================================================================================
                       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, 2002
                                       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  $25.5 million based on the closing sales price of
the  registrant's  common stock as reported on the Nasdaq  National  MarketSM on
June 21,  2002  ($30.00  per share).  Solely for  purposes of this  calculation,
directors,  executive  officers and greater than 5% stockholders  are treated as
affiliates.

     As of June 21, 2002, there were issued and outstanding  1,632,789 shares of
the  registrant's  common  stock,  par value  $1.00 per share (of which  781,028
shares were deemed held by affiliates).

                       DOCUMENTS INCORPORATED BY REFERENCE
     1.  Portions  of the  Proxy  Statement  for  the  2002  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
                                                                            Page
                                                                            ----
Item 1.    Business........................................................... 3
Item 2.    Properties.........................................................19
Item 3.    Legal Proceedings..................................................20
Item 4.    Submission of Matters to a Vote of Security Holders................20


                                     PART II


Item 5.    Market for the Registrant's Common Equity and Related
                Stockholder Matters ..........................................21
Item 6.    Selected Financial Data............................................22
Item 7.    Management's Discussion and Analysis of Financial Condition
                and Results of Operations.....................................23
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.........28
Item 8.    Financial Statements and Supplementary Data........................29
Item 9.    Changes in and Disagreements With Accountants on Accounting
                and Financial Disclosure......................................54


                                    PART III


Item 10.   Directors and Executive Officers of the Registrant.................54
Item 11.   Executive Compensation.............................................54
Item 12.   Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters...............................54
Item 13.   Certain Relationships and Related Transactions.....................55


                                     PART IV


Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K...55
<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").  The  Company has no
significant assets other than the common stock of the Bank, a loan to the Bank's
Employee Stock  Ownership Plan ("ESOP") and various other liquid assets in which
it invests in the ordinary  course of business.  For that reason,  substantially
all of the  discussion  in this  Annual  Report  on  Form  10-K  relates  to the
operations of the Bank and its subsidiaries.

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

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

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

                                       3
<PAGE>

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

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

MARKET AREA

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

COMPETITION

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

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

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

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

                                       4
<PAGE>

LENDING ACTIVITIES

     The Bank offers residential mortgage and home equity loans, commercial real
estate loans,  construction  loans,  commercial and industrial loans,  personal,
home improvement,  and various other types of consumer loans. For the year ended
March 31, 2002, the Bank originated  loans totaling  $157.9  million,  including
$53.3 million of purchased  loans. Of the total loans  originated  during fiscal
2002,  $113.1  million,  or 71.6%,  were  residential  mortgage  loans and $33.3
million,  or 21.1%,  were  commercial  mortgage loans. No loans were sold during
fiscal 2002, 2001 and 2000 in the secondary market; however, the Bank may sell a
portion of its residential mortgage loan originations in the future. 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 7.5%, to $368.4  million at March 31, 2002 from
$342.7 million at March 31, 2001. The increase occurred,  despite the continuing
high level of loan  refinancing  activity due to an increase in  originations of
commercial  real  estate  loans and  construction  loans,  and the  purchase  of
residential mortgage loans.

     LOAN PORTFOLIO COMPOSITION.  The following table summarizes the composition
of the  Bank's  loan  portfolio  by type of loan and the  percentage  each  type
represents of the total loan portfolio at the dates indicated.

<TABLE>
<CAPTION>

                                                                               At March 31,
                                       -----------------------------------------------------------------------------------------
                                               2002           2001               2000                1999              1998
                                       ---------------  ----------------   -----------------  ----------------  ----------------
                                        Amount     %     Amount      %      Amount        %      Amount     %      Amount      %
                                       --------  -----  --------   -----   ---------   -----  ---------  -----  ---------  -----
                                                                     (Dollars in thousands)
<S>                                    <C>        <C>   <C>         <C>    <C>          <C>   <C>         <C>    <C>        <C>
 Mortgage loans:
  Residential.......................   $246,045   66.2% $248,459    71.9%   $243,570    76.1%  $212,659   75.9%  $207,909   73.8%
  Commercial........................     87,013   23.4    69,949    20.2      54,228    16.9     48,756   17.4     52,491   18.6
  Construction......................     20,998    5.6     9,152     2.6       9,765     3.1      5,269    1.9      8,256    2.9
  Second mortgage and home equity...      9,154    2.5    10,977     3.2       7,403     2.3      7,462    2.7      8,369    3.0
                                       --------  -----  --------   -----    --------   -----   --------  -----  ---------  -----
    Total mortgage loans............    363,210   97.7   338,537    97.9     314,966    98.4    274,146   97.8    277,025   98.3
                                       --------  -----  --------   -----    --------   -----   --------  -----  ---------  -----

Other loans:
  Commercial and industrial.........      6,901    1.9     4,979     1.4       3,349     1.1      4,391    1.6      2,530    0.9
  Consumer..........................      1,596    0.4     2,277     0.7       1,698     0.5      1,809    0.6      2,169    0.8
                                       --------  -----  --------   -----    --------   -----   --------  -----  ---------  -----
    Total other loans...............      8,497    2.3     7,256     2.1       5,047     1.6      6,200    2.2      4,699    1.7
                                       --------  -----  --------   -----    --------   -----   --------  -----  ---------  -----
    Total loans.....................    371,707  100.0%  345,793   100.0%    320,013   100.0%   280,346  100.0%   281,724  100.0%
                                                 =====             =====               =====             =====             =====

Less:
  Allowance for loan losses.........      3,292            3,106               2,993              2,913             2,886
                                       --------         --------            --------           --------          --------
    Loans, net......................   $368,415         $342,687            $317,020           $277,433          $278,838
                                       ========         ========            ========           ========          ========
</TABLE>

                                       5
<PAGE>

     LOAN PORTFOLIO SENSITIVITY. The following table sets forth certain maturity
information  as of March 31, 2002  regarding the dollar amount of commercial and
industrial  loans  as  well  as  construction  loans  in the  Bank's  portfolio,
including  scheduled  repayments of  principal,  based on  contractual  terms to
maturity.  Demand loans,  loans having no schedule of  repayments  and no stated
maturity and overdrafts are reported as due in one year or less.


                                                 DUE AFTER
                                    DUE WITHIN  ONE THROUGH   DUE AFTER
                                     ONE YEAR   FIVE YEARS   FIVE YEARS   TOTAL
                                     --------   ----------   ----------   -----
                                                  (IN THOUSANDS)

Construction loans ...............   $19,157     $ 1,464     $   377     $20,998
Commercial and industrial loans...     5,472         867         562       6,901
                                     -------     -------     -------     -------
     Total .......................   $24,629     $ 2,331     $   939     $27,899
                                     =======     =======     =======     =======

     Of  construction  loans and commercial  and industrial  loans maturing more
than one year after  March 31,  2002,  $2.3  million  have fixed  rates and $1.0
million, have floating or variable rates.

     RESIDENTIAL  LENDING.  The Bank's  residential  mortgage loans at March 31,
2002 totaled $246.0 million,  or 66.2%, of the total loan portfolio.  Fixed-rate
residential  mortgages totaled $142.2 million, or 57.8%, of the residential loan
portfolio and adjustable  rate loans totaled $103.8  million,  or 42.2%,  of the
residential loan portfolio.

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

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

     COMMERCIAL  REAL  ESTATE  AND  CONSTRUCTION  LENDING.  The Bank  originates
permanent and  construction  loans on commercial  real estate.  Commercial  real
estate  loans are  typically  secured  by  income-producing  properties  such as
apartment buildings,  office buildings,  industrial buildings and various retail
properties  and are written  with either  fixed or  adjustable  interest  rates.
Commercial  real estate  loans with fixed  interest  rates have terms  generally
ranging  from one to five years.  As of March 31, 2002,  commercial  real estate
loans totaled $87.0 million and constituted 23.4% of the total loan portfolio.

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

     The Bank's construction loans totaled $21.0 million, or 5.6%, of the Bank's
loan  portfolio at March 31, 2002.  Construction  loans are short-term in nature
and have maturities  ranging from six months to two years. The Bank grants loans
to construct residential and commercial real estate, as well as land development
for individual  residential lots. Currently,  construction loans are made for up
to 80% of the projected  value of the completed  property,  based on independent
appraisals.  Funds are disbursed based on a schedule of completed work presented
to  the  Bank  and  confirmed  by  physical  inspection  of  the  property  by a
construction consultant and only after receipt of title updates.

                                       6
<PAGE>

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

     The growth in commercial real estate loans and construction loans in fiscal
2002, which aggregated $28.9 million,  or 36.5%, is attributable to the addition
of  experienced  commercial  lenders and expansion of the credit  administration
function during the past year.

     SECOND  MORTGAGES  AND HOME  EQUITY  LINES OF CREDIT.  The Bank offers home
equity  lines of  credit  that are  secured  by the  borrower's  equity in their
primary  residence and may take the form of a first or second  mortgage.  Equity
loans  are made in  amounts  up to 80% of the  appraised  value  less any  first
mortgage.  Payment of  interest  is  required  monthly  and the rate is adjusted
monthly  based on  changes  in the Prime  Rate,  as  quoted  in the Wall  Street
Journal. Loans are not contingent upon proceeds being used for home improvement.
The Bank's  home equity  loans  outstanding,  and  amortizing  second  mortgages
totaled $9.2 million, or 2.5%, of the Bank's loan portfolio at March 31, 2002.

     COMMERCIAL AND INDUSTRIAL,  CONSUMER AND OTHER LOANS. The Bank's commercial
and industrial,  consumer and other loans totaled $8.5 million,  or 2.3%, of the
total loan  portfolio on March 31, 2002.  The Bank's  commercial  and industrial
portfolio  consists  primarily  of time,  demand and  line-of-credit  loans to a
variety of local small  businesses  generally done on a secured basis.  The Bank
engages in consumer lending primarily as an accommodation to existing customers.

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

     ORIGINATION  FEES AND OTHER FEES. The Bank currently  collects  origination
fees on some of the real estate loan products offered. Fees to cover the cost of
appraisals,  credit  reports,  and other direct costs are also  collected.  Loan
origination  fees collected vary in proportion to the level of lending  activity
as well as competitive and economic conditions.

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

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

     Each loan originated by the Bank is  underwritten  by lending  personnel of
the Bank or qualified  independent  contract  underwriters.  Individual  lending
officers,  a committee of loan officers and the Bank's  Security  Committee have
the authority to approve loans up to various limits.  Applications  are received
in  each  of the  offices

                                       7
<PAGE>

of the Bank.  Independent certified and licensed appraisers are used to appraise
the  property  intended  to secure real estate  loans.  The Bank's  underwriting
criteria  are  designed to minimize  the risks of each loan.  There are detailed
guidelines  concerning  the types of loans  that may be made,  the nature of the
collateral,  the information that must be obtained concerning the loan applicant
and follow-up inspections of collateral after the loan is made.

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

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

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

     The  following  table sets  forth  information  with  respect to the Bank's
non-performing assets at the dates indicated.

<TABLE>
<CAPTION>
                                                              AT MARCH 31,
                                              ----------------------------------------------
                                                2002       2001      2000     1999     1998
                                              --------   --------   ------   ------   ------
                                                            (DOLLARS IN THOUSANDS)
<S>                                           <C>        <C>        <C>      <C>      <C>
Loans accounted for on a non-accrual basis,
   non-performing loans ...................   $     --   $     --   $  235   $  419   $  357
Restructured loans ........................         --         --       --       --       --
Real estate acquired by foreclosure .......         --         --       --       --       --
                                              --------   --------   ------   ------   ------

   Non-performing assets ..................   $     --   $     --   $  235   $  419   $  357
                                              ========   ========   ======   ======   ======

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

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

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


     At March 31,  2002,  there  were no loans  where  known  information  about
possible credit problems of borrowers  caused  management to have serious doubts
as to the ability of such borrowers to comply with present loan repayment terms.

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

                                       8
<PAGE>

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.

     The  following  table  presents  activity in the  allowance for loan losses
during the years indicated.

