the  process  of  collection.  When a loan  is  placed  on
non-accrual  status,  all  interest  previously  accrued  but not  collected  is
reversed against current period interest income.  Interest  accruals are resumed
on such loans only when they are brought  fully current with respect to interest
and principal and when, in the judgment of  management,  the loans are estimated
to be fully  collectible  as to both  principal and  interest.  The Bank records
interest  income  on  non-accrual  and  impaired  loans  on the  cash  basis  of
accounting.

     Loan origination  fees, net of certain direct loan  origination  costs, are
considered  adjustments of  interest-rate  yield and are amortized into interest
income over the contractual loan term using the level-yield method. At March 31,
2003 and 2002,  the Bank had net deferred  loan fees of $781,000  and  $692,000,
respectively.

     Loans are classified as impaired when it is probable that the Bank will not
be able to collect all amounts due in accordance with the  contractual  terms of
the loan agreement. Impaired loans, except those loans that are accounted for at
fair value or at lower of cost or fair value,  are  accounted for at the present
value of the  expected  future  cash flows  discounted  at the loan's  effective
interest rate or as a practical  expedient in the case of  collateral  dependent
loans,  the lower of the fair value of the collateral or the recorded  amount of
the loan.  Management  considers  the  payment  status,  net worth and  earnings
potential  of the  borrower,  and the value and cash flow of the  collateral  as
factors to determine if a loan will be paid in accordance  with its  contractual
terms.  Management  does not set any  minimum  delay of  payments as a factor in
reviewing  for  impaired  classification.  Impaired  loans are  charged off when
management  believes that the  collectibility of the loan's principal is remote.
Management considers non-accrual loans, except for smaller balance,  homogeneous
residential mortgage loans, to be impaired.

     Allowance for Loan Losses

     The allowance  for loan losses is  maintained  at a level  determined to be
adequate  by   management  to  absorb   future   charge-offs   of  loans  deemed
uncollectible.  This  allowance is increased by provisions  charged to operating
expense  and by  recoveries  on loans  previously  charged  off,  and reduced by
charge-offs on loans.

     Arriving at an appropriate  level of allowance for loan losses  necessarily
involves a high degree of judgment.  The  allowance for loan losses is evaluated
on a regular  basis by  management  and is based  upon  management's  systematic
periodic review of the  collectibility of the loans.  Primary  considerations in
this  evaluation are prior loan loss  experience,  the character and size of the
loan portfolio,  business and economic conditions and management's estimation of
future  losses.  The Bank  evaluates  specific  loan  status  reports on certain
commercial  and  commercial  real  estate  loans rated  "substandard"  or worse.
Estimated  reserves for each of these credits is determined by reviewing current
collateral value, financial  information,  cash flow, payment history and trends
and other  relevant  facts  surrounding  the  particular  credit.  The remaining
commercial and commercial real estate loans are provided for as part of pools of
similar  loans  based  on  a  combination  of  historical  loss  experience  and
qualitative   adjustments.   Smaller  balance,   homogeneous  loans,   including
residential  real estate loans and consumer  loans,  are evaluated as a group by
applying  estimated  charge off and recovery  percentages,  based on  historical
experience and certain  qualitative  factors, to the current outstanding balance
in each category.  Based on these  analyses,  the resulting  allowance is deemed
adequate to absorb all probable credit losses in the portfolio.

     Although management uses available information to establish the appropriate
level of the allowance for loan losses, future additions to the allowance may be
necessary  based on estimates  that are  susceptible  to change as a result of a
changes  in  economic  conditions  and  other  factors.  In  addition,   various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review the Bank's  allowance  for loan losses.  Such  agencies may
require  the  Bank to  recognize  adjustments  to the  allowance  based on their
judgments about information  available to them at the time of their examination.
Changes in estimates are provided currently in earnings.

     Income Taxes

     Deferred  tax  assets and  liabilities  are  recognized  for the future tax
consequences  attributable to differences  between the accounting  basis and the
tax  basis of the  Bank's  assets  and  liabilities.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
realized or settled. The Bank's deferred tax asset is reviewed  periodically and

                                       40
<PAGE>

adjustments  to such asset are  recognized  as  deferred  income tax  expense or
benefit based on management's  judgments  relating to the  realizability of such
asset.

     Banking Premises and Equipment

     Land is stated at cost. Buildings, leasehold improvements and equipment are
stated at cost, less allowances for depreciation and amortization.  Depreciation
and  amortization  are computed on the  straight-line  method over the estimated
useful lives of the assets or terms of the leases, if shorter.

     Goodwill

     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142") which is effective for fiscal years  beginning  after  December 15,
2001. The Company  adopted SFAS 142 as of April 1, 2002.  SFAS 142 addresses the
method of identifying and measuring  goodwill and other intangible assets having
indefinite  lives  acquired  in  a  business  combination,   eliminates  further
amortization  of  goodwill,  and requires  periodic  impairment  evaluations  of
goodwill using a fair value methodology prescribed in the statement. As a result
of adopting SFAS 142, the Company no longer  amortizes  the goodwill  balance of
$2,232,000,  which  reduced  goodwill  amortization  and increased net income by
$288,000  in 2003.  An initial  impairment  test was  performed  during 2003 and
another  impairment test was completed at year-end and in each analysis,  it was
determined  that an impairment  charge was not required.  Impairment  testing is
required at least annually or more  frequently as a result of an event or change
in circumstances  (e.g.  recurring operating losses by the acquired entity) that
would indicate an impairment adjustment may be necessary.

     The  following  table  sets  forth the  reconciliation  of net  income  and
earnings per share excluding goodwill amortization for the years ended March 31,
2002 and 2001 (Dollars in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                 2002              2001
                                                              ---------         ---------

<S>                                                           <C>               <C>
Reported net income.........................................  $   2,860         $  3,109
Add back:
         Goodwill amortization..............................        288              288
                                                              ---------         --------
Adjusted net income.........................................  $   3,148         $  3,397
                                                              =========         ========

Basic earnings per share:
Reported net income.........................................  $    1.73         $   1.81
Add back:
         Goodwill amortization..............................       0.18             0.17
                                                              ---------         --------
Adjusted net income.........................................  $    1.91         $   1.98
                                                              =========         ========

Diluted earnings per share:
Reported net income.........................................  $    1.72         $   1.81
Add back:
         Goodwill amortization..............................       0.17             0.17
                                                              ---------         --------
Adjusted net income.........................................  $    1.89         $   1.98
                                                              =========         ========
</TABLE>


     Pension Benefits

     The Bank provides  pension  benefits for its employees in a  multi-employer
pension plan through membership in the Co-operative  Banks Employees  Retirement
Association.  Pension costs are funded as they are accrued and are accounted for
on a defined contribution plan basis.

     Stock-Based Compensation

     The Company follows the intrinsic value method set forth in APB Opinion No.
25 "Accounting  for Stock Issued to Employees" (APB No. 25) under which there is
generally no charge to earnings for stock option grants. Companies that elect to
use this method are  required to disclose the pro forma effect of using the fair
value method of accounting for  stock-based  compensation  that is encouraged by
SFAS No. 123.

                                       41
<PAGE>
     No options were granted during fiscal 2003 and 2002 and forfeitures  during
these years were  insignificant.  Consequently,  no material  difference  in net
income  occurred in fiscal 2003 and 2002 as a result of the Company's use of the
intrinsic  value  method  rather than the fair value  method of  accounting  for
stock-based compensation.  Had the Company determined compensation expense based
on the fair value at the grant date for its stock  options,  the  Company's  net
income and earnings per share for fiscal 2001 would have been as follows:
<TABLE>
<CAPTION>
                                                        EARNINGS PER SHARE
                                                    ------------------------
                                  NET INCOME        BASIC            DILUTED
                                  ----------        -----            -------
         <S>                      <C>               <C>                <C>
         As reported              $   3,109         $1.81              $1.81
         Pro Forma                    2,934          1.71               1.71
</TABLE>

     The per share weighted  average fair value of stock options  granted during
2001 was $5.39 on the date of grant.  This fair value was  determined  using the
Black  Scholes  option  pricing  model  with  the  following   weighted  average
assumptions:

             Expected dividend yield              2.00%
             Risk-free interest rate              5.20
             Expected volatility                 31.00
             Expected life in years               6.00

     Earnings Per Share

     Basic earnings per share ("EPS") is computed by dividing  income  available
to  common  stockholders  by  the  weighted-average   number  of  common  shares
outstanding  for  the  period.   Unallocated  ESOP  shares  are  not  considered
outstanding in computing basic EPS. Diluted EPS reflects the potential  dilution
that could occur if securities or other contracts to issue common stock, such as
stock options, were exercised or converted into common stock.

     Recent Accounting Pronouncements

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition and  Disclosure."  SFAS No. 148 amends SFAS Statement
No. 123, to provide  alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
Companies  are able to  eliminate  a  "ramp-up"  effect  that  the SFAS No.  123
transition rule creates in the year of adoption. Companies can choose to elect a
method that will provide for comparability  amongst years reported. In addition,
this  Statement  amends the  disclosure  requirement of Statement 123 to require
prominent  disclosures in both annual  compensation and the effect of the method
used on reported  results.  The  amendments  to SFAS No. 123 are  effective  for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
Company  is  not  currently   considering  the  adoption  of  fair  value  based
compensation of stock options.

