================================================================================

                       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, 2001
                                       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. [ ]

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant was  approximately  $21.6 million based on the closing sales price of
the  registrant's  common stock as reported on the Nasdaq  National  MarketSM on
June 8, 2001  ($19.50  per  share).  Solely for  purposes  of this  calculation,
directors,  executive  officers and greater than 5% stockholders  are treated as
affiliates.

     As of June 8, 2001,  there were issued and outstanding  1,702,164 shares of
the  registrant's  common  stock,  par value  $1.00 per share (of which  594,620
shares were deemed held by affiliates).

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of the Proxy Statement for the 2001 Annual Meeting of Stockholders
     (the "Proxy Statement") are incorporated by reference into 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


Item 1.    Business........................................................... 3
Item 2.    Properties.........................................................25
Item 3.    Legal Proceedings..................................................25
Item 4.    Submission of Matters to a Vote of Security Holders................26


                                     PART II


Item 5.    Market the Registrant's Common Equity and Related
                Stockholder Matters...........................................26
Item 6.    Selected Financial Data............................................27
Item 7.    Management's Discussion Analysis of Financial Condition
                and Results of Operations.....................................28
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.........36
Item 8.    Financial Statements and Supplementary Data........................37
Item 9.    Changes in and Disagreements With Accountants on Accounting
                and Financial Disclosure......................................63


                                    PART III


Item 10.   Directors and Principal Officers of the Registrant.................63
Item 11.   Executive Compensation.............................................63
Item 12.   Security Ownership of Certain Beneficial Owners and Management.....63
Item 13.   Certain Relationships and Related Transactions.....................63


                                     PART IV


Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K...64


<PAGE>
                                     PART I
ITEM 1.  BUSINESS
-----------------

NOTE ON FORWARD-LOOKING STATEMENTS

     WHEN USED IN THIS  DISCUSSION  AND  ELSEWHERE 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.

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. As the successor to the Bank, the Company's common
stock, par value $1.00 per share (the "Common Stock"),  became  registered under
the Securities  Exchange Act of 1934.  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") and qualifies under Section
38B of Chapter 63 of the Massachusetts General Laws as a Massachusetts  security
corporation.  The Company has no significant  assets other than the Common Stock
of the Bank 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  executive  offices of the Company are located at 399 Highland  Avenue,
Somerville, Massachusetts 02144. The telephone number is (617) 628-4000.

     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 acquire 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 a
lesser extent,  to make loans on commercial  real estate in its market area. The
Bank also makes a limited  amount of consumer loans  including home  improvement
and secured and unsecured  personal loans. In recent years, the Bank has engaged
in increased commercial lending and has used excess funds to purchase investment
and  mortgage-backed  securities.  The Bank's  operations are conducted  through
eight  full-service   office  facilities   located  in  Somerville,   Arlington,
Burlington,  Chestnut Hill, Malden, Melrose and Woburn, Massachusetts.  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  Bank's  main  office is located at 399  Highland  Avenue,  Somerville,
Massachusetts  02144 and its 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  areas  for  deposits.  The  majority  of the
properties  securing  the Bank's  loans are  located  in  Suffolk,  Norfolk  and
Middlesex  Counties,  including  the City of  Boston.  The  Bank's  market  area
consists of established  suburban  areas and includes  portions of the Route 128
high-technology corridor.

     The Bank faces strong  competition from commercial banks,  mortgage banking
companies,   diversified   financial   services   companies   and  other  thrift
institutions.   See  "Business  --   Competition."   Although   legislation  and
regulations  have  expanded  the  activities  in which the Bank may engage,  the
Bank's  ability to remain  competitive  in its  industry  will  depend  upon how
successfully  it can respond to the rapidly  evolving  competitive,  regulatory,
technological and demographic developments affecting its operations.

     Weakness  in the New  England  real estate  market  caused  many  financial
institutions in the region to experience  significant  losses in the early 1990s
due to increases in problem real estate  loans,  primarily  loans on  commercial
real estate.  Such deterioration was due to a severe downturn in the New England
economy which,  generally beginning in fiscal 1990 and continuing through fiscal
1993,  severely  affected  the Bank's real estate  market.  The  weakness in the
Bank's real estate market stabilized during fiscal 1994, and since that time the
Bank's asset  quality has improved with the recovery of the local  economy.  Any
reversal of the apparent  improvement of the economy,  however,  could result in
the Bank experiencing  increases in problem assets which would likely negatively
affect  the  Bank's  results  of  operations.  While  the Bank  believes  it has
established  an adequate  allowance  for loan losses,  there can be no assurance
that regulators,  in reviewing the Bank's loan portfolio in the future, will not
request that the Bank further  increase its allowance  for loan losses,  thereby
negatively  impacting the Bank's financial condition and earnings.  The Security
Committee  of the Board of  Directors  of the Bank reviews the status of problem
assets on a monthly basis.


                                       4
<PAGE>
AVERAGE BALANCE SHEET

     The following  table shows the average  balances of the  Company's  assets,
liabilities  and  stockholders'  equity for the periods  indicated.  All average
balances disclosed herein are based on average daily balances.
<TABLE>
<CAPTION>
                                                                   YEARS  ENDED MARCH 31,
                                                           ----------------------------------
                                                            2001          2000          1999
                                                           ------        ------        ------
                                                                     (IN THOUSANDS)
<S>                                                       <C>          <C>          <C>
Assets:
Cash and due from banks ...............................   $   5,241    $   5,341    $   4,861
Short-term investments ................................       7,457        8,197       13,128
Investment securities .................................      40,004       32,632       23,375
Mortgage-backed securities ............................      21,418       25,035       37,676
Loans .................................................     341,732      300,089      287,513
   Less allowance for loan losses .....................      (3,042)      (2,946)      (2,912)
                                                          ---------    ---------    ---------
      Net loans .......................................     338,690      297,143      284,601

The Co-operative Central Bank Reserve Fund ............       1,576        1,576        1,576
Real estate acquired by foreclosure, net ..............          --           --           --
Office properties and equipment, net ..................       2,120        2,385        2,885
Other assets ..........................................       3,640        3,420        4,132
Goodwill, net .........................................       2,675        2,963        3,240
                                                          ---------    ---------    ---------
    Total assets ......................................   $ 422,821    $ 378,692    $ 375,474
                                                          =========    =========    =========

Liabilities and Stockholders' Equity:

Liabilities:
  Deposits ............................................   $ 270,135    $ 257,536    $ 275,135
  Advances from FHLB of Boston ........................     111,980       80,907       59,901
  Advance payments by borrowers for taxes and insurance         950          889        1,329
  Other liabilities ...................................       1,433        1,769        1,424
                                                          ---------    ---------    ---------
    Total liabilities .................................     384,498      341,101      337,789
                                                          ---------    ---------    ---------
Stockholders' equity:
  Common stock ........................................       1,967        1,967        1,966
  Additional paid-in capital ..........................      11,171       11,171       11,164
Retained income .......................................      30,320       26,454       24,825
Treasury stock ........................................      (4,229)      (1,268)          --
  Accumulated other comprehensive income (loss) .......        (533)        (176)         417
  Unearned compensation - ESOP ........................        (373)        (557)        (687)
                                                          ---------    ---------    ---------
    Total stockholders' equity ........................      38,323       37,591       37,685
                                                          ---------    ---------    ---------
Total liabilities and stockholders' equity ............   $ 422,821    $ 378,692    $ 375,474
                                                          =========    =========    =========
</TABLE>


                                       5
<PAGE>
LENDING ACTIVITIES

     The Bank offers residential mortgage and home equity loans, commercial real
estate loans,  construction loans, commerce and industry loans,  personal,  home
improvement,  and various other types of consumer  loans.  Commerce and industry
loans represent loans to commercial  enterprises  which are either  unsecured or
are secured by property other than real estate.  For the fiscal year ended March
31, 2001, the Bank  originated  loans  totaling  $82.6  million,  of which $31.5
million,  or 38.1%,  were  fixed-rate  loans and $51.1 million,  or 61.9%,  were
adjustable-rate  loans. Of the total loans originated  during fiscal 2001, $30.8
million, or 37.3%, were residential  mortgage loans and $45.3 million, or 54.8%,
were  commercial  mortgage  loans.  At March 31,  2001,  the Bank's  residential
mortgage loans providing for periodic  interest rate adjustments  totaled $170.7
million,  or 50.4%,  of the total  mortgage loan  portfolio.  No loans were sold
during  fiscal  2001,  2000  and  1999 in the  secondary  market.  Servicing  of
fixed-rate  loans sold in the secondary market is retained by the Bank. 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 $25.7  million,  or 8.1%, to $342.7 million at March 31,
2001 from $317.0 million at March 31, 2000. The increase was due to a slowing of
pay-offs of  residential  mortgages as interest  rates  increased,  as well as a
decision by management to increase  originations of commercial real estate loans
and hybrid adjustable rate residential mortgages as part of the Bank's asset and
liability management strategies.

     LOAN PORTFOLIO  COMPOSITION.  The following  table shows 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,
                             ---------------------------------------------------------------------------------------------------
                                   2001                 2000                1999                  1998                 1997
                             ----------------     ----------------    ----------------     ------------------    ---------------
                             AMOUNT       %       AMOUNT       %      AMOUNT       %       AMOUNT         %      AMOUNT      %
                             ------     -----     ------     -----    ------     -----     ------       -----    ------    -----
                                                                    (DOLLARS IN THOUSANDS)
<S>                         <C>          <C>      <C>         <C>    <C>           <C>     <C>           <C>     <C>       <C>
Mortgage loans:
 Residential...............$246,503     71.3%    $243,563    76.1%  $ 212,638     75.8%   $ 207,860     73.8%   $176,317  75.1%
 Commercial................  74,613     21.6       54,228    17.0      48,756     17.4       52,491     18.6      41,822  17.8
 Construction..............   9,500      2.7        9,765     3.0       5,269      1.9        8,256      2.9       3,095   1.3
 Second mortgage and
    home equity ...........   8,282      2.4        7,403     2.3       7,462      2.7        8,369      3.0       8,397   3.6
 FHA and VA................      --      0.0            7     0.0          21      0.0           49      0.0          85   0.0
                           --------    -----     --------   -----   ---------    -----    ---------    -----   --------- -----
   Total mortgage loans.... 338,898     98.0      314,966    98.4     274,146     97.8      277,025     98.3     229,716  97.8
                           --------    -----     --------   -----   ---------    -----    ---------    -----   --------- -----

Other loans:
 Commerce and Industry(1)..   5,185      1.5        3,349     1.1       4,391      1.6        2,530      0.9       2,431   1.0
 Education.................      --      0.0           --     0.0          --      0.0           31      0.0          28   0.0
 Secured by deposits.......   1,137      0.3        1,023     0.3       1,225      0.4        1,357      0.5       1,063   0.5
 Consumer..................      36      0.0           38     0.0          40      0.0           48      0.0         579   0.2
 Unsecured.................     537      0.2          637     0.2         544      0.2          733      0.3       1,118   0.5
                           --------    -----     --------   -----   ---------    -----    ---------    -----   --------- -----
   Total other loans.......   6,895      2.0        5,047     1.6       6,200      2.2        4,699      1.7       5,219   2.2
                           --------    -----     --------   -----   ---------    -----    ---------    -----   --------- -----
   Total loans............. 345,793    100.0%     320,013   100.0%    280,346    100.0%     281,724    100.0%    234,935 100.0%
                                       =====                =====                =====                 =====             =====

Less:
 Allowance for possible
    loan losses............   3,106                 2,993               2,913                 2,886                2,900
                           --------              --------           ---------             ---------            ---------
 Loans, net................$342,687              $317,020           $ 277,433             $ 278,838            $ 232,035
                           ========              ========           =========             =========            =========
<FN>
-----------
(1)  Represents loans to commercial enterprises which are either unsecured
     or secured by property other than real estate.
</FN>
</TABLE>

                                       6
<PAGE>

     LOAN  PORTFOLIO  SENSITIVITY.   The  following  table  sets  forth  certain
information  as of March 31, 2001  regarding the dollar amount of loans maturing
in the Company'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.  The table below does not include any  estimate of  prepayments,  which
significantly  shorten the average life of all mortgage  loans and may cause the
Company's actual repayment experience to differ from that shown below.
<TABLE>
<CAPTION>
                                                          DUE AFTER
                                      DUE WITHIN          ONE THROUGH       DUE AFTER
                                       ONE YEAR           FIVE YEARS        FIVE YEARS           TOTAL
                                      ----------          -----------       -----------          -----
                                                        (IN THOUSANDS)
<S>                                    <C>                <C>               <C>               <C>
Mortgage loans:
   Residential......................   $   34,275         $  176,094        $   36,134        $  246,503
   Commercial.......................       10,393             24,535            39,685            74,613
   Construction.....................        9,047                 53               400             9,500
   Second mortgage and home
      equity........................        8,282                 --                --             8,282
Other loans.........................        2,523              3,212             1,160             6,895
                                       ----------         ----------        ----------        ----------
     Total..........................   $   64,520         $  203,894        $   77,379        $  345,793
                                       ==========         ==========        ==========        ==========
</TABLE>

     Of loans  maturing more than one year after March 31, 2001,  $94.6 million,
or 34.1%,  have fixed  rates and $182.9  million,  or 65.9%,  have  floating  or
variable rates.

     Scheduled  contractual  principal  repayments  of loans do not  reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans  generally  give the Company the right to declare a  conventional  loan
immediately due and payable in the event, among other things,  that the borrower
sells the real property subject to the mortgage and the loan is not repaid.  The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and,   conversely,   decreases  when  rates  on  existing   mortgage  loans  are
substantially higher than current mortgage loan market rates.

     RESIDENTIAL   LENDING.   The  Bank's  residential  mortgage  loan  programs
currently  are  focused on the  origination  of  adjustable-rate  mortgages  and
fixed-rate mortgages.  At March 31, 2001,  adjustable-rate  residential mortgage
loans totaled $170.7 million, or 49.4%, of the total loan portfolio.  Fixed-rate
residential  mortgages  totaled  $75.8  million,  or 21.9%,  of the  total  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 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 set is a minimum of 2.50  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 90% of the property value. The
Bank generally requires private mortgage insurance for loans in excess of 80% of
property 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.  These loans are
typically secured by  income-producing  properties such as


                                       7
<PAGE>

apartment buildings,  office buildings,  industrial buildings and various retail
properties.  As of March 31, 2001,  commercial  real estate loans  totaled $74.6
million and constituted 21.6% of the total loan portfolio.

     Commercial  real estate loans have been made for up to 80% of the appraised
value of the  property  and have  generally  been  made for  amounts  up to $5.0
million.  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 $9.5 million, or 2.7%, of the Bank's
loan  portfolio at March 31, 2001.  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 completed value of the property,  based on independent appraisals.
The Bank  analyzes  the  construction  budget and reviews the  developer's  past
projects  in  addition  to  conducting   responsible   commercial   real  estate
underwriting  practices.  Funds are  disbursed  based on a schedule of completed
work presented to the Bank and confirmed by physical  inspection of the property
by a designated Bank officer or construction  consultant and, in general,  after
receipt of title updates.

     The Bank determines  aggregate loan  limitations  for individual  borrowers
based upon market  conditions  and the  financial  capacity of that  borrower or
guarantor.  During the past five years,  such aggregate limits have not exceeded
$6.0 million per borrower.

     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.  The borrower must be approved
for permanent  financing by the Bank prior to a construction loan being granted.
Such  construction  loans are normally made for a term of not more than one year
and  based on a  completed  value of not more  than  80%,  as  determined  by an
independent certified or licensed appraiser.

     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 90% 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 $8.3 million, or 2.4%, of the Bank's loan portfolio at March 31, 2001.

     COMMERCE AND INDUSTRY,  CONSUMER AND OTHER LOANS.  The Bank's  commerce and
industry,  consumer and other loans totaled $6.9 million,  or 2.0%, of the total
loan  portfolio  on March 31,  2001.  The Bank entered the commerce and industry
lending business in fiscal 1995 with its acquisition of Metro Bancorp,  Inc. The
commerce and industry loan portfolio consists of time, demand and line-of-credit
loans to a variety of local small businesses.

     RISKS OF COMMERCIAL REAL ESTATE,  CONSTRUCTION,  COMMERCE AND INDUSTRY, AND
CONSUMER LENDING.  Commercial real estate,  construction,  commerce and industry
and consumer lending entail significant additional risks compared to residential
mortgage  lending.  In  addition,  the payment  experience  on 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.  Commerce  and industry
loans are 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. Consumer loans
and particularly  unsecured  personal loans may involve additional risks, and it
may be expensive and time  consuming to recover the


                                       8
<PAGE>

money lent in the event of a default.  The Bank has  attempted to limit the risk
of loss on its commercial real estate,  construction and consumer loans, and has
established   provisions  for  loan  losses.  For  more  information  see  "  --
Non-Performing  Assets" and " -- Impaired  Loans." Any  reversal of the apparent
stabilization  in the New England  real estate  market and economy  would likely
negatively affect the Bank's  commercial real estate,  construction and consumer
loan  portfolios,  which would thereby  negatively  affect the Bank's results of
operations.

     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.  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. Most real estate loans are attributable to walk-in customers,  existing
customers,  real estate brokers, third party originators and builders.  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 or 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 90
days, the Bank will generally proceed to foreclose and liquidate the property to
satisfy the debt.  Real estate  acquired  through  foreclosure  is classified as
"real estate acquired by foreclosure"  until it is sold or otherwise disposed of
by the Bank.

     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.

     At March 31, 2001, the Bank had no non-performing loans.

     At March  31,  2001,  the Bank did not  have any real  estate  acquired  by
foreclosure.

     IMPAIRED LOANS. At March 31, 2001, there were no impaired loans.