<TABLE>
<CAPTION>
                                                                      YEARS ENDED MARCH 31,
                                            -------------------------------------------------------------
                                               2002         2001        2000         1999         1998
                                            ---------    ---------    ---------    ---------    ---------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>          <C>          <C>          <C>
Balance at beginning of year ............   $   3,106    $   2,993    $   2,913    $   2,886    $   2,900
                                            ---------    ---------    ---------    ---------    ---------

Charge-offs:
  Residential mortgage ..................          --           --           --          (88)          --
  Commercial mortgage ...................          --           --           --           --          (83)
  Other loans ...........................          (4)          (4)          (9)         (11)         (14)
                                            ---------    ---------    ---------    ---------    ---------
    Total charge-offs ...................          (4)          (4)          (9)         (99)         (97)
                                            ---------    ---------    ---------    ---------    ---------

Recoveries:
  Residential mortgage ..................          80           60            9           78           16
  Commercial mortgage ...................         103           48           36           36           46
  Other loans ...........................           7            9           44           12           21
                                            ---------    ---------    ---------    ---------    ---------
    Total recoveries ....................         190          117           89          126           83
                                            ---------    ---------    ---------    ---------    ---------

Net recoveries (charge-offs) ............         186          113           80           27          (14)
Provision ...............................          --           --           --           --           --
                                            ---------    ---------    ---------    ---------    ---------
Balance at end of year ..................   $   3,292    $   3,106    $   2,993    $   2,913    $   2,886
                                            =========    =========    =========    =========    =========

Average loans outstanding during
  the year ..............................   $ 335,271    $ 341,732    $ 300,089    $ 287,513    $ 250,329
Ratio of net charge-offs to average
  loans..................................          na           na           na           na         0.01%
Total loans outstanding at end of year...  $  371,707    $ 345,793   $  320,013   $  280,346   $  281,724
Ratio of allowance for loan
  losses to loans at end of year.........        0.89%        0.90%        0.94%        1.04%        1.02%
</TABLE>


                                       9
<PAGE>

     The allowance for loan losses is available for offsetting  credit losses in
connection  with any loan, but is internally  allocated among loan categories as
part of the process  for  evaluating  the  adequacy  of the  allowance  for loan
losses.  The following table presents the allocation of the Bank's allowance for
loan losses, by type of loan, at the dates indicated.


<TABLE>
<CAPTION>
                                                    AT MARCH  31,
                             -------------------------------------------------------------
                                    2002                 2001                2000
                             -------------------  -------------------  -------------------
                                         % 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.....  $  636      66.2%    $1,637      71.9%    $1,333     76.1%
  Commercial mortgage......   1,956      23.4      1,058      20.2      1,202     16.9
  Construction.............     462       5.6        169       2.6        198      3.1
  Second mortgage and
    home equity............      98       2.5        163       3.2        178      2.3
                             ------     -----     ------     -----     ------    -----
    Total mortgage loans...   3,152      97.7      3,027      97.9      2,911     98.4
Other loans................     140       2.3         79       2.1         82      1.6
                             ------     -----     ------     -----     ------    -----
    Total..................  $3,292     100.0%    $3,106     100.0%    $2,993    100.0%
                             ======     =====     ======     =====     ======    =====
<CAPTION>

                                           AT MARCH  31,
                             ----------------------------------------
                                    1999                 1998
                             -------------------  -------------------
                                         % OF                 % OF
                                       LOANS TO             LOANS TO
                             AMOUNT  TOTAL LOANS  AMOUNT  TOTAL LOANS
                             ------  -----------  ------  -----------
                                     (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>      <C>         <C>
Mortgage loans:
  Residential mortgage...... $1,120      75.9%    $1,104      73.8%
  Commercial mortgage.......  1,556      17.4      1,578      18.6
  Construction..............     92       1.9        105       2.9
  Second mortgage and
    home equity.............     58       2.7         48       3.0
                             ------     -----     ------     -----
    Total mortgage loans....  2,826      97.8      2,835      98.3
Other loans.................     87       2.2         51       1.7
                             ------     -----     ------     -----
    Total................... $2,913     100.0%    $2,886     100.0%
                             ======     =====     ======     =====
</TABLE>


INVESTMENT ACTIVITIES

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

     The Bank's  investment  policy  requires that corporate debt  securities be
rated as  "investment  grade" at the time of purchase.  Subsequent  to March 31,
2002, a corporate  bond in the  investment  portfolio  was  downgraded in credit
rating below  investment  grade.  This bond had a carrying  value of $370,000 at
year end (74% of par value) and $343,000 at May 31, 2002.

                                       10
<PAGE>

     Investments  are classified as either held to maturity,  available for sale
or trading.  Investments  classified as trading  securities are reported at fair
value  with  unrealized  gains and  losses  included  in  earnings.  Investments
classified  as available  for sale are reported at fair value,  with  unrealized
gains and losses  reported  as a separate  component  of  stockholders'  equity.
Securities  held to maturity are carried at amortized  cost.  At March 31, 2002,
all of the Bank's marketable investments were classified as available for sale.


     The  following  table  sets  forth  a  summary  of  the  Bank's  investment
securities,  as well as the percentage such  investments  comprise of the Bank's
total assets, at the dates indicated.

                                                  AT MARCH 31,
                                          ---------------------------
                                            2002     2001      2000
                                          -------   -------   -------
                                             (DOLLARS IN THOUSANDS)

U. S. Government and agency
  obligations .........................   $13,996   $19,051   $22,953
Corporate bonds .......................    38,568     5,245     2,037
Mortgage-backed securities ............    18,340    19,314    23,308
Marketable equity securities ..........     2,980     5,778     5,216
                                          -------   -------   -------
    Total investment securities .......   $73,884   $49,388   $53,514
                                          =======   =======   =======

    Percentage of total assets.........      15.8%     11.0%     13.1%
                                             ====      ====      ====

     At March 31, 2002, the Bank owned  securities  issued by several  companies
having a book value that  exceeded 10% of the  Company's  stockholders'  equity.
Such securities  consisted  primarily of debt  obligations.  The following table
summarizes  the aggregate  book and market value of the Bank's  holdings of each
issuer.

         ISSUER                     BOOK VALUE                 MARKET VALUE
         ------                     ----------                 ------------
                                             (DOLLARS IN THOUSANDS)

         AT&T                       $   5,318.5                $   5,123.6
         Ford Motor Credit              5,108.0                    4,982.0
         GMAC                           5,092.3                    5,067.4
         Boeing Capital Corp.           5,043.7                    4,958.4
         Hewlett Packard                5,005.7                    4,916.1
         DaimlerChrysler                4,630.2                    4,594.4


     The following  table sets forth the scheduled  maturities,  amortized cost,
market  values and average  yields for the Bank's debt  securities  at March 31,
2002.

<TABLE>
<CAPTION>
                             ONE YEAR OR LESS    ONE TO FIVE YEARS   FIVE TO TEN YEARS   MORE THAN TEN YEARS
                             ----------------    -----------------   -----------------   -------------------
                             AMORTIZED AVERAGE   AMORTIZED AVERAGE   AMORTIZED AVERAGE    AMORTIZED  AVERAGE
                               COST     YIELD     COST      YIELD     COST    YIELD         COST     YIELD
                               ----     -----     ----      -----     ----    -----         ----     -----
                                                                             (DOLLARS IN THOUSANDS)
<S>                           <C>        <C>     <C>        <C>      <C>       <C>        <C>         <C>
U.S. government and agency
   securities................ $  --       -- %   $ 1,999    5.50%    $11,996   5.81%      $    --        -- %
Corporate bonds..............    --       --      39,012    6.15          --     --            --        --
Mortgage-backed securities...   259     6.70       1,521    6.85       1,281   7.76        15,316      6.92
                              -----              -------             -------              --------
   Total..................... $ 259     6.70     $42,532    6.14     $13,277   6.00       $15,316      6.92
                              =====              =======             =======              ========

<CAPTION>

                             TOTAL INVESTMENT PORTFOLIO
                             --------------------------
                              AMORTIZED MARKET   AVERAGE
                                COST     VALUE    YIELD
                                ----     -----    -----
                                (DOLLARS IN THOUSANDS)
<S>                           <C>        <C>       <C>
U.S. government and agency
   securities................  $13,995   $13,996   5.77%
Corporate bonds..............   39,012    38,568   6.15
Mortgage-backed securities...   18,377    18,340   6.97
                               -------   -------
   Total.....................  $71,384   $70,904   6.29
                               =======   =======
</TABLE>

                                       11
<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  2002,  management  sought to increase its core deposit base
i.e.,  noncertificate  accounts, in order to partially fund the Bank's increased
lending  activity.  To assist in that effort,  the Bank  developed  and began to
offer its Community  Package Account,  consisting of a group of deposit accounts
and an ATM/debit card with no monthly fees.

     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,
                                        -------------------------------------------------------------------------------------
                                                    2002                            2001                      2000
                                        -------------------------     --------------------------  ---------------------------
                                                          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 deposit accounts.............  $  24,535     9.0%      --%    $  20,382    7.5%       --%  $ 18,742     7.3%       --%
NOW accounts........................     36,177    13.2     1.12        32,312   12.0      1.29     30,885    12.0      1.19
Regular, club and 90-day
  notice accounts...................     67,322    24.7     1.32        62,018   22.9      2.03     61,424    23.8      2.05
Money market deposit accounts.......     16,869     6.2     1.75        17,200    6.4      2.22     21,417     8.3      2.22
Term deposit certificates...........    127,906    46.9     5.13       138,223   51.2      5.81    125,068    48.6      5.16
                                      ---------   -----              ---------  -----             --------   -----

    Total deposits..................  $ 272,809   100.0%    2.98%    $ 270,135  100.0%     3.73%  $257,536   100.0%     3.32%
                                      =========   =====              =========  =====             ========   =====
</TABLE>


                                       12
<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, 2002 (in thousands).


        Maturity Period:
           Three months or less.................................. $  10,680
           Three through six months..............................     6,824
           Six through twelve months.............................     6,947
           Over twelve months....................................     2,782
                                                                  ---------
                 Total........................................... $  27,233
                                                                  =========

     BORROWINGS.  From  time to time the  Bank  borrows  funds  from the FHLB of
Boston.  All  advances  from the FHLB of Boston are secured by a blanket lien on
residential  first mortgage  loans,  certain  investment  securities and all the
Bank's  stock in the FHLB of Boston.  At March 31,  2002,  the Bank had advances
outstanding from the FHLB of Boston of $164.0 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
                                                                               YEARS ENDED MARCH 31,
                                                                 ------------------------------------------------
                                                                    2002               2001               2000
                                                                 ----------         ----------         ----------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                             <C>                 <C>                <C>
Amounts outstanding at end of period.........................   $ 164,000           $ 121,000          $111,000
Weighted average rate at end of period.......................        4.39%               5.84%             5.66%
Maximum amount of borrowings outstanding
  at any month end...........................................   $ 164,000           $ 121,000          $113,000
Approximate average amounts outstanding......................   $ 124,680           $ 111,980          $ 80,907
Approximate weighted average rate during the year............        5.41%               6.18%             5.56%

</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 ("REIT") 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.


                                       13
<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.

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

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

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

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

                                       14
<PAGE>

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

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

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

     STOCK  REPURCHASES.  As a bank holding company,  the Company is required to
give  the  Federal  Reserve  Board  prior  written  notice  of any  purchase  or
redemption of its outstanding  equity securities if the gross  consideration for
the purchase or redemption,  when combined with the net  consideration  paid for
all such  purchases or redemptions  during the preceding 12 months,  is equal to
10% or more of the Company's  consolidated  net worth. The Federal Reserve Board
may disapprove  such a purchase or redemption if it determines that the proposal
would violate any law, regulation,  Federal Reserve Board order,  directive,  or
any condition  imposed by, or written agreement with, the Federal Reserve Board.
This   requirement   does  not  apply  to  bank  holding   companies   that  are
"well-capitalized," received one of the two highest examination ratings at their
last examination and are not the subject of any unresolved supervisory issues.

REGULATION AND SUPERVISION OF THE BANK

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

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

                                       15
<PAGE>

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

     At March 31, 2002, the Bank's ratio of Tier 1 capital to average assets was
7.61%,  its ratio of Tier 1 capital to  risk-weighted  assets was 11.28% and its
ratio of total risk-based capital to risk-weighted assets was 12.35%.

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

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

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

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

     The assessment rate for an insured depository  institution is determined by
the assessment risk classification assigned to the institution by the FDIC based
on the  institution's  capital level and supervisory  evaluations.  Based on the
data reported to regulators for date closest to the last day of the fourth month
preceding the semi-annual assessment period, institutions are assigned to one of
three  capital   groups  --  well   capitalized,   adequately   capitalized   or
undercapitalized  --  using  the  same  percentage  criteria  as in  the  prompt
corrective action  regulations.  See "-- Prompt Corrective  Regulatory  Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other  information  as the FDIC  determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.

     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, 2002, the Bank is considered well capitalized. In
addition,  FDIC-insured institutions are required to pay

                                       16
<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 have been  assessed at the
same rate for FICO payments.

     The FDIC has announced that the BIF reserve ratio had fallen below 1.25% as
of March 31,  2002.  The FDIC has  further  indicated  that in the event the BIF
reserve ratio is expected to remain below the designated  reserve ratio when the
FDIC  establishes  the assessment  rate for the first half of 2003 this fall, it
will require BIF-insured banks to begin paying a premium for deposit insurance.

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

     PROMPT  CORRECTIVE  REGULATORY  ACTION.  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.

                                       17
<PAGE>

<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%
</TABLE>
-----------
*  3.0% if institution has a composite 1 CAMELS rating.

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.

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

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

                                       18
<PAGE>

condition that the customer obtain some additional  service from the institution
or certain of its  affiliates  or not obtain  services  of a  competitor  of the
institution, subject to certain limited exceptions.

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

EMPLOYEES

     At March  31,  2002,  the  Bank  employed  84  full-time  and 36  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.