NOTE 2. INVESTMENTS (Dollars in Thousands)

     The amortized cost and fair value of investments  securities  available for
sale are summarized as follows:
<TABLE>
<CAPTION>
                                                                                   MARCH 31, 2003
                                                          ---------------------------------------------------------------
                                                          AMORTIZED               GROSS UNREALIZED                 FAIR
                                                             COST               GAINS             LOSSES           VALUE
                                                          ---------          ----------          --------        --------
<S>                                                       <C>                <C>                 <C>             <C>
      U.S. Government and agency obligations              $   8,000          $      247           $    --        $  8,247
      Corporate bonds                                        36,912               2,006              (191)         38,727
      Mortgage-backed securities                             11,840                 298               (82)         12,056
                                                          ---------          ----------           -------        --------
          Total debt securities                              56,752               2,551              (273)         59,030
      Marketable equity securities                            2,748                  32              (699)          2,081
                                                          ---------          ----------           -------        --------

                     Total                                $  59,500          $    2,583           $  (972)       $ 61,111
                                                          =========          ==========           =======        ========
</TABLE>
                                       42
<PAGE>
<TABLE>
<CAPTION>
                                                                                   MARCH 31, 2002
                                                          ---------------------------------------------------------------
                                                          AMORTIZED               GROSS UNREALIZED                 FAIR
                                                             COST               GAINS             LOSSES           VALUE
                                                          ---------          ----------          --------        --------
<S>                                                       <C>                <C>                 <C>             <C>
      U.S. Government and agency obligations               $ 13,995           $   73            $    (72)        $ 13,996
      Corporate bonds                                        39,012              231                (675)          38,568
      Mortgage-backed securities                             18,377              168                (205)          18,340
                                                           --------           ------            --------         --------
          Total debt securities                              71,384              472                (952)          70,904
      Marketable equity securities                            3,551               17                (588)          2,980
                                                           --------           ------            --------         --------
                     Total                                 $ 74,935           $  489            $ (1,540)        $ 73,884
                                                           ========           ======            ========         ========
</TABLE>

     The maturity  distribution  (based on  contractual  maturities)  and annual
yields of debt securities at March 31, 2003 are as follows:
<TABLE>
<CAPTION>
                                                               AMORTIZED          FAIR            ANNUAL
                                                                 COST             VALUE            YIELD
                                                               ---------        ---------         ------
<S>                                                            <C>              <C>                <C>
         Due within one year                                   $     501        $     516          6.57%
         Due after one year but within five years                 33,914           35,257          6.84
         Due after five years but within ten years                12,749           13,573          7.09
         Due after ten years                                       9,588            9,684          6.30
                                                               ---------        ---------
                                                               $  56,752        $  59,030          6.80
                                                               =========        =========
</TABLE>

     Mortgage-backed  securities are shown at their  contractual  maturity dates
but  actual  maturities  may  differ  as  borrowers  have the  right  to  prepay
obligations without incurring prepayment penalties.

     Proceeds from sales of investment  securities  and related gains and losses
for the years ended March 31, 2003,  2002, and 2001 (all classified as available
for sale) were as follows:
<TABLE>
<CAPTION>
                                      2003             2002              2001
                                      ----             ----              ----

         <S>                        <C>               <C>              <C>
         Proceeds from sales        $ 7,638           $2,885           $ 3,955
         Gross gains                    495              546               694
         Gross losses                    --               54                14
</TABLE>
     During  the years  ended  March  31,  2003 and  2002,  the Bank  recognized
write-downs in certain equity securities  totaling $803 and $642,  respectively,
as a result of declines in the fair value of such securities  judged to be other
than temporary. These write-downs are not included in the preceding table.

     A  mortgage-backed  security pool with an amortized cost of $2,566 and fair
value of $2,642  at March 31,  2003,  was  pledged  to  provide  collateral  for
customers.  In addition,  investment  securities  carried at $3,628 were pledged
under a blanket lien to partially  secure the Bank's  advances  from the Federal
Home Loan Bank of Boston ("FHLB of Boston").

     As a member of the FHLB of Boston,  the Bank is required to invest in stock
of the FHLB of Boston in an amount equal to 1% of its outstanding  home loans or
1/20th of its outstanding advances from the FHLB of Boston, whichever is higher.
If such  stock is  redeemed,  the Bank will  receive  from the FHLB of Boston an
amount equal to the par value of the stock.

     The Co-operative Central Bank Reserve Fund (the "Fund") was established for
liquidity purposes and consists of deposits required of all insured co-operative
banks in  Massachusetts.  The Fund is used by The  Co-operative  Central Bank to
advance funds to member banks or to make other investments.

                                       43
<PAGE>
NOTE 3. LOANS (In Thousands)

     Loans as of March 31, 2003 and 2002 are summarized below:
<TABLE>
<CAPTION>
                                                                         2003             2002
                                                                       --------         --------
         <S>                                                           <C>              <C>
         Real estate loans:
              Residential real estate                                  $ 237,296        $ 246,045
              Commercial real estate                                     107,140           87,013
              Construction                                                30,294           20,998
              Second mortgage and home equity lines of credit              9,128            9,154
                                                                       ---------        ---------
                  Total real estate loans                                383,858          363,210
                                                                       ---------        ---------
         Commercial loans                                                  5,319            6,901
         Consumer loans                                                    1,287            1,596
                                                                       ---------        ---------
                  Total loans                                            390,464          371,707
         Less: allowance for loan losses                                  (3,284)          (3,292)
                                                                       ---------        ---------
                  Total loans, net                                     $ 387,180        $ 368,415
                                                                       =========        =========
</TABLE>
     Included in residential  real estate loans at March 31, 2003,  were $647 in
loans held for sale.

     The Bank had no  non-accrual  loans at March 31, 2003 and 2002.  During the
years ended March 31, 2003 2002 and 2001, there were no impaired loans. The Bank
follows the same policy for  recognition  of income on impaired loans as it does
for all other loans.

     Mortgage  loans  serviced  by the Bank for  others  amounted  to $1,361 and
$2,616 at March 31, 2003 and 2002, respectively.

     The Bank's lending  activities are conducted  principally in communities in
the  suburban  Boston  area.  The Bank  grants  mortgage  loans  on  residential
property,  commercial  real estate,  construction of residential  homes,  second
mortgages,  home equity and other loans.  Substantially all loans granted by the
Bank are secured by real estate  collateral.  The  ability  and  willingness  of
residential  mortgage  borrowers  to  honor  their  repayment   commitments  are
generally  impacted  by the  level  of  overall  economic  activity  within  the
borrowers'  geographic areas and real estate values. The ability and willingness
of  commercial  real  estate and  construction  loan  borrowers  to honor  their
repayment  commitments  are generally  impacted by the health of the real estate
market in the borrowers' geographic area and the general economy.

     The  following  summarizes  the  activity  with  respect  to loans  made to
directors and officers and their related interests for the years ended March 31:
<TABLE>
<CAPTION>
                                                             2003          2002
                                                            ------        -----
<S>                                                           <C>           <C>
Balance at beginning of year                                $ 865         $ 580
   New loans                                                  444           434
   New officers with loans outstanding                         --            66
   Repayment of principal                                    (390)         (215)
                                                            -----         -----
Balance at end of year                                      $ 919         $ 865
                                                            =====         =====
</TABLE>

     Loans included above were made in the Bank's  ordinary  course of business,
on  substantially  the same  terms,  including  interest  rates  and  collateral
requirements,  as those prevailing at the time for comparable  transactions with
unrelated  persons.  All loans included above are performing in accordance  with
the terms of the respective loan.

                                       44
<PAGE>
NOTE 4. ALLOWANCE FOR LOAN LOSSES (In Thousands)

     A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
                                                                          YEARS ENDED MARCH 31,
                                                              --------------------------------------------
                                                                 2003              2002             2001
                                                              ---------         --------         ---------
         <S>                                                  <C>               <C>              <C>
         Balance at beginning of year                         $   3,292         $  3,106         $   2,993
             Provision charged to expense                            --               --                --
             Amounts charged-off                                    (21)              (4)               (4)
             Recoveries on accounts previously charged-off           13              190               117
                                                              ---------         --------         ---------
         Balance at end of year                               $   3,284         $  3,292         $   3,106
                                                              =========         ========         =========
</TABLE>
NOTE 5. BANKING PREMISES AND EQUIPMENT (In Thousands)

     A summary of cost,  accumulated  depreciation  and  amortization of banking
premises and equipment at March 31 follows:
<TABLE>
<CAPTION>
                                                                                                   ESTIMATED
                                                                 2003              2002          USEFUL LIVES
                                                              ----------        ----------       ------------
         <S>                                                  <C>               <C>              <C>
         Land                                                 $     589         $    589
         Buildings and improvements                               2,401            2,339         50 years
         Furniture and fixtures                                   5,876            5,744         3-5 years
         Leasehold improvements                                     635              482         5-6 years
                                                              ---------         --------
                                                                  9,501            9,154
         Less accumulated depreciation and amortization          (7,632)          (7,318)
                                                              ---------         --------
                   Total                                      $   1,869         $  1,836
                                                              =========         ========
</TABLE>
     Depreciation  and amortization for the years ended March 31, 2003, 2002 and
2001 amounted to $314, $372 and $438, respectively, and is included in occupancy
and equipment expense in the accompanying consolidated statements of income.