                                       9
<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,
                                                -------------------------------------------------------------------
                                                  2001          2000          1999           1998           1997
                                                --------      --------      --------       --------       --------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                             <C>           <C>           <C>            <C>            <C>
Loans accounted for on a
  non-accrual basis, non-performing loans....   $    --       $   235       $    419       $    357        $2,145
Restructured loans...........................        --            --             --             --            --
Real estate acquired by foreclosure..........        --            --             --             --            13
                                                -------       -------       --------       --------        ------

   Non-performing assets.....................   $    --       $   235       $    419       $    357        $2,158
                                                =======       =======       ========       ========        ======

Impaired loans, accruing.....................        --            --             --          1,306           664

Non-performing loans to total loans..........      0.00%         0.07%          0.15%          0.13%         0.91%

Non-performing assets to total assets........      0.00%         0.06%          0.12%          0.09%         0.67%
</TABLE>

     At March 31,  2001,  there were no loans not  reflected  in the above table
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.

     During the year ended March 31, 2001, the Company would not have recognized
any interest income on non-accrual loans since there were no non-accrual loans.

     ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained at a
level which management  considers adequate to provide for potential 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.


                                       10
<PAGE>

         The following table presents activity in the allowance for loan losses
during the years indicated.
<TABLE>
<CAPTION>
                                                                           YEAR ENDED MARCH 31,
                                                --------------------------------------------------------------------
                                                  2001            2000          1999            1998         1997
                                                --------        --------      --------        --------     ---------
                                                                        (DOLLARS IN THOUSANDS)

<S>                                             <C>           <C>           <C>            <C>            <C>
Balance at beginning of year.................   $    2,993    $   2,913     $    2,886     $    2,900     $    3,032
                                                ----------    ---------     ----------     ----------     ----------
Charge-offs:
  Residential mortgage.......................           --           --            (88)            --           (160)
  Commercial mortgage........................           --           --             --            (83)           (57)
  Other loans................................           (4)          (9)           (11)           (14)            (7)
                                                -----------   ---------     ----------     ----------     ----------
    Total charge-offs........................           (4)          (9)           (99)           (97)          (224)
                                                -----------   ---------     ----------     ----------     ----------

Recoveries:
  Residential mortgage.......................           60            9             78             16             43
  Commercial mortgage........................           48           36             36             46             --
  Other loans................................            9           44             12             21             49
                                                ----------    ---------     ----------     ----------     ----------
    Total recoveries.........................          117           89            126             83             92
                                                ----------    ---------     ----------     ----------     ----------

Net recoveries (charge-offs).................          113           80             27            (14)          (132)
Provision....................................           --           --             --             --             --
                                                ----------    ---------     ----------     ----------     ----------
Balance at end of year.......................   $    3,106    $   2,993     $    2,913     $    2,886     $    2,900
                                                ==========    =========     ==========     ==========     ==========

Average loans outstanding during the year....   $  341,732    $ 300,089     $  287,513     $  250,329     $  231,006
Ratio of net charge-offs to average loans....         na           na             na             0.01%          0.06%
Total loans outstanding at end of year.......   $  345,793    $ 320,013     $  280,346     $  281,724     $  234,935
Ratio of allowance for loan
  losses to loans at end of year.............         0.90%        0.94%          1.04%          1.02%          1.23%

</TABLE>

                                       11
<PAGE>

     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,
                              --------------------------------------------------------------------------------
                                      2001                         2000                        1999
                              -----------------------      ----------------------       ----------------------
                                             % 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......  $  1,637        71.3%        $  1,333        76.1%        $ 1,120         75.8%
  Commercial mortgage.......     1,058        21.6            1,202        17.0           1,556         17.4
  Construction..............       169         2.7              198         3.0              92          1.9
  Second mortgage and
    home equity.............       163         2.4              178         2.3              58          2.7
                              --------        ----         --------        ----         -------         ----
    Total mortgage loans....     3,027        98.0            2,911        98.4           2,826         97.8
Other loans.................        79         2.0               82         1.6              87          2.2
                              --------        ----         --------        ----         -------        -----
    Total...................  $  3,106       100.0%        $  2,993       100.0%        $ 2,913        100.0%
                              ========       =====         ========       =====         =======        =====
<CAPTION>
                                                  AT MARCH 31,
                              ---------------------------------------------------
                                      1998                         1997
                              -----------------------      ----------------------
                                             % OF                        % OF
                                           LOANS TO                     LOANS TO
                              AMOUNT     TOTAL LOANS       AMOUNT     TOTAL LOANS
                              ------     -----------       ------     -----------
                                              (DOLLARS IN THOUSANDS)
<S>                           <C>             <C>          <C>             <C>
Mortgage loans:
  Residential mortgage......  $  1,104        73.8%        $    964        75.1%
  Commercial mortgage.......     1,578        18.6            1,808        17.8
  Construction..............       105         2.9               36         1.3
  Second mortgage and
    home equity.............        48         3.0               44         3.6
                              --------        ----         --------        ----
    Total mortgage loans....     2,835        98.3            2,852        97.8
Other loans.................        51         1.7               48         2.2
                              --------        ----         --------        ----
    Total...................  $  2,886       100.0%        $  2,900       100.0%
                              ========       =====         ========       =====
</TABLE>


INVESTMENT ACTIVITIES

     The  Bank's  management  believes  it  prudent to  maintain  an  investment
portfolio  that  provides  not  only a source  of  income  but also a source  of
liquidity  to meet  lending  demands and  fluctuations  in deposit  flows.  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,  common and preferred  stocks. A
substantial  portion of the Bank's investment  securities  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 continue to be carried at amortized cost.


                                       12
<PAGE>

     The following  table sets forth the  composition  of the Bank's  investment
portfolio  (at  amortized  cost),  as well as the  percentage  such  investments
comprise of the Bank's total assets, at the dates indicated.
<TABLE>
<CAPTION>
                                                                                AT MARCH 31,
                                                            -------------------------------------------------------
                                                                 2001              2000               1999
                                                                 -----            ------             -----
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                         <C>                 <C>                <C>
Short-term investments:
  Interest-bearing deposits in other banks................  $      177          $      177         $      177
  Federal funds sold overnight............................      34,352              14,625             16,762
                                                            ----------          ----------         ----------
      Total short-term investments........................      34,529              14,802             16,939
                                                            ==========          ==========         ==========

      Percentage of total assets..........................         7.7%                3.6%               4.7%
                                                            ==========          ==========         ==========

Investment securities:
  U. S. Government and federal
    agency obligations....................................  $   18,970          $   23,962         $   15,500
  Other bonds and obligations.............................       4,984               2,030                 --
  Common and preferred stocks.............................       7,748               6,847              5,682
  Mortgage-backed securities..............................      19,623              23,862             30,190
                                                            ----------          ----------         ----------
                                                                51,325              56,701             51,372

  Unrealized (loss) gain on securities
    available for sale....................................        (748)             (1,258)               570
                                                            ----------          ----------         ----------

      Total investment securities.........................  $   50,577          $   55,443         $   51,942
                                                            ==========          ==========         ==========

      Percentage of total assets..........................        11.3%               13.5%              18.9%
                                                            ==========          ==========         ==========
</TABLE>


     The following table sets forth the scheduled  maturities,  carrying values,
market  values and  average  yields for the Bank's  investment  securities  with
stated maturities at March 31, 2001.
<TABLE>
<CAPTION>
                                                                                           MORE THAN
                                 ONE YEAR OR LESS  ONE TO FIVE YEARS  FIVE TO TEN YEARS     TEN YEARS     TOTAL INVESTMENT PORTFOLIO
                                 ----------------  ----------------- ------------------ ----------------  -------------------------
                                 CARRYING AVERAGE  CARRYING AVERAGE  CARRYING  AVERAGE  CARRYING  AVERAGE CARRYING   MARKET AVERAGE
                                   VALUE   YIELD    VALUE    YIELD    VALUE     YIELD    VALUE     YIELD    VALUE     VALUE  YIELD
                                  ------  -------  -------  -------  -------   -------  ------    ------  --------   ------ -------
                                                                             (DOLLARS IN THOUSANDS)
<S>                               <C>       <C>    <C>        <C>     <C>        <C>    <C>        <C>     <C>        <C>     <C>
Securities available for sale:
   U.S. government and agency
      securities................  $   --    -- %   $10,035    6.36%   $ 9,016    6.57%  $     --    -- %   $ 19,051   $19,051 6.46%
   Other bonds..................      --    --       4,724    7.53        521    7.70         --    --        5,245     5,245  7.54
   Mortgage-backed securities...      --    --         702    6.71      5,111    6.94     13,501   7.21      19,314    19,314  7.12
                                  ------           -------            -------           --------           --------   -------
      Total.....................  $   --           $15,461            $14,648           $ 13,501           $ 43,610   $43,610
                                  ======           =======            =======           ========           ========   =======
</TABLE>


                                       13
<PAGE>

SAVINGS ACTIVITIES, BORROWINGS AND OTHER SOURCES OF 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 does not actively  solicit or advertise
for deposits outside of its market area or solicit brokered  deposits.  The Bank
attracts  deposits through its branch office network,  automated teller machines
and by paying rates competitive with other Massachusetts financial institutions.

     During fiscal 2001, management sought to increase the deposit base in order
to fund the Bank's increased lending activity by paying more competitive  rates.
As a result,  total deposits increased $28.8 million,  primarily in term deposit
accounts. The cost of deposits increased 40 basis points.

     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,
                                        -------------------------------------------------------------------------------------
                                                    2001                            2000                      1999
                                        -------------------------     --------------------------  ---------------------------
                                                          AVERAGE                        AVERAGE                      AVERAGE
                                        AVERAGE   % OF     RATE       AVERAGE   % OF      RATE    AVERAGE     % OF     RATE
                                        BALANCE  DEPOSITS  PAID       BALANCE  DEPOSITS   PAID    BALANCE   DEPOSITS   PAID
                                        -------  -------- -------     -------  --------  -------  -------   --------  -------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                   <C>          <C>     <C>      <C>          <C>      <C>    <C>          <C>     <C>
Demand..............................  $  20,382    7.5%    0.00%    $  18,742    7.3%     0.00%  $  15,219     5.5%    0.00%
NOW accounts........................     32,312   12.0     1.29        30,885   12.0      1.19      26,917     9.8     1.28
Regular, club and 90-day
  notice accounts...................     62,018   22.9     2.03        61,424   23.8      2.05      61,572    22.4     2.34
Money market deposit accounts.......     17,200    6.4     2.22        21,417    8.3      2.22      22,375     8.1     2.64

Term deposit certificates:
  Six-month money market............     12,714    4.7     5.25        18,531    7.2      4.25      14,274     5.2     4.80
  Other.............................    125,509   46.5     5.86       106,537   41.4      5.31     134,778    49.0     5.72
                                       ---------  ----              ---------  -----             ---------   -----

    Total term deposit certificates.    138,223   51.2     5.81       125,068   48.6      5.16     149,052    54.2     5.63
                                       ---------  ----              ---------  -----             ---------   -----
    Total deposits..................  $ 270,135  100.0%    3.73%    $ 257,536  100.0%     3.32   $ 275,135   100.0%    3.91%
                                      =========  =====              =========  =====             =========   =====
</TABLE>


                                       14
<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, 2001.


                                                              TIME DEPOSITS
                                                              -------------
                                                              (IN THOUSANDS)
        Maturity Period of Deposits:
           Three months or less................................. $   5,825
           Three through six months.............................     9,303
           Six through twelve months............................     6,534
           Over twelve months...................................    12,982
                                                                 ---------
                 Total.......................................... $  34,644
                                                                 =========

     BORROWINGS.  From  time to time the  Bank  borrows  funds  from the FHLB of
Boston on a short-term basis to compensate for reductions in deposits or deposit
inflows at less than projected  levels.  Such funds may also be used on a longer
term basis to support  expanded  lending or  investment  activities  to increase
yields or improve  asset-liability  management.  All  advances  from the FHLB of
Boston are  secured  by a blanket  lien on  residential  first  mortgage  loans,
investment  securities  and all stock in the FHLB of Boston.  At March 31, 2001,
the Bank had advances outstanding from the FHLB of Boston of $121 million. Funds
from  these  advances  were  used  to  fund  the  Bank's  growth  in  loans  and
investments.  Additional sources of 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 at the dates and for the periods indicated.
<TABLE>
<CAPTION>
                                                                                 AT OR FOR THE
                                                                               YEAR ENDED MARCH 31,
                                                                 ------------------------------------------------
                                                                    2001               2000               1999
                                                                 ----------         ----------         ----------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                             <C>                 <C>                <C>
Amounts outstanding at end of period.........................   $ 121,000           $ 111,000          $ 57,000
Weighted average rate paid on................................        5.84%              5.66%              5.34%
Maximum amount of borrowings outstanding
  at any month end...........................................   $ 121,000           $ 113,000          $ 64,000
Approximate average amounts outstanding......................   $ 111,980           $  80,907          $ 59,901
Approximate weighted average rate paid on....................        6.18%              5.56%              5.47%
</TABLE>

SUBSIDIARY ACTIVITIES

     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 for federal and  Massachusetts tax purposes.  CPCC holds
mortgage loans which were previously originated by the Bank.

     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.

                                       15
<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 (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.

     ACQUISITIONS.  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.

     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
Community  Reinvestment  Act ("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.

     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 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 "-- Capital Requirements."


                                       16
<PAGE>

     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 "-- 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.

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  various   regulatory
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   servicing   rights,   purchased  credit  card
relationships and qualifying  supervisory  goodwill) minus identified losses and
minus investments in certain subsidiaries.

     In  addition  to the  leverage  ratio (the ratio of Tier I 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  savings 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-weighted  system,  all of a bank's  balance  sheet  assets  and the  credit


                                       17
<PAGE>

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 risk weight  assigned to that category.  The sum of these weighted
values equals the bank's risk-weighted assets.

     At March 31,  2001,  the Bank's ratio of Tier 1 capital to total assets was
7.75%,  its ratio of Tier 1 capital to  risk-weighted  assets was 11.76% and its
ratio of total risk-based capital to risk-weighted assets was 12.86%.

     The Federal banking regulators, including the Federal Reserve Board and the
FDIC, have proposed to revise their  risk-based  capital  requirements to ensure
that such requirements provide for explicit consideration of interest rate risk.
Under  the  proposed  rule,  a  bank's  interest  rate  risk  exposure  would be
quantified  using  either  the  measurement  system set forth in the rule or the
bank's  internal model for measuring such exposure,  if such model is determined
to be adequate by the bank's examiner. If the dollar amount of a bank's interest
rate risk exposure,  as measured under either measurement system,  exceeds 1% of
the bank's total assets,  the bank is required under the rule to hold additional
capital equal to the dollar amount of the excess. Management of the Bank has not
determined what effect, if any, the FDIC's proposed interest rate risk component
would have on the Bank's capital if adopted as proposed.  The FDIC has adopted a
regulation  that provides that the FDIC may take into account whether a bank has
significant risks from concentrations of credit or nontraditional  activities in
determining  the adequacy of its capital.  The Bank has not been advised that it
will be required to maintain any additional capital under this regulation.

     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.  See "Federal and State Taxation." 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 percent of its insured deposits.
Under  the  FDIA,  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 SAIF.

     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.

     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, 2001, the Bank is considered well capitalized. In
addition,  FDIC-insured institutions are required to pay


                                       18
<PAGE>

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 will be assessed at the same
rate for FICO payments.

     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.  Under FDICIA,  the 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.

     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>

                                       19
<PAGE>

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.

     SAFETY AND SOUNDNESS  GUIDELINES.  Under  FDICIA,  as amended by the Riegle
Community  Development and Regulatory  Improvement Act of 1994 (the "CDRI Act"),
each  federal  banking  agency is required  to  establish  safety and  soundness
standards  for  institutions  under  its  authority.  In 1995,  these  agencies,
including the FDIC, released interagency guidelines  establishing such standards
and adopted rules with respect to safety and  soundness  compliance  plans.  The
guidelines  require  depository  institutions to maintain  internal controls and
information  systems and internal  audit  systems that are  appropriate  for the
size,  nature  and scope of the  institution's  business.  The  guidelines  also
establish certain basic standards for loan documentation,  credit  underwriting,
interest rate risk exposure,  and asset growth.  The guidelines  further provide
that depository  institutions  should maintain safeguards to prevent the payment
of  compensation,  fees and  benefits  that are  excessive or that could lead to
material financial loss, and should take into account factors such as comparable
compensation practices at comparable institutions. If the agency determines that
a depository  institution  is not in  compliance  with the safety and  soundness
guidelines,  it may  require the  institution  to submit an  acceptable  plan to
achieve compliance with the guidelines.  A depository institution must submit an
acceptable  compliance plan to the agency within 30 days of receipt of a request
for such a plan.  Failure to submit or implement a  compliance  plan may subject
the institution to regulatory  sanctions.  Management believes that the Bank has
met substantially all the standards adopted in the interagency guidelines.

     Additionally  under FDICIA, as amended by the CDRI Act, the federal banking
agencies established standards relating to asset quality and earnings. Under the
guidelines a depository  institution should maintain systems,  commensurate with
its size and the nature and scope of its operations,  to identify problem assets
and prevent  deterioration  in those  assets as well as to evaluate  and monitor
earnings and ensure that earnings are  sufficient to maintain  adequate  capital
and reserves.  Management believes that the asset quality and earnings standards
will not have a material effect on the operations of the Bank.