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

     The Bank owns all its  offices,  except the  Burlington  and Malden  branch
offices,  and the loan and operations  centers  located in Somerville.  Net book
value includes the cost of land, buildings and improvements as well as leasehold
improvements, net of depreciation and/or amortization. At March 31, 2002, 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,  2002
(dollars in thousands):

                                                                    NET BOOK
                                                      YEAR          VALUE AT
                  OFFICE LOCATION                    OPENED      MARCH 31, 2002
                  ---------------                    ------      --------------

            MAIN OFFICE
            399 Highland Avenue
            Somerville, MA........................    1974          $    248

            BRANCH OFFICES:
            175 Broadway
            Arlington, MA.........................    1982               119

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

            1192 Boylston Street
            Chestnut Hill (Newton), MA............    1954               144

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

            846 Main Street
            Melrose, MA...........................    1994               170

            275 Main Street
            Woburn, MA............................    1980               465


                                       19
<PAGE>

                                                                    NET BOOK
                                                      YEAR          VALUE AT
                  OFFICE LOCATION                    OPENED      MARCH 31, 2002
                  ---------------                    ------      --------------

            198 Lexington Street
            Woburn, MA............................    1974          $    170

            Operations Center
            17 Inner Belt Road
            Somerville, MA........................    1994 (c)            25


            Loan Center
            401 Highland Avenue...................    2002(d)              2
            Somerville, MA


(a)  The lease for the Burlington branch expires in 2007 with no renewal option.
(b)  The lease for the  Malden  branch  expires in 2005 with an option to extend
     the lease for one ten-year term.
(c)  The lease for the operations center expires in 2004 with no renewal option.
(d)  The lease for the loan center  expires in 2006 with an option to extend for
     one three-year term.

     At March 31, 2002, the net book value of the Bank's  premises and equipment
was $1.8 million.

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

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

     The Bank has been named as  defendant  in a civil suit filed March 28, 2002
in Middlesex  Superior Court under the caption Yi v. Central Bank in which it is
alleged,  inter  alia,  that the Bank  committed  an unfair or  deceptive  trade
practice by failing to pay surplus foreclosure  proceeds to a junior lien holder
in 1994.  Plaintiff  seeks damages of $160,000  plus  interest of  approximately
$150,000 and has applied for a multiple  damage  award under  Chapter 93A of the
Massachusetts  General  Laws  which  provides  for  up to  treble  damages  if a
violation  is found to be  willful or  knowing.  The Bank  believes  that it has
meritorious defenses to all such claims and intends to vigorously defend against
them.


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.

                                       20
<PAGE>

                                     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  MarketSM  under the  symbol  "CEBK."  At March 31,  2002,  there  were
1,632,789 shares of the common stock  outstanding and  approximately 260 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  2002 and fiscal  2001 as reported by the Nasdaq
National MarketSM,  and the amounts and payable dates of the cash dividends paid
during  each  quarter  of fiscal  2002 and  fiscal  2001.  The stock  quotations
constitute interdealer prices without retail markups,  markdowns or commissions,
and may not necessarily represent actual transactions.



COMMON STOCK PRICES                               CASH DIVIDENDS (PAYABLE DATES)

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

Fiscal 2001           High         Low             Fiscal 2001      Amount
-----------------------------------------------    ------------------------
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




                                       21
<PAGE>

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

<TABLE>
<CAPTION>
                                                              AT OR FOR THE YEAR ENDED MARCH 31,
                                                -------------------------------------------------------------
                                                  2002           2001         2000         1999        1998
                                                --------       --------     --------     --------    --------
                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET
<S>                                            <C>           <C>          <C>          <C>          <C>
Total assets ..................................   $ 468,219     $ 449,337    $ 409,557    $ 364,696    $ 375,233
Total loans ...................................     371,707       345,793      320,013      280,346      281,724
Investments:
    Available for sale ........................      73,884        49,388       68,316       68,881       73,027
    Held to maturity ..........................          --            --           --           --        4,000
Deposits ......................................     261,907       287,167      258,339      266,463      276,364
Borrowings ....................................     164,000       121,000      111,000       57,000       59,000
Total stockholders' equity ....................      38,954        38,212       37,397       38,742       36,786

Shares outstanding ............................       1,633         1,684        1,810        1,967        1,965

STATEMENTS OF OPERATIONS
Net interest and dividend income ..............   $  14,413     $  13,914    $  13,375    $  11,947    $  11,698
Provision for loan losses .....................          --            --           --           --           --
Net gain (loss) from sale and write-down of
    investment securities .....................        (150)          680        1,013          580        1,051
Other non-interest income .....................         838           608          656          788          763
Total non-interest expenses ...................      10,465        10,330        9,345        8,773        8,471
Income before cumulative effect of
    accounting change .........................       2,860         3,109        3,567        2,682        3,047
Net income ....................................       2,860         3,109        3,333        2,682        3,047
Earnings per common share after cumulative
    effect of accounting change - diluted .....        1.72          1.81         1.77         1.38         1.56

SELECTED RATIOS
Interest rate spread ..........................        2.85%         2.80%        3.11%        2.97%        3.11%
Net yield on interest-earning assets ..........        3.36          3.38         3.64         3.29         3.45
Equity-to-assets ..............................        8.32          8.50         9.13        10.62         9.80
Return on average assets before cumulative
    effect of change in accounting principle...        0.65          0.74         0.94         0.72         0.88
Return on average stockholders' equity
    before cumulative effect of change in
    accounting principle ......................        7.62          8.11         9.49         7.12         8.64
Dividend payout ratio .........................       23.39         22.42        20.67        23.45        20.64
</TABLE>


                                       22
<PAGE>

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

GENERAL

     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 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 fiscal years and its  financial  condition at the
end of fiscal  years 2002 and 2001.  Management's  discussion  and  analysis  of
financial condition and results of operations should be read in conjunction with
the consolidated financial statements and accompanying notes.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

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

RESULTS OF OPERATIONS

     The Bank reported net income of $2.9 million or $1.72 per diluted share for
fiscal 2002, as compared to $3.1 million,  or $1.81 per diluted share for fiscal
2001 and $3.3 million or $1.77 per diluted share after the cumulative  effect of
a change in accounting principle for fiscal 2000.

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

                                       23
<PAGE>

with fiscal 2000 was primarily  the result of an increase in operating  expenses
and a  decrease  in the net  gain on sale of  investment  securities,  partially
offset by higher net interest  income.  The increase in salaries and benefits in
2001 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 in fiscal 2001  resulted from  management's  decision to
aggressively price deposits which caused the overall cost of funds to increase.

     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.

     The following table presents average balances,  interest income and expense
and   yields   earned  or  rates  paid  on  all   interest-earning   assets  and
interest-bearing liabilities for the years indicated.

<TABLE>
<CAPTION>
                                                                       YEARS ENDED MARCH 31,
                                    -------------------------------------------------------------------------------------
                                               2002                         2001                         2000
                                    --------------------------   --------------------------   ---------------------------
                                    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>
ASSETS:
Interest-earning assets:
  Mortgage loans.................   $327,806   $23,799    7.26%    $334,513  $25,613   7.66%   $293,126   $21,806    7.44%
  Other loans....................      7,465       438    5.87        7,219      716   9.92       6,963       599    8.60
                                    --------   -------             --------  -------           --------   -------
      Total loans................    335,271    24,237    7.23      341,732   26,329   7.70     300,089    22,405    7.47
  Short-term investments.........     22,076       866    3.92        7,457      487   6.53       8,197       421    5.14
  Investment securities..........     71,427     4,170    5.84       62,998    4,101   6.51      59,243     3,598    6.07
                                    --------   -------             --------  -------           --------   -------
      Total investments..........     93,503     5,036    5.39       70,455    4,588   6.51      67,440     4,019    5.96
                                    --------   -------             --------  -------           --------   -------
      Total interest-earning
        assets...................    428,774    29,273    6.83      412,187   30,917   7.50     367,529    26,424    7.19
                                               -------                       -------                      -------
Allowance for loan losses .......     (3,234)                        (3,042)                     (2,946)
Non-interest-earning assets......     14,951                         13,676                      14,109
                                    --------                       --------                    --------
      Total  assets..............   $440,491                       $422,821                    $378,692
                                    ========                       ========                    ========

LIABILITIES AND STOCKHOLDERS'
  EQUITY:
Interest-bearing liabilities:
  Deposits.......................   $248,274     8,119    3.27     $249,753   10,087   4.04    $238,794     8,553    3.58
  Advances from FHLB of Boston...    124,680     6,741    5.41      111,980    6,916   6.18      80,907     4,496    5.56
                                    --------   -------             --------  -------           --------   -------
      Total interest-bearing
          liabilities............    372,954    14,860    3.98      361,733   17,003   4.70     319,701    13,049    4.08
                                               -------                       -------                      -------
Non-interest-bearing deposits....     24,535                         20,382                      18,742
Other liabilities................      4,481                          2,383                       2,658
                                    --------                       --------                    --------
       Total liabilities.........    401,970                        384,498                     341,101
Stockholders' equity.............     38,521                         38,323                      37,591
                                    --------                       --------                    --------
      Total liabilities and
        stockholders' equity.....   $440,491                       $422,821                    $378,692
                                    ========                       ========                    ========

Net interest and dividend
  income.........................              $14,413                       $13,914                      $13,375
                                               =======                       =======                      =======
Interest rate spread.............                         2.85%                        2.80%                         3.11%
                                                          ====                         ====                          ====

Net yield on interest-earning
  assets ........................                         3.36%                        3.38%                         3.64%
                                                          ====                         ====                          ====
</TABLE>

                                       24
<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>
                                           2002      VS.        2001          2001      VS.        2000
                                         -----------------------------      -----------------------------
                                              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.......................  $  (503)    $(1,311)   $ (1,814)   $ 3,148    $   659     $ 3,807
  Other  ..............................       24        (302)       (278)        23         94         117
                                         -------     -------    --------    -------    -------     -------
      Total income from loans..........     (479)     (1,613)     (2,092)     3,171        753       3,924
                                         -------     -------    --------    -------    -------     -------
  Short-term investments...............      639        (260)        379        (41)       107          66
  Investment securities................      516        (447)         69        250        253         503
                                         -------     -------    --------    -------    -------     -------
      Total income from investments....    1,155        (707)        448        209        360         569
                                         -------     -------    --------    -------    -------     -------
      Total interest and dividend
        income ........................      676      (2,320)     (1,644)     3,380      1,113       4,493
                                         -------     -------    --------    -------    -------     -------

Interest expense:
  Deposits.............................      (60)     (1,908)     (1,968)       435      1,099       1,534
  Advances from FHLB of Boston.........      738        (913)       (175)     1,875        545       2,420
                                         -------     -------    --------    -------    -------     -------
      Total interest expense...........      678      (2,821)     (2,143)     2,310      1,644       3,954
                                         -------     -------    --------    -------    -------     -------

Net interest and dividend income.......  $    (2)    $   501    $    499    $ 1,070    $  (531)    $   539
                                         =======     =======    ========    =======    =======     =======
</TABLE>


     INTEREST AND DIVIDEND  INCOME.  The Bank experienced a $1.6 million overall
decrease  in  interest  and  dividend  income for the year ended  March 31, 2002
compared to fiscal 2001.  Interest  income on loans decreased by $2.1 million to
$24.2  million due to a $6.5 million  decrease in average loan balances and a 47
basis point  decline in the average rate earned.  During  fiscal year 2002,  the
Bank originated and purchased new loans  amounting to $157.9 million,  including
$84.0 million  during the fourth quarter of the year.  With  declining  interest
rates,  management  had  decided  to slow  down the  origination  of  fixed-rate
residential  loans during the first half of the year.  During the second half of
the year,  the Bank  priced  its  residential  loans  more  competitively  which
increased  origination  volume.  The Bank has continued to emphasize  commercial
lending in order to diversify the loan portfolio and improve  overall  portfolio
yield.  Additionally,  interest and dividend income on investments  increased by
$448  thousand  in fiscal 2002 due  primarily  to an $23.0  million  increase in
average  total  balances of  investments  partially  offset by a 112 basis point
decrease in the rate earned on investments. The overall total average balance of
interest-earning  assets  increased by $16.6  million from fiscal 2001 to fiscal
2002, and the average yield on all interest-earning assets decreased by 67 basis
points between the two fiscal years.

     The Bank  experienced  a $4.5  million  overall  increase in  interest  and
dividend  income for the 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.  The increase in the loan portfolio  reflects a management  decision to
increase loan originations in a favorable  interest rate  environment.  As rates
declined during the calendar year,  management  decided to slow down residential
lending but continued  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.

     INTEREST EXPENSE.  For fiscal 2002,  interest expense on deposits decreased
by $2.0  million  from $10.1  million in fiscal  2001 to $8.1  million in fiscal
2002. The decrease can be attributed  primarily to a 77 basis point reduction in
the cost of deposits  in fiscal  2002  reflecting  the series of  reductions  in
interest rates  initiated by the

                                       25
<PAGE>

Federal  Reserve Board beginning in January 2001 and the repricing of nearly 70%
of  certificates  of  deposit  outstanding  at March 31,  2001 in  fiscal  2002.
Interest expense on borrowings decreased $175 thousand as the average balance of
borrowings  rose to $124.7 million during fiscal 2002 from $112.0 million during
fiscal 2001,  which was more than offset by a decrease of 77 basis points in the
rate paid on these borrowings to 5.41% in fiscal 2002 from 6.18% in fiscal 2001.
There  was an  overall  increase  in the  average  balance  of  interest-bearing
liabilities of $11.2 million during fiscal 2002 compared to fiscal 2001.