     A summary of minimum  rentals of banking  premises for future periods under
non-cancelable operating leases follows:

       YEARS ENDING MARCH 31,

         2004                          $  133
         2005                             133
         2006                              80
         2007                              64
         2008                              40

     Certain leases contain renewal options the potential impact of which is not
included above. Rental expense for the years ended March 31, 2003, 2002 and 2001
was  $145,  $133 and  $125,  respectively,  and is  included  in  occupancy  and
equipment expense in the accompanying consolidated statements of income.

                                       45
<PAGE>
NOTE 6. DEPOSITS (Dollars in Thousands)

     Deposits at March 31 are summarized as follows:
<TABLE>
<CAPTION>
                                                          2003                 2002
                                                          ----                 ----
<S>                                                     <C>                 <C>
Demand deposit accounts                                 $ 31,523            $ 25,370
NOW accounts                                              38,047              36,277
Passbook and other savings accounts                       71,629              72,944
Money market deposit accounts                             42,687              17,997
                                                        --------            --------
            Total non certificate accounts               183,886             152,588
                                                        --------            --------
Term deposit certificates
       Certificates of  $100 and above                    26,259              27,233
       Certificates less than $100                        77,814              82,086
                                                        --------            --------
             Total term deposit certificates             104,073             109,319
                                                        --------            --------
                                                        $287,959            $261,907
                                                        ========            ========
</TABLE>

     Contractual  maturities of term deposit  certificates with weighted average
interest rates at March 31, 2003 are as follows:

                                           AMOUNT       RATE
                                           ------       ----

                      Within 1 year       $ 56,958      2.83%
                      Over 1 to 3 years     32,637      3.87
                      Over 3 years          14,478      4.64
                                          --------
                                          $104,073      3.41
                                          ========


NOTE 7. ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON (Dollars in Thousands)

     A summary of the maturity distribution of FHLB of Boston advances (based on
final maturity dates) with weighted average interest rates at March 31 follows:
<TABLE>
<CAPTION>
                                                        2003                                2002
                                              ------------------------          -------------------------
                                                AMOUNT           RATE            AMOUNT             RATE
                                                ------           ----            ------             ----
<S>                                           <C>                <C>            <C>                 <C>
Within 1 year                                 $   5,300          3.61%          $   55,600          2.61%
Over 1 to 5 years                                54,100          4.64               21,400          4.83
Over 5 to 10 years                               83,000          4.98               82,000          5.52
Over 10 years                                     2,000          5.49                2,000          5.49
                                              ---------                         ----------
                                              $ 144,400          4.81           $  161,000          4.39
                                              =========                         ==========
</TABLE>

     At March 31, 2003,  advances  totaling  $102,000 were callable prior to the
scheduled  maturity of the advances of which $84,000 were callable during fiscal
2004.  The Bank is  subject to a  substantial  penalty in the event it elects to
prepay any of its FHLB of Boston advances.

     The FHLB of Boston is authorized to make advances to its members subject to
such  regulations  and  limitations  as the  Federal  Home Loan  Bank  Board may
prescribe.  The  advances are secured by FHLB of Boston stock and a blanket lien
on certain qualified collateral, defined principally as 90% of the fair value of
U.S.  Government and federal agency obligations and 75% of the carrying value of
first mortgage loans on owner-occupied  residential property.  The Bank's unused
borrowing  capacity with the FHLB of Boston was  approximately  $26,000 at March
31, 2003.

                                       46
<PAGE>
NOTE 8. INCOME TAXES (Dollars in Thousands)

         The components of the provision for income taxes for the years indicted
are as follows:
<TABLE>
<CAPTION>
                                                                      YEARS ENDED MARCH 31,
                                                            --------------------------------------
                                                              2003           2002            2001
                                                            -------         -------        -------
<S>                                                         <C>             <C>            <C>
Current
      Federal                                               $ 1,708         $ 1,930        $ 1,555
      State                                                   1,352             229             52
                                                            -------         -------        -------
      Total current provision                                 3,060           2,159          1,607
Deferred (prepaid)                                             (462)           (382)           156
                                                            -------         -------        -------
                                                            $ 2,598         $ 1,777        $ 1,763
                                                            =======         =======        =======
</TABLE>

         The provision for income taxes for the periods presented is different
from the amounts computed by applying the statutory Federal income tax rate to
income before income taxes. The differences between expected tax rates and
effective tax rates are as follows:
<TABLE>
<CAPTION>
                                                                   YEARS ENDED MARCH 31,
                                                          --------------------------------------
                                                             2003          2002         2001
                                                           ----------   -----------   ----------
<S>                                                          <C>          <C>           <C>
Statutory Federal tax rate                                   34.0%         34.0%         34.0%
Items affecting Federal income tax rate:
       Dividends received deduction                          (0.3)         (0.4)         (0.6)
       Goodwill amortization                                   --           2.1           2.0
       State income taxes, net of Federal benefit             2.7           2.6           1.2
       Retroactive REIT legislation,
           net of Federal benefit                            16.1            --            --
       Non-Deductible portion of ESOP expense                 1.5           1.3            --
       Other                                                  0.3          (1.3)         (0.4)
                                                            -----          ----          ----
Effective tax rate                                          54.3%          38.3%         36.2%
                                                            ====           ====          ====
</TABLE>

     During 2002, the Massachusetts Department of Revenue ("DOR") issued notices
of  intent  to  assess  additional  state  excise  taxes to  numerous  financial
institutions in  Massachusetts  that have formed a real estate  investment trust
(REIT)  subsidiary.  The DOR contends that dividends  received by the banks from
such subsidiaries are fully taxable in Massachusetts.  The Company believes that
the state  statutes  that  provide for a 95%  dividends  received  deduction  on
certain  dividend  distributions  apply  to  dividends  received  from  its REIT
subsidiary.

     The Governor of  Massachusetts  signed  legislation on March 5, 2003, which
expressly disallows  deductions for dividends received from a REIT, resulting in
such dividends  being subject to state taxation.  In addition,  this law applies
retroactively  to tax years ending on or after  December 31, 1999. In the fourth
quarter of fiscal 2003, the Company provided  additional state taxes,  including
interest, net of the related federal tax benefit, of $835.

     In June 2003, a settlement  of this matter was reached  between the DOR and
the majority of affected financial  institutions.  The settlement  provides that
50% of all dividends  received from REIT subsidiaries from 1999 through 2002 are
subject  to state  taxation.  Interest  on such  additional  taxes is also to be
assessed.  Payment of such  taxes and  interest  totaling  $431 was made in June
2003. As a result of this settlement, the Bank recognized a reduction of $374 in
its accrued tax  liabilities,  which will increase net income by the same amount
in the first quarter of fiscal 2004.

                                       47

<PAGE>

     The  components  of gross  deferred  tax  assets  and  gross  deferred  tax
liabilities that have been recognized as of March 31 are as follows:
<TABLE>
<CAPTION>
                                                            2003            2002
                                                           ------          ------
<S>                                                        <C>             <C>
         Deferred tax assets:
             Allowance for loan losses                     $  549          $  549
             Deferred loan origination fees                    42              53
             Depreciation                                     324             298
             Post-employee retirement
               benefit accrual                                239             241
             Unrealized loss on securities, net                --             425
             Write-down of investments securities             460             218
             Deferred expenses                                524              --
             Other                                             65              59
                                                           ------          ------
                   Gross deferred tax asset                 2,203           1,843
                                                          -------          ------
         Deferred tax liabilities:
             Unrealized gain on securities, net              607               --
             Accrued dividend receivable                      27               30
             Deferred loan origination costs                 219              285
             Deferred income                                 631              239
                                                          ------           ------
                  Gross deferred tax liability             1,484              554
                                                          ------           ------
                   Net deferred tax asset                 $  719           $1,289
                                                          ======           ======
</TABLE>
     Based on the Bank's  historical  and current  pretax  earnings,  management
believes it is more likely than not that the Bank will  realize the net deferred
tax asset existing at March 31, 2003. Further,  management believes the existing
net deductible  temporary  differences  will reverse during periods in which the
Bank generates net taxable income. At March 31, 2003,  recoverable income taxes,
plus estimated taxes for fiscal 2004,  exceed the amount of the net deferred tax
asset.  There can be no  assurance,  however,  that the Bank will  generate  any
earnings or any specific level of continuing earnings.

     The  unrecaptured  base year tax bad debt  reserves  will not be subject to
recapture as long as the Bank continues to carry on the business of banking.  In
addition,  the balance of the pre-1988 bad debt reserves continues to be subject
to  provision  of present  law that  requires  recapture  in the case of certain
excess  distributions  to  shareholders.  The tax  effect of  pre-1988  bad debt
reserves  subject to recapture in the case of certain  excess  distributions  is
approximately $1,300.

NOTE 9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (In Thousands)

     The Bank is party to financial  instruments with off-balance  sheet risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These financial instruments include unused lines of credit,  unadvanced portions
of commercial and  construction  loans,  and commitments to originate loans. The
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess of the amounts  recognized in the balance sheets.  The amounts of
those  instruments  reflect the extent of the Bank's  involvement  in particular
classes of financial instruments.