     UNIFORM  LENDING  STANDARDS.  As  required by FDICIA,  the federal  banking
agencies  have  adopted  regulations  that  require  banks to adopt and maintain
written policies establishing appropriate limits and standards for extensions of
credit that are secured by liens or interests in real estate or are made for the
purpose of financing permanent  improvements to real estate. These policies must
establish  loan  portfolio  diversification   standards,   prudent  underwriting
standards,  including loan-to-value limits, that are clear and measurable,  loan
administration   procedures   and   documentation,    approval   and   reporting
requirements.  A bank's real estate lending policy must reflect consideration of
the  Interagency  Guidelines for Real Estate Lending  Policies (the "Real Estate
Lending  Guidelines") that have been adopted by the banking  agencies.  The Real
Estate Lending Guidelines, among other things, call upon depository institutions
to establish internal loan-to-value limits for real estate loans that should not
exceed  supervisory  loan-to-value  limits for the various  types of real estate
loans.  The  Real  Estate  Lending  Guidelines  state,  however,  that it may be
appropriate   in   individual   cases  to  originate  or  purchase   loans  with
loan-to-value ratios in excess of the supervisory loan-to-value limits. The Bank
does not believe that the Real Estate Lending  Guidelines will materially affect
its lending activities.

     RESERVE  REQUIREMENTS.  Under Federal Reserve Board  regulations,  the Bank
currently must maintain  average daily  reserves equal to 3% of net  transaction
accounts up to $42.8  million  plus 10% on the  remainder.  This  percentage  is
subject to adjustment by the Federal Reserve Board.  Because  required  reserves
must be  maintained  in the  form of  vault  cash or in a  non-interest  bearing
account at a Federal  Reserve Bank, the effect of the reserve  requirement is to
reduce the amount of the  institution's  interest-earning  assets.  At March 31,
2001, the Bank met applicable Federal Reserve Board reserve requirements.

     FEDERAL  HOME LOAN BANK  SYSTEM.  The Bank is a member of the Federal  Home
Loan Bank System which consists of 12 regional  Federal Home Loan Banks governed
and regulated by the Federal Housing Finance Board


                                       20
<PAGE>

("FHFB").  As a member,  the Bank is required to purchase  and hold stock in the
FHLB of Boston in an amount equal to the greater of 1% of its  aggregate  unpaid
home loan balances at the beginning of the year or an amount equal to 5% of FHLB
advances outstanding,  whichever is greater. As of March 31, 2001, the Bank held
stock in the FHLB of Boston in the amount  $6.150  million and was in compliance
with the above requirement.

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

     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.  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 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 further prohibits 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.


                                       21
<PAGE>


FINANCIAL MODERNIZATION LEGISLATION

     On November 12, 1999, President Clinton signed legislation which could have
a far-reaching impact on the financial services industry. The Gramm-Leach-Bliley
("G-L-B") Act authorizes affiliations between banking,  securities and insurance
firms and  authorizes  bank holding  companies and national banks to engage in a
variety  of new  financial  activities.  Under the  G-L-B  Act any bank  holding
company whose depository  institution  subsidiaries have satisfactory  Community
Reinvestment Act ("CRA") records may elect to become a financial holding company
if it  certifies  to the  Federal  Reserve  Board  that  all  of its  depository
institution  subsidiaries  are  well-capitalized  and  well-managed.   Financial
holding  companies  may engage in any activity that the Federal  Reserve  Board,
after  consultation  with  the  Secretary  of  the  Treasury,  determines  to be
financial in nature or incidental  to a financial  activity.  Financial  holding
companies  may also engage in  activities  that are  complementary  to financial
activities  and do not pose a  substantial  risk to the safety and  soundness of
their depository institution subsidiaries or the financial system generally. The
G-L-B Act specifies that activities that are financial in nature include lending
and investing  activities,  insurance and annuity  underwriting  and  brokerage,
financial,   investment  and  economic  advice,   selling  interests  in  pooled
investment vehicles,  securities underwriting,  engaging in activities currently
permitted to bank holding companies (including  activities in which bank holding
companies may currently  engage outside the United States) and merchant  banking
through a securities or insurance  underwriting  affiliate.  The Federal Reserve
Board, in consultation with the Department of Treasury,  may approve  additional
financial activities.

     The G-L-B Act permits well capitalized and well managed national banks with
satisfactory  CRA  records to invest in  financial  subsidiaries  that engage in
activities  that are  financial in nature (or  incidental  thereto) on an agency
basis.  National  banks that are among the 50 largest  insured banks and have at
least one issue of  investment  grade debt  outstanding  may invest in financial
subsidiaries  that  engage in  activities  as  principal  other  than  insurance
underwriting real estate development or merchant banking. All national banks are
given the authority to underwrite  municipal  revenue bonds. The aggregate total
consolidated  assets of a national bank's financial  subsidiaries may not exceed
the lesser of 45% of the bank's  total  consolidated  assets or $50  billion.  A
national  bank  would  be  required  to  deduct  its  investments  in  financial
subsidiaries  from its  regulatory  capital.  National  banks  must  also  adopt
procedures for protecting the bank against risks  associated  with the financial
subsidiary  and to preserve the  separate  corporate  identity of the  financial
subsidiary.  Financial  subsidiaries  of state and national banks (which include
any subsidiary engaged in an activity not permitted to a national bank directly)
would be treated as  affiliates  for  purposes of the  limitations  on aggregate
transactions  with affiliates in Sections 23A and 23B of the Federal Reserve Act
and for purposes of the anti-tying restrictions of the Bank Holding Company Act.
State-chartered   banks  would  be  prohibited   from   investing  in  financial
subsidiaries unless they would be well capitalized after deducting the amount of
their  investment  from capital and observe the other  safeguards  applicable to
national banks.

     The  G-L-B  Act  imposes  functional  regulation  on  bank  securities  and
insurance  activities.  Banks  will  only  be  exempt  from  regulation  by  the
Securities and Exchange  Commission  ("SEC") as securities brokers if they limit
their  activities to those  described in the G-L-B Act. Banks that advise mutual
funds will be subject to the same SEC regulation as other  investment  advisors.
Bank common trust funds will be regulated as mutual funds if they are advertised
or offered for sale to the general public. National banks and their subsidiaries
will be prohibited from underwriting  'insurance products other than those which
they were lawfully  underwriting  as of January 1, 1999 and are prohibited  from
under-writing  title  insurance or tax-free  annuities.  National banks may only
sell title insurance in states in which  state-chartered banks are authorized to
sell title  insurance.  The G-L-B Act directs the  federal  banking  agencies to
promulgate  regulations governing sales practices in connection with permissible
bank sales of insurance.

     The G-L-B Act imposes  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply,  with state law if it is more  protective  of customer  privacy than the
G-L-B Act.  The G-L-B Act directs the federal  banking  agencies,  the  National
Credit Union  Administration,  the  Secretary of the  Treasury,  the SEC and the
Federal Trade Commission,  after  consultation with the National  Association of
Insurance  Commissioners,  to  promulgate  implementing  regulations  within six
months of enactment. The privacy provisions will become effective in July 2001.

                                       22
<PAGE>

     The G-L-B Act contains significant  revisions to the FHLB System. The G-L-B
Act imposes new capital  requirements  on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption  requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency  of CRA  examinations  for smaller  institutions  and imposes  certain
reporting  requirements  on  depository,  institutions  that  make  payments  to
non-governmental entities in connection with the CRA.

FEDERAL AND STATE TAXATION

     For taxable years beginning after June 30, 1986, the Internal  Revenue Code
imposes an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally  applies  to a  base  of  regular  taxable  income  plus  certain  tax
preferences  ("alternative  minimum taxable income" or "AMTI") and is payable to
the extent such AMTI exceeds an  exemption  amount.  The  Internal  Revenue Code
provides for items of tax  preference  that include (a)  tax-exempt  interest on
newly-issued  (generally,  issued on or after August 8, 1986)  private  activity
bonds other than certain  qualified  bonds and (b) for taxable  years  beginning
after  1989,  this  preference  of 75% of the  excess  (if any) of (i)  adjusted
current  earnings  as  defined  in the  Internal  Revenue  Code,  over (ii) AMTI
(determined  without  regard to this  preference  and prior to  reduction by net
operating  losses).  For any taxable year  beginning  after 1986,  net operating
losses  can offset no more than 90% of AMTI.  Certain  payments  of  alternative
minimum taxes may be used as credits  against  regular tax liabilities in future
years.  The Bank is not currently  paying any amount of alternative  minimum tax
but may, depending on future results of operations, become subject to this tax.

     The Massachusetts excise tax rate for co-operative banks is currently 10.5%
of federal taxable income,  adjusted for certain items.  Taxable income includes
income  from  all  sources,  without  exclusion,  less  deductions,  but not the
credits, allowable under the provisions of the Code, as amended. Beginning April
1,  1999,  the Bank is  allowed  a 95%  dividend  received  deduction.  However,
carryforwards and carrybacks of net operating losses are not allowed.

     The Bank's  federal  income tax  returns for years ended March 31, 1996 and
1997 were examined and finalized in 1998.

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.  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,  preauthorized  payment and withdrawal  systems,  tax-deferred
retirement programs,  and other miscellaneous  services such as money orders and
travelers' checks.  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


                                       23
<PAGE>

credit,  general and local economic  conditions,  current  interest rate levels,
volatility  in the  mortgage  markets  and other  factors  which are not readily
predictable.

     In addition to competing  with other savings  banks and financial  services
organizations  based in  Massachusetts,  the Bank  has and is  expected  to face
increased  competition  from major  commercial  banks  headquartered  outside of
Massachusetts  as a result of regional  interstate  banking laws which currently
permit banks  located in New England to enter the bank's  market are and compete
with it for deposits  and loan  originations.  The Bank may also face  increased
competition  as a result of the  Riegle-Neal  Interstate  Banking and  Branching
Efficiency  Act of 1994 which,  as of September  29,  1995,  allowed the Federal
Reserve Board to approve a bank holding company's application to acquire control
of, or substantially  all of the assets of, a Massachusetts  bank without regard
to Massachusetts law.

     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.  There are a number of
pending  legislative  and  regulatory  proposals  that  may  further  alter  the
structure,  regulation and competitive  relationships of financial institutions.
The  ability of the Bank to remain  competitively  viable  will  depend upon how
successfully  it can respond to the rapidly  evolving  competitive,  regulatory,
technological and demographic developments affecting its operations.

     The Bank is  headquartered  in  Somerville,  Massachusetts  and  operates a
network  of  eight  full  service  offices  located  in  Somerville,  Arlington,
Burlington,  Chestnut Hill, Malden, Melrose and Woburn, as well as an operations
center located in Somerville.  All offices are located in Massachusetts,  within
the Boston  metropolitan  area.  The majority of the  properties  securing loans
originated by the Bank are located  within the Bank's  primary market area which
encompasses  Suffolk,  Norfolk and  Middlesex  Counties,  including  the City of
Boston. As to the principal  services rendered by the Bank, "Item 1. Business --
General" is incorporated herein by reference.

     The Bank does not  believe  that the nature of its  business  is  seasonal.
Further,  the Bank has not,  within the last five fiscal years,  been engaged in
any line of business in addition to its normal thrift banking activities.

EMPLOYEES

     At March  31,  2001,  the  Bank  employed  82  full-time  and 26  part-time
employees. The Bank's employees are not represented by any collective bargaining
agreement.  Management of the Bank considers its relations with its employees to
be good.


                                       24
<PAGE>

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

     The Bank owns all its  offices,  except the  Burlington  and Malden  branch
offices,  and the operations center located in Somerville (Inner Belt Road). 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,
2001,  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, 2001:
<TABLE>
<CAPTION>
                                                                                                   NET BOOK
                                                                           YEAR                    VALUE AT
                  OFFICE LOCATION                                         OPENED                 MARCH 31, 2001
                  ---------------                                         ------                 --------------
            <S>                                                            <C>                      <C>
            MAIN OFFICE:
            399 Highland Avenue
            Somerville, MA.............................................    1974                     $260,796

            BRANCH OFFICES:
            175 Broadway
            Arlington, MA.............................................     1982                      121,580

            85 Wilmington Road
            Burlington, MA............................................     1978(a)                     4,429

            1192 Boylston Street
            Chestnut Hill (Brookline), MA.............................     1954                      128,178

            137 Pleasant Street
            Malden, MA................................................     1975(b)                    28,497

            846 Main Street
            Melrose, MA...............................................     1994(c)                   183,347

            275 Main Street
            Woburn, MA................................................     1980                      473,462

            198 Lexington Street
            Woburn, MA................................................     1974                      185,840

            OPERATIONS CENTER:
            17 Inner Belt Road
            Somerville, MA............................................     1994 (c)                   20,181
<FN>
_________
(a)  The  lease  for the  Burlington  branch  expires  in 2002 with an option to
     extend the lease for one five-year term.
(b)  The lease for the Pleasant  Street branch expires in 2005 with an option to
     extend the lease for one ten-year term.
(c)  The Melrose and Somerville  (Inner Belt Road) offices were obtained as part
     of the  Bank's  acquisition  of  Metro  Bancorp,  Inc.  The  lease  for the
     operations center (Inner Belt Road) expires in 2004 with no renewal option.
</FN>
</TABLE>

     At March 31,  2001,  the total net book  value of the Bank's  premises  and
equipment was $2.0 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. 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.



                                       25
<PAGE>


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  traded  over-the-counter  on the  Nasdaq
National  Market SM under the  symbol  "CEBK."  At March 31,  2001,  there  were
1,684,164 shares of the common stock  outstanding and  approximately 265 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  2001 and fiscal  2000 as reported by the Nasdaq
National Market SM, and the amounts and payable dates of the cash dividends paid
during  each  quarter  of fiscal  2001 and  fiscal  2000.  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 2001                High             Low                        Fiscal 2001      Amount
         --------------------------------------------------------               ------------------------
         <S>                        <C>              <C>                        <C>              <C>
         6/30/00                    $  17.000        $  14.250                  5/19/00          $  0.10
         9/30/00                    $  20.063        $  14.625                  8/18/00          $  0.10
         12/31/00                   $  18.250        $  15.500                  11/17/00         $  0.10
         3/31/01                    $  19.625        $  16.750                  2/15/01          $  0.10

         Fiscal 2000                High             Low                        Fiscal 2000      Amount
         --------------------------------------------------------               ------------------------
         6/30/99                    $  22.000        $  19.375                  5/21/99          $  0.08
         9/30/99                    $  22.500        $  16.500                  8/20/99          $  0.08
         12/31/99                   $  22.250        $  14.500                  11/19/99         $  0.10
         3/31/00                    $  16.750        $  14.500                  2/18/00          $  0.10
</TABLE>


                                       26
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------
<TABLE>
<CAPTION>
                                                                       AT OR FOR THE YEAR ENDED MARCH 31,
                                                     -----------------------------------------------------------------------
                                                          2001          2000          1999          1998          1997
                                                          ----          ----          ----          ----          ----
                                                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>            <C>          <C>           <C>           <C>
BALANCE SHEET
Total assets......................................... $ 449,337      $ 409,557    $ 364,696     $ 375,233     $ 320,950
Total loans..........................................   345,793        320,013      280,346       281,724       234,935
Investments:
    Available for sale...............................    85,106         70,245       68,881        73,027        63,839
    Held to maturity.................................        --             --           --         4,000         4,000
Deposits.............................................   287,167        258,339      266,463       276,364       259,093
Borrowings...........................................   121,000        111,000       57,000        59,000        25,000
Total stockholders' equity...........................    38,212         37,397       38,742        36,786        33,545

Shares outstanding...................................     1,684          1,810        1,967         1,965         1,965

STATEMENTS OF OPERATIONS
Net interest and dividend income..................... $  13,914      $  13,375    $  11,947     $  11,698     $  11,623
Provision for loan losses............................        --             --           --            --            --
Total non-interest income............................     1,288          1,669        1,368         1,814           888
Total operating expenses.............................    10,330          9,345        8,773         8,471         8,986
Net income before cumulative effect of
  accounting change..................................     3,109          3,567        2,682         3,047         2,837
Net income...........................................     3,109          3,333        2,682         3,047         2,837
Earnings per common share before cumulative effect
  of accounting change, assuming dilution............      1.81           1.89         1.38          1.56          1.46
Earnings per common share after cumulative effect
  of accounting change, assuming dilution............      1.81           1.77         1.38          1.56          1.46

SELECTED RATIOS
Interest rate spread.................................      3.05%          3.33%        2.97%         3.11%         3.45%
Net yield on interest-earning assets.................      3.37           3.64         3.29          3.45          3.78
Equity-to-assets.....................................      8.50           9.13        10.62          9.80         10.45
Return on average assets before cumulative effect
  of change in accounting principle..................      0.74           0.94         0.72          0.88          0.89
Return on average stockholders' equity before
  cumulative effect of change in accounting
  principle..........................................      8.11           9.49         7.12          8.64          8.67
Dividend payout ratio................................     22.42          20.67        23.45         20.64         11.10

</TABLE>

                                       27
<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------

GENERAL

     Central   Bancorp,   Inc.  (the   "Company")  is  a  bank  holding  company
headquartered in Somerville,  Massachusetts.  The Company is the holding company
for its wholly owned  subsidiary,  Central Bank (the "Bank"),  a state chartered
co-operative  bank.  Through the Bank, the Company acquires funds in the form of
deposits  and  uses the  funds  to make  mortgage  loans  for the  construction,
purchase  and  refinancing  of  residential  properties,  and to make  loans  on
commercial  real estate and  business  loans in its market  area.  The Bank also
makes a limited amount of consumer loans including home  improvement and secured
and  unsecured  personal  loans.  The  Bank has used  excess  funds to  purchase
investment and mortgage-backed securities.

     The  operations  of 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 Banking  Commissioner,  the Federal  Reserve Board and the Federal
Deposit Insurance Corporation ("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  Bank's  results of
operations  for the last three years and its  financial  condition at the end of
fiscal years 2001 and 2000.  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.

RESULTS OF OPERATIONS

     The Bank reported net income of $3.1 million or $1.81 per diluted share for
fiscal 2001,  as compared to $3.3 million or $1.77 per diluted  share for fiscal
2000 after cumulative effect of change in accounting  principle and $2.7 million
or $1.38 per  diluted  share  after  cumulative  effect of change in  accounting
principle for fiscal 1999.