     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 46 basis points in the interest
rate paid on deposits  from 3.58%  during  fiscal 2000 to 4.04% in fiscal  2001,
plus an increase in the average  total balance of  interest-bearing  deposits to
$249.8  million  during  fiscal  2001 from $238.8  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 $42.0  million  during fiscal 2001 compared to
fiscal 2000.

     PROVISION  FOR LOAN  LOSSES.  Due to the high  level of asset  quality,  as
measured  by low  delinquency  rates and the  absence of  non-performing  assets
during the past two years,  the Bank made no  provision  for loan losses  during
fiscal 2002,  2001 and 2000.  At March 31, 2002,  2001 and 2000,  non-performing
assets totaled $0, $0, and $235 thousand, representing 0%, 0% and 0.06% of total
assets, respectively.

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

     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 from $1.0
million in fiscal 2000 to $680 thousand in fiscal 2001.

     NON-INTEREST EXPENSES. Non-interest expenses increased $135 thousand during
fiscal  2002,  as compared to the year ended March 31,  2001.  Such  increase is
primarily  due to  increases  in  professional  fees of $292  thousand  and data
processing service fees of $119 thousand, partially offset by decreases in other
expenses of $289 thousand and occupancy and equipment  expenses of $68 thousand.
Salaries and employee benefits,  the largest component of non-interest expenses,
increased by $81 thousand, or 1.5%, during fiscal 2002.

     The increase in professional  fees of $292 thousand in fiscal 2002 compared
to fiscal 2001 was primarily due to increased  legal and consulting  costs.  The
increase in data  processing  service  fees was due to the  change,  in November
2000, to a new data  processing  system more  suitable to the Bank's needs.  The
decrease  in  other  expenses  of  $289  thousand  was  due  to a  reduction  in
advertising expense of $303 thousand as the Bank curtailed its regular promotion
of certificates of deposits.

     Salaries and employee benefits expense increased approximately $80 thousand
during fiscal 2002 despite a $175  thousand  increase in ESOP expense due to the
initial application of the fair value method of accounting for the allocation of
ESOP  shares  to  employees.  Prior to fiscal  2002,  compensation  expense  was
recognized as shares were allocated to ESOP participants'  accounts based on the
cost of such  shares  to the  ESOP.  In  future  periods,  compensation  expense
relating to the ESOP may be  significantly  affected by the market  value of the
Company's common stock.

     Non-interest  expenses  increased $985 thousand during the year ended March
31,  2001,  as  compared  to the 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,  an increase in data  processing  service fees of $313  thousand due to a
change in computer  processing systems and an increase in other

                                       26
<PAGE>

expenses of $204 thousand. The primary reason for the increase in other expenses
was $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.

     INCOME TAXES. The effective rates of income tax expense for the years ended
March 31, 2002,  2001 and 2000 were 38.3%,  36.2% and 37.4%,  respectively.  The
change among years is  primarily  due to  variations  in the Bank's state taxes.
Such  variations  reflect  differences  in the  utilization  of the Bank's  REIT
subsidiary.

     In June 2002,  the Bank received  from the  Commonwealth  of  Massachusetts
Department  of  Revenue  ("DOR") a Notice of Intent to Assess  additional  state
excise taxes of $535 thousand  plus  interest and penalties  with respect to its
tax years ended March 31, 2000 and 2001. The Bank is aware that the DOR has sent
similar notices to numerous other financial  institutions in Massachusetts  that
reported a deduction  for  dividends  received  from a REIT during this  period.
Assessed  amounts  ultimately  paid, if any,  would be  deductible  expenses for
federal income tax purposes.

     The DOR contends that dividend distributions by the Bank's REIT to the Bank
are fully taxable in  Massachusetts.  The Bank  believes that the  Massachusetts
statute that provides for a dividends received deduction equal to 95% of certain
dividend  distributions  applies to the  distributions  made by the Bank's REIT.
Accordingly,  no provision has been made in the Company's consolidated financial
statements for the amounts assessed or additional amounts that might be assessed
in the future.  The Bank  intends to  vigorously  appeal the  assessment  and to
pursue all available means to defend its position.

FINANCIAL CONDITION

     Total assets at March 31, 2002 amounted to $468.2  million,  an increase of
$18.9 million from $449.3  million at March 31, 2001.  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. During fiscal 2002,  increases in the Bank's borrowed
funds  and the  liquidation  of  short-term  investments  were  used to fund the
increase in loans and investments and the decrease in deposits.

     Net loans  increased $25.7 million to $368.4 million at March 31, 2002 from
$342.7 million at March 31, 2001. At March 31, 2002,  mortgage loans were $363.2
million,  a $24.7 million increase from March 31, 2001. The increase in mortgage
loans was  primarily  attributable  to increases in  commercial  real estate and
construction   loans  which   increased   $17.1   million  and  $11.8   million,
respectively.  The growth in commercial real estate loans and construction loans
is attributable to the addition of experienced  commercial lenders and expansion
of the credit  administration  function  during  the past year.  During the year
ended March 31, 2002, the Bank  originated and purchased  loans totaling  $157.9
million.  Total loans  originated and purchased  during the year ended March 31,
2001, amounted to $82.6 million.

     Total  deposits  at March 31,  2002 were $261.9  million,  a $25.3  million
decrease from $287.2 million one year earlier.  This decrease is attributable to
a decline in  certificates of deposit of $42.7 million,  partially  offset by an
increase  in core  deposits  of  $17.4  million.  The  significant  decrease  in
certificates of deposits reflects management's decision to be less aggressive in
its pricing of such deposits in 2002.

     Advances from the FHLB of Boston  increased to $164.0  million at March 31,
2002 from $121.0  million at March 31, 2001.  The Bank  increased its borrowings
from the FHLB of Boston in fiscal  2002 to  partially  fund loan  growth and the
reduction in certificates of deposit.

     Stockholders'  equity  increased  to $39.0  million at March 31,  2002 from
$38.2  million at March 31, 2001 due to $2.7  million in  comprehensive  income,
$492  thousand  in  proceeds   from  option   exercises  and  $305  thousand  in
amortization  in unearned  ESOP  compensation.  The  increases  in these  equity
accounts were partially  offset by $1.9 million in treasury stock  purchases and
$669 thousand in dividends paid.

                                       27
<PAGE>

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
increasing  competition in recent years.  During fiscal 2002,  deposit  balances
decreased by $25.3  million to $261.9  million from $287.2  million at March 31,
2001.  The mix of deposits  changed  significantly  during fiscal 2002 with term
deposit  certificates  decreasing  $42.7  million  while core  deposit  accounts
increased  $17.4 million.  This shift occurred due to the Bank's emphasis of its
core deposit products and less aggressive pricing of term deposits.

     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, 2002 and 2001, the Bank had outstanding FHLB of Boston
advances of $164.0 million and $121.0  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, U.S.  Government and agency 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.

     At March 31, 2002,  outstanding  commitments  to originate  mortgage  loans
totaled $25.1 million,  and  commitments  for  unadvanced  funds on home equity,
commercial and construction loans totaled $17.2 million.  Currently, the Bank is
not selling mortgage loans in the secondary market. Management believes that the
Bank has adequate sources of liquidity to fund these commitments.

CAPITAL RESOURCES

     The Company and the Bank are required to maintain  minimum  capital  ratios
pursuant  to federal  banking  regulations.  The first  standard  establishes  a
risk-adjusted  ratio relating  capital to different  categories of balance sheet
assets and off-balance sheet obligations. Two categories of capital are defined:
Tier 1 or  core  capital  (stockholders'  equity)  and  Tier 2 or  supplementary
capital.  Total capital is the sum of both Tier 1 and Tier 2 capital.  According
to the standards, Tier 1 capital must represent at least 50% of qualifying total
capital.  At March 31, 2002, the minimum total risk-based capital ratio required
was 8.00%. The Company's and the Bank's risk-based total capital ratios at March
31, 2002 were 13.06% and 12.35%, respectively.

     To complement the risk-based  standards,  the FDIC adopted a leverage ratio
(stockholders' equity divided by total average assets) of 3% for the most highly
rated banks and 4%-5% for all others. The leverage ratio is to be used in tandem
with the  risk-based  capital  ratios as the minimum  standards  for banks.  The
Company's and the Bank's leverage ratios were 8.09% and 7.61%, respectively,  at
March 31, 2002.

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

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

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

                                       28
<PAGE>

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

     The Bank quantifies its  interest-rate  risk exposure using a sophisticated
simulation  model.  Simulation  analysis is used to measure the  exposure of net
interest  income to changes in  interest  rates  over a specific  time  horizon.
Simulation analysis involves projecting future interest income and expense under
various  rate  scenarios.  The  simulation  is based on  actual  cash  flows and
assumptions of management  about the future changes in interest rates and levels
of activity (loan  originations,  loan  prepayments,  deposit  flows,  etc). The
assumptions are inherently uncertain and, therefore,  actual results will differ
from simulated  results due to timing,  magnitude and frequency of 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 (150 basis points
for 2002 due to the current low interest rate environment).  Internal guidelines
on interest rate risk state that for every 100 basis points  immediate  shift in
interest rates, estimated net interest income over the next twelve months should
decline by no more than 5%.

     The following  table indicates the estimated  exposure,  as a percentage of
estimated net interest  income,  for the twelve month period  following the date
indicated assuming an immediate shift in interest rates as set forth below:

                                                                   MARCH 31,
                                                            -------------------
                                                              2002       2001
                                                            --------   --------

       300 basis point increase in rates.................... (12.9)%      (3.6)%
       200 basis point decrease in rates (2001 only)........             (10.3)%
       150 basis point decrease in rates (2002 only)........    0.5%

     For each one  percentage  point change in net  interest  income in the 2002
projections,  the effect on net income would be $115 thousand assuming a 36% tax
rate.

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

                                                                           Page

Consolidated Balance Sheets................................................  30

Consolidated Statements of Income..........................................  31

Consolidated Statement of Changes in Stockholders' Equity..................  32

Consolidated Statement of Cash Flows.......................................  34

Notes to Consolidated Financial Statements.................................  35

Independent Auditors' Report...............................................  53


                                       29
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                           Consolidated Balance Sheets
                             (Dollars In Thousands)

<TABLE>
<CAPTION>

                                                                    MARCH 31,
                                                             ----------------------
                                                                2002         2001
                                                                ----         ----
ASSETS
<S>                                                          <C>          <C>
Cash and due from banks                                      $   5,109    $   5,351
Short-term investments                                           2,455       35,718
                                                             ---------    ---------
       Cash and cash equivalents                                 7,564       41,069
                                                             ---------    ---------
Investment securities available for sale
  (amortized cost of $74,935 in 2002 and
  $50,136 in 2001) (note 2)                                     73,884       49,388
Stock in Federal Home Loan Bank of Boston, at
  cost (notes  2 and 7)                                          8,300        6,150
The Co-operative Central Bank Reserve Fund (note 2)              1,576        1,576
                                                             ---------    ---------
       Total investments                                        83,760       57,114
                                                             ---------    ---------
Loans  (notes 3)                                               371,707      345,793
  Less allowance for loan losses (note 4)                        3,292        3,106
                                                             ---------    ---------
       Net loans                                               368,415      342,687
                                                             ---------    ---------
Accrued interest receivable                                      2,530        2,426
Banking premises and equipment, net (note 5)                     1,836        2,018
Deferred tax asset, net (note 8)                                 1,289          801
Goodwill, net (note 1)                                           2,232        2,520
Other assets                                                       593          702
                                                             ---------    ---------
       Total assets                                          $ 468,219    $ 449,337
                                                             =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Deposits  (note 6)                                      $ 261,907    $ 287,167
     Federal Home Loan Bank advances  (notes 2 and 7)          164,000      121,000
     Advance payments by borrowers for taxes and insurance       1,111        1,220
     Accrued expenses and other liabilities                      2,247        1,738
                                                             ---------    ---------
         Total liabilities                                     429,265      411,125
                                                             ---------    ---------

Commitments and contingencies (notes 8, 9 and 12)
  Stockholders' equity (note 10):
     Preferred stock $1.00 par value, authorized
        5,000,000 shares; none issued                               --           --
     Common stock $1.00 par value, authorized 15,000,000
        shares; 1,999,588 shares issued at March 31,
        2002 and 1,970,000 shares issued at March 31, 2001       2,000        1,970
     Additional paid-in capital                                 11,934       11,190
     Retained income                                            33,141       30,950
     Treasury stock (366,799 shares at March 31, 2002
        and 285,836 shares  at March 31, 2001), at cost         (7,189)      (5,230)
     Accumulated other comprehensive (loss) income                (626)        (431)
     Unearned compensation - ESOP (note 11)                       (306)        (237)
                                                             ---------    ---------
         Total stockholders' equity                             38,954       38,212
                                                             ---------    ---------
         Total liabilities and stockholders' equity          $ 468,219    $ 449,337
                                                             =========    =========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
                      (In Thousands, Except Per Share Data)