     The Bank's  exposure to credit loss in the event of  nonperformance  by the
other party to its  financial  instruments  is  represented  by the  contractual
amount of those  instruments.  The Bank uses the same credit  policies in making
commitments  and  conditional  obligations  as  it  does  for  on-balance  sheet
instruments.

                                       48
<PAGE>

         Financial instruments with off-balance sheet risks as of March 31,
included the following:
<TABLE>
<CAPTION>
                                                                               2003             2002
                                                                            --------         --------
         <S>                                                                <C>              <C>
         Unused lines of credit                                             $15,153          $11,035
         Unadvanced portions of construction loans                            9,260            4,574

         Unadvanced portions of commercial loans                                925            1,574
         Commitments to originate commercial mortgage loans                  18,526           13,674
         Commitments to originate residential mortgage loans                 12,850           11,468
         Commitments to sell residential mortgage loans                       4,810               --
</TABLE>
     Commitments  to  originate  loans,  unused  lines of credit and  unadvanced
portions  of  commercial  and  construction  loans are  agreements  to lend to a
customer,  provided  there is no violation of any condition  established  in the
contract. Commitments generally have fixed expiration dates or other termination
clauses  and may require  payment of a fee.  Since many of the  commitments  may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash  requirements.  The Bank evaluates each customer's  credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's  credit
evaluation of the borrower.

NOTE 10. STOCKHOLDERS' EQUITY (Dollars in Thousands, except per share amount)

     The  Company and the Bank may not  declare or pay cash  dividends  on their
stock if the effect  thereof would cause capital to be reduced below  regulatory
requirements,  or if  such  declaration  and  payment  would  otherwise  violate
regulatory requirements.

     In October  1991,  the Bank adopted a  Shareholder  Rights  Plan.  The plan
entitles each shareholder to purchase the Company's stock at a discount price in
the  event  any  person  or group of  persons  exceeds  predetermined  ownership
limitations  of  the  Company's   outstanding   common  stock  and,  in  certain
circumstances, engages in specific activities deemed adverse to the interests of
the Company's shareholders.  This plan was due to expire in October 2001 but was
renewed by the Board of  Directors  during  fiscal 2002 and is now  scheduled to
expire in October 2011.

     Beginning in April 1999, the Board of Directors authorized a series of four
separate 5% stock  repurchase  programs  under  which the  Company has  acquired
365,294  shares of its stock at an average cost of $19.56 per share.  The latest
repurchase program was completed in March 2002.

     The Bank is subject to various regulatory capital requirements administered
by the federal banking  agencies.  Failure to meet minimum capital  requirements
can initiate certain mandatory and possibly additional  discretionary actions by
regulations  that, if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings,  and other  factors.  The  minimum  core  (leverage)  capital  ratio
required for banks with the highest overall rating from bank regulatory agencies
is 3.00% and is  4.00%-5.00%  for all others.  The Bank must also have a minimum
total risk-based  capital ratio of 8.00% (of which 4.00% must be Tier I capital,
consisting of common  stockholders'  equity). As of March 31, 2003, the Bank met
all capital adequacy requirements to which it is subject.

                                       49
<PAGE>
     The most recent  notification  from the FDIC  categorized the Bank as "well
capitalized" under the regulatory  framework for prompt corrective action. To be
categorized as "well capitalized," the Bank must maintain minimum  risk-weighted
capital,  Tier 1 capital and tangible  capital ratios as set forth in the table.
There are no  conditions or events,  since that  notification,  that  management
believes  would cause a change in the Bank's  categorization.  No deduction  was
taken from capital for  interest-rate  risk.  The  Company's and the Bank's Tier
1/leverage,  Tier 1 risk-based and total risk-based capital ratios together with
related regulatory minimum requirements are summarized below:
<TABLE>
<CAPTION>
                                                                                                TO BE WELL
                                                                        FOR CAPITAL          CAPITALIZED UNDER
                                                                         ADEQUACY            PROMPT CORRECTIVE
                                              ACTUAL                     PURPOSES            ACTION PROVISIONS
                                        ---------------------     --------------------      -------------------
                                          AMOUNT      RATIO        AMOUNT       RATIO        AMOUNT       RATIO
                                        ---------    --------     --------     -------      --------      -----
<S>                                       <C>         <C>          <C>          <C>          <C>           <C>
As of March 31, 2003:
  COMPANY (CONSOLIDATED)
   Total capital                          $39,076     12.05%       25,950       =>8.00%        N/A        N/A
   Tier 1 capital                          35,792     11.03        12,975       =>4.00         N/A        N/A
   Tier 1 leverage capital                 35,792      7.41        19,299       =>4.00         N/A        N/A
   BANK
   Total capital                           35,949     11.08        25,950       =>8.00       $32,437     =>10.00%
   Tier 1 capital                          32,665     10.07        12,975       =>4.00        19,462     => 6.00
   Tier 1 leverage capital                 32,665      6.77        19,299       =>4.00        24,124     => 5.00

As of March 31, 2002:
  COMPANY (CONSOLIDATED)
   Total capital                           40,303     13.06        24,694       =>8.00         N/A        N/A
   Tier 1 capital                          37,011     11.99        12,347       =>4.00         N/A        N/A
   Tier 1 leverage capital                 37,011      8.09        18,304       =>4.00         N/A        N/A
   BANK
   Total capital                           38,134     12.35        24,700       =>8.00        30,875     =>10.00
   Tier 1 capital                          34,842     11.28        12,350       =>4.00        18,525     => 6.00
   Tier 1 leverage capital                 34,842      7.61        18,304       =>4.00        22,880     => 5.00

=> Means equal to or greater than.
</TABLE>

NOTE 11. EMPLOYEE BENEFITS (Dollars in Thousands, Except Per Share Data)

PENSION AND SAVINGS PLANS

     As a participating employer in the Co-operative Banks Employees' Retirement
Association  ("CBERA"),  a  multi-employer  plan,  the  Bank  has  in  effect  a
noncontributory defined benefit plan ("Pension Plan") and a defined contribution
plan ("Savings Plan") covering substantially all eligible employees.

     Benefits  under the Pension Plan are determined at the rate of 1% and 1.5%,
respectively,  of certain  elements of final average pay times years of credited
service and are  generally  provided at age 65 based on years of service and the
average of the  participants'  three highest  consecutive  years of compensation
from the Bank. Employee contributions are made to a Savings Plan which qualifies
under section 401(k) of the Internal Revenue Code of 1986, as amended.  The Bank
matches 50% of an eligible deferral contribution on the first 5% of the deferral
amount  subject to the maximum  allowable  under  federal  regulations.  Pension
benefits and employer  contributions  to the Savings Plan become vested over six
years.

     Expenses for the Pension Plan and the Savings Plan were $319, $289 and $269
for the years ended March 31, 2003, 2002 and 2001, respectively. Forfeitures are
used to reduce expenses of the plans.

                                       50
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN

     During fiscal 1991, the Bank  established an Employee Stock  Ownership Plan
("ESOP") that is authorized to purchase  shares of  outstanding  common stock of
the Company from time to time in the open market or in negotiated  transactions.
The  ESOP is a  tax-qualified  defined  contribution  plan  established  for the
exclusive benefit of the Bank's employees.

     During fiscal 2002, the Company's  Board of Directors  authorized a loan to
the ESOP to  acquire up to an  additional  5% of  outstanding  shares of Company
stock.  During  fiscal  2003, a loan to purchase up to an  additional  $3,200 in
shares for the ESOP was  authorized.  During  fiscal 2003 and 2002,  114,864 and
7,222 shares,  respectively,  were  purchased at a purchase  price of $3,595 and
$199,  respectively.  The ESOP is repaying  its loans to the Company  with funds
from the Bank's  contributions  to the ESOP and earnings from the ESOP's assets.
These loans have terms of up to 20 years.

     Prior to fiscal 2002,  compensation  expense was  recognized  as the shares
were  allocated  to ESOP  participants  based upon the cost of the shares to the
ESOP.  Beginning  in fiscal 2002,  compensation  expense was  recognized  as the
shares were allocated to participants based upon the fair value of the shares at
the time they  were  allocated.  Consequently,  changes  in market  value of the
Company's  stock have an effect on the Company's  results of operations but have
no effect on stockholders'  equity.  ESOP expense for fiscal 2003, 2002 and 2001
amounted to $429, $305 and $130, respectively.

STOCK OPTION PLAN

     The Company has adopted two qualified Stock Option Plans for the benefit of
officers and other employees under which an aggregate of 281,500 shares had been
reserved for issuance. One of these plans terminated in 1997.

     Stock option activity is as follows for the years indicated:
<TABLE>
<CAPTION>
                                                      NUMBER OF          WEIGHTED AVERAGE
                                                       SHARES         SHARES EXERCISE PRICE
                                                      ---------       ---------------------
<S>                                                    <C>                   <C>
          Balance  March 31,  2000                     57,499                18.511
            Granted                                    32,501                16.625
                                                     --------
          Balance  March 31,  2001                     90,000                17.830
            Forfeited                                    (799)               16.625
            Exercised                                 (29,588)               16.617
                                                     --------
          Balance March 31,  2002                      59,613                18.448
            Exercised                                 (28,139)               18.308
                                                     -------
          Balance March 31,  2003                      31,474                18.572
                                                     =======
</TABLE>

     The exercise price of an option will not be less than the fair market value
of the  common  stock on the date of grant of the  option.  At March  31,  2003,
33,299 shares were reserved for issuance under the remaining plan.