     The Bank's earnings  decrease for fiscal 2001 compared with fiscal 2000 was
primarily the result of an increase in operating  expenses  offset by higher net
interest  income  and a  decrease  in net  gain on  investment  securities.  The
increase  in  salaries  and  benefits  was  impacted  by a one-time  expenditure
relating to the settlement of a severance  claim.  The Bank was able to increase
net  interest  and  dividend   income  during  the  period  despite  a  fiercely
competitive market for loans. The increase in the cost of deposits resulted from
management's  decision to  aggressively  price deposits which caused the overall
cost of funds to increase.

     Fiscal 2000 results were reduced by a one-time  charge of $234,000,  net of
taxes,  for costs  associated  with the  establishment,  on January 8, 1999,  of
Central  Bancorp,  Inc. as the holding  company  for Central  Bank.  This charge
represented  the balance of  unamortized  organization  costs  outstanding as of
April 1, 1999,  that were  required to be written off in  accordance  with a new
accounting rule regarding reporting costs of organization activities.  Excluding
this cumulative  effect of a change in accounting  principle,  Central Bancorp's
net income for the fiscal year ended March 31,  2000,  was $3.6 million or $1.89
per diluted share.

                                       28
<PAGE>
     INTEREST  RATE  SPREAD.  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.
<TABLE>
<CAPTION>
                                                                       YEAR ENDED MARCH 31,
                                    -----------------------------------------------------------------------------------------
                                               2001                            2000                          1999
                                    ----------------------------    --------------------------    ---------------------------
                                    AVERAGE               YIELD/    AVERAGE             YIELD/    AVERAGE              YIELD/
                                    BALANCE   INTEREST     COST     BALANCE   INTEREST   COST     BALANCE   INTEREST    COST
                                    -------   --------     ----     -------   --------   ----     -------   --------    ----
                                                                    (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>         <C>      <C>       <C>        <C>       <C>       <C>       <C>
Interest-earning assets:
  Mortgage loans.................   $334,513   $25,613     7.66%    $293,126  $21,806    7.44%     $282,631  $21,250    7.52%
  Other loans....................      7,219       716     9.92        6,963      599    8.60         4,882      423    8.66
  Short-term investments.........      7,457       487     6.53        8,197      421    5.14        13,128      650    4.95
  Investment securities..........     40,004     2,603     6.53       32,632    2,039    6.25        23,375    1,481    6.34
  Mortgage-backed securities.....     21,418     1,412     6.59       25,035    1,465    5.85        37,676    2,097    5.57
  The Co-operative Central Bank
    Reserve Fund.................      1,576        86     5.46        1,576       94    5.96         1,576       95    6.03
                                    --------   -------              --------  -------              --------  -------
      Total interest-earning
        assets...................   $412,187    30,917     7.50     $367,529   26,424    7.19      $363,268   25,996    7.16
                                    ========   -------              ========  -------              ========  -------

Interest-bearing liabilities:
  Deposits.......................   $270,135    10,087     3.73     $257,536    8,553    3.32      $275,135   10,770    3.91
  Advances from FHLB of Boston...    111,980     6,916     6.18       80,907    4,496    5.56        59,901    3,279    5.47
                                    --------   -------              --------  -------              --------  -------
      Total interest-bearing
          liabilities............   $382,115    17,003     4.45     $338,443   13,049    3.86      $335,036   14,049    4.19
                                    ========   -------              ========  -------              ========  -------

Net interest and dividend income.              $13,914                        $13,375                        $11,947
                                               =======                        =======                        =======
Interest rate spread.............                          3.05%                         3.33%                          2.97%
                                                           ====                          ====                           ====

Net yield on interest-earning
  assets ........................                          3.37%                         3.64%                          3.29%
                                                           ====                          ====                           ====
</TABLE>


                                       29
<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>
                                           2001      VS.        2000          2000      VS.        1999
                                         -----------------------------      -----------------------------
                                              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.......................  $  3,148    $   659    $  3,807    $   784    $  (228)    $   556
  Other................................        23         94         117        179         (3)        176
                                         --------    -------    --------    -------    -------     -------
      Total income from loans..........     3,171        753       3,924        963       (231)        732
                                         --------    -------    --------    -------    -------     -------
  Short-term investments...............       (41)       107          66       (253)        24        (229)
  Investment securities................       476         88         564        579        (21)        558
  Mortgage-backed securities...........      (226)       173         (53)      (733)       101        (632)
  The Co-operative Central Bank
  Reserve Fund.........................        --         (8)         (8)        --         (1)         (1)
                                         --------    -------    --------    -------    -------     -------
      Total income from investments....       209        360         569       (407)       103        (304)
                                         --------    -------    --------    -------    -------     -------
      Total interest and dividend
        income.........................     3,380      1,113       4,493        557       (128)        428
                                         --------    -------    --------    -------    -------     -------

Interest expense:
  Deposits.............................       435      1,099       1,534       (660)    (1,557)     (2,217)
  Advances from FHLB of Boston.........     1,875        545       2,420      1,162         55       1,217
                                         --------    -------    --------    -------    -------     -------
      Total interest expense...........     2,310      1,644       3,954        502     (1,502)     (1,000)
                                         --------    -------    --------    -------    -------     -------

Net interest and dividend income.......  $  1,070    $  (531)   $    539    $    54    $ 1,374     $ 1,428
                                         ========    =======    ========    =======    =======     =======
</TABLE>


     INTEREST AND DIVIDEND  INCOME.  The Bank experienced a $4.5 million overall
increase in  interest  and  dividend  income for the fiscal year ended March 31,
2001 compared to fiscal 2000. Interest income on loans increased by $3.9 million
to $26.3 million due to a $41.6 million increase in average loan balances. Total
loans  increased by $25.8  million from March 31, 2000 to March 31, 2001 and the
yield on these loans increased by 23 basis points. The Bank originated new loans
amounting to $82.6 million, of which $51.1 million were  adjustable-rate  loans.
The increase in the loan  portfolio  reflects a management  decision to increase
loan  originations  in a  favorable  interest  rate  environment.  As rates have
declined during the current  calendar year,  management has decided to slow down
residential  lending but expects to continue its emphasis on commercial  lending
in order to diversify the loan portfolio and improve  overall  portfolio  yield.
Additionally,  interest and  dividend  income on  investments  increased by $569
thousand due primarily to an $3.0 million  increase in average total balances of
investments  and a 58 basis point  increase  in the rate  earned on  investments
during fiscal 2001. The overall total average balance of interest-earning assets
increased  by $44.7  million  from fiscal 2000 to fiscal  2001,  and the average
yield on all  interest-earning  assets  increased by 31 basis points between the
two fiscal years.

     The Bank  experienced  a $428  thousand  overall  increase in interest  and
dividend  income for the fiscal  year ended  March 31,  2000  compared to fiscal
1999.  Interest  income on loans increased by $732 thousand to $22.4 million due
to a $12.6 million  increase in average loan balances.  Total loans increased by
$39.7  million  from March 31, 1999 to March 31,  2000.  Partly  offsetting  the
increase  in average  loans  outstanding  was a 7 basis  point  decrease  in the
average yield on these loans.  The Bank originated new loans amounting to $108.4
million,  of which  $78.5  million  were  adjustable-rate  loans.  Additionally,
interest  and dividend  income on  investments  decreased  by $304  thousand due
primarily to an $8.3 million  decrease in average total  balances of investments
partly  offset by a 25 basis point  increase  in the rate earned on  investments
during fiscal 2000. The overall total average balance of

                                       30
<PAGE>

interest-earning  assets  increased  by $4.3  million from fiscal 1999 to fiscal
2000, and the average yield on all interest-earning  assets increased by 3 basis
points between the two fiscal years.

     INTEREST EXPENSE.  For fiscal 2001,  interest expense on deposits increased
by $1.5  million  from $8.6  million in fiscal  2000 to $10.1  million in fiscal
2001. The increase can be attributed primarily to an increase of 41 basis points
in the interest  rate paid on deposits from 3.32% during fiscal 2000 to 3.73% in
fiscal 2001, plus an increase in the average total balance of deposits to $270.1
million  during fiscal 2001 from $257.5  million in the prior  period.  Interest
expense on borrowings  also increased as the average  balance of borrowings rose
to $112.0  million  during fiscal 2001 from $80.9 million during fiscal 2000, in
addition to an increase of 62 basis points in the rate paid on these  borrowings
to 6.18% in fiscal  2001 from 5.56% in fiscal  2000.  Both  factors  combined to
cause a $2.4 million  increase in interest  expense on borrowings  during fiscal
2001. There was an overall  increase in the average balance of  interest-bearing
liabilities of $43.7 million during fiscal 2001 compared to fiscal 2000.

     Interest  expense on deposits  decreased during the fiscal year ended March
31, 2000 by $2.2  million,  from $10.8 million in fiscal 1999 to $8.6 million in
fiscal 2000.  The decrease can be attributed to a decrease of 59 basis points in
the  interest  rate paid on deposits,  from 3.91%  during  fiscal 1999 to 3.32 %
during fiscal 2000, as well as a decrease in the average  balance of deposits to
$257.5  million  during  fiscal 2000 from $275.1  million  during  fiscal  1999.
Interest  expense on borrowings  increased as the average  balance of borrowings
rose to $80.9 million  during fiscal 2000 from $59.9 million  during fiscal 1999
and the average rate paid on borrowed funds  increased 9 basis points from 5.47%
in fiscal 1999 to 5.56% in fiscal 2000.  Both  factors  combined to cause a $1.2
million increase in interest expense on borrowings during fiscal 2000. There was
an overall  increase in the average balance of  interest-bearing  liabilities of
$3.4 million  during fiscal 2000 compared to fiscal 1999 while the cost of those
liabilities declined by 33 basis points, to 3.86% in fiscal 2000.

     PROVISION  FOR LOAN LOSSES.  Due to the Bank's stable and  relatively  high
level of asset  quality,  there was no provision  for loan losses  during fiscal
2001,  2000 and 1999. At March 31, 2001,  2000 and 1999,  problem assets totaled
$0, $235 thousand and $420  thousand,  representing  0%, 0.06% and 0.1% of total
assets,  respectively.  Problem  assets are loans 90 days or more past due, real
estate acquired by foreclosure  and impaired loans.  There were no loans 90 days
or more past due at March 31,  2001.  Loans 90 days or more past due amounted to
$235  thousand at March 31, 2000, a decrease of $184 thousand from $419 thousand
at March 31, 1999.  There were no impaired loans at March 31, 2001 and March 31,
2000.  There was no real estate  acquired by foreclosure at March 31, 2001, 2000
or 1999.

     NON-INTEREST  INCOME.  Total  non-interest  income for fiscal 2001 was $1.3
million, compared to $1.7 million during fiscal 2000. The primary reason for the
$381  thousand  decline  was a  decrease  in gains  from the sale of  investment
securities  during fiscal 2001 of $680 thousand  compared to $1.0 million during
fiscal 2000.

     Total  non-interest  income for fiscal 2000 was $1.7  million,  compared to
$1.4  million  during  fiscal  1999.  The primary  reason for the $301  thousand
increase   was  an  increase  in  gains  from  the  sales  of   investment   and
mortgage-backed  securities  during fiscal 2000 of $1.0 million compared to $580
thousand during fiscal 1999.  Additionally,  during fiscal 1999, the Bank sold a
non-banking facility, realizing a net gain on sale of $105 thousand.

     OPERATING  EXPENSES.  Operating expenses increased $985 thousand during the
fiscal year ended March 31, 2001, as compared to the fiscal year ended March 31,
2000.  This  increase is  primarily  attributable  to  increase in salaries  and
benefits of $554 thousand, which included a one-time expenditure relating to the
settlement  of a  severance  claim,  in  data  processing  service  fees of $313
thousand due to a change in computer processing systems and an increase in other
expenses of $204 thousand. The primary reason for the increase in other expenses
were $291  thousand  in higher  expenditures  for  promotions,  advertising  and
marketing.  These increases were partially offset by a reduction in professional
fees during fiscal 2001 of $118 thousand due to consulting  fees incurred during
fiscal 2000 relating to a tax planning strategy implemented during fiscal 2000.

     Operating  expenses  increased  $572 thousand  during the fiscal year ended
March 31,  2000,  as  compared to the fiscal  year ended  March 31,  1999.  This
increase  was  primarily  attributable  to increases in salaries and benefits of
$638 thousand,  in professional fees of $119 thousand and other expenses of $132
thousand.  These increases were partially offset by a reduction in occupancy and
equipment expenses during fiscal 2000 of $301 thousand.

                                       31
<PAGE>

     INCOME  TAXES.  The  objective  of the  asset  and  liability  method is to
establish  deferred tax assets and  liabilities  for the  temporary  differences
between the financial reporting basis and the tax basis of the Bank's assets and
liabilities  at enacted tax rates expected to be in effect when such amounts are
realized or settled.

     During  fiscal  1999,  the Bank's  effective  income tax expense  increased
substantially  to  approximately  the  statutory  rate.  The Company  instituted
certain  tax-saving  techniques in fiscal 2000 that resulted in a decline in the
effective  tax rate.  The  effective  rates of income tax expense for the fiscal
years  ended  March  31,  2001,  2000 and 1999 were  36.2%,  37.4%,  and  41.0%,
respectively.

FINANCIAL CONDITION

     Total assets at March 31, 2001 amounted to $449.3  million,  an increase of
$39.7 million from $409.6  million at March 31, 2000.  Total assets at March 31,
2000  increased  $44.9  million from $364.7  million at March 31,  1999.  During
fiscal 2001, increases in the Bank's deposits and in borrowed funds were used to
fund the increase in loans and investments.

     Net loans  increased $25.7 million to $342.7 million at March 31, 2001 from
$317.0 million at March 31, 2000. At March 31, 2001,  mortgage loans were $338.9
million,  a $23.9 million  increase from March 31, 2000.  During the fiscal year
ended March 31, 2001, the Bank originated loans totaling $82.6 million, of which
$31.5  million were  fixed-rate  loans and $51.1  million  were  adjustable-rate
loans.  Total loans  originated  during the fiscal  year ended  March 31,  2000,
totaled $108.4 million,  of which $29.9 million were fixed-rate  loans and $78.5
million were adjustable-rate loans.

     RISK  ELEMENTS.  The  improvement  in  the  Bank's  real  estate  portfolio
continued  through  fiscal  2001,  which  resulted  in a $235  thousand  overall
decrease in its problem assets to nil at March 31, 2001 as compared to March 31,
2000.  Any reversal of the  favorable  economic  conditions  experienced  during
fiscal 2001 could result in the Bank  experiencing  increases in problem  assets
that would negatively affect the Bank's results of operations.

     The allowance  for loan losses is  maintained  at a level which  management
considers  adequate  to  provide  for  inherent  probable  losses  based  on  an
evaluation  of known  and  inherent  risks  in the  portfolio.  Such  evaluation
includes  identification  of adverse  situations  that 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.
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 current
evaluations.  Any such adjustments to the allowance could negatively  affect the
Bank's net income. Additions to the allowance are charged to earnings;  realized
losses, net of recoveries, are charged to the allowance.

     INVESTMENT  ACTIVITIES.  The  Bank's  management  believes  it  prudent  to
maintain an investment  portfolio  that provides not only a source of income but
also a source of liquidity to meet lending  demands and  fluctuations in deposit
flows.

     DEPOSITS.  Total  deposits at March 31, 2001 were $287.2  million,  a $28.9
million  increase  from $258.3  million one year earlier.  Savings  accounts and
other types of deposits have traditionally been an important source of funds for
lending,  investment  purchases,  and for other general business  purposes.  The
increase in deposits resulted from management's  decision to price deposits in a
competitive interest rate environment, which caused the overall cost of funds to
increase.

     ADVANCES  FROM THE  FEDERAL  HOME LOAN BANK OF  BOSTON.  Advances  from the
Federal Home Loan Bank of Boston  increased to $121.0  million at March 31, 2001
from $111.0 million at March 31, 2000.

ASSET/LIABILITY MANAGEMENT AND 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.


                                       32
<PAGE>

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 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 following two tables reflect different methods of disclosing the Bank's
exposure to a change in interest  rates and its  potential  impact on the Bank's
net interest  income.  The gap analysis  uses  contractual  maturities  and next
repricing  dates,  while the  market  risk  simulation  measures  changes in net
interest income as a result of changes in market  interest  rates.  The interest
rate  sensitivity of the Bank's assets and liabilities in both tables would vary
substantially if different assumptions were used or if actual experience differs
from the assumptions provided.