<TABLE>
<CAPTION>
                                                                             YEARS ENDED MARCH 31,
                                                              ---------------------------------------------
                                                                 2002              2001             2000
                                                              ---------------------------------------------
Interest and dividend income:
<S>                                                           <C>               <C>              <C>
    Mortgage loans                                            $  23,799         $ 25,613         $  21,806
    Other loans                                                     438              716               599
    Short-term investments                                          866              487               421
    Investments                                                   4,170            4,101             3,598
                                                              --------------------------------------------
           Total interest and dividend income                    29,273           30,917            26,424
                                                              --------------------------------------------
Interest expense:
    Deposits                                                      8,119           10,087             8,553
    Federal Home Loan Bank advances                               6,741            6,916             4,496
                                                              --------------------------------------------
            Total interest expense                               14,860           17,003            13,049
                                                              --------------------------------------------
            Net interest and dividend income                     14,413           13,914            13,375
Provision for loan losses (note 4)                                   --               --                --
                                                              --------------------------------------------
            Net interest and dividend income after
                provision for loan losses                        14,413           13,914            13,375
                                                              --------------------------------------------
Non-interest income:
    Deposit service charges                                         482              428               414
    Net gain (loss) from sale and write-down
      of investment securities (note 2)                            (150)             680             1,013
    Brokerage income                                                100               --                --
    Other income                                                    256              180               242
                                                              --------------------------------------------
            Total non-interest income                               688            1,288             1,669
                                                              --------------------------------------------
Non-interest expenses:
    Salaries and employee benefits (note 11)                      5,652            5,571             5,017
    Occupancy and equipment (note 5)                              1,124            1,192             1,167
    Data processing service fees                                    966              847               534
    Professional fees                                             1,049              757               875
    Goodwill amortization                                           288              288               288
    Other expenses                                                1,385            1,675             1,464
                                                              --------------------------------------------
            Total non-interest expenses                          10,464           10,330             9,345
                                                              --------------------------------------------
            Income before income taxes                            4,637            4,872             5,699
Provision for income taxes  (note 8)                              1,777            1,763             2,132
                                                              --------------------------------------------
            Income before cumulative effect of change in
               accounting principle                               2,860            3,109             3,567
Cumulative effect of change in accounting principle,
    net of taxes (note 1)                                            --               --              (234)
                                                              ---------------------------------------------
            Net income                                        $   2,860         $  3,109         $   3,333
                                                              ============================================

Earnings per common share (note 1):
    Before cumulative effect of change in accounting
      principle-basic                                         $    1.73         $   1.81         $    1.90
                                                              ============================================
    Before cumulative effect of change in accounting
      principle - diluted                                     $    1.72         $   1.81         $    1.89
                                                              ============================================
    After cumulative effect of change in accounting
      principle-basic                                         $    1.73         $   1.81         $    1.77
                                                              ============================================
    After cumulative effect of change in accounting
      principle - diluted                                     $    1.72         $   1.81         $    1.77
                                                              ============================================
Weighted average common shares outstanding                        1,650            1,717             1,882
                                                              ============================================
Weighted average common shares outstanding-diluted                1,665            1,719             1,885
                                                              ============================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       31
<PAGE>


                      CENTRAL BANCORP, INC. AND SUBSIDIARY
           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>             <C>        <C>
 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)
 Dividends  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               --         --        --       --          394            --          394
                                                                                                                  -------
       Comprehensive income                                                                                         3,503
                                                                                                                  -------
 Purchase of treasury stock                      --         --        --   (2,187)          --            --       (2,187)
 Dividends 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
 Net income                                      --         --     2,860       --           --            --        2,860
 Other comprehensive income, net of tax:
     Unrealized (loss) on securities, net of
      reclassification adjustment                --         --        --       --         (195)           --         (195)
                                                                                                                  -------
       Comprehensive income                                                                                         2,665
                                                                                                                  -------
 Purchase of  shares by ESOP (note 11)           --         --        --       --           --          (199)        (199)
 Purchase of treasury stock                      --         --        --   (1,924)          --            --       (1,924)
 Dividends  paid ($0.40 per share)               --         --      (669)      --           --            --         (669)
 Proceeds from exercise of stock options         30        462        --       --           --            --          492
 Amortization of unearned compensation -ESOP     --        175        --       --           --           130          305
 Other equity transactions                       --        107        --      (35)          --            --           72
                                             -------------------------------------------------------------------------------
 Balance at March 31, 2002                   $2,000    $11,934   $33,141  $(7,189)     $  (626)        $(306)     $38,954
                                             ===============================================================================
</TABLE>

                                       32
<PAGE>

The Bank's  other  comprehensive  income  (loss) and  related tax effect for the
years ended March 31 are as follows:

<TABLE>
<CAPTION>
                                                                                              2002
                                                                        ----------------------------------------------
                                                                           BEFORE-TAX     TAX (BENEFIT)     AFTER-TAX
 in thousands                                                                AMOUNT          EXPENSE          AMOUNT
----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>               <C>
Unrealized gains (losses) on securities:
    Unrealized net holding losses during period                         $  (451)         $  (163)          $  (288)
    Less reclassification adjustment for net losses
       included in net income                                               150               57                93
                                                                        ----------------------------------------------
                 Other comprehensive loss                               $  (301)         $  (106)          $  (195)
                                                                        ==============================================

                                                                                               2001
                                                                        ----------------------------------------------
                                                                           BEFORE-TAX     TAX (BENEFIT)     AFTER-TAX
 In thousands                                                                AMOUNT          EXPENSE          AMOUNT
----------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on securities:
    Unrealized net holding gains during period                          $ 1,188          $   360           $   828
    Less reclassification adjustment for net gains
        included in net income                                             (680)            (246)             (434)
                                                                        ----------------------------------------------
                 Other comprehensive income                             $   508          $   114           $   394
                                                                        ==============================================

                                                                                               2000
                                                                        ----------------------------------------------
                                                                           BEFORE-TAX     TAX (BENEFIT)     AFTER-TAX
 in thousands                                                                AMOUNT          EXPENSE          AMOUNT
----------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on securities:
    Unrealized net holding losses during period                         $  (815)         $  (297)          $  (518)
    Less reclassification adjustment for net gains
        included in net income                                           (1,013)            (379)             (634)
                                                                        ----------------------------------------------
                 Other comprehensive loss                               $(1,828)         $  (679)          $(1,152)
                                                                        ===================================================

</TABLE>
See accompanying notes to consolidated financial statements.


                                       33
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                                             YEARS ENDED MARCH 31,
                                                                                   -----------------------------------
                                                                                     2002         2001          2000
                                                                                     ----         ----          ----
<S>                                                                              <C>          <C>          <C>
Cash flows from operating activities:
   Net income                                                                    $   2,860    $   3,109    $   3,333
   Adjustments to reconcile net income to net cash provided
    by operating activities -
     Depreciation and amortization                                                     372          438          462
     Amortization of premiums and discounts                                            176           86          132
     Amortization of goodwill                                                          288          288          288
     Decrease (increase) in deferred tax assets                                       (380)         270         (327)
     Amortization of unearned compensation - ESOP                                      305          196          184
     Net (gain) loss  from sale and write-down of investment securities                150         (680)      (1,013)
     Cumulative effect of change in accounting principle                                --           --          234
  (Increase) decrease in accrued interest receivable                                  (104)        (390)        (422)
  (Increase) decrease in other assets                                                  109         (507)          59
  Increase (decrease) in advance payments by borrowers for taxes and insurance        (109)         167         (336)
  Increase (decrease) in accrued interest payable
                                                                                       (23)          66          251
  Increase (decrease) in accrued expenses and other liabilities                        532          (96)         415
                                                                                 -----------------------------------
     Net cash provided by operating activities                                       4,176        2,947        3,260
                                                                                 -----------------------------------
Cash flows from investing activities:
  Principal collected on loans                                                     132,138       56,949       68,641
  Loan originations and purchases                                                 (157,866)     (82,616)    (108,363)
  Principal payments on mortgage-backed securities                                   7,246        4,069        9,420
  Purchase of investment securities                                                (61,256)      (6,170)     (21,716)
  Proceeds from sales of investment securities                                       2,885        3,955        6,159
  Maturities and redemptions of investment securities                               26,000        4,000        2,500
  Net (increase) decrease in short-term investments                                 33,263      (19,727)       2,137
  Purchase of stock in FHLB of Boston                                               (2,150)        (350)      (2,450)
  Purchase of banking premises and equipment, net                                     (190)        (238)        (130)
                                                                                 -----------------------------------
     Net cash used by investing activities                                         (19,930)     (40,128)     (43,802)
                                                                                 -----------------------------------
Cash flows from financing activities:
  Net increase (decrease) in deposits                                              (25,260)      28,828       (8,124)
  Proceeds from FHLB advances                                                       68,000      152,000      124,000
  Repayments of FHLB advances                                                      (25,000)    (142,000)     (70,000)
  Proceeds from exercise of stock options                                              492           --           22
  Purchase of treasury stock                                                        (1,924)      (2,187)      (3,043)
  Payments of dividends                                                               (669)        (697)        (689)
  Purchase of  stock by ESOP                                                          (199)          --           --
  Other equity transactions                                                             72           --           --
                                                                                 -----------------------------------
     Net cash provided by financing activities                                      15,512       35,944       42,166
                                                                                 -----------------------------------
     Net increase (decrease) in cash and due from banks                               (242)      (1,237)       1,624
  Cash and due from banks at beginning of year                                       5,351        6,588        4,964
                                                                                 -----------------------------------
  Cash and due from banks at end of year                                         $   5,109    $   5,351    $   6,588
                                                                                 ===================================
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
         Interest                                                                $  14,883    $  16,937    $  12,798
         Income taxes                                                                1,715        1,850        2,094
</TABLE>

See accompanying notes to consolidated financial statements.


                                       34
<PAGE>

CENTRAL BANCORP, INC AND SUBSIDIARY

Notes to Consolidated Financial Statements

March 31, 2002



NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

     Cash and Due from Banks

     The Bank is required to maintain cash and reserve balances with the Federal
Reserve  Bank.  Such  reserves  are  calculated  based upon  deposit  levels and
amounted to approximately $2,735, 000 at March 31, 2002.

     Investments

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

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

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

     Loans

     Loans  are  reported  at the  principal  amount  outstanding,  adjusted  by
unamortized  discounts,  premiums,  and net deferred loan origination  costs and
fees.  Loans  classified  as held for sale are stated at the lower of  aggregate
cost or market value.  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. No loans were classified as held for sale at
March 31, 2002 and 2001.

                                       35
<PAGE>

     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.

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

     Allowance for Loan Losses

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

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

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

     Income Taxes

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

                                       36
<PAGE>

     Banking Premises and Equipment

     Banking  premises 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

     Through March 31, 2002, goodwill arising from acquisitions was amortized on
a  straight-line  basis over 15 years.  As  discussed  below  under the  caption
"Recent  Accounting  Pronouncements",  amortization  of goodwill is generally no
longer permitted in fiscal years beginning after December 15, 2001.

     Pension Benefits

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

     Stock-Based Compensation

     The Company follows the intrinsic value method set forth in APB Opinion No.
25 "Accounting  for Stock Issued to Employees" (APB No. 25) under which there is
generally no charge to earnings for stock option grants. Companies that elect to
use this method are  required to disclose the pro forma effect of using the fair
value method of accounting for  stock-based  compensation  that is encouraged by
SFAS No. 123. (See Note 11).

     Earnings Per Share

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

     Recent Accounting Pronouncements

     During 1998, the American  Institute of Certified Public Accountants 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
relating to the formation of the bank holding  company  resulting in a charge to
earnings, net of taxes, of $234,000 or $0.13 per share ($0.12 per share assuming
dilution).

     In June 2001, the Financial  Accounting Standard Board ("FASB") issued SFAS
No. 141, "Business  Combinations" which is effective for transactions  initiated
after June 30,  2001.  Under SFAS No. 141,  all  business  combinations  must be
accounted   for  using  the   purchase   method  of   accounting;   use  of  the
pooling-of-interests  method is no longer permitted. In addition, this Statement
requires that certain  intangible  assets acquired in a business  combination be
recognized apart from goodwill.

     In June  2001,  the FASB also  issued  SFAS No.  142,  "Goodwill  and Other
Intangible  Assets" which is effective for fiscal years beginning after December
15, 2001. Under prior accounting  standards,  goodwill resulting from a business
combination  was amortized  against  income over its estimated  life.  After the
effective  date of SFAS No. 142,  goodwill will generally no longer be amortized
as an expense but instead  will be reviewed  and tested for  impairment  using a
fair value methodology prescribed in this Statement. Goodwill will be tested for
impairment  at least  annually  or more  frequently  as a result  of an event or
change in circumstances (e.g. recurring operating losses by the acquired entity)
that would  indicate an impairment  adjustment  may be  necessary.  Based on its
assessment of the current economic  environment,  management does not anticipate
an  impairment   adjustment  to  the  goodwill  reflected  in  the  accompanying
consolidated balance sheet upon adoption of SFAS No. 142. The effect of adopting
SFAS No. 141 and No. 142 will be that the  Company  will  cease  amortizing  the
goodwill  balance of $2.2  million  which  will have the  effect of  eliminating
goodwill amortization of $288,000 in fiscal 2003.