                                       51
<PAGE>
     All stock  options are fully vested and  exercisable  at the time of grant.
The range of exercise prices and weighted average remaining  contractual life of
outstanding stock options at March 31, 2003 are as follows:

   Exercise                   Number                    Remaining
     Price                  Outstanding                   Life
   ---------                -----------                 ---------

    $16.625                     14,565                 7.7 years
     20.250                     16,909                 6.7 years
                                ------
                                31,474
                                ======

OTHER POST-RETIREMENT BENEFITS

     The  Bank  maintains  a  post-retirement  medical  insurance  plan and life
insurance  plan for certain  individuals.  The  following  tables  summarize the
funded status and the actuarial  benefit  obligations  of these plans for fiscal
2003 and 2002.
<TABLE>
<CAPTION>
                                                            2003                      2002
                                                     --------------------      --------------------
                                                     LIFE         MEDICAL      LIFE         MEDICAL
                                                     ----         -------      ----         -------
<S>                                                  <C>          <C>          <C>          <C>
Actuarial present value of benefits obligation:
   Retirees                                          $  (229)     $  (357)     $  (220)     $  (614)
   Fully eligible participants                           (14)         (57)         (12)        (132)
                                                     -------      -------      -------      -------
          Total                                      $  (243)     $  (414)     $  (232)     $  (746)
                                                     =======      =======      =======      =======

Change in projected benefit obligation:
   Accumulated benefit obligations at
     prior year-end                                  $  (232)     $  (746)     $  (266)     $  (720)
   Service cost less expense component                    --           --           --           --
   Interest cost                                         (16)         (27)         (16)         (51)
   Actuarial gain (loss)                                   4          330           45          (12)
   Assumptions                                            (9)         (29)          (5)         (13)
   Benefits paid                                          10           58           10           50
                                                     -------      -------      -------      -------
          Accumulated benefit obligations
           at year-end                               $  (243)     $  (414)     $  (232)     $  (746)
                                                     =======      =======      =======      =======
Change in plan assets:
   Fair value of plan assets at prior year-end       $    --      $    --      $    --      $    --
   Actual return on plan assets                           --           --           --           --
   Employer contribution                                  10           58           10           50
   Benefits paid end expenses                            (10)         (58)         (10)         (50)
                                                     -------      -------      -------      -------
          Fair value of plan assets at current
            year-end                                 $    --      $    --      $    --      $    --
                                                     =======      =======      =======      =======
Funded                                               $  (243)     $  (414)     $  (232)     $  (746)
Unrecognized net obligation                               86          248           95          273
Unrecognized prior year service                           --           --           --           --
Unrecognized net (loss) gain                             (72)        (180)         (82)         102
                                                     -------      -------      -------      -------
                                                     $  (229)     $  (346)     $  (219)     $  (371)
                                                     =======      =======      =======      =======

Reconciliation of (accrual) prepaid:
   (Accrued) prepaid pension cost at beginning
      of year                                        $  (219)     $  (371)     $  (211)     $  (343)
   Minus net periodic cost                               (20)         (33)         (18)         (78)
   Plus employer contributions, net                       10           58           10           50
                                                     -------      -------      -------      -------
   (Accrued) prepaid cost at end of year             $  (229)     $  (346)     $  (219)     $  (371)
                                                     =======      =======      =======      =======

Benefit obligation weighted average assumption as
 of fiscal year-end:
    Discount rate                                      6.50%        6.50%         7.00%        7.00%
    Expected return on plan assets                     6.50         6.50          7.00%        7.00%
    Rate of compensation increase                       --            --           --           --
</TABLE>

                                       52
<PAGE>
<TABLE>
<CAPTION>
                                                                  1 PERCENTAGE POINT INCREASE
                                                              ------------------------------------
                                                                    2003                2002
                                                              -----------------   ----------------
                                                              LIFE      MEDICAL   LIFE     MEDICAL
                                                              ----      -------   ----     -------
<S>                                                           <C>       <C>       <C>      <C>
Impact of 1% change in health care trend rates:
   Effect on total service and interest cost components         N/A     $ (2)     N/A      $ (4)
   Effect on the post retirement benefit obligations            N/A       27      N/A        55
Components of net periodic benefit obligations:
   Service cost                                                $ --     $ --      $ --     $ --
   Interest cost                                                 16       27        16       51
   Expected return on plan assets                                --       --        --       --
   Amortization of prior service cost                             9       25         9       25
   Recognized actuarial (gain) loss                              (5)     (19)       (6)       2
                                                               ----     ----     -----     ----
           Net periodic benefit cost for fiscal year ending    $ 20     $ 33     $  19     $ 78
                                                               ====     ====     =====     ====
Periodic benefit cost weighted average assumptions:
   Discount rate                                               7.25%    7.00%     7.25%    7.25%
   Expected return on plan assets                              7.25%    7.00%     7.25%    7.25%
   Rate of compensation increase                                --       --        --       --
</TABLE>

     For measurement purposes, a 15.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the fiscal year ended March
31,  2002.  The rate was  assumed to decrease to 5.5% for the fiscal year ending
March 31, 2003 and remain at that level thereafter.

NOTE 12. LEGAL PROCEEDINGS

     The Bank from time to time is involved as plaintiff or defendant in various
legal actions  incident to its  business.  Except as described  herein,  none of
these actions are believed to be material,  either individually or collectively,
to the  results of  operations  and  financial  condition  of the Company or any
subsidiary.

     The Bank has been named as  defendant  in a civil suit filed March 28, 2002
in Middlesex  Superior Court under the caption Yi v. Central Bank in which it is
                                               ------------------
alleged,  inter  alia,  that the Bank  committed  an unfair or  deceptive  trade
          -----  ----
practice by failing to pay surplus foreclosure  proceeds to a junior lien holder
in 1994.  The plaintiff  seeks damages of $165,000  plus  statutory  interest of
approximately $175,000 and has applied for a multiple damage award under Chapter
93A of the Massachusetts General Laws which provides for up to treble damages if
a violation is found to be willful or knowing.  While the Bank  believes that it
has  meritorious  defenses to all such claims and intends to  vigorously  defend
against  them,  a  settlement  offer has been made to the  plaintiffs'  counsel,
however, no response has been received.

     The  Company and certain  present and former  directors  have been named in
related  federal  and  state  court  lawsuits  brought  by PL  Capital,  LLC and
affiliates  ("PL  Capital")  and also by  Lawrence  B.  Seidman  and  affiliates
("Seidman"),  respectively, current and former stockholders, in which PL Capital
has  challenged  actions by the  directors  including,  among  other  things,  a
decision  on  setting  the date for  closing of the polls for voting at the 2002
Annual Meeting and the directors'  decision following that Annual Meeting not to
seek the sale of the  Company.  PL  Capital  and  Seidman  have  challenged  the
directors'  determination  that PL Capital and Seidman secretly acted in concert
in violation of the Company's Shareholder Rights Agreement ("Rights Plan").

     After a review and  recommendation  by a Special  Committee of the Board of
Directors,  the  Board of  Directors  determined  on  January  28,  2003 that PL
Capital,  which owned 9.8% of Central Bancorp shares, had secretly coordinated a
November  4, 2002 block  trade to place 8.3% of  Company's  common  stock in the
hands  of  Seidman,   Joseph  Stilwell   ("Stilwell")  and  Robert   Reichenbach
("Reichenbach"),   thereby   exceeding  the  10%  ownership  limit  set  by  the
Shareholder  Rights  Plan.  As a  result,  the  Special  Committee  and Board of
Directors  determined  that  PL  Capital,   Seidman,  Stilwell  and  Reichenbach
(collectively,  the "PL  Capital-Seidman  Group") constitute an Acquiring Person
under the Rights Plan. Seidman and PL Capital  immediately  commenced actions in
the Massachusetts  Superior Court for Suffolk County to enjoin implementation of
the Rights  Plan,  which once  implemented  would  provide  an  issuance  of one
additional  share of common stock for each share  presently  owned to all of the
Company's   shareholders   other  than  the  PL   Capital-Seidman   Group.   The
Massachusetts  Superior Court entered an ex parte temporary  restraining  order,
                                         -- -----
later extended to a preliminary injunction,  enjoining the Company and its Board
of Directors  from  implementing  the Rights Plan  pending  trial on the merits.
Following expedited

                                       53
<PAGE>
proceedings in  Massachusetts  federal and state courts,  the parties have asked
for  rulings  on the  legal  standard  applicable  to the  directors'  decisions
challenged  by PL Capital  and Seidman and on whether PL Capital and Seidman can
avoid  application of the Rights Plan to them by virtue of Seidman's sale of all
of his shares in the Company.  Seidman sold those shares  immediately  after his
motion   for   summary   judgment   in  the   federal   court  was   denied  and
contemporaneously  with the federal court's order that the legal standard on the
applicable  Rights Plan claims be  determined  by the state court and that trial
then proceed as  scheduled in the state court.  (On February 11 and February 26,
2003,  respectively,  the  Company and its  directors  entered  into  settlement
agreements with Stilwell and Reichenbach (and their  respective  affiliates) and
the litigation was subsequently dismissed with respect to those parties only.)