                                       33
<PAGE>
<TABLE>
<CAPTION>
                                                           TIME INTERVAL FROM MARCH 31, 2001
                                     ------------------------------------------------------------------------------
                                     0-30       31-90      91-180       181-365      1-3       3-5
                                     DAYS        DAYS       DAYS          DAYS      YEARS      YEARS     THEREAFTER    TOTAL
                                     ----       -----      ------       -------     -----      -----     ----------    -----
                                                                       (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>        <C>         <C>          <C>        <C>         <C>        <C>
Interest-sensitive assets
-------------------------
  Short-term investments            $34,529    $     --   $     --    $     --     $     --   $     --    $     --   $ 34,529
  Investment securities (including
    stock in the FHLB of Boston)      6,967       6,150         --          --          506     14,253       9,537     37,413
  Adjustable-rate loans (a)           8,584      11,056     11,942      10,236       75,018    110,279      11,531    238,646
  Fixed-rate loan amortization (b)      430         856      1,316       2,731       12,060     13,939      75,815    107,147
  Mortgage-backed securities
    amortization (b)                     47          94        143         294        1,285      1,481      15,970     19,314
  The Co-Operative Central Bank
    Reserve Fund                         --          --      1,576          --           --         --          --      1,576
                                    -------    --------   --------    --------     --------   --------    --------   --------
      Total interest-sensitive
        assets                       50,557      18,156     14,977      13,261       88,869    139,952     112,853    438,625
                                    -------    --------   --------    --------     --------   --------    --------   --------
Interest-sensitive liabilities
------------------------------
  NOW accounts (c)                    7,844          --         --          --           --         --      23,533     31,377
  Regular, club and 90-day notice
    accounts (c)                     16,003           6         --          --           --         --      48,002     64,011
  Money market deposit accounts      15,327          --         --          --           --         --          --     15,327
  Term deposit certificates           5,780      27,806     44,476      24,759       46,039      3,147          11    152,018
  Advances from FHLB of Boston        2,000       5,000      6,000      12,000        8,000      4,000      84,000    121,000
                                    -------    --------   --------    --------     --------   --------    --------   --------
      Total interest-sensitive
        liabilities                  46,954     32,812      50,476      36,759       54,039      7,147     155,546    383,733
                                    -------    --------   --------    --------     --------   --------    --------   --------
Interest-sensitivity gap
  (assets minus liabilities)        $ 3,603    $(14,656)  $(35,499)   $(23,498)    $ 34,830   $132,805    $(42,693)  $ 54,892
                                    =======    ========   ========    ========     ========   ========    ========   ========

Cumulative gap                      $ 3,603    $(11,053)  $(46,552)   $(70,050)    $(35,220)  $ 97,585    $ 54,892
                                    =======    ========   ========    ========     ========   ========    ========

Cumulative interest-sensitive
  assets as a percent of cumulative
  interest-sensitive liabilities      107.7%       86.1%      64.3%       58.1%        64.1%     142.6%      114.3%

Cumulative gap as a percent of
  total assets                          0.9%       (2.7)%    (11.4)%     (17.1)%       (8.6)%     23.6%       13.4%
<FN>
--------------
(a)  Adjustable-rate  mortgage loan amounts and other loans subject to repricing
     are accumulated as if the entire balance came due on the repricing date.

(b)  Amortization is shown in the time period  corresponding  to the contractual
     amortization  or, when such  information  was not  available,  the computed
     principal  amortization  based on weighted average  maturities and weighted
     average  rates.  Fixed-rate  demand  loans  are  shown in the  "0-30  Days"
     category and are usually  amortized over longer periods and can be repriced
     at the option of the Bank

(c)  Although NOW and regular  accounts are subject to immediate  withdrawal and
     repricing, management considers these accounts to have significantly longer
     effective maturities and repricing terms;  therefore,  the majority of such
     accounts  have  been  included  in the  "Thereafter"  category.  If NOW and
     regular  accounts had been  assumed to be subject to  repricing  within one
     year,  the  cumulative  excess  of  interest  sensitive   liabilities  over
     interest-sensitive  assets  would  have  been  $141,591  or  34.6% of total
     assets.
</FN>
</TABLE>

     The above table  indicates that the Company is liability  sensitive  during
the period of one year or less.  Accordingly,  the Bank's  net  interest  income
would be negatively  affected by a rising  interest rate  environment  since its
interest-bearing  liabilities  would  reprice  upwards  more  quickly  than  its
interest-earning assets.


                                       34
<PAGE>
     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 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 200 basis points downward in the first year
of the model.

     The following  table  indicates  the estimated  exposure as a percentage of
estimated net interest income for the next twelve and twenty-four month periods:
<TABLE>
<CAPTION>
                                                                        PERCENTAGE CHANGES IN ESTIMATED
                                                                            NET INTEREST INCOME OVER
                                                                       ---------------------------------
                                                                       12 MONTHS               24 MONTHS
                                                                       ---------               ---------
                  <S>                                                     <C>                    <C>
                  300 basis point increase in rates....................    (3.6)%                (10.2)%

                  200 basis point decrease in rates....................   (10.3)%                (16.5)%
</TABLE>


     Based on the scenario  above,  net interest  income of the Company would be
adversely  affected  by either a 300 basis  point  increase or a 200 basis point
decrease in rates in both the twelve and twenty-four month periods.

LIQUIDITY

     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
the continued  competition in recent years. During fiscal 2001, deposit balances
increased by $28.9  million to $287.2  million from $258.3  million at March 31,
2000.

     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, 2001 and 2000, the Bank had outstanding FHLB of Boston
advances of $121.0 million and $111.0  million,  respectively.  The deposits and
FHLB  advances  were used to fund the Bank's  lending and  investing  activities
during the year.  The FHLB of Boston  advances  are secured by a blanket lien on
residential  first mortgage  loans,  investment  securities and all stock in the
FHLB of Boston.

     As a member of The  Co-operative  Central Bank, the Bank also has the right
to borrow from that  organization for short-term cash needs, by pledging certain
assets.  The Bank also may obtain funds from the Federal  Reserve Bank of Boston
by pledging  certain of the Bank's notes and drafts.  The Bank has not exercised
these rights.

     Loan  originations,  including  purchases,  totaled $82.6  million,  $108.4
million,  and $111.2 million for the fiscal years ended March 31, 2001, 2000 and
1999,  respectively.  At March 31, 2001,  outstanding  commitments  to originate
mortgage loans totaled $17.1 million,  and commitments  for unadvanced  funds on
home equity, commercial and construction loans totaled $24.9 million. Currently,
the Bank does not have any mortgage  loans  available  for


                                       35
<PAGE>

sale in the  secondary  market.  Management  believes that the Bank has adequate
sources of liquidity to fund these commitments.

CAPITAL RESOURCES

     Massachusetts  chartered  co-operative  banks with deposits  insured by the
FDIC, such as 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, 2001, the minimum total risk-based capital ratio required
was 8.00%.  The Bank's  risk-based  total  capital  ratio at March 31,  2001 was
12.86%.

     To complement the risk-based  standards,  the FDIC adopted a leverage ratio
(stockholders'  equity  divided by total 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 Bank's
leverage ratio was 7.75% at March 31, 2001.

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

     The tabular and narrative  information  set forth in "Item 7.  Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Asset/Liability  Management and Market Risk" in Part II of this report discloses
detailed  quantitative and qualitative  information about market risks and their
effects  on the  Company  and its  subsidiaries,  particularly  with  respect to
changes in market interest rates on interest-earning assets and interest-bearing
liabilities.


                                       36
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------




                      CENTRAL BANCORP INC. AND SUBSIDIARIES

                   Index to Consolidated Financial Statements



                                                                          Page
                                                                          ----
Consolidated Balance Sheets............................................... 38

Consolidated Statements of Income......................................... 39

Consolidated Statement of Changes in Stockholders' Equity................. 40

Consolidated Statement of Cash Flows...................................... 41

Notes to Consolidated Financial Statements................................ 43

Independent Auditors' Report.............................................. 62


                                       37
<PAGE>

                     CENTRAL BANCORP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                             (Dollars In Thousands)
<TABLE>
<CAPTION>
                                                                                                        MARCH 31,
                                                                                               ---------------------------
                                                                                                  2001             2000
                                                                                                  ----             ----
ASSETS
<S>                                                                                            <C>               <C>
Cash and due from banks                                                                        $  5,351          $  6,588
Short-term investments
                                                                                                 34,529            14,802
Investments available for sale:
     Investment securities (amortized cost of $31,702 in 2001 and $32,839 in 2000)
       (notes 2 and 11)                                                                          31,263            32,135
     Mortgage-backed securities (amortized cost of $19,623 in 2001 and $23,862 in 2000)
       (note 2)                                                                                  19,314            23,308
Stock in Federal Home Loan Bank of Boston, at cost (note  7)                                      6,150             5,800
The Co-operative Central Bank Reserve Fund (note 8)                                               1,576             1,576
                                                                                               --------          --------
     Total investments                                                                           92,832            77,621

Loans:
   Mortgage loans (notes  3, 5 and 11)                                                          338,898           314,966
   Other loans  (notes 4 and 5)                                                                   6,895             5,047
                                                                                               --------          --------
                                                                                                345,793           320,013
  Less allowance for loan losses (note 6)                                                         3,106             2,993
                                                                                               --------          --------
         Net loans                                                                              342,687           317,020
                                                                                               --------          --------
Accrued interest receivable                                                                       2,426             2,036
Office properties and equipment, net (note  9)                                                    2,018             2,218
Deferred tax asset, net (note 12)                                                                   801             1,071
Goodwill, net                                                                                     2,520             2,808
Other assets                                                                                        702               195
                                                                                               --------          --------
         Total assets                                                                          $449,337          $409,557
                                                                                               ========          ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Deposits  (note 10)                                                                       $287,167          $258,339
     Advances from Federal Home Loan Bank of Boston (note 11)                                   121,000           111,000
     Advance payments by borrowers for taxes and insurance                                        1,220             1,053
     Accrued interest payable                                                                       608               542
     Accrued expenses and other liabilities                                                       1,130             1,226
                                                                                               --------          --------
         Total liabilities                                                                      411,125           372,160
                                                                                               --------          --------

Commitments and contingencies (notes 9, 13 and 16)
Stockholders' equity (note 14):

     Preferred stock $1.00 par value, authorized 5,000,000 shares;
         none issued or outstanding                                                                  --                --
     Common stock $1.00 par value, authorized 15,000,000 shares;
         1,970,000 shares issued; outstanding 1,684,164 and 1,810,450 shares
         at March 31, 2001 and 2000, respectively                                                 1,970             1,970
     Additional paid-in capital                                                                  11,190            11,190
     Retained income                                                                             30,950            28,538
     Treasury stock (285,836 and 159,550 shares at March 31, 2001 and 2000,
         respectively), at cost                                                                  (5,230)           (3,043)
     Accumulated other comprehensive (loss) income                                                 (431)             (825)
     Unearned compensation - ESOP (note 15)                                                        (237)             (433)
                                                                                               --------          --------
         Total stockholders' equity                                                              38,212            37,397
                                                                                               --------          --------
         Total liabilities and stockholders' equity                                            $449,337          $409,557
                                                                                               ========          ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       38
<PAGE>


                     CENTRAL BANCORP, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                       FISCAL YEARS ENDED MARCH 31,
                                                              ---------------------------------------------
                                                                 2001              2000             1999
                                                              ---------------------------------------------
<S>                                                           <C>               <C>              <C>
Interest and dividend income:
    Mortgage loans                                            $  25,613         $ 21,806         $  21,250
    Other loans                                                     716              599               423
    Short-term investments                                          487              421               650
    Investment securities                                         2,603            2,039             1,481
    Mortgage-backed securities                                    1,412            1,465             2,097
    The Co-operative Central Bank Reserve Fund                       86               94                95
                                                              --------------------------------------------
            Total interest and dividend income                   30,917           26,424            25,996
                                                              --------------------------------------------
Interest expense:
    Deposits                                                     10,087            8,553            10,770
    Advances from Federal Home Loan Bank of Boston                6,916            4,496             3,279
                                                              --------------------------------------------
            Total interest expense                               17,003           13,049            14,049
                                                              --------------------------------------------
            Net interest and dividend income                     13,914           13,375            11,947
Provision for loan losses (note 6)                                   --               --                --
                                                              --------------------------------------------
            Net interest and dividend income after
                 provision for loan losses                       13,914           13,375            11,947
                                                              --------------------------------------------
Non-interest income:
    Deposit service charges                                         428              414               431
    Net gain from sale of investment securities (note 2)            680            1,013               580
    Gain on sale of building                                         --               --               105
    Other income                                                    180              242               252
                                                              --------------------------------------------
            Total non-interest income                             1,288            1,669             1,368
                                                              --------------------------------------------
Operating expenses:
    Salaries and employee benefits (note 15)                      5,571            5,017             4,379
    Occupancy and equipment (note 9)                              1,192            1,167             1,468
    Data processing service fees                                    847              534               543
    Professional fees                                               757              875               756
    Foreclosure expenses, net                                         1               (6)                1
    Goodwill amortization                                           288              288               288
    Other expenses                                                1,674            1,470             1,338
                                                              --------------------------------------------
            Total operating expenses                             10,330            9,345             8,773
                                                              --------------------------------------------
            Income before income taxes                            4,872            5,699             4,452
Income tax expense (note 12)                                      1,763            2,132             1,860
                                                              --------------------------------------------
Net income before cumulative effect of change in
    accounting principle                                          3,109            3,567             2,682
Cumulative effect of change in accounting principle,
    net of taxes                                                     --             (234)               --
                                                              --------------------------------------------
            Net income                                        $   3,109         $  3,333         $   2,682
                                                              ============================================

Earnings per common share (note 1):
    Before cumulative effect of change in accounting
      principle                                               $    1.81         $   1.90         $    1.38
                                                              ============================================
    Before cumulative effect of change in accounting
      principle - assuming dilution                           $    1.81         $   1.89         $    1.38
                                                              ============================================
    After cumulative effect of change in accounting
      principle                                               $    1.81         $   1.77         $    1.38
                                                              ============================================
    After cumulative effect of change in accounting
      principle - assuming dilution                           $    1.81         $   1.77         $    1.38
                                                              ============================================
Weighted average common shares outstanding                        1,717            1,882             1,938
                                                              ============================================
Weighted average common shares outstanding, diluted               1,719            1,885             1,946
                                                              ============================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       39

<PAGE>

                     CENTRAL BANCORP, INC. AND SUBSIDIARIES
           Consolidated Statements of Changes in Stockholders' Equity
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                                       ACCUMULATED
                                                      ADDITIONAL                          OTHER        UNEARNED        TOTAL
                                            COMMON     PAID-IN   RETAINED   TREASURY  COMPREHENSIVE  COMPENSATION  STOCKHOLDERS'
                                            STOCK      CAPITAL    INCOME     STOCK    (LOSS) INCOME      ESOP         EQUITY
                                            ------    ---------  --------   --------  -------------  ------------  ------------
<S>                                         <C>        <C>        <C>       <C>       <C>              <C>            <C>
 Balance at March 31, 1998                  $1,965     $11,159    $23,841   $    --   $   544          $(723)         $36,786
 Net income                                     --          --      2,682        --        --             --            2,682
 Other comprehensive income,
   net of tax:
     Unrealized (loss) on securities,
       net of reclassification
       adjustment                               --          --         --        --      (217)            --             (217)
                                                                                                                      -------

       Comprehensive income                     --          --         --        --        --             --            2,465
                                                                                                                      -------
 Proceeds from exercise of stock options         2          12         --        --        --             --               14

 Dividend paid ($0.32 per share)                --          --       (629)       --        --             --             (629)
 Amortization of unearned compensation
  - ESOP                                        --          --         --        --        --            106              106
                                            ---------------------------------------------------------------------------------
 Balance at March 31, 1999                   1,967      11,171     25,894        --       327           (617)          38,742

 Net income                                     --          --      3,333        --        --             --            3,333
 Other comprehensive income,
  net of tax:
     Unrealized (loss) on securities,
      net of reclassification adjustment        --          --         --        --    (1,152)            --           (1,152)
                                                                                                                      -------
       Comprehensive income                     --          --         --        --        --             --            2,181
                                                                                                                      -------
 Proceeds from exercise of stock options         3          19         --        --        --             --               22

 Purchase of treasury stock                     --          --         --    (3,043)       --             --           (3,043)
 Dividend paid ($0.36 per share)                --          --       (689)       --        --             --             (689)
 Amortization of unearned compensation
  - ESOP                                        --          --         --        --        --            184              184
                                            ---------------------------------------------------------------------------------
 Balance at March 31, 2000                   1,970      11,190     28,538    (3,043)     (825)          (433)          37,397
 Net income                                     --          --      3,109        --        --             --            3,109
 Other comprehensive income,
  net of tax:
     Unrealized gain on securities,
      net of reclassification
      adjustment (note 2)                       --          --         --        --       394             --              394
                                                                                                                      -------
       Comprehensive income                     --          --         --        --        --             --            3,503
                                                                                                                      -------
 Purchase of treasury stock                     --          --         --        --        --             --           (2,187)
                                                                             (2,187)
 Dividend paid ($0.40 per share)                --          --       (697)       --        --             --             (697)
 Amortization of unearned compensation
  - ESOP                                        --          --         --        --        --            196              196
                                            ---------------------------------------------------------------------------------
 Balance at March 31, 2001                  $1,970     $11,190    $30,950   $(5,230)   $ (431)         $(237)         $38,212
                                            =================================================================================
</TABLE>


The Bank's  other  comprehensive  income  (loss) and  related tax effect for the
fiscal years ending March 31 are as follows:
<TABLE>
<CAPTION>
                                                                                           2001
                                                                        ----------------------------------------------
                                                                        BEFORE-TAX    TAX (BENEFIT)      AFTER-TAX
 in thousands                                                             AMOUNT         EXPENSE          AMOUNT
----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>              <C>
 Unrealized gains (losses) on securities:
       Unrealized holding gains during
        period                                                           $ 1,188         $  360           $  828
       Less reclassification adjustment for (gains) realized in net
        income                                                              (680)          (246)            (434)
                                                                         --------------------------------------------
                 Other comprehensive income                              $   508         $  114           $  394
                                                                         ============================================
<CAPTION>

                                                                                                  2000
                                                                         --------------------------------------------------
                                                                         BEFORE-TAX   TAX (BENEFIT)      AFTER-TAX
 in thousands                                                             AMOUNT         EXPENSE          AMOUNT
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>              <C>
 Unrealized gains (losses) on securities:
       Unrealized holding (losses) during
        period                                                           $  (815)        $ (297)          $  (518)
       Less reclassification adjustment for (gains) realized in net
        income                                                            (1,013)          (379)             (634)
                                                                         --------------------------------------------
                 Other comprehensive income                              $(1,828)        $ (676)          $(1,152)
                                                                         ============================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       40