                                       37
<PAGE>

NOTE 2. INVESTMENTS (Dollars in Thousands)

     The amortized cost and fair value of investments  securities  available for
sale are summarized as follows:

<TABLE>
<CAPTION>
                                                        MARCH 31, 2002
                                        ----------------------------------------------
                                         AMORTIZED     GROSS UNREALIZED        FAIR
                                             COST      GAINS      LOSSES      VALUE
                                          --------   --------    --------    --------

<S>                                       <C>        <C>         <C>         <C>
U.S. Government and  agency obligations   $ 13,995   $     73    $    (72)   $ 13,996
Corporate bonds                             39,012        231        (675)     38,568
Mortgage-backed securities                  18,377        168        (205)     18,340
                                          --------   --------    --------    --------
               Total  debt securities       71,384        472        (952)     70,904
Marketable equity securities                 3,551         17        (588)      2,980
                                          --------   --------    --------    --------

                Total                     $ 74,935   $    489    $ (1,540)   $ 73,884
                                          ========   ========    ========    ========
</TABLE>



<TABLE>
<CAPTION>
                                                             MARCH 31, 2001
                                        ----------------------------------------------
                                         AMORTIZED     GROSS UNREALIZED        FAIR
                                             COST      GAINS      LOSSES      VALUE
                                          --------   --------    --------    --------

<S>                                       <C>        <C>         <C>         <C>
U.S. Government and  agency obligations   $18,970   $    88   $    (7)   $19,051
Corporate bonds                             4,984       261        --      5,245
Mortgage-backed securities                 19,623       152      (461)    19,314
                                          -------   -------   -------    -------
               Total  debt securities      43,577       501      (468)    43,610
Marketable equity securities                6,559       605    (1,386)     5,778
                                          -------   -------   -------    -------

               Total                      $50,136   $ 1,106   $(1,854)   $49,388
                                          =======   =======   =======    =======
</TABLE>


     The maturity  distribution  (based on  contractual  maturities)  and annual
yields of debt securities at March 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                           AMORTIZED     FAIR       ANNUAL
                                              COST      VALUE       YIELD
                                           ---------- ---------  ----------
<S>                                         <C>       <C>          <C>
Due within one year                         $   259   $    262     6.62 %
Due after one year but within five years     42,532     42,196     6.54
Due after five years but within ten years    13,277     13,287     7.50
Due after ten years                          15,316     15,159     6.99
                                            -------    -------
                                            $71,384    $70,904     6.99
                                            =======    =======
</TABLE>


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

                                       38
<PAGE>

     Proceeds from sales of investment  securities  and related gains and losses
for the years ended March 31, 2002,  2001, and 2000 (all classified as available
for sale) were as follows:

                               2002              2001             2000
                               ----              ----             ----

     Proceeds from sales    $ 2,885           $ 3,955          $ 6,159

     Gross gains                546               694            1,013

     Gross losses                54                14               --

     During the year ended March 31, 2002,  the Bank  recognized  write-downs in
certain  equity  securities  totaling  $642 as a result of  declines in the fair
value of such securities  judged to be other than temporary.  These  write-downs
are not included in the preceding table.

     A  mortgage-backed  security pool with an amortized cost of $3,747 and fair
value of $3,686  at March 31,  2002,  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. In addition,  investment securities carried at $5,783 were pledged under a
blanket lien to partially  secure the Bank's advances from the Federal Home Loan
Bank of Boston ("FHLB of Boston").

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

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

NOTE 3. LOANS (In Thousands)

     Loans as of March 31, 2002 and 2001 are summarized below:


                                                        2002        2001
                                                     ---------    ---------
Real estate loans:
   Residential real estate                           $ 246,045    $ 248,459
   Commercial real estate                               87,013       69,949
   Construction                                         20,998        9,152
   Second mortgage and home equity lines of credit       9,154       10,977
                                                     ---------    ---------
       Total real estate loans                         363,210      338,537
                                                     ---------    ---------
 Commercial loans                                        6,901        4,979
 Consumer loans                                          1,596        2,277
                                                     ---------    ---------
        Total  loans                                   371,707      345,793
Less: allowance for loan losses                         (3,292)      (3,106)
                                                     ---------    ---------
       Total loans, net                              $ 368,415    $ 342,687
                                                     =========    =========


     At March 31, 2002 and 2001,  net  deferred  loan (fees) and costs of ($692)
and $160, respectively,  were reflected as an adjustment to the appropriate loan
categories.

     The Bank has no  non-accrual  loans at March 31, 2002 and 2001.  During the
years ended March 31, 2002 2001 and 2000, there were no impaired loans. The Bank
follows the same policy for  recognition  of income on impaired loans as it does
for all other loans.

     Mortgage  loans  serviced  by the Bank for  others  amounted  to $2,616 and
$4,288 at March 31, 2002 and 2001, 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

                                       39
<PAGE>

commitments  are generally  impacted by the level of overall  economic  activity
within the borrowers'  geographic areas and real estate values.  The ability and
willingness of commercial real estate and  construction  loan borrowers to honor
their  repayment  commitments  are generally  impacted by the health of the real
estate market in the borrowers' geographic area and the general economy.

     The  following  summarizes  the  activity  with  respect  to loans  made to
directors and officers and their related interests for the years ended March 31:

                                               2002      2001
                                               -----    -----
Balance at beginning of year                   $ 580    $ 243
         New loans                               434      444
         New officers with loans outstanding      66      158
         Repayment of principal                 (215)    (265)
                                               -----    -----
Balance at end of year                         $ 865    $ 580
                                               =====    =====

     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 4. ALLOWANCE FOR LOAN LOSSES (In Thousands)

     A summary of changes in the allowance for loan losses follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED MARCH 31,
                                                    -----------------------------
                                                      2002       2001     2000
                                                    -------    -------    -------
<S>                                                 <C>        <C>        <C>
Balance at beginning of year                        $ 3,106    $ 2,993    $ 2,913
    Provision charged to expense                         --         --         --
    Amounts charged-off                                  (4)        (4)        (9)
    Recoveries on accounts previously charged-off       190        117         89
                                                    -------    -------    -------
Balance at end of year                              $ 3,292    $ 3,106    $ 2,993
                                                    =======    =======    =======
</TABLE>


NOTE 5. BANKING PREMISES AND EQUIPMENT (In Thousands)

     A summary of cost,  accumulated  depreciation  and  amortization of banking
premises and equipment at March 31 follows:

<TABLE>
<CAPTION>
                                                                        ESTIMATED
                                                  2002        2001     USEFUL LIVES
                                                 -------    -------    ------------
<S>                                              <C>        <C>         <C>
Land                                             $   589    $   589
Buildings and improvements                         2,339      2,304     15.50 years
Furniture and fixtures                             5,744      5,596      5.00 years
Leasehold improvements                               482        475      7.75 years
                                                 -------    -------
                                                   9,154      8,964
Less accumulated depreciation and amortization    (7,318)    (6,946)
                                                 -------    -------
    Total                                        $ 1,836    $ 2,018
                                                 =======    =======
</TABLE>


     Depreciation  and amortization for the years ended March 31, 2002, 2001 and
2000 amounted to $372, $438 and $462, respectively, and is included in occupancy
and equipment expense in the accompanying consolidated statements of income.

                                       40
<PAGE>

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

                YEARS ENDING MARCH 31,

                  2003                                   $ 118
                  2004                                     118
                  2005                                      73
                  2006                                      65
                  2007                                      49
                  Thereafter                                18


     Certain leases contain renewal options the potential impact of which is not
included above. Rental expense for the years ended March 31, 2002, 2001 and 2000
was  $133,  $125 and  $123,  respectively,  and is  included  in  occupancy  and
equipment expense in the accompanying consolidated statements of income.

NOTE 6. DEPOSITS (Dollars in Thousands)

     Deposits at March 31 are summarized as follows:

                                                 2002       2001
                                               --------   --------
Demand deposit accounts                        $ 25,370   $ 22,438
NOW accounts                                     36,277     33,373
Regular, Club and 90 day notice accounts         72,944     64,011
Money market deposit accounts                    17,997     15,327
                                               --------   --------
            Total non certificate accounts      152,588    135,149
                                               --------   --------
Term deposit certificates
       Certificates of  $100 and above           27,233     34,644
       Certificates less than $100               82,086    117,374
                                               --------   --------
             Total term deposit certificates    109,319    152,018
                                               --------   --------
                                               $261,907   $287,167
                                               ========   ========



          Contractual  maturities  of term deposit  certificates  with  weighted
     average interest rates at March 31, 2002 are as follows:

                             AMOUNT       RATE
                             ------       ----
        Within 1 year       $ 92,381      4.21%
        Over 1 to 3 years     15,016      4.24
        Over 3 years           1,922      4.62
                            --------
                            $109,319      4.37
                            ========

                                       41
<PAGE>

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

     A summary of the maturity distribution of FHLB of Boston advances (based on
final maturity dates) with weighted average interest rates at March 31 follows:


                            2002                 2001
                     -------------------  -------------------
                      AMOUNT      RATE      AMOUNT      RATE
                     ---------  --------  ---------  --------
Within 1 year        $ 58,600      2.61%  $ 25,000      6.46%
Over 1 to 5 years      21,400      4.83     12,000      6.48
Over 5 to 10 years     82,000      5.52     82,000      5.52
Over 10 years           2,000      5.49      2,000      4.49
                     --------             --------
                     $164,000      4.39   $121,000      5.84
                     ========             ========


     At March 31, 2002,  advances  totaling  $84,000 were callable  prior to the
scheduled maturity of the advances. The Bank is subject to a substantial penalty
upon prepayment of FHLB of Boston advances.

     The FHLB of Boston is authorized to make advances to its members subject to
such  regulations  and  limitations  as the  Federal  Home Loan  Bank  Board may
prescribe.  The  advances are secured by FHLB of Boston stock and a blanket lien
on certain qualified collateral, defined principally as 90% of the fair value of
U.S.  Government and federal agency obligations and 75% of the carrying value of
first mortgage loans on owner-occupied  residential property.  The Bank's unused
borrowing capacity with the FHLB of Boston was approximately $21,000 and $80,200
at March 31, 2002 and 2001, respectively.



NOTE 8. INCOME TAXES (Dollars in Thousands)

     The components of the provision for income taxes for the years indicted are
as follows:

                                   YEARS ENDED MARCH 31,
                                ----------------------------
                                 2002        2001      2000
                                -------    -------   -------
Current
      Federal                   $ 1,930    $ 1,555   $ 1,745
      State                         229         52        44
                                -------    -------   -------
      Total current provision     2,159      1,607     1,789
Deferred (prepaid)                 (382)       156       343
                                -------    -------   -------
                                $ 1,777    $ 1,763   $ 2,132
                                =======    =======   =======


     The provision for income taxes for the periods  presented is different from
the amounts computed by applying the statutory Federal income tax rate to income
before income taxes.  The differences  between  expected tax rates and effective
tax rates are as follows:

                                                         YEARS ENDED MARCH 31,
                                                      -------------------------
                                                       2002    2001      2000
                                                      ------  -------   -------
Statutory Federal tax rate                             34.0%    34.0%    34.0%
Items affecting Federal income tax rate:
       Dividends received deduction                    (0.4)    (0.6)    (0.4)
       Goodwill amortization                            2.1      2.0      1.8
       State income taxes, net of Federal benefit       2.6      1.2      1.6
       Other                                             --     (0.4)     0.4
                                                      -----     ----     ----
Effective tax rate                                     38.3%    36.2%    37.4%
                                                      =====     ====     ====

                                       42
<PAGE>

     The  components  of gross  deferred  tax  assets  and  gross  deferred  tax
liabilities that have been recognized as of March 31 are as follows:

                                                2002     2001
                                               ------   ------
Deferred tax assets:
    Allowance for loan losses                  $  549   $  548
    Deferred loan origination fees                 53       74
    Depreciation                                  298      265
    Post-employee retirement benefit accrual      241      227
    Unrealized loss on securities                 425      319
    Write-down of investment securities           218       --
    Other                                          59       74
                                               ------   ------
         Gross deferred tax asset               1,843    1,507
                                               ------   ------
Deferred tax liabilities:
    Accrued dividend receivable                    30       47
    Deferred loan origination fees                285      437
    Deferred income                               239      222
                                               ------   ------
          Gross deferred tax liability            554      706
                                               ------   ------
          Net deferred tax asset               $1,289   $  801
                                               ======   ======

     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, 2002. Further,  management believes the existing
net deductible  temporary  differences  will reverse during periods in which the
Bank generates net taxable income. At March 31, 2002,  recoverable income taxes,
plus estimated taxes for fiscal 2003,  exceed the amount of the net deferred tax
asset.  There can be no  assurance,  however,  that the Bank will  generate  any
earnings or any specific level of continuing earnings.