     PL Capital's  initial  complaint was filed on October 1, 2002 in the United
States District Court for the District of Massachusetts  and amended on November
12, 2002,  challenging,  respectively,  the decisions of the Company's  Board of
Directors  concerning  setting  a date  for  closing  the  polls on  voting  for
directors at the 2002 Annual Meeting and the Board of Directors' decision not to
seek sale of the Company.  (PL Capital's  amended  complaint also challenged the
directors'  decision to re-elect Marat E. Santini and John F. Gilgun, Jr. rather
than  PL  Capital's  nominees  to  the  Board  of the  Bank  and  the  Company's
reimbursement of legal fees for Joseph and John Doherty,  and alleged unfair and
deceptive trade practices within the meaning of Chapter 93A of the Massachusetts
General Laws.) PL Capital's  requests for relief were opposed by the Company and
its  directors  and were denied by the court and dismissed on November 13, 2002.
PL Capital  and  Seidman  subsequently  filed  complaints  in the  Massachusetts
Superior  Court for Suffolk  County on January 30 and 31, 2003  challenging  the
directors'  Rights Plan decision of January 28, 2003,  but the state court found
that PL Capital and Seidman  had  apparently  failed to inform the Court that PL
Capital had filed related  action in federal court (see above) and was already a
party  there to  identical  claims  concerning  the Rights  Plan.  (The  Special
Committee had filed in federal court on January 28, 2003,  seeking a declaratory
judgment  that its  decision  under the Rights  Plan  complied  with  applicable
Massachusetts  law, to prevent  such  circumvention  by PL Capital or  Seidman.)
Acccordingly,  PL Capital and Seidman were ordered by the state court to proceed
in federal court, where PL Capital had initiated action in October 2002.

     PL Capital and Seidman have filed  additional  claims in the federal  court
challenging other decisions made by the Company's directors. PL Capital's claims
in the federal court against the Company, its directors, the Central Cooperative
Bank Employee Stock  Ownership Plan Trust (the "ESOP") and the Joseph R. Doherty
Family Limited  Partnership,  L.P. also  challenge the directors'  approval of a
loan from the  Company to the ESOP and  allege  interference  with PL  Capital's
voting rights as a result of the ESOP's purchase of Reichenbach's  shares of the
Company's common stock (in connection with Reichenbach's  decision to settle out
of the  litigation).  PL  Capital  further  alleges  that John  Doherty,  Joseph
Doherty,  the Joseph R. Doherty  Family Limited  Partnership,  L.P. and the ESOP
(and its trustees) violated Section 13(d) of the Securities Exchange Act of 1934
("Exchange  Act") by allegedly  failing to disclose  certain  relationships  and
purported  motives in connection with their ownership of the Company's stock. PL
Capital also seeks a declaratory  judgment that former director Garrett Goodbody
and director Richard Fates are entitled to indemnification from the Company with
respect to the litigation.  PL Capital seeks declaratory and injunctive  relief,
money  damages and  attorneys'  fees.  Seidman  has also  alleged in the federal
court,   in  addition  to  claims   concerning   the   directors'   Rights  Plan
determination,  claims  similar to PL  Capital's  alleging  violation of Section
13(d) of the Exchange Act by John  Doherty and Joseph  Doherty and  interference
with Seidman's  voting rights by virtue of the ESOP's purchase of  Reichenbach's
shares of the Company's  common  stock.  Seidman  seeks  declaratory  relief and
attorneys'  fees.  The Company has also sought a declaratory  judgment from both
the state and federal courts seeking to resolve those  litigations  (and, in the
federal court, the Company has also alleged that PL Capital and Seidman violated
Section  13(d) of the Exchange  Act by failing to disclose to the  Company,  its
shareholders  and  the  investing  public  their  coordinated  ownership  of the
Company's stock).

     The Company  believes  that all of PL Capital's  and  Seidman's  claims are
without merit and intends to defend them vigorously.

NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS (In Thousands)

     Fair  value  estimates  are based on  existing  on- and  off-balance  sheet
financial  instruments  without  attempting to estimate the value of anticipated
future business and the value of assets and liabilities  that are not considered
financial   instruments.   Significant  assets  and  liabilities  that  are  not
considered financial assets or liabilities include the intangible value inherent
in  deposit   relationships  (i.e.  core  deposits)  and  banking  premises  and
equipment.  In addition, the tax ramifications related to the realization of the
unrealized  gains and losses can have a

                                       54
<PAGE>

significant  effect on fair  values and have not been  considered  in any of the
estimates.  Accordingly,  the  aggregate  fair value  amounts  presented  do not
represent the underlying value of the Bank.

     The following  methods and assumptions  were used by the Bank in estimating
fair values of its financial instruments:

     CASH AND DUE FROM BANKS

     The  carrying  values  reported in the balance  sheet for cash and due from
banks  approximate  their fair  value  because  of the short  maturity  of these
instruments.

     SHORT-TERM INVESTMENTS

     The  carrying   values   reported  in  the  balance  sheet  for  short-term
investments  approximate  fair  value  because  of the short  maturity  of these
investments.

     INVESTMENT AND MORTGAGE-BACKED SECURITIES

     The fair values presented for investment and mortgage-backed securities are
based on quoted market prices, where available.  If quoted market prices are not
available,  fair  values  are  based  on  quoted  market  prices  of  comparable
instruments.

     LOANS

     The fair values of loans are estimated using discounted cash flow analysis,
using  interest  rates  currently  being offered for loans with similar terms to
borrowers  of  similar  credit  quality.   The   incremental   credit  risk  for
nonperforming  loans has been considered in the  determination of the fair value
of loans.

     ACCRUED INTEREST RECEIVABLE

     The  carrying  value  reported  in the balance  sheet for accrued  interest
receivable  approximates  its fair value because of the short  maturity of these
accounts.

     STOCK IN FHLB OF BOSTON

     The  carrying   amount  reported  in  the  balance  sheet  for  FHLB  stock
approximates its fair value. If redeemed,  the Bank will receive an amount equal
to the par value of the stock.

     THE CO-OPERATIVE CENTRAL BANK RESERVE FUND

     The  carrying  amount  reported in the balance  sheet for the  Co-operative
Central Bank Reserve Fund approximates its fair value.

     DEPOSITS

     The fair values of deposits  (excluding term deposit  certificates) are, by
definition,  equal to the amount payable on demand at the reporting  date.  Fair
values for term deposit  certificates are estimated using a discounted cash flow
technique that applies interest rates currently being offered on certificates to
a schedule of  aggregated  monthly  maturities  on time  deposits  with  similar
remaining maturities.

     ADVANCES FROM FHLB OF BOSTON

     Fair values of non-callable  advances from the FHLB of Boston are estimated
using a discounted  cash flow  technique that applies  interest rates  currently
being offered on advances to a schedule of aggregated monthly maturities on FHLB
advances. Fair values of callable advances from the FHLB of Boston are estimated
using  the  prepayment  fee  payable  to the FHLB of  Boston  assuming  all such
advances were prepaid on the reporting date.

     SHORT-TERM  BORROWINGS,   ADVANCE  PAYMENTS  BY  BORROWERS  FOR  TAXES  AND
INSURANCE AND ACCRUED INTEREST PAYABLE

     The  carrying   values   reported  in  the  balance  sheet  for  short-term
borrowings,  advance  payments by borrowers  for taxes and insurance and accrued
interest payable  approximate  their fair value because of the short maturity of
these accounts.

     OFF-BALANCE SHEET INSTRUMENTS

     The Bank's  commitments for unused lines of credit and unadvanced  portions
of loans are at floating rates,  which  approximate  current market rates,  and,
therefore, no fair value adjustment has been made.

                                       55
<PAGE>
     The  estimated  carrying  amounts and fair  values of the Bank's  financial
instruments are as follows:
<TABLE>
<CAPTION>
                                                                              MARCH 31, 2003             MARCH 31, 2002
                                                                          -----------------------     ----------------------
                                                                          CARRYING      ESTIMATED     CARRYING     ESTIMATED
                                                                            AMOUNT     FAIR VALUE       AMOUNT    FAIR VALUE
                                                                          --------     ----------     --------    ----------
<S>                                                                       <C>            <C>          <C>           <C>
     ASSETS
          Cash and due from banks                                         $  5,996       $  5,996     $  5,109      $  5,109
          Short-term investments                                             5,226          5,226        2,455         2,455
          Investment securities                                             61,111         61,111       73,884        73,884
          Net loans                                                        387,180        393,347      368,415       367,893
          Stock in Federal Home Loan Bank of Boston, at cost                 8,300          8,300        8,300         8,300
          The Co-operative Central Bank Reserve Fund                         1,576          1,576        1,576         1,576
          Accrued interest receivable                                        2,380          2,380        2,530         2,530

     LIABILITIES
          Deposits                                                        $287,959       $290,325     $261,907      $262,810
          Advances from Federal Home Loan Bank of Boston                   144,400        160,104      161,000       166,896
          Short-term borrowings                                                176            176        3,000         3,000
          Advance payments by borrowers for taxes and insurance                999            999        1,111         1,111
          Accrued interest payable                                             606            606          618           618
</TABLE>