<PAGE>
                     CENTRAL BANCORP, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
                                                                                        FISCAL YEARS ENDED MARCH 31,
                                                                                  ---------------------------------------
                                                                                      2001          2000         1999
                                                                                      ----          ----         ----
<S>                                                                                  <C>         <C>            <C>
Cash flows from operating activities:
Net income                                                                           $  3,109    $   3,333      $   2,682
Adjustments to reconcile net income to net cash provided by
  operating activities
   Depreciation and amortization                                                          438          462            729
   Amortization of premiums and discounts                                                  86          132            461
   Amortization of goodwill                                                               288          288            288
   Decrease (increase) in deferred tax assets                                             270         (327)          (175)
   Net gains from sale of investment and mortgage-backed securities                      (680)      (1,013)          (580)
   Net gain from sale of building                                                          --           --           (105)
   Cumulative effect of change in accounting principle                                     --          234             --
(Increase) decrease in accrued interest receivable                                       (390)        (422)           296
(Increase) decrease in other assets                                                      (507)          59           (256)
Increase (decrease) in advance payments by borrowers for taxes and insurance              167         (336)           160
Increase (decrease) in accrued interest payable                                            66          251           (192)
(Decrease) increase in accrued expenses and other liabilities                             (96)         415           (560)
                                                                                  -----------------------------------------
     Net cash provided by operating activities                                          2,751        3,076          2,748
                                                                                  -----------------------------------------
Cash flows from investing activities:
  Principal collected on loans                                                         56,949       68,641        112,825
  Loan originations                                                                   (82,616)    (108,363)      (111,231)
  Principal payments on mortgage-backed securities available for sale                   4,069        9,420         14,942
  Purchase of mortgage-backed securities available for sale                                --       (3,216)            --
  Purchase of investment securities available for sale                                 (6,170)     (18,500)       (16,622)
  Proceeds from sales of investment securities available for sale                       3,955        6,159          4,049
  Maturities and redemptions of investment securities held to maturity                     --           --          4,000
  Maturities and redemptions of investment securities available for sale                4,000        2,500         15,100
  Net (increase) decrease in short-term investments                                   (19,727)       2,137        (13,618)
  Purchase of stock in FHLB of Boston                                                    (350)      (2,450)          (200)
  Proceeds from sale of land and building                                                  --           --            239
  Purchase of office properties and equipment, net                                       (238)        (130)          (576)
                                                                                  -----------------------------------------

     Net cash used by investing activities                                            (40,128)     (43,802)         8,908
                                                                                  -----------------------------------------
Cash flows from financing activities:
  Net increase (decrease) in deposits                                                  28,828       (8,124)        (9,901)
  Proceeds from advances from FHLB of Boston                                          169,095      155,500         43,495
  Payments on advances from FHLB of Boston                                           (159,095)    (101,500)       (45,495)
  Proceeds from exercise of stock options                                                  --           22             14
  Purchase of treasury stock                                                           (2,187)      (3,043)            --
  Payments of dividends on common stock                                                  (697)        (689)          (629)
  Amortization of unearned compensation - ESOP                                            196          184            106
                                                                                  -----------------------------------------
     Net cash provided by financing activities                                         36,140       42,350        (12,410)
                                                                                  -----------------------------------------
     Net increase (decrease) in cash and due from banks                                (1,237)       1,624           (754)
  Cash and due from banks at beginning of year                                          6,588        4,964          5,718
                                                                                  -----------------------------------------
  Cash and due from banks at end of year                                             $  5,351    $   6,588      $   4,964
                                                                                  =========================================

                                                                                                                Continued
</TABLE>

                                       41
<PAGE>


                     CENTRAL BANCORP, INC. AND SUBSIDIARIES
                 Consolidated Statement of Cash Flows, continued
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                                        FISCAL YEARS ENDED MARCH 31,
                                                                                  ---------------------------------------
                                                                                      2001          2000         1999
                                                                                      ----          ----         ----
<S>                                                                                  <C>         <C>            <C>
Supplemental disclosure of cash flow information: Cash paid during
  the year for:
      Interest                                                                       $ 16,937    $  12,798     $ 14,241
      Income Taxes                                                                      1,850        2,094        2,413

Schedule of non-cash investing activities:
    Transfer from mortgage loans to real estate acquired by foreclosure              $     --    $      --     $     --
</TABLE>

See accompanying notes to financial statements.


                                       42
<PAGE>

Notes to Consolidated Financial Statements

Fiscal Years Ended March 31, 2001, 2000 and 1999


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Central Bancorp,  Inc. (the "Company"),  a Massachusetts  corporation,  was
organized by Central Bank (the "Bank") to be a bank holding company. The Company
was organized at the direction of the Bank on September 30, 1998, to acquire all
of the capital stock of the Bank upon the consummation of the  reorganization of
the Bank into the holding  company  form of  ownership,  which was  completed on
January 8, 1999.  The  Company's  common  stock,  par value $1.00 per share (the
"Common Stock"),  became registered under the Securities Exchange Act of 1934 on
January 8, 1999.  The Company has no  significant  assets  other than the common
stock of the  Bank and  various  other  liquid  assets  that it  invests  in the
ordinary  course  of  business.  For  that  reason,  substantially  all  of  the
discussion in these consolidated  financial statements relates to the operations
of the Bank and its subsidiaries.

     Central  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 acquire 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 a lesser extent, to make loans on commercial
real estate in its market area. The Bank also makes a limited amount of consumer
loans,  including home improvement and secured and unsecured personal loans. 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 consolidated financial statements have been prepared in conformity with
accounting  principles  generally accepted in the United States of America.  All
significant  inter-company  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 entities,  if the
conditions change.

     Material  estimates that are  particularly  susceptible to change relate to
the  determination  of the  allowance for loan losses.  In  connection  with the
determination  of the allowance for loan losses and the valuation of real estate
acquired  by  foreclosure,   management  obtains   independent   appraisals  for
significant properties.

     Certain prior fiscal year amounts have been  reclassified to conform to the
current  year's  presentation.  The  following  is a summary of the  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 $2,483,000 at March 31, 2001.

     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 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
or mortgage-backed security is judged to be other than temporary, the cost basis
of the  investment  is  written  down to fair  value as a new cost basis


                                       43
<PAGE>

and the amount of the write-down is included as a charge against gain on sale of
investment and mortgage-backed securities.

     Derivative Instruments and Hedging Activities

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities,"  as amended by SFAS No. 138,
"Accounting for Certain Derivative  Instruments and Certain Hedging Activities."
These Statements establish comprehensive  accounting and reporting standards for
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts,  (collectively  referred  to as  derivatives)  and for hedging
activities.  They require that an entity  recognize  all  derivatives  as either
assets or liabilities in its balance sheet and measure those instruments at fair
market  value.  Under  these  Statements,  an entity  that elects to apply hedge
accounting  is required to establish at the inception of the hedge the method it
will use for  assessing  the  effectiveness  of the hedging  derivative  and the
measurement  approach for determining the ineffective  aspect of the hedge.  The
Company  adopted  these  Statements  on April 1,  2001.  The  adoption  of these
Statements  did  not  have  a  material  effect  on the  Company's  consolidated
financial statements.

     Loans

     Loans  are  reported  at the  principal  amount  outstanding,  adjusted  by
unamortized  discounts,  premiums, and net deferred loan origination fees. Loans
classified as held for sale in the  secondary  market are stated at the lower of
aggregate cost or market value.  Market value is estimated  based on outstanding
investor  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 loan term using the level-yield  method.  When loans are sold in
the secondary  market,  the remaining balance of the amount deferred is included
in determining the gain or loss on the sale.

     Impaired loans are commercial and commercial real estate loans for which 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.

     Allowance for Loan Losses

     The  allowance  for  loan  losses  is  established   through  a  charge  to
operations.  When management  believes that the collection of a loan's principal
balance is unlikely,  the  principal  amount is charged  against the  allowance.
Recoveries  on loans that have been  previously  charged off are credited to the
allowance as received.

     The allowance for loan losses is determined using a systematic analysis and
procedural  discipline  based  on  historical  experience,  product  types,  and
industry  benchmarks.   The  allowance  is  segregated  into  three  components:
"general", "specific", and "unallocated". The general component is determined by
applying  coverage  percentages  to groups of loans  based on risk  ratings  and
product  types.  A system of periodic  loan  reviews is  performed to assess the


                                       44
<PAGE>

inherent  risk and  assign  risk  ratings  to each loan  individually.  Coverage
percentages  applied are determined based on industry  practice and management's
judgment.  The specific  component is established by allocating a portion of the
allowance  for loan  losses  to  individual  classified  loans  on the  basis of
specific  circumstances and assessments.  The unallocated  component supplements
the first two components based on management's judgment of the effect of current
and  forecasted  economic  conditions  on  borrowers'  abilities  to  repay,  an
evaluation  of the  allowance  for loan  losses in  relation  to the size of the
overall  portfolio,  and  consideration of the relationship of the allowance for
loan losses to non-performing  loans, net charge-off  trends, and other factors.
While  this  evaluation   process   utilizes   historical  and  other  objective
information,  the classification of loans and the establishment of the allowance
for loan losses  relies to a great  extent on the  judgment  and  experience  of
management. Additions to the allowance are charged to earnings; realized losses,
net of recoveries,  are charged to the allowance.  Management  believes that the
allowance for loan losses is adequate.

     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
judgments of information available to them at their examination date.

     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
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.

     Office Properties and Equipment

     Office  properties  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

     Goodwill  arising from  acquisitions is amortized on a straight-line  basis
over 15 years.  On an ongoing basis,  management  evaluates the valuation of the
remaining balance of goodwill.

     Pension and Other 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. The pension costs are funded as they are accrued.

     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.  Diluted EPS reflects the  potential  dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or converted into common stock.

     New Accounting Pronouncements

     In September  2000, the FASB issued SFAS No. 140,  Accounting for Transfers
and Servicing of Financial  Assets and  Extinguishments  of  Liabilities,  which
supercedes  the  guidance of SFAS No. 125. The  provisions  of SFAS No. 140 will
become effective for certain transactions occurring after March 31, 2001 and for
disclosures  relating to certain  transactions  for fiscal  years  ending  after
December  15, 2000.  Management  does not expect SFAS No. 140 to have a material
impact on the Company's consolidated financial statements.

     During 1998,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Position  ("SOP") 98-5,  Accounting for Costs of a Start-Up Entity.
SOP 98-5  requires  organizational  costs,  which  were being  amortized,  to be
expensed  and  accounted  for as a cumulative  effect of a change in  accounting
principle. On April 1, 1999, the Bank expensed unamortized  organizational costs
resulting in a charge to earnings, net of taxes, of $234 thousand.

                                       45
<PAGE>

NOTE 2. INVESTMENTS AND MORTGAGE-BACKED SECURITIES (Dollars in ThousandS)

     The  amortized  cost and  fair  value of  investments  and  mortgage-backed
securities available for sale are summarized as follows:
<TABLE>
<CAPTION>

                                                                            MARCH 31, 2001
                                                       -----------------------------------------------------------------------
                                                                                  GROSS UNREALIZED
                                                          AMORTIZED      ------------------------------------      FAIR
                                                            COST                GAINS             LOSSES           VALUE
      ------------------------------------------------------------------------------------------------------------------------
      <S>                                                 <C>                <C>                 <C>             <C>
      Common and Preferred Stock                          $   7,748          $      605          $ (1,386)       $  6,967
      U.S. Government and Federal Agency obligations         18,970                  88                (7)         19,051
      Other bonds and obligations                             4,984                 261                --           5,245
                                                       ----------------  -------------------- --------------- ----------------
                                Total                     $  31,702          $      954          $ (1,393)       $ 31,263
                                                       ================  ==================== =============== ================
      Mortgage-backed securities:
                      GNMA                                $     361          $       --          $    (10)       $    351
                      FNMA                                   13,753                  86              (197)         13,642
                      FHLMC                                   3,479                  66               (37)          3,508
                      CMOs                                    2,030                  --              (217)          1,813
                                                       ----------------  -------------------- --------------- ----------------
                                Total                     $  19,623          $      152          $   (461)       $ 19,314
                                                       ================  ==================== =============== ================
<CAPTION>
                                                                            MARCH 31, 2000
                                                       -----------------------------------------------------------------------

                                                                                  GROSS UNREALIZED
                                                          AMORTIZED      ------------------------------------      FAIR
                                                            COST                GAINS             LOSSES           VALUE
      ------------------------------------------------------------------------------------------------------------------------
      <S>                                                 <C>                <C>                 <C>             <C>
      Common and Preferred Stock                          $   6,847          $      929          $   (631)       $  7,145
      U.S. Government and Federal Agency obligations         23,962                  --            (1,009)         22,953
      Other bonds and obligations                             2,030                   7                --           2,037
                                                       ----------------  -------------------- --------------- ----------------
                                                                                            ---
                                Total                     $  32,839          $      936          $ (1,640)       $ 32,135
                                                       ================  ==================== =============== ================

      Mortgage-backed securities:
                     GNMA                                 $     434          $       --          $    (14)       $    420
                     FNMA                                    17,091                   5              (400)         16,696
                     FHLMC                                    4,185                  --               (50)          4,135
                     CMOs                                     2,152                  --               (95)          2,057
                                                       ----------------- -------------------  --------------- ----------------
                                 Total                    $  23,862          $        5          $   (559)       $ 23,308
                                                       ================= ===================  =============== ================
</TABLE>

                                       46
<PAGE>
         The maturity distribution (based on contractual maturities) and annual
yields of mortgage-backed securities at March 31, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>
                                                                            MARCH 31, 2001
                                                           --------------------------------------------------
                                                              AMORTIZED            FAIR           ANNUAL
                                                                COST              VALUE            YIELD
                                                                ----              -----            -----
         <S>                                                  <C>               <C>                <C>
         Due within one year                                  $    --           $    --            0.00%
         Due after one year but within five years                 703               702            6.71%
         Due after five years but within ten years              4,996             5,111            6.94%
         Due after ten years                                   13,924            13,501            7.21%
                                                              -------           -------
              Total                                           $19,623           $19,314            7.12%
                                                              =======           =======

        Weighted average remaining life (in years)              17.52
                                                              =======
<CAPTION>
                                                                            MARCH 31, 2000
                                                           --------------------------------------------------
                                                              AMORTIZED            FAIR           ANNUAL
                                                                COST              VALUE            YIELD
                                                                ----              -----            -----
         <S>                                                  <C>               <C>                <C>
         Due within one year                                  $    --           $    --            0.00%
         Due after one year but within five years                 687               410            6.56%
         Due after five years but within ten years              6,469             6,376            7.01%
         Due after ten years                                   16,706            16,522            6.26%
                                                              -------           -------
              Total                                           $23,862           $23,308            6.47%
                                                              =======           =======

         Weighted average remaining life (in years)             18.33
                                                              =======
</TABLE>

     Maturities  on   mortgage-backed   securities   are  based  on  contractual
maturities  and  do  not  take  into  consideration  scheduled  amortization  or
prepayments.  Actual  maturities will differ from contractual  maturities due to
scheduled amortization and prepayments.

     The  amortized  cost  and  fair  value of  adjustable-rate  federal  agency
obligations  and  mortgage-backed  securities  classified  as available for sale
amounted to $38,673 and $38,284,  respectively,  in 2001. The amortized cost and
fair value of  adjustable-rate  federal agency  obligations and  mortgage-backed
securities  classified  as available  for sale  amounted to $12,809 and $12,467,
respectively, in 2000.

     The Bank had  securities  classified  as available  for sale with  callable
features that can be called prior to final  maturity  with an amortized  cost of
$8,974 and a fair value of $9,027 at March 31, 2001.

     Net  realized  gains  on  sales  of  investment  securities  classified  as
available  for sale for the fiscal  years  ended March 31,  2001,  2000 and 1999
amounted to $680, $1,013 and $580, respectively.

     There were no sales of mortgage-backed  securities  classified as available
for sale during the fiscal years ended March 31, 2001 and 2000.


                                       47
<PAGE>

     The maturity  distribution  (based on  contractual  maturities)  and annual
yields of investment securities (excluding common and preferred stocks) at March
31, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>
                                                                            MARCH 31, 2001
                                                           --------------------------------------------------
                                                              AMORTIZED            FAIR           ANNUAL
                                                                COST              VALUE            YIELD
                                                                ----              -----            -----
<S>                                                           <C>               <C>                <C>
Due within one year                                           $    --           $    --            0.00%
Due after one year but within five years                       14,487            14,759            6.73
Due after five years but within ten years                       9,467             9,537            6.63
                                                              -------------------------------------------
     Total                                                    $23,954           $24,296            6.69%
                                                              ===========================================

Weighted average remaining life (in years)                       3.16
                                                              =======
<CAPTION>
                                                                            MARCH 31, 2000
                                                           --------------------------------------------------
                                                              AMORTIZED            FAIR           ANNUAL
                                                                COST              VALUE            YIELD
                                                                ----              -----            -----
         <S>                                                  <C>               <C>                <C>
Due within one year                                           $ 1,000           $   994            6.15%
Due after one year but within five years                        9,056             6,869            6.80
Due after five years but within ten years                      15,936            17,127            6.48
     Total                                                    -------------------------------------------
                                                              $25,992           $24,990            6.57%
                                                              ===========================================

Weighted average remaining life (in years)                       5.93
                                                              =======
</TABLE>


     A FNMA  mortgage  pool with an  amortized  cost of $5,834 and fair value of
$5,673 at March 31, 2001,  was pledged to provide  collateral  for customers and
for the Bank's employee tax withholdings  that are to be remitted to the federal
government in excess of the $100 of withholdings insured by the FDIC.

NOTE 3.  MORTGAGE LOANS (In Thousands)

     Mortgage loans as of March 31 are summarized below:

<TABLE>
<CAPTION>

MORTGAGE LOANS:                                      2001                    2000
--------------------------------------------------------------------------------------
     <S>                                           <C>                     <C>
     Residential
           Fixed                                   $   75,809              $   65,765
           Adjustable                                 170,694                 177,798
     Commercial                                        74,613                  54,228
     Construction                                       9,500                   9,765
     Second Mortgage and Home Equity                    8,282                   7,403
     FHA & VA                                              --                       7
                                                   ----------              ----------
                                                   $  338,898              $  314,966
                                                   ==========              ==========
</TABLE>

     At March  31,  2001 and 2000,  net  deferred  loan  costs of $160 and $280,
respectively, were reflected as an addition to the appropriate loan categories.