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

     In June 2002,  the Bank received  from the  Commonwealth  of  Massachusetts
Department  of  Revenue  ("DOR") a Notice of Intent to Assess  additional  state
excise taxes of $535 plus interest and  penalties  with respect to its tax years
ended March 31, 2000 and 2001.  The Bank is aware that the DOR has sent  similar
notices to numerous other financial  institutions in Massachusetts that reported
a deduction  for  dividends  received  from a REIT during this period.  Assessed
amounts ultimately paid, if any, would be deductible expenses for federal income
tax purposes.

     The DOR contends that dividend distributions by the Bank's REIT to the Bank
are fully taxable in  Massachusetts.  The Bank  believes that the  Massachusetts
statute that provides for a dividends received deduction equal to 95% of certain
dividend  distributions  applies to the  distributions  made by the Bank's REIT.
Accordingly,  no provision has been made in the Company's consolidated financial
statements for the amounts assessed or additional amounts that might be assessed
in the future.  The Bank  intends to  vigorously  appeal the  assessment  and to
pursue all available means to defend its position.

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

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

                                       43
<PAGE>

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, included
the following:

                                                       2002      2001
                                                      -------   -------
Unused lines of credit                                $11,035   $11,012
Unadvanced portions of construction loans               4,574     4,427

Unadvanced portions of commercial loans                 1,574     5,651
Commitments to originate commercial mortgage loans     13,674    14,189
Commitments to originate residential mortgage loans    11,468     2,900


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

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

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

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

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

     The Bank is subject to various regulatory capital requirements administered
by the federal banking  agencies.  Failure to meet minimum capital  requirements
can initiate certain mandatory and possibly additional  discretionary actions by
regulations  that, if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings,  and other  factors.  The  minimum  core  (leverage)  capital  ratio
required for banks with the highest overall rating from bank regulatory agencies
is 3.00% and is  4.00%-5.00%  for all others.  The Bank must also have a minimum
total risk-based  capital ratio of 8.00% (of which 4.00% must be Tier I capital,
consisting of common  stockholders'  equity). As of March 31, 2002, the Bank met
all capital adequacy requirements to which it is subject.


                                       44
<PAGE>

     The most recent  notification  from the FDIC  categorized the Bank as "well
capitalized" under the regulatory  framework for prompt corrective action. To be
categorized as "well capitalized," the Bank must maintain minimum  risk-weighted
capital,  Tier 1 capital and tangible  capital ratios as set forth in the table.
There are no  conditions or events,  since that  notification,  that  management
believes  would cause a change in the Bank's  categorization.  No deduction  was
taken from capital for  interest-rate  risk.  The  Company's and the Bank's Tier
1/leverage,  Tier 1 risk-based and total risk-based capital ratios together with
related regulatory minimum requirements are summarized below:

<TABLE>
<CAPTION>
                                                                                                           TO BE WELL
                                                                          FOR CAPITAL                  CAPITALIZED UNDER
                                                                            ADEQUACY                   PROMPT CORRECTIVE
                                              ACTUAL                        PURPOSES                   ACTION PROVISIONS
                                     -------------------------     ---------------------------     ---------------------------
                                        AMOUNT         RATIO          AMOUNT          RATIO           AMOUNT          RATIO
                                     -------------    ---------    -------------     ---------     -------------     ---------
<S>                                        <C>        <C>               <C>            <C>           <C>             <C>
As of March 31, 2002:
  COMPANY (CONSOLIDATED)
   Total capital                        $  40,303     13.06%         $  24,694       =>8.00%            N/A           N/A
   Tier 1 capital                          37,011     11.99             12,347       =>4.00             N/A           N/A
   Tier 1 leverage capital                 37,011      8.09             18,304       =>4.00             N/A           N/A
   BANK
   Total capital                           38,134     12.35             24,700       =>8.00%         $  30,875     =>10.00%
   Tier 1 capital                          34,842     11.28             12,350       =>4.00             18,525      =>6.00
   Tier 1 leverage capital                 34,842      7.61             18,304       =>4.00             22,880      =>5.00


As of March 31, 2001:
  COMPANY (CONSOLIDATED)
  Total capital                            38,448     13.60              22,612        =>8.00%            N/A         N/A
  Tier 1 capital                           35,342     12.50              11,306        =>4.00             N/A         N/A
  Tier 1 leverage capital                  35,342      8.06              17,539        =>4.00             N/A         N/A
  BANK
  Total capital                            36,362     12.83              22,665        =>8.00%          28,331     =>10.00%
  Tier 1 capital                           33,256     11.74              11,332        =>4.00           16,999      =>6.00
  Tier 1 leverage capital                  33,256      7.75              17,156        =>4.00           21,445      =>5.00

</TABLE>


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

PENSION AND SAVINGS PLANS

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

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

     Expenses for the Pension Plan and the Savings Plan were $289, $269 and $237
for the years ended March 31, 2002, 2001 and 2000, respectively. Forfeitures are
used to reduce expenses of the plans.

                                       45
<PAGE>

EMPLOYEE STOCK OWNERSHIP PLAN

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

     During fiscal 2002, the Company's Board of Directors authorized the ESOP to
acquire up to an  additional 5% of  outstanding  shares of Company  stock.  Such
purchases are to be funded by loans from the Company.  During fiscal 2002, 7,222
shares were purchased under such authorization at a purchase price of $199.

     The ESOP is repaying  its loans to the Bank and the Company with funds from
the  Bank's  contributions  to the plan and  earnings  from the  ESOP's  assets.
Repayments of $129,  $196 and $184 were made during fiscal 2002,  2001 and 2000,
respectively.

     Prior to fiscal 2002,  compensation  expense was  recognized  as the shares
were  allocated  to ESOP  participants  based upon the cost of the shares to the
ESOP.  Beginning  in fiscal 2002,  compensation  expense was  recognized  as the
shares were allocated to participants based upon the fair value of the shares at
the time they  were  allocated.  Consequently,  changes  in market  value of the
Company's  stock have an effect on the Company's  results of operations but have
no effect on stockholders'  equity.  ESOP expense for fiscal 2002, 2001 and 2000
amounted to $305, $130 and $130, respectively.

STOCK OPTION PLAN

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

     Stock option activity is as follows for the years indicated:

                      NUMBER OF      WEIGHTED AVERAGE
                        SHARES        EXERCISE PRICE
                       ----------     -------------

Balance  March 31, 1999   28,000     $   16.250
  Granted                 32,499         20.250
  Exercised               (3,000)        16.250
                         -------
Balance  March 31, 2000   57,499         18.511
  Granted                 32,501         16.625
                         -------
Balance  March 31, 2001   90,000         17.830
  Forfeited                 (799)        16.625
  Exercised              (29,588)        16.617
                         -------
Balance March 31, 2002    59,613         18.448
                         =======

     The exercise price of an option will not be less than the fair market value
of the  common  stock on the date of grant of the  option.  At March  31,  2002,
33,299 shares were reserved for issuance under the remaining plan.

     All stock  options are fully vested and  exercisable  at the time of grant.
The range of exercise prices and weighted average remaining  contractual life of
outstanding stock options at March 31, 2002 are as follows:

        EXERCISE          NUMBER             REMAINING
        PRICE           OUTSTANDING             LIFE
        -----           -----------             ----

        $16.625          29,638               8.7 years
         20.250          29,975               7.7 years
                         ------
                         59,613
                         ======

                                       46
<PAGE>

     The Company  follows the  intrinsic  value method in  accounting  for stock
options and,  accordingly,  no  compensation  expense has been recognized in the
financial statements.  Had the Company determined  compensation expense based on
the fair value at the grant date for its stock  options  under SFAS No. 123, the
Company's  net income and EPS would have been  reduced to the pro forma  amounts
indicated  below.  No options were granted  during  fiscal 2002 and  forfeitures
during the year were insignificant.  Consequently, no material difference in net
income occurred in fiscal 2002 as a result of the Company's use of the intrinsic
value method  rather than the fair value method of  accounting  for  stock-based
compensation.


<TABLE>
<CAPTION>
                                                                                      2001      2000
                                                                                      ----      ----
NET INCOME:
<S>                                                                                 <C>       <C>
Income before cumulative effect of change in accounting principle, as reported      $ 3,109   $ 3,567
Cumulative effect of change in accounting principle, as reported                         --      (234)
Net income after cumulative effect of change in accounting principle, as reported     3,109     3,333

Pro forma income before cumulative effect of change in accounting principle           2,934     3,308
Cumulative effect of change in accounting principle                                      --      (234)
Pro forma net income after cumulative effect of change in accounting principle        2,934     3,074

EARNINGS PER COMMON SHARE:
Before cumulative effect of change in accounting principle, as reported                 1.81      1.90
Before cumulative effect of change in accounting principle, pro forma                   1.71      1.76

Before cumulative effect of change in accounting principle -- diluted, as reported      1.81      1.89
Before cumulative effect of change in accounting principle -- diluted, pro forma        1.71      1.75

After cumulative effect of change in accounting principle, as reported                  1.81      1.77
After cumulative effect of change in accounting principle, pro forma                    1.71      1.63

After cumulative effect of change in accounting principle -- diluted, as reported       1.81      1.77
After cumulative effect of change in accounting principle -- diluted, pro forma         1.71      1.63

</TABLE>

     The per share weighted  average fair value of stock options  granted during
2001 and 2000 was $5.39 and  $7.98,  respectively,  on the date of grant.  These
fair values were  determined  using the Black Scholes  option pricing model with
the following weighted average assumptions:


                                              2001            2000
                                            ----------     -----------

          Expected dividend yield              2.00 %         2.00 %
          Risk-free interest rate              5.20           6.00
          Expected volatility                 31.00          39.00
          Expected life in years               6.00           6.00

                                       47
<PAGE>

OTHER POST-RETIREMENT BENEFITS

     The  Bank  maintains  a  post-retirement  medical  insurance  plan and life
insurance  plan for certain  individuals.  The  following  tables  summarize the
funded status and the actuarial  benefit  obligations  of these plans for fiscal
2002 and 2001.

<TABLE>
<CAPTION>
                                                             2002            2001
                                                        ----------------------------------
                                                        LIFE    MEDICAL   LIFE     MEDICAL
                                                        ----    -------   ----     -------
<S>                                                      <C>      <C>      <C>      <C>
Actuarial present value of benefits obligation:
   Retirees                                              $(220)   $(614)   $(222)   $(413)
   Fully eligible participants                             (12)    (132)     (44)    (307)
   Other plan participants                                  --       --       --       --
                                                         -----    -----    -----    -----
          Total                                          $(232)   $(746)   $(266)   $(720)
                                                         =====    =====    =====    =====

Change in projected benefit obligation:
   Accumulated benefit obligations at prior
    year-end                                             $(266)   $(720)   $(233)   $(680)
   Service cost less expense component                      --       --       --
   Interest cost                                           (16)     (51)     (19)     (51)
   Actuarial gain (loss)                                    45      (12)      (7)       2
   Assumptions                                              (5)     (13)      (8)     (29)
   Benefits paid                                            10       50        1       38
                                                         -----    -----    -----    -----
          Accumulated benefit obligations at
           year-end                                      $(232)   $(746)   $(266)   $(720)
                                                         =====    =====    =====    =====
Change in plan assets:
   Fair value of plan assets at prior year-end           $  --    $  --    $  --    $  --
   Actual return on plan assets                             --       --       --       --
   Employer contribution                                    10       50        1       38
   Benefits paid end expenses                              (10)     (50)      (1)     (38)
                                                         -----    -----    -----    -----
          Fair value of plan assets at current
           year-end                                      $  --    $  --    $  --    $  --
                                                         =====    =====    =====    =====

Funded                                                   $(232)   $(746)   $(266)   $(720)
Unrecognized net obligation                                 95      273      103      297
Unrecognized prior year service                             --       --       --       --
Unrecognized net (loss) gain                               (82)     102      (48)      80
                                                         -----    -----    -----    -----
                                                         $(219)   $(371)   $(211)   $(343)
                                                         =====    =====    =====    =====

Reconciliation of (accrual) prepaid:
   (Accrued) prepaid pension cost at beginning of year   $(211)   $(343)   $(186)   $(305)
   Minus net periodic cost                                 (18)     (78)     (26)     (76)
   Plus employee contributions                              10       50        1       38
                                                         -----    -----    -----    -----
   (Accrued) prepaid cost at end of year                 $(219)   $(371)   $(211)   $(343)
                                                         =====    =====    =====    =====

 Benefit obligation weighted average assumption as
  of fiscal year-end:
     Discount rate                                       7.00%     7.00%    7.25%    7.25%
     Expected return on plan assets                      7.00%     7.00%    7.25%    7.25%
     Rate of compensation increase                         --        --       --       --
</TABLE>

<TABLE>
<CAPTION>
                                                              1 PERCENTAGE POINT INCREASE
                                                        -----------------------------------------
                                                                  2002         2001
                                                                  ----         ----
Impact of 1% change in health care trend rates:
<S>                                                        <C>         <C>           <C>    <C>
   Effect on total service and interest cost components  N/A      $    (4)         N/A  $   (5)
   Effect on the post retirement benefit obligations     N/A           55          N/A      63
Components of net periodic benefit obligations:
   Service cost                                      $    --      $    --      $    --  $   --
   Interest cost                                          16           51           19      51
   Expected return on plan assets                         --           --           --      --
   Amortization of prior service cost                      9           25            9      25
   Recognized actuarial (gain) loss                       (6)           2           (1)     --
                                                     -------      -------      -------  ------
           Net periodic benefit cost for fiscal year
                ending                               $    19      $    78      $    27  $   76
                                                     =======      =======      =======  ======
Periodic benefit cost weighted average assumptions:
   Discount rate                                       7.25%        7.25%        7.75%   7.25%
   Expected return on plan assets                      7.25%        7.25%        7.75%   7.25%
   Rate of compensation increase                        --           --           --      --

</TABLE>

                                       48
<PAGE>

     For measurement  purposes, a 6.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the fiscal year ended March
31,  2001.  The rate was  assumed to decrease to 5.5% for the fiscal year ending
March 31, 2002 and remain at that level thereafter.