NOTE 14. PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS (In Thousands)

     The following are the condensed  financial  statements for Central Bancorp,
Inc. (the "Parent Company") only:
<TABLE>
<CAPTION>
                                                                                                   MARCH 31,
                                                                                          -------------------------
   BALANCE SHEETS                                                                            2003            2002
   ----------------------------------------------------------------------------------------------------------------
   ASSETS
<S>                                                                                       <C>              <C>
   Cash deposit in subsidiary bank                                                        $      93        $  1,970
   Investment in subsidiary                                                                  36,326          36,785
   ESOP loan                                                                                  3,660             199
   Other assets                                                                                 394              --
                                                                                          ---------        --------
     Total assets                                                                         $  40,473        $ 38,954
                                                                                          =========        ========
   LIABILITIES AND STOCKHOLDERS' EQUITY
   Accrued taxes and other liabilities                                                    $   1,030        $     --
   Total stockholders' equity                                                                39,443          38,954
                                                                                          ---------        --------
     Total liabilities and stockholders' equity                                           $  40,473        $ 38,954
                                                                                          =========        ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                           YEARS ENDED MARCH 31,
                                                                                    ------------------------------------
  STATEMENTS OF INCOME                                                                2003         2002        2001
  ----------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>          <C>
  Dividends from subsidiary                                                         $ 2,437      $ 2,500      $ 4,000
  Interest income                                                                        92           --           --
  Non-interest expenses                                                               2,006          466          266
                                                                                    -------      -------      -------
         Income before income taxes                                                     523        2,034        3,734
  Income tax benefit                                                                   (650)        (154)         (87)
                                                                                    -------      -------      -------
         Income before equity in undistributed net income of subsidiary               1,173        2,188        3,821
  Equity in undistributed net income of subsidiary                                    1,014          672         (712)
                                                                                    -------      -------      --------
          Net income                                                                $ 2,187      $ 2,860      $ 3,109
                                                                                    =======      =======      =======
</TABLE>


                                       56
<PAGE>
<TABLE>
<CAPTION>
                                                                                           YEARS ENDED MARCH 31,
                                                                                    ----------------------------------
  STATEMENTS OF CASH FLOWS                                                            2003          2002       2001
  ---------------------------------------- ------------ -------------------------------------------------------------
<S>                                                                                 <C>          <C>          <C>
  Cash flows from operating activities
     Net income                                                                     $ 2,187      $  2,860     $ 3,109
     Adjustments to reconcile net income to net cash provided by operating
         activities:
       Equity in undistributed net income of subsidiary                              (1,014)         (672)        712
       Decrease (increase) in other assets                                             (394)           --         100
       Increase (decrease) in accrued taxes and other liabilities                     1,030           (71)         70
                                                                                    -------      --------     -------
            Net cash provided by operating activities                                 1,809         2,117       3,991
                                                                                    -------      --------   ---------
  Cash flows from investing activities:
     ESOP loans, net of repayment                                                    (3,461)         (199)         --
                                                                                    -------      --------   ---------
  Cash flows from financing activities:
     Proceeds from exercise of stock options                                            516           492          --
     Purchase of treasury stock                                                          --        (1,924)     (2,187)
     Cash dividends paid                                                               (727)         (669)       (697)
     Other, net                                                                         (14)           --          --
                                                                                    -------      --------     -------
            Net cash used by financing activities                                      (225)       (2,101)     (2,884)
                                                                                    -------      --------     -------
  Net increase (decrease) in cash  in subsidiary bank                                (1,877)         (183)      1,107
  Cash  in subsidiary bank at beginning of year                                       1,970         2,153       1,046
                                                                                    -------      --------     -------
  Cash  in subsidiary bank at end of year                                           $    93      $  1,970     $ 2,153
                                                                                    =======      ========     =======
</TABLE>

NOTE 15. QUARTERLY RESULTS OF OPERATIONS  (Unaudited) (In Thousands,  Except Per
Share Data)

     The following tables  summarize the operating  results on a quarterly basis
for the years ended March 31, 2003 and 2002.
<TABLE>
<CAPTION>
                                                                              2003
                                                     -----------------------------------------------------
                                                        FIRST      SECOND         THIRD           FOURTH
                                                        -----      ------         -----           -------
<S>                                                  <C>          <C>             <C>            <C>
Interest and dividend income.......................  $   7,563    $   7,450       $  7,600       $   7,516
Interest expense...................................      3,283        3,334          3,248           3,007
                                                     -----------------------------------------------------
     Net interest and dividend income..............      4,280        4,116          4,352           4,509
Non-interest income................................        223           58            306             818
Non-interest expenses..............................      2,891        3,132          3,200           4,654
                                                     -----------------------------------------------------
     Income before income taxes....................      1,612        1,042          1,458             673
Income tax.........................................        585          374            548           1,091
                                                     -----------------------------------------------------
     Net income (loss).............................  $   1,027    $     668       $    910       $    (418)
                                                     =====================================================
Earnings (loss) per common share -- basic..........  $    0.64    $    0.42       $   0.58       $   (0.27)
                                                     ======================================================
Earnings (loss) per common share -- diluted........  $    0.63    $    0.42       $   0.58       $   (0.27)
                                                     ======================================================
<CAPTION>
                                                                              2002
                                                     -----------------------------------------------------
                                                        FIRST      SECOND         THIRD           FOURTH
                                                        -----      ------         -----           -------
<S>                                                  <C>          <C>             <C>            <C>
Interest and dividend income.......................  $   7,599    $   7,180       $  7,052       $   7,442
Interest expense...................................      4,364        3,820          3,344           3,332
                                                     -----------------------------------------------------
     Net interest and dividend income..............      3,235        3,360          3,708           4,110
Non-interest income................................        409          337            244            (302)
Non-interest expenses..............................      2,811        2,806          2,467           2,380
                                                     -----------------------------------------------------
     Income before income taxes....................        833          891          1,485           1,428
Income tax.........................................        303          327            536             611
                                                     -----------------------------------------------------
     Net income....................................  $     530    $     564       $    949       $     817
                                                     =====================================================
Earnings per common share -- basic.................  $    0.32    $    0.34       $   0.57       $    0.50
                                                     =====================================================
Earnings per common share -- diluted...............  $    0.32    $    0.34       $   0.57       $    0.50
                                                     =====================================================
</TABLE>

                                       57
<PAGE>

     During the quarter ended March 31, 2003, the Bank  recognized  gains on the
sales of loans of $768.  During the quarters  ended March 31, 2003 and 2002, the
Bank  recognized  write-downs  of  $115  and  $457,  respectively,  for  certain
marketable equity securities which had experienced a decline in fair value which
was judged to be other than temporary.

     As  more  fully  described  in  Note  8 to  the  accompanying  consolidated
financial  statements,  the Bank provided additional income taxes of $835 in the
quarter ended March 31, 2003 as a result of  legislation  affecting the taxation
of  dividends  received  by the  Bank  from its REIT  subsidiary.  In  addition,
included in  non-interest  expenses for the quarter ended March 31, 2003, are an
accrual  for  the  Bank's  portion  of the  estimated  cost of  resolution  of a
commercial  claim filed in 2002 and legal fees  incurred in the pending  dispute
with certain of the Company's shareholders that, together, amounted to $1,426.

                                       58
<PAGE>

                            [LETTERHEAD OF KPMG LLP]

                          Independent Auditors' Report



The Board of Directors and Stockholders
Central Bancorp, Inc.:





We have audited the accompanying consolidated balance sheets of Central Bancorp,
Inc. and subsidiary (the Company) as of March 31, 2003 and 2002, and the related
consolidated  statements  of income,  changes in  stockholders'  equity and cash
flows for each of the years in the three-year period ended March 31, 2003. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Central Bancorp,
Inc.  and  subsidiary  as of March 31,  2003 and 2002,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  March 31,  2003,  in  conformity  with  accounting  principles  generally
accepted in the United States of America.

As discussed in Note 1 to the Consolidated Financial Statements, effective April
1, 2002, the Company  adopted  Statement of Financial  Accounting  Standards No.
142, "Goodwill and Other Intangible Assets."



                                             /s/ KPMG LLP



Boston, Massachusetts
April 25, 2003, except as to the fifth paragraph
of Note 8, which is as of June 23, 2003.


                                       59
<PAGE>
ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

         Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the sections titled  "Proposal I -- Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement.

     The  Company  has  adopted a Code of Ethics  which  applies  to its  senior
executive and financial  officers.  The Code of Ethics is included as Exhibit 14
to this Annual Report.

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

     The information  required by this item is incorporated  herein by reference
to the section titled  "Executive  Compensation and Other Benefits" in the Proxy
Statement.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
--------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

     (a)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

          The  information  required  by this  item is  incorporated  herein  by
          reference to the section  captioned  "Voting  Securities and Principal
          Holders Thereof" in the Proxy Statement.

     (b)  SECURITY OWNERSHIP OF MANAGEMENT

          The  information  required  by this  item is  incorporated  herein  by
          reference to the section captioned "Proposal I - Election of Directors
          -- Security Ownership of Management" in the Proxy Statement.

     (c)  CHANGES IN CONTROL

          Not applicable.