     Mortgage  and  other  loans on  which  the  accrual  of  interest  had been
discontinued  at March  31,  2001,  2000 and 1999  were  $000,  $235,  and $419,
respectively.  Interest income not recognized on such loans amounted to $00, $7,
and $16 in fiscal 2001, 2000 and 1999, respectively.

     At March 31, 2001 and 2000,  there were no impaired  loans.  Impaired loans
are measured  using the fair value of  collateral.  During fiscal 2001 and 2000,
there were no impaired  loans.  The Bank follows the same policy

                                       48
<PAGE>

for  recognition  of income on  impaired  loans as it does for all other  loans.
During  fiscal 2001 and 2000,  there was no interest  forgone on impaired  loans
that were not non-accrual loans.

     Mortgage  loans  serviced  by the Bank for  others  amounted  to $4,288 and
$5,790 at March 31, 2001 and 2000,  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.


NOTE 4. OTHER LOANS (In Thousands)

     Other loans at March 31 are summarized below:
<TABLE>
<CAPTION>
         OTHER LOANS                                                      2001             2000
         ----------------------------------------------------------------------------------------
                  <S>                                                  <C>              <C>
                  Commercial                                           $   4,859        $   3,349

                  Secured by Deposits                                      1,137            1,023

                  Consumer                                                    36               38

                  Unsecured                                                  863              637
                                                                       --------------------------

                                                                       $   6,895        $   5,047
                                                                       ==========================
</TABLE>

NOTE 5. LOANS TO DIRECTORS AND OFFICERS (In Thousands)

     The following  summarizes  the activity  with respect to loans  included in
mortgage  and other  loans made to  directors  and  officers  and their  related
interests for the fiscal years ended March 31:
<TABLE>
<CAPTION>
                                                                          2001             2000
                                                                       --------------------------

         <S>                                                           <C>               <C>
         Balance at beginning of period                                $     243        $     563
                  New loans                                                  444               11
                  New officers with loans outstanding                        158               --
                  Repayment of principal                                    (265)            (187)
                  No longer a director                                        --             (144)
                                                                       --------------------------
         Balance at end of period                                      $     580        $     243
                                                                       ==========================
</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.

NOTE 6. ALLOWANCE FOR LOAN LOSSES (In Thousands)
<TABLE>
<CAPTION>
                                                                                           MARCH 31,
                                                                              -------------------------------------
                                                                                    2001       2000        1999
         ----------------------------------------------------------------------------------------------------------
         <S>                                                                      <C>        <C>         <C>
         Balance at beginning of period                                           $2,993     $2,913      $2,886
             Provision charged to expense                                             --         --          --
             Amounts charged-off                                                      (4)        (9)        (99)
             Recoveries on accounts previously charged-off                           117         89         126
                                                                              ----------- ----------  -------------
         Balance at end of period                                                 $3,106     $2,993      $2,913
                                                                              =========== ==========  =============
</TABLE>

                                       49
<PAGE>

NOTE 7. STOCK IN FEDERAL HOME LOAN BANK OF BOSTON (In Thousands)

     As a member of the Federal Home Loan Bank of Boston ("FHLB of Boston"), the
Bank is  required  to invest in $100 par value 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.  The Bank's  investment
exceeded  the  required  level  by $100 and $250 at  March  31,  2001 and  2000,
respectively.  If such stock is redeemed, the Bank will receive from the FHLB of
Boston an amount equal to the par value of the stock.

NOTE 8. THE CO-OPERATIVE CENTRAL BANK RESERVE FUND

     The  Co-operative  Central Bank Reserve 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.

NOTE 9. OFFICE PROPERTIES AND EQUIPMENT (In Thousands)

     A summary of cost,  accumulated  depreciation  and  amortization  of office
properties and equipment at March 31 follows:
<TABLE>
<CAPTION>
                                                                         2001            2000
                                                                         ----            ----
          <S>                                                             <C>             <C>
          Land                                                            $  589          $  589
          Buildings                                                        2,304           2,287
          Furniture                                                        5,596           5,376
          Leasehold improvements                                             475             474
                                                                       --------------------------
                                                                           8,964           8,726
          Less accumulated depreciation and amortization                  (6,946)         (6,508)
                                                                       --------------------------
                                                                          $2,018          $2,218
                                                                       ==========================
</TABLE>
     A summary  of  minimum  rentals  for future  periods  under  non-cancelable
operating leases follows:

                                                                    MINIMUM
                                                                    RENTALS
                                                                    -------
          Years Ending March 31,
          2002                                                       $ 92
          2003                                                         78
          2004                                                         59
          2005                                                         14
          Thereafter                                                    6


     Rental expense for the fiscal years ended March 31, 2001, 2000 and 1999 was
$125, $123 and $118, respectively.



                                       50
<PAGE>

NOTE 10. DEPOSITS (Dollars in Thousands)

     Deposits at March 31 are summarized as follows:
<TABLE>
<CAPTION>
                                                                 2001                                     2000
                                                                 ----                                     ----

                                                               AMOUNT INTEREST RATES                  AMOUNT  INTEREST RATES
                                                               ------ --------------                  ------  --------------
<S>                                                           <C>      <C>                           <C>       <C>
Demand (non-interest-bearing)                                $ 24,434       --                      $ 18,634        --
NOW Accounts                                                   31,377  1.01 - 1.52%                   32,218   1.01 - 1.52%
Regular, club and 90 day Notice                                64,011      2.00%                      61,475      2.00%
Money Market deposit Accounts                                  15,327  2.15 - 2.35%                   19,045   2.15 - 2.35%
                                                            ---------                               --------
                                                            $ 135,149                               $131,372

Term Deposit Certificates
       Six Month money market                               $  20,437  4.00 - 6.25%                 $ 16,469   4.00 - 6.00%
        Other                                                 131,581  4.00 - 7.25%                  110,498   4.00 - 7.00%
                                                            ---------                               --------
              Total Term Deposit Certificates                 152,018                                126,967
                                                            ---------                               --------
                                                            $ 287,167                               $258,339
                                                            =========                               ========

Weighted average interest rate                                             3.80%                                  3.37%
</TABLE>

Contractual  maturities  of term  deposit  certificates  at March  31,  2001 are
--------------------------------------------------------------------------------
summarized as follows:
----------------------
Years Ending March 31,
              2002                                          $ 102,821
              2003                                             43,336
              2004                                              2,704
         2005/2006                                              3,157
                                                            ---------

                                                            $ 152,018
                                                            ==========

     The aggregate amount of individual term deposit certificates with a minimum
denomination of $100 or more was $34,644 and $24,937 at March 31, 2001 and 2000,
respectively.  Interest expense on these deposits was $1,763,  $795 and $934 for
fiscal years ended March 31, 2001, 2000 and 1999, respectively.


                                       51
<PAGE>

NOTE 11. ADVANCES FROM FEDERAL HOME LOAN BANK OF BOSTON (Dollars in Thousands)
-------------------------------------------------------

     Advances from FHLB of Boston,  by year of maturity,  at March 31 consist of
the following:
<TABLE>
<CAPTION>
                                                                              2001                     2000
         -------------------------------------------------------------------------------------------------------
              INTEREST RATE            DUE IN YEAR ENDING MARCH 31,
         <S>                                       <C>                    <C>                        <C>
         5.76% - 6.95%                             2001                   $         --               $   18,000
         5.21% - 6.95%                             2002                         25,000                    4,000
         6.60%                                     2003                          8,000                      --
         4.99% - 5.69%                             2004                            --                     5,000
         6.23%                                     2006                          4,000                      --
         6.10% - 6.42%                             2008                         13,000                      --
         4.49% - 5.89%                             2009                         15,000                   26,000
         4.49% - 6.21%                             2010                         20,000                   18,000
         3.99% - 6.56%                             2011                         34,000                   33,000
         5.49%                                     2014                          2,000                    2,000
         5.25%                                     2015                            --                     5,000
                                                                             ---------                ---------
                                                                             $ 121,000                $ 111,000
                                                                             =========                =========

            Weighted Average Rate                                            5.84%                        5.66%
</TABLE>

     At March 31, 2001, advances totaling $88 million were callable prior to the
scheduled maturity of the 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.  Applying these
ratios,  the Bank's overall borrowing  capacity was  approximately  $201,200 and
$202,400 at March 31, 2001 and 2000, respectively.

     The highest  month-end  balance of FHLB of Boston advances  outstanding was
$121,000,  $113,000,  and $64,000  during the fiscal years ended March 31, 2001,
2000 and 1999, respectively.

NOTE 12. INCOME TAXES (Dollars in Thousands)

     The  objective of the asset and liability  method is to establish  deferred
tax assets and liabilities for the temporary  differences  between the financial
reporting  basis and the tax  basis of the  Bank's  assets  and  liabilities  at
enacted tax rates  expected to be in effect  when such  amounts are  realized or
settled.

     Income tax expense was allocated as follows:
<TABLE>
<CAPTION>
                                                                             FISCAL YEARS ENDED MARCH 31,
                                                                     ---------------------------------------------
                                                                        2001             2000              1999
                                                                     ---------------------------------------------
         <S>                                                         <C>              <C>               <C>
         Current income tax expense
              Federal                                                $  1,555         $   1,745         $  1,669
              State                                                        52                44              366
                                                                     -------------------------------------------
                   Total current tax expense                            1,607             1,789            2,035
         Deferred income tax expense (benefit)                            156               343             (175)
         Change in valuation reserve                                       --                --               --
                                                                     -------------------------------------------
                   Total income tax expense                          $  1,763         $   2,132         $  1,860
                                                                     ===========================================
</TABLE>

                                       52
<PAGE>
     Income tax expense 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>
                                                                                FISCAL YEARS ENDED MARCH 31,
                                                                         -------------------------------------------
                                                                           2001             2000              1999
                                                                         -------------------------------------------
         <S>                                                                <C>              <C>               <C>
         Statutory Federal tax rate                                        34.0 %           34.0 %            34.0%
         Items affecting Federal income tax rate:
              Dividends received deduction                                 (0.6)            (0.4)             (0.6)
              Goodwill amortization                                         2.0
              State income taxes, net of
              Federal income tax benefit                                    1.2              1.6               4.7
              Other                                                        (0.4)             0.4               0.7
                                                                         -------------------------------------------
                                                                            36.2%           37.4%             41.0%
                                                                         ===========================================
</TABLE>

     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>
                                                                                          2001        2000
                                                                                        ---------------------
          <S>                                                                           <C>           <C>
          Deferred tax assets:
              Loan losses                                                               $   548       $   547
              Deferred loan origination fees                                                 74            74
              Depreciation                                                                  265           258
              Post-employee retirement benefit accrual                                      227           201
              Unrealized depreciation on securities                                         319           433
              Other                                                                          74            56
                                                                                        ---------------------
          Gross deferred tax asset                                                        1,507         1,569
              Valuation reserve                                                              --            --
                                                                                        ---------------------
                   Net deferred tax asset                                                 1,507         1,569
                                                                                        ---------------------
          Deferred tax liabilities:
              Accrued dividend receivable                                                    47            44
              Deferred loan origination fees                                                437           454
              Deferred income                                                               222            --
                                                                                        ---------------------
          Gross deferred tax liability                                                      706           498
                                                                                        ---------------------
                   Net deferred tax asset                                               $   801       $ 1,071
                                                                                        =====================
</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, 2001. Further,  management believes the existing
net deductible  temporary  differences  will reverse during periods in which the
Bank generates net taxable income. At March 31, 2001,  recoverable income taxes,
plus estimated taxes for fiscal 2002,  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.


                                       53
<PAGE>

     The  unrecaptured  base year tax bad debt  reserves  will not be subject to
recapture  as long as the  institution  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 13. 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.

     Financial instruments with off-balance sheet risks as of March 31, follows:
<TABLE>
<CAPTION>

                                                                              2001           2000
                                                                            -------------------------
<S>                                                                           <C>             <C>
Unused lines of credit                                                        $11,012         $10,243
Unadvanced portions of construction loans                                       8,239           4,427
Unadvanced portions of commercial loans                                         5,651           3,468
Commitments to originate commercial loans                                      14,189          15,713
Commitments to originate residential mortgage loans:
           Fixed rate                                                           1,868           1,104
           Adjustable rate                                                      1,032           1,270
</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 14. STOCKHOLDERS' EQUITY (Dollars in Thousands)

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

         On October 24, 1991, the Bank adopted a Shareholder Rights Plan. The
plan entitles each shareholder to purchase the Bank's stock at a discount price
in the event any person or group of persons exceeds predetermined ownership
limitations of the Bank's outstanding common stock and, in certain
circumstances, engages in specific activities deemed adverse to the interests of
the Bank's shareholders. This plan expires on October 24, 2001.

     The minimum core (leverage) capital ratio (stockholders'  equity divided by
total  assets)  required  for  banks  with a  CAMEL  rating  of 1 is  3.00%  and
4.00%-5.00%  for all  others.  The Bank  must 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).  At March 31, 2001 and 2000,  the Bank's capital
ratios were in excess of all required standards.

                                       54
<PAGE>

     The Bank is subject to various regulatory capital requirements administered
by the federal banking  services.  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.

     Quantitative  measures established by regulation to ensure capital adequacy
require  the Bank to  maintain  minimum  amounts  and  ratios  (set forth in the
following  table) of  risk-weighted,  core and  tangible  capital (as  defined).
Management  represents  that,  as of March 31,  2001,  the Bank met all  capital
adequacy requirements to which it is subject.

     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.
As of March 31, 2001, the Bank was  categorized as "well  capitalized"  based on
its  ratios  of  risk-weighted,  Tier  1 and  tangible  capital.  There  are  no
conditions or events,  since that notification,  that management  believes would
cause a change in the Bank's  categorization.  The Bank's actual capital amounts
and ratios are  presented in the table.  No deduction was taken from capital for
interest-rate  risk.  The Bank's Tier  1/leverage,  Tier 1 risk-based  and total
risk-based  capital together with related  regulatory  minimum  requirements are
summarized below:
<TABLE>
<CAPTION>
                                                                                    MARCH 31, 2001
                                                                     ----------------------------------------------
                                                                        TIER 1          TIER 1           TOTAL
                                                                       LEVERAGE       RISK-BASED      RISK-BASED
                                                                       CAPITAL          CAPITAL         CAPITAL
                                                                       -------          -------         -------
    <S>                                                                   <C>              <C>             <C>
    Regulatory capital measure
              Amount                                                      $33,256          $33,256         $36,362
              Ratio                                                          7.75%           11.76%          12.86%
    Adequately capitalized requirement:
              Amount                                                      $17,156          $11,308         $22,617
              Ratio                                                          4.00%            4.00%           8.00%
    Well capitalized requirement
              Amount                                                      $21,445          $16,963         $28,271
              Ratio                                                          5.00%            6.00%          10.00%

<CAPTION>

                                                                                    MARCH 31, 2000
                                                                     ----------------------------------------------
                                                                        TIER 1          TIER 1           TOTAL
                                                                       LEVERAGE       RISK-BASED      RISK-BASED
                                                                       CAPITAL          CAPITAL         CAPITAL
                                                                       -------          -------         -------
    <S>                                                                   <C>              <C>             <C>
    Regulatory capital measure
              Amount                                                     $ 34,268        $  34,268       $  37,376
              Ratio                                                          8.66%           13.31%          14.52%
    Adequately capitalized requirement:
              Amount                                                     $ 15,836        $  10,295       $  20,591
              Ratio                                                          4.00%            4.00%           8.00%
    Well capitalized requirement
              Amount                                                     $ 19,795        $  15,443       $  25,739
              Ratio                                                          5.00%            6.00%          10.00%
</TABLE>

                                       55
<PAGE>

NOTE 15.  EMPLOYEE BENEFITS (Dollars in Thousands, Except Per Share Data)

PENSION PLAN

     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  officers  and
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 revised Savings Plan which
qualifies  under  section  401 (k) of the  Internal  Revenue  Code of  1986,  as
amended.  Such contributions are matched on a one-half for-one basis by the Bank
up to a maximum of 5% of each employee's  salary.  Pension benefits and employer
contributions to the Savings Plan become vested over six years.

     Expenses for the Pension Plan and the Savings Plan were $371, $363 and $202
for the  fiscal  years  ended  March  31,  2001,  2000 and  1999,  respectively.
Forfeitures are used to reduce expenses of the plans.

STOCK OPTION PLAN

     The Company has adopted two Stock  Option Plans for the benefit of officers
and other employees.

     Under the first plan, the Company reserved 184,000 shares of authorized but
unissued  common stock for issuance  under the Plan.  During fiscal 1999,  2,000
options were exercised resulting in an additional $14 of capital being recorded.
During fiscal 2000,  3,000 shares were exercised  resulting in an additional $22
of capital being recorded.  No options were exercised during fiscal 2001. Of the
25,000  options  outstanding  under the first plan, at March 31, 2001,  all were
exercisable with an average exercise price per share of $16.25.

     Under the second plan, the Company reserved 97,500 shares of authorized but
unissued common shares for issuance under the plan. During fiscal 2000,  options
to purchase  32,499 shares were granted at an average  exercise  price of $20.25
per share and none of these options were exercised.  During fiscal 2001, options
to purchase 32,501 shares were granted at an average  exercise price of $16.625.
Of the 65,000 options  outstanding under the second plan, at March 31, 2001, all
were  exercisable  with an  average  exercise  price per share of  $18.437.  The
weighted  average  exercise price of all outstanding  options at March 31, 2001,
was $17.830.  The exercise price of any option granted will not be less than the
fair market value of the common stock on the date of grant of the option.

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 Bank 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.