NOTE 12. LEGAL PROCEEDINGS

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

     The Bank has been named as  defendant  in a civil suit filed March 28, 2002
in Middlesex  Superior Court under the caption Yi v. Central Bank in which it is
alleged,  inter  alia,  that the Bank  committed  an unfair or  deceptive  trade
practice by failing to pay surplus foreclosure  proceeds to a junior lien holder
in 1994.  Plaintiff  seeks damages of $160,000  plus  interest of  approximately
$150,000 and has applied for a multiple  damage  award under  Chapter 93A of the
Massachusetts  General  Laws  which  provides  for  up to  treble  damages  if a
violation  is found to be  willful or  knowing.  The Bank  believes  that it has
meritorious defenses to all such claims and intends to vigorously defend against
them.


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

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


                                       49
<PAGE>

     THE CO-OPERATIVE CENTRAL BANK RESERVE FUND

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

     DEPOSITS

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

     ADVANCES FROM FHLB OF BOSTON

     Fair  values  of  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.

     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.

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

<TABLE>
<CAPTION>
                                                                 MARCH 31, 2002         MARCH 31, 2001
                                                             ---------------------   ---------------------
                                                             CARRYING   ESTIMATED    CARRYING   ESTIMATED
                                                             AMOUNT    FAIR VALUE    AMOUNT   FAIR VALUE
                                                             ------    ----------    ------   ----------
<S>                                                          <C>        <C>        <C>        <C>
ASSETS
     Cash and due from banks                                 $  5,109   $  5,109   $  5,351   $  5,351
     Short-term investments                                     2,455      2,455     35,718     35,718
     Investment securities                                     73,884     73,884     49,388     49,388
     Net loans                                                368,415    367,893    342,687    350,028
     Accrued interest receivable                                2,530      2,530      2,426      2,426
     Stock in Federal Home Loan Bank of Boston, at cost         8,300      8,300      6,150      6,150
     The Co-operative Central Bank Reserve Fund                 1,576      1,576      1,576      1,576

LIABILITIES
     Deposits                                                $261,907   $262,810   $287,167   $288,297
     Advances from Federal Home Loan Bank of Boston           164,000    183,826    121,000    119,965
     Advance payments by borrowers for taxes and insurance      1,111      1,111      1,220      1,220
     Accrued interest payable                                     618        618        608        608
</TABLE>


                                       50
<PAGE>

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

     The following are the condensed  financial  statements for Central Bancorp,
Inc. (the "Parent Company") only:


                                                    MARCH 31,
                                               -----------------
BALANCE SHEETS                                  2002      2001
----------------------------------------------------------------
ASSETS
Cash deposit in subsidiary bank                $ 1,970   $ 2,153
Investment in subsidiary                        36,785    36,129
ESOP loan                                          199        --
                                               -------   -------
  Total assets                                 $38,954   $38,282
                                               =======   =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued taxes and other liabilities            $    --   $    70
Total stockholders' equity                      38,954    38,212
                                               -------   -------
  Total liabilities and stockholders' equity   $38,954   $38,282
                                               =======   =======




<TABLE>
<CAPTION>
                                                               YEARS ENDED MARCH 31,
                                                        -------------------------------
STATEMENTS OF INCOME                                       2002        2001        2000
---------------------------------------------------------------------------------------
<S>                                                       <C>        <C>        <C>
Dividend from subsidiary                                  $ 2,500    $ 4,000    $ 3,012
Non-interest expenses                                         466        266        331
                                                          -------    -------    -------
       Income before income taxes                           2,034      3,734      2,681
Income tax benefit                                           (154)       (87)      (109)
                                                          -------    -------    -------
       Income before cumulative effect of change in
         accounting principle                               2,188      3,821      2,790
Cumulative effect of change in accounting principle            --         --       (234)
                                                          -------    -------    -------
       Income before equity in undistributed net income
         of subsidiary                                      2,188      3,821      2,556
Equity in undistributed net income of subsidiary              672       (712)       777
                                                          -------    -------    -------
        Net income                                        $ 2,860    $ 3,109    $ 3,333
                                                          =======    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                                      YEARS ENDED MARCH 31,
                                                                  -------------------------------
STATEMENTS OF CASH FLOWS                                             2002      2001       2000
-------------------------------------------------------------------------------------------------
Cash flows from operating activities
<S>                                                                <C>        <C>        <C>
   Net income                                                      $ 2,860    $ 3,109    $ 3,333
   Adjustment to reconcile net income to net cash
    provided by operating activities
     Equity in undistributed net income of subsidiary                 (672)       712       (777)
     Decrease (increase) in other assets                                --        100       (100)
     Increase (decrease) in accrued taxes and other  liabilities       (71)        70        (15)
     Cumulative effect of change in accounting principle                --         --        234
                                                                   -------    -------    -------
          Net cash provided by operating activities                  2,117      3,991      2,675
                                                                   -------    -------    -------
Cash flows from investing activities:
   ESOP loan                                                          (199)        --         --
                                                                   -------    -------    -------
Cash flows from financing activities:

   Proceeds from exercise of stock options                             492         --         22
   Purchase of treasury stock                                       (1,924)    (2,187)    (3,043)
   Cash dividends paid                                                (669)      (697)      (689)
                                                                   -------    -------    -------
          Net cash used by financing activities                     (2,101)    (2,884)    (3,710)
                                                                   -------    -------    -------
Net increase (decrease) in cash in subsidiary bank                    (183)     1,107     (1,035)
Cash in subsidiary bank at beginning of year                         2,153      1,046      2,081
                                                                   -------    -------    -------
Cash in subsidiary bank at end of year                             $ 1,970    $ 2,153    $ 1,046
                                                                   =======    =======    =======
</TABLE>

                                       51
<PAGE>

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

     The following tables  summarize the operating  results on a quarterly basis
for the years ended March 31, 2002 and 2001.

<TABLE>
<CAPTION>
                                                                             2002
                                                     -----------------------------------------------------
                                                          FIRST      SECOND         THIRD         FOURTH
                                                          -----      ------         -----         ------
<S>                                                  <C>          <C>             <C>            <C>
Interest and dividend income.......................  $   7,599    $   7,180       $  7,052       $   7,442
Interest expense...................................      4,364        3,820          3,344           3,332
                                                     -----------------------------------------------------
     Net interest and dividend income..............      3,235        3,360          3,708           4,110
Non-interest income................................        409          337            244            (302)
Non-interest expenses..............................      2,811        2,806          2,467           2,380
                                                     -----------------------------------------------------
     Income before income taxes....................        833          891          1,485           1,428
Income tax.........................................        303          327            536             611
                                                     -----------------------------------------------------
     Net income....................................  $     530    $     564       $    949       $     817
                                                     =====================================================
Earnings per common share-- basic..................  $    0.32    $    0.34       $   0.57       $    0.50
                                                     =====================================================
Earnings per common share-- diluted................  $    0.32    $    0.34       $   0.57       $    0.50
                                                     =====================================================
<CAPTION>
                                                                             2001
                                                     -----------------------------------------------------
                                                          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
Non-interest 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-- basic..................  $    0.43    $    0.51       $   0.53       $    0.34
                                                     =====================================================
Earnings per common share-- diluted................  $    0.43    $    0.51       $   0.53       $    0.34
                                                     =====================================================
</TABLE>

     During the quarter ended March 31, 2002, the Bank recognized write-downs of
$457 for certain marketable equity securities which had experienced a decline in
fair value which was judged to be other than temporary.


                                       52
<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,  2002  and  2001,  and  the  related  consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the  three-year  period  ended March 31, 2002.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Central Bancorp,
Inc.  and  subsidiary  as of March 31,  2002 and 2001,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  March 31,  2002,  in  conformity  with  accounting  principles  generally
accepted in the United States of America.


                                                /s/ KPMG LLP

Boston, Massachusetts
April 25, 2002

                                       53
<PAGE>

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

     Not applicable.



                                    PART III

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

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

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

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

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

     (a)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

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

     (b)  SECURITY OWNERSHIP OF MANAGEMENT

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

     (c)  CHANGES IN CONTROL

          Not  applicable.

     (d)  EQUITY COMPENSATION PLANS

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

                                       54
<PAGE>

          The following table sets forth certain information with respect to the
          Company's Equity Compensation Plans.

<TABLE>
<CAPTION>
                                                                                                NUMBER OF SECURITIES REMAINING
                                                                                                AVAILABLE FOR FUTURE ISSUANCE
                               NUMBER OF SECURITIES TO BE ISSUED     WEIGHTED-AVERAGE EXERCISE      UNDER EQUITY COMPENSATION
                                 UPON EXERCISE OF OUTSTANDING           PRICE OF OUTSTANDING       PLANS (EXCLUDING SECURITIES
PLAN CATEGORY                    OPTIONS, WARRANTS AND RIGHTS       OPTIONS, WARRANTS AND RIGHTS     REFLECTED IN COLUMN (a))
-------------                    ----------------------------       ----------------------------     ------------------------
<S>                                            <C>                           <C>                            <C>
Equity compensation plans                      59,613                        $18.448                        33,299
  approved by security holders

Equity compensation plans not                    0                              0                             0
  approved by security holders

       Total (1)
</TABLE>

----------
(1)  The 1999 Stock  Option and  Incentive  Plan  provides  for a  proportionate
     adjustment  to the number of shares  reserved  thereunder in the event of a
     stock split, stock dividend reclassification or similar event.


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.

                                     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 -- The Registrant  did not file any Current  Reports on
     -------------------
     Form 8-K during the fourth quarter of the fiscal year ended March 31, 2002.

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

     The following exhibits are filed as exhibits to this report.

                                       55
<PAGE>

EXHIBIT NO.          DESCRIPTION
-----------          -----------

3.1*       Articles of Organization of Central Bancorp, Inc.
3.2*       Bylaws of Central Bancorp, Inc.
4.1**      Shareholder  Rights  Agreement,  dated as of October 11, 2001, by and
           between the Central  Bancorp,  Inc. and EquiServe  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***    Severance  Agreement between the Bank and William P. Morrissey, dated
           December 14, 1994 +
10.9***    Severance  Agreement  between  the Bank  and  David  W.  Kearn, dated
           December 14, 1994 +
10.10***   Severance Agreement  between the  Bank and  Paul S. Feeley, dated May
           14, 1998 +
10.11***   Amendments to  Severance  Agreements  between  the Bank  and  Messrs.
           Feeley, Kearn and Morrissey, dated January 8, 1999. +
10.12****  1999 Stock Option and Incentive Plan +
10.13***** Deferred Compensation Plan for Non-Employee Directors +
10.14      Management Incentive Plan +
10.15      Severance  Agreement  between  the Bank and Michael K.  Devlin, dated
           February 25, 2002. +
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
          October 12, 2001.
***       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.



                                       56
<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 24, 2002                     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 24, 2002
    -------------------------------------------------
       John D. Doherty
       President, Chief Executive Officer
           and Director

By:  /s/ Michael K. Devlin                                  Date:  June 24, 2002
    -------------------------------------------------
       Michael K. Devlin
       Senior Vice President - Treasurer
          and Chief Financial and
          Accounting Officer

By: /s/ Joseph R. Doherty                                   Date:  June 24, 2002
    -------------------------------------------------
      Joseph R. Doherty
      Chairman of the Board and Director

By: /s/ Terence D. Kenney                                   Date:  June 24, 2002
    -------------------------------------------------
       Terence D. Kenney
       Director

By:                                                         Date:
    -------------------------------------------------
       John G. Quinn
       Director

By:                       .                                 Date:
    -------------------------------------------------
       John F. Gilgun, Jr.
       Director

By:                                                         Date:
    -------------------------------------------------
       Marat E. Santini
       Director

By: /s/ Nancy D. Neri                                       Date:  June 24, 2002
    -------------------------------------------------
       Nancy D. Neri
       Director

By: /s/ Gregory W. Boulos                                   Date:  June 24, 2002
    -------------------------------------------------
       Gregory W. Boulos
       Director