     (d)  EQUITY COMPENSATION PLANS

          The  Company  has adopted  the 1999 Stock  Option and  Incentive  Plan
          pursuant to which equity may be awarded to participants. This plan has
          been approved by stockholders.

                                       60
<PAGE>

          The following table sets forth certain information with respect to the
          Company's equity compensation plans as of March 31, 2003.
<TABLE>
<CAPTION>
                                                (a)                            (b)                           (c)
                                                                                                NUMBER OF SECURITIES REMAINING
                                     NUMBER OF SECURITIES TO BE                                 AVAILABLE FOR FUTURE ISSUANCE
                                      ISSUED UPON EXERCISE OF       WEIGHTED-AVERAGE EXERCISE     UNDER EQUITY COMPENSATION
                                        OUTSTANDING OPTIONS,          PRICE OF OUTSTANDING       PLANS (EXCLUDING SECURITIES
PLAN CATEGORY                            WARRANTS & RIGHTS        OPTIONS, WARRANTS AND RIGHTS     REFLECTED IN COLUMN (A))
-------------                        --------------------------   ----------------------------  ------------------------------
<S>                                           <C>                            <C>                              <C>
Equity compensation plans                      31,474                        $18.572                        33,299
  approved by security holders

Equity compensation plans not                    0                              0                             0
  approved by security holders

       Total (1)                               31,474                        $18.572                        33,299
<FN>
_________
(1)      The 1999 Stock Option and Incentive Plan provides for a proportionate
         adjustment to the number of shares reserved thereunder in the event of
         a stock split, stock dividend reclassification or similar event.
</FN>
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section titled "Certain Transactions" in the Proxy Statement.

ITEM 14.  CONTROLS AND PROCEDURES.
---------------------------------

     Within 90 days prior to the date of this report, the Company carried out an
evaluation,  under the supervision and with the  participation  of its principal
executive officer and principal  financial officer,  of the effectiveness of the
design and operation of the Company's disclosure controls and procedures.  Based
on this  evaluation,  the Company's  principal  executive  officer and principal
financial  officer  concluded  that  the  Company's   disclosure   controls  and
procedures  are  effective  in  timely  alerting  them to  material  information
required to be included in the Company's periodic SEC reports.

     There have been no significant  changes in the Company's  internal controls
or in other factors that could significantly affect those controls subsequent to
the date of their last evaluation.


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

(a)  The  following  documents  are filed as part of this Annual  Report on Form
     10-K.

     (1)  FINANCIAL STATEMENTS
          --------------------

          For the  Financial  Statements  filed as part of this Annual Report on
          Form 10-K,  reference is made to "Item 8 -- Financial  Statements  and
          Supplementary Data".

                                       61
<PAGE>

     (2)  FINANCIAL STATEMENT SCHEDULES
          -----------------------------

          All financial  statement schedules have been omitted as not applicable
          or not  required  or  because  they  are  included  in  the  financial
          statements appearing at Item 8.

     (3)  EXHIBITS REQUIRED BY PARAGRAPH (C) OF ITEM 14
          ---------------------------------------------

          See "Item 14(c) -- Exhibits"

(b)  REPORTS ON FORM 8-K -- The Registrant  filed the following  Current Reports
     -------------------
     on Form 8-K during the fourth  quarter of the fiscal  year ended  March 31,
     2003:

     DATE OF REPORT            ITEM(S) REPORTED     FINANCIAL STATEMENTS FILED
     --------------            ----------------     --------------------------
     January 28, 2003                7, 9                    N/A
     February 24, 2003               5                       N/A
     March 7, 2003                   5, 7                    N/A

(c)  EXHIBITS
     --------

     The following exhibits are filed as exhibits to this report.
<TABLE>
<CAPTION>
     EXHIBIT NO.          DESCRIPTION
     ----------           -----------
     <S>                  <C>
     3.1*                 Articles of Organization of Central Bancorp, Inc.
     3.2*                 Bylaws of Central Bancorp, Inc.
     4.1                  Shareholder Rights Agreement, dated as of October 11, 2001, by and between the Central
                          Bancorp, Inc. and Registrar and Transfer Company, as Rights Agent, as amended and
                          restated as of January 29, 2003, and as amended on February 11, 2003 and May 22, 2003
     10.1*                Employment Agreement between the Bank and John D. Doherty, dated October 24, 1986 +
     10.2*                First  Amendment to Employment  Agreement  between the Bank and John D. Doherty,  dated March
                          31, 1992 +
     10.3*                Second  Amendment to Employment  Agreement  between the Bank and John D. Doherty,  dated June
                          8, 1995 +
     10.4*                Third Amendment to the Employment Agreement between the Bank and
                          John D. Doherty, dated January 8, 1999 +
     10.5*                Termination Agreement, dated March 31, 1992, by and between the Bank and Joseph R. Doherty +
     10.6*                Consulting Agreement, dated March 31, 1992, by and between the Bank and Joseph R. Doherty +
     10.7*                Amendment to Consulting  Agreement  between the Bank and Joseph R. Doherty,  dated August 11,
                          1994 +
     10.8*                Severance Agreement between the Bank and William P. Morrissey, dated December 14, 1994 +
     10.9*                Severance Agreement between the Bank and David W. Kearn, dated December 14, 1994 +
     10.10*               Severance Agreement between the Bank and Paul S. Feeley, dated May 14, 1998 +
     10.11*               Amendments to Severance  Agreements  between the Bank and Messrs.  Feeley,  Kearn
                          and Morrissey,  dated January 8, 1999. +
     10.12**              1999 Stock Option and Incentive Plan +
     10.13***             Deferred Compensation Plan for Non-Employee Directors  +

                                       62
<PAGE>

     10.14                Management Incentive Plan, as amended +
     10.15****            Severance Agreement between the Bank and Michael K. Devlin, dated February 25, 2002. +
     10.16                Termination of Consulting Agreement between the Bank and Joseph R. Doherty, dated July 30, 2002 +
     14                   Code of Ethics for Senior Executive and Financial Officers
     21                   Subsidiaries of Registrant
     23                   Consent of KPMG LLP
     99                   Certification of Chief Executive Officer and Chief Financial Officer pursuant to
                          Section 906 of Sarbanes-Oxley Act of 2002
<FN>
______________
+    Management contract or compensatory plan.
*    Incorporated herein by reference to the Form 10-K for the fiscal year ended
     March 31, 1999, filed with the SEC on June 28, 1999.
**   Incorporated by reference to the  Registration  Statement on Form S-8 (File
     No. 333-87005) filed on September 13, 1999.
***  Incorporated by reference to the  Registration  Statement on Form S-8 (File
     No. 333-49264) filed on November 3, 2000.
**** Incorporated  by  reference  to the  Annual  Report on Form 10-K for the
     fiscal year ended March 31, 2002 filed with the SEC on June 28, 2002.
</FN>
</TABLE>

                                       63
<PAGE>
                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  registrant  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.

                                  CENTRAL BANCORP, INC.

Date: June 27, 2003               By:  /s/ John D. Doherty
                                  ----------------------------------------------
                                  John D. Doherty
                                  Chairman, President, & 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.

By: /s/ John D. Doherty                                     Date:  June 27, 2003
    -------------------------------------------------
       John D. Doherty
       Chairman, President and Chief Executive Officer


By: /s/ Michael K. Devlin                                   Date:  June 27, 2003
    -------------------------------------------------
       Michael K. Devlin
       Senior Vice President, Treasurer
          and Chief Financial Officer
          (Principal Financial and Accounting Officer )

By: /s/ Joseph R. Doherty                                   Date:  June 27, 2003
    -------------------------------------------------
      Joseph R. Doherty
      Director

By: /s/ Terence D. Kenney                                   Date:  June 27, 2003
    -------------------------------------------------
       Terence D. Kenney
       Director

By: /s/ James F. Linnehan                                   Date:  June 27, 2003
    -------------------------------------------------
       James F. Linnehan
       Director

By: /s/ Paul E. Bulman                                      Date:  June 27, 2003
    -------------------------------------------------
       Paul E. Bulman
       Director

By: /s/ Richard J. Fates                                    Date:  June 27, 2003
    -------------------------------------------------
       Richard J. Fates
       Director

By: /s/ Nancy D. Neri                                       Date:  June 27, 2003
    -------------------------------------------------
       Nancy D. Neri
       Director

By: /s/ Gregory W. Boulos                                   Date:  June 27, 2003
    -------------------------------------------------
       Gregory W. Boulos
       Director

<PAGE>
                                  CERTIFICATION


     I, John D.  Doherty,  Chairman,  President and Chief  Executive  Officer of
Central Bancorp, Inc., certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Central  Bancorp,
Inc.;

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

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

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

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

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

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

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

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

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

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: June 27, 2003


                                       /s/ John D. Doherty
                                       ----------------------------------------
                                       John D. Doherty
                                       Chairman, President and Chief Executive
                                       Officer
<PAGE>

                                  CERTIFICATION

     I, Michael K. Devlin, Senior Vice President,  Treasurer and Chief Financial
Officer of Central Bancorp, Inc., certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Central  Bancorp,
Inc.;

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

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

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

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

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

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

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

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

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

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: June 27, 2003


                               /s/ Michael K. Devlin
                               -------------------------------------------------
                               Michael K. Devlin
                               Senior Vice President, Treasurer and Chief
                               Financial Officer