     The ESOP is  repaying  its  loan to the Bank  with  funds  from the  Bank's
contributions  to the plan and earnings  from the ESOP's  assets.  Repayments of
$196, $183 and $184 were made during fiscal 2001,  2000 and 1999,  respectively.
The  scheduled  repayment  of the  amount  outstanding  at March 31,  2001 is as
follows:

               2002                         130
               2003                          96

     Compensation  expense is  recognized  as the ESOP shares are  allocated  to
participants in the plan and was $130, $130, $51 for fiscal 2001, 2000 and 1999,
respectively.

                                       56
<PAGE>
         As amended by SFAS 132, the components of the life plan and medical
plan for the years ended March 31, 2001 and 2000, respectively, follow:
<TABLE>
<CAPTION>
                                                                           2001                      2000
                                                              ----------------------------------------------
                                                              LIFE         MEDICAL      LIFE         MEDICAL
                                                              ----         -------      ----         -------
         <S>                                                  <C>          <C>          <C>          <C>
         Actuarial present value of benefits obligation:
            Retirees                                          $  (222)     $  (413)     $  (193)     $  (397)
            Fully eligible participants                           (44)        (307)         (40)        (283)
            Other plan participants                                                          --           --
                                                              -------      -------      -------      -------
                   Total                                      $  (266)     $  (720)     $  (233)     $  (680)
                                                              =======      =======      =======      =======

         Change in projected benefit obligation:
            Accumulated benefit obligations at prior
              year-end                                        $  (233)     $  (680)     $  (256)     $  (781)
            Service cost less expense component                                 --           --
            Interest cost                                         (19)         (51)         (17)         (48)
            Actuarial gain (loss)                                  (7)           2           21           69
            Assumptions                                            (8)         (29)          18           46
            Benefits paid                                           1           38            1           34
                                                              -------      -------      -------      -------
                   Accumulated benefit obligations at
                     year-end                                 $  (266)     $  (720)     $  (233)     $  (680)
                                                              =======      =======      =======      =======

         Change in plan assets:
            Fair value of plan assets at prior fiscal
              year-end                                        $    --      $    --      $    --      $    --
            Actual return on plan assets                           --           --           --           --
            Employer contribution                                   1           38            1           34
            Benefits paid end expenses                             (1)         (38)          (1)         (34)
                                                              -------      -------      -------      -------
                   Fair value of plan assets at current
                    fiscal year-end                           $    --      $    --      $    --      $    --
                                                              =======      =======      =======      =======

         Funded                                               $  (266)     $  (720)     $  (233)     $  (680)
         Unrecognized net obligation                              103          297          111          322
         Unrecognized prior year service                           --           --           --           --
         Unrecognized net (loss) gain                             (48)          80          (64)          53
                                                              -------      -------      -------      -------

                                                              $  (211)     $  (343)     $  (186)     $  (305)
                                                              =======      =======      =======      =======

         Reconciliation of (accrual) prepaid:
            (Accrued) prepaid pension cost at prior
              year-end                                        $  (186)     $  (305)     $  (159)     $  (241)
            Minus net periodic cost                               (26)         (76)         (28)         (98)
            Plus employee contributions                             1           38            1           34
                                                              -------      -------      -------      -------
                    (Accrued) prepaid cost                    $  (211)     $  (343)     $  (186)     $  (305)
                                                              =======      =======      =======      =======

         Benefit obligation weighted average assumption as
           of fiscal year-end:
             Discount rate                                      7.25%        7.25%         7.75%        7.75%
             Expected return on plan assets                     7.25%        7.25%         7.75%        7.75%
             Rate of compensation increase                       --           --            --           --
</TABLE>
<TABLE>
<CAPTION>
                                                                               1 PERCENTAGE POINT INCREASE
                                                                         -------------------------------------
                                                                              2001                 2000
                                                                              ----                 ----
         <S>                                                             <C>       <C>       <C>        <C>
         Impact of 1% change in health care trend rates:
            Effect on total service and interest cost components           n/a     $  (5)      n/a      $  (5)
            Effect on the post retirement benefit obligations              n/a        63       n/a         72
         Components of net periodic benefit obligations:
            Service cost                                                 $  --     $  --     $  --      $  --
            Interest cost                                                   19        51        17         49
            Expected return on plan assets                                  --        --        --         --
            Amortization of prior service cost                               9        25        17         25
            Recognized actuarial (gain) loss                                (1)       --        (6)        24
                                                                         -----     -----     -----      -----
                    Net periodic benefit cost for fiscal year ending     $  27     $  76     $  28      $  98
                                                                         =====     =====     =====      =====
         Periodic benefit cost weighted average assumptions:
            Discount rate                                                 7.75%     7.25%     7.00%      7.00%
            Expected return on plan assets                                7.75%     7.25%     7.00%      7.00%
            Rate of compensation increase                                  --        --        --          --
</TABLE>


                                       57
<PAGE>
     For measurement purposes, an 8.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the fiscal year ended March
31, 2000. The rate was assumed to decrease gradually to 5.5% for the fiscal year
ending March 31, 2003 and remain at that level thereafter.

NOTE 16. LEGAL PROCEEDINGS

     The Bank is a party to certain litigation in the normal course of business.
Management and counsel are of the opinion that the aggregate liability,  if any,
resulting  from such  litigation  would not be material to the Bank's  financial
position.

NOTE 17. FAIR VALUES OF FINANCIAL INSTRUMENTS (In Thousands)

     The FASB  issued SFAS No. 107,  Disclosures  about Fair Value of  Financial
Instruments, which requires disclosure of fair value information about financial
instruments,  whether or not  recognized in the balance  sheet,  for which it is
practicable to estimate that value.  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.

     Other significant assets and liabilities that are not considered  financial
assets or liabilities  include real estate  acquired by  foreclosure  and office
properties  and equipment.  In addition,  the tax  ramifications  related to the
realization of the unrealized gains and losses can have a 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.


                                       58
<PAGE>

     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.

     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.

     ADVANCES FROM FHLB OF BOSTON

     Fair  values  of  advances  from  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.

     ADVANCE  PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE AND ACCRUED INTEREST
PAYABLE

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

     The  estimated  carrying  amounts and fair  values of the Bank's  financial
instruments are as follows:
<TABLE>
<CAPTION>
                                                                            AT MARCH 31, 2001          AT MARCH 31, 2000
                                                                            -----------------          -----------------
                                                                          CARRYING     ESTIMATED     CARRYING     ESTIMATED
                                                                           AMOUNT      FAIR VALUE     AMOUNT     FAIR VALUE
                                                                           -------     ----------    --------    ----------
ASSETS
<S>                                                                        <C>          <C>           <C>          <C>
Cash and due from banks                                                    $  5,351      $  5,351     $  6,588     $  6,588
Short-term investments                                                       34,529        34,529       14,802       14,802
Investments available for sale:
     Investment securities                                                   31,263        31,263       32,135       32,135
     Mortgage-backed securities                                              19,314        19,314       23,308       23,308
         Net loans                                                          342,687       350,028      317,020      310,543
Accrued interest receivable                                                   2,426         2,426        2,036        2,036
Stock in Federal Home Loan Bank of Boston, at cost                            6,150         6,150        5,800        5,800
The Co-operative Central Bank Reserve Fund                                    1,576         1,576        1,576        1,576

LIABILITIES
     Deposits                                                              $287,167      $288,297     $258,339     $258,332
     Advances from Federal Home Loan Bank of Boston                         121,000       119,965      111,000      110,200
     Advance payments by borrowers for taxes and insurance                    1,220         1,220        1,053        1,053
     Accrued interest payable                                                   608           608          542          542
</TABLE>

                                       59
<PAGE>

NOTE 18. PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS (In Thousands)

     The following are the condensed  financial  statements for Central Bancorp,
Inc. (the "Parent") only:
<TABLE>
<CAPTION>
         BALANCE SHEETS                                                                   MARCH 31,
                                                                                       2001        2000
         ---------------------------------------------------------------------------------------------------
         <S>                                                                           <C>           <C>
         ASSETS
         Cash deposit in subsidiary bank                                               $  2,153     $  1,046
         Investment in subsidiary, at equity                                             36,129       36,251
         Other assets                                                                        --          100
                                                                                       ---------------------
                 Total assets                                                          $ 38,282     $ 37,397
                                                                                       =====================
         Liabilities and Stockholders' Equity
                                                                                       $     70            $
         Accrued expenses and other liabilities                                                           --
         Total stockholders' equity                                                      38,212       37,397
                                                                                       ---------------------
                 Total liabilities and stockholders' equity                            $ 38,282     $ 37,397
                                                                                       =====================
</TABLE>
<TABLE>
<CAPTION>
         STATEMENTS OF INCOME
                                                                                    FISCAL YEARS ENDED MARCH 31,
                                                                                2001              2000              1999
         ------------------------------------------------------------------------------------------------------------------
         <S>                                                                    <C>              <C>               <C>
         Dividend income                                                        $  4,000         $   3,012         $  2,500
         Non-interest expense                                                        266               331               62
                                                                                -------------------------------------------
                 Income before income taxes                                        3,734             2,681            2,438
         Income tax benefit                                                          (87)             (109)              20
                                                                                -------------------------------------------
                 Net income before cumulative effect of change in
                      accounting principle                                         3,821             2,790            2,458
         Cumulative effect of change in accounting principle                          --              (234)              --
                                                                                -------------------------------------------
                 Net income before equity in net income of subsidiary              3,821             2,556            2,458
         Equity in net income of subsidiary                                         (712)              777              224
                                                                                -------------------------------------------
                 Net income                                                     $  3,109         $   3,333         $  2,682
                                                                                ===========================================
</TABLE>
<TABLE>
<CAPTION>
         STATEMENTS OF CASH FLOWS
                                                                                    FISCAL YEARS ENDED MARCH 31,
                                                                                2001              2000              1999
         ------------------------------------------------------------------------------------------------------------------
         <S>                                                                    <C>              <C>               <C>
         Net cash flows from operating activities:
                 Net income                                                     $  3,109         $   3,333         $  2,682
                 Adjustment to reconcile net income to net cash provided
                     by operating activities
                         Equity in undistributed income of subsidiary                712              (777)            (224)
                         Decrease (increase) in other assets                         100              (100)            (235)
                         Increase (decrease) in accrued expenses and other
                             liabilities                                              70               (15)              15
                         Cumulative effect of change in accounting principle          --               234               --
                                                                                -------------------------------------------
                              Net cash provided by operating activities            3,991             2,675            2,238
         Cash flows from financing activities:
                 Proceeds from exercise of stock options                              --                22               --
                 Purchase of treasury stock                                       (2,187)           (3,043)              --
                 Cash dividends paid                                                (697)             (689)            (157)
                                                                                -------------------------------------------
                         Net cash used by financing activities                    (2,884)           (3,710)            (157)
                                                                                -------------------------------------------
         Net increase (decrease) in cash deposit in subsidiary bank                1,107            (1,035)           2,081
         Cash deposit in subsidiary bank at beginning of year                      1,046             2,081               --
                                                                                -------------------------------------------
         Cash deposit in subsidiary bank at end of year                         $  2,153         $   1,046         $  2,081
                                                                                ===========================================
</TABLE>


                                       60
<PAGE>
NOTE 19. QUARTERLY RESULTS OF OPERATIONS  (UNAUDITED) (In Thousands,  Except Per
Share Data)
<TABLE>
<CAPTION>

                                                                          2001 QUARTERS
                                                     -----------------------------------------------------
                                                     FIRST           SECOND         THIRD         FOURTH
                                                     -----           ------         -----         ------
<S>                                                  <C>          <C>             <C>            <C>
Interest and dividend income.......................  $   7,230    $   7,759       $  8,122       $   7,805
Interest expense...................................      3,793        4,297          4,472           4,440
                                                     -----------------------------------------------------
     Net interest and dividend income..............      3,437        3,462          3,650           3,365
Non-interest income................................        338          354            444             152
Operating expenses.................................      2,576        2,440          2,685           2,629
                                                     -----------------------------------------------------
     Income before income taxes....................      1,199        1,376          1,409             888
Income tax.........................................        434          499            509             321
                                                     -----------------------------------------------------
     Net income....................................  $     765    $     877       $    900       $     567
                                                     =====================================================
Earnings per common share..........................  $    0.43    $    0.51       $   0.53       $    0.34
                                                     =====================================================
Earnings per common share - assuming dilution......  $    0.43    $    0.51       $   0.53       $    0.34
                                                     =====================================================
<CAPTION>

                                                                          2000 QUARTERS
                                                     -----------------------------------------------------
                                                     FIRST           SECOND         THIRD         FOURTH
                                                     -----           ------         -----         ------
<S>                                                  <C>          <C>             <C>            <C>
Interest and dividend income.......................  $   6,227    $   6,314       $  6,779       $   7,104
Interest expense...................................      3,097        3,038          3,302           3,612
                                                     -----------------------------------------------------
     Net interest and dividend income..............      3,130        3,276          3,477           3,492
Non-interest income................................        278          660            394             337
Operating expenses.................................      2,233        2,268          2,248           2,596
                                                     -----------------------------------------------------
     Income before income taxes....................      1,175        1,668          1,623           1,233
Income tax.........................................        462          636            603             431
                                                     -----------------------------------------------------
Net income before cumulative effect of change
     in accounting principle.......................        713        1,032          1,020             802
Cumulative effect of change in accounting
     principle, net of taxes.......................       (234)          --             --              --
                                                     -----------------------------------------------------
     Net income....................................  $     479    $   1,032       $  1,020       $     802
                                                     =====================================================
Earnings per common share:
   Before cumulative effect of change in
     accounting principle..........................  $    0.37    $    0.54       $   0.55       $    0.44
                                                     =====================================================
   Before cumulative effect of change in
     accounting principle - assuming dilution......  $    0.37    $    0.54       $   0.55       $    0.44
                                                     =====================================================
   After cumulative effect of change in
     accounting principle..........................  $    0.25    $    0.54       $   0.55       $    0.44
                                                     =====================================================
   After cumulative effect of change in
     accounting principle - assuming dilution......  $    0.25    $    0.54       $   0.55       $    0.44
                                                     =====================================================
</TABLE>

                                       61
<PAGE>

Independent Auditors' Report



The Board of Directors and Stockholders

Central Bancorp, Inc.:





We have audited the consolidated balance sheets of Central Bancorp, Inc. and
subsidiary as of March 31, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.




                                             /s/ KPMG LLP


Boston, Massachusetts
May 9, 2001


                                       62
<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

     Not applicable.



                                    PART III

ITEM 10.  DIRECTORS AND PRINCIPAL 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.

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
------------------------------------------------------------------------

          (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.


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.


                                       63
<PAGE>

                                     PART IV

ITEM 14.  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"

     (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 -- No current reports on Form 8-K were filed during the
     -------------------
     last quarter of the fiscal year covered by this report.

(C)  EXHIBITS
     --------

     The following exhibits are filed as exhibits to this report.

     Exhibit No.          Description

       3.1*                Articles of Organization of Central Bancorp, Inc.
       3.2*                Bylaws of Central Bancorp, Inc.
       4.1**               Rights Agreement, dated as of January 8, 1999, by and
                           between the Central Bancorp, Inc. and State Street
                           Bank & Trust Company, as Rights Agent
      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***              1986 Stock Option Plan, as amended +
      10.9***              Severance  Agreement  between the Bank and William P.
                           Morrissey,  dated December 14, 1994 +
      10.10***             Severance   Agreement  between  the  Bank  and  David
                           W.  Kearn,  dated December 14, 1994 +

                                       64
<PAGE>

      10.11***             Severance Agreement between the Bank and Paul S.
                           Feeley, dated May 14, 1998 +
      10.12***             Amendments to Severance  Agreements between the Bank
                           and Messrs.  Feeley, Kearn and Morrissey, dated
                           January 8, 1999. +
      10.13****            1999 Stock Option and Incentive Plan +
      10.14*****           Deferred Compensation Plan for Non-Employee
                           Directors +
      10.15                Management Incentive Plan +
      21                   Subsidiaries of Registrant
      23                   Consent of KPMG LLP

___________
+    Management  contract or compensatory  plan required to be filed pursuant to
     Item 14(c).
*    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 Form 8-A filed with the SEC on January 8,
     1999.
***  Incorporated herein by reference to the Registration  Statement on Form S-8
     (File No. 333-71165) filed on January 26, 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.


                                       65
<PAGE>

                                   SIGNATURES

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

                                     CENTRAL BANCORP, INC.


Date: June 20, 2001                  By:  /s/ John D. Doherty
                                          --------------------------------------
                                          John D. Doherty
                                          President, Chief Executive Officer and
                                          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 20, 2001
    -------------------------------------------------
       John D. Doherty
       President, Chief Executive Officer
           and Director

By: /s/ Paul S. Feeley                                      Date:  June 20, 2001
    -------------------------------------------------
       Paul S. Feeley
       Senior Vice President - Treasurer
          and Chief Financial and
          Accounting Officer

By: /s/ Joseph R. Doherty                                   Date:  June 20, 2001
    -------------------------------------------------
      Joseph R. Doherty
      Chairman of the Board and Director

By: /s/ Terence D. Kenney                                   Date:  June 20, 2001
    -------------------------------------------------
       Terence D. Kenney
       Director

By: /s/ John G. Quinn                                       Date:  June 20, 2001
    -------------------------------------------------
       John G. Quinn
       Director

By: /s/ John F. Gilgun, Jr.                                 Date:  June 20, 2001
    -------------------------------------------------
       John F. Gilgun, Jr.
       Director

By: /s/ Marat E. Santini                                    Date:  June 20, 2001
    -------------------------------------------------
       Marat E. Santini
       Director

By: /s/ Nancy D. Neri                                       Date:  June 20, 2001
    -------------------------------------------------
       Nancy D. Neri
       Director

By: /s/ Gregory W. Boulos                                   Date:  June 20, 2001
    -------------------------------------------------
       Gregory W. Boulos
       Director