UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

         (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, 2004

                                       OR

[X]       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 pursuant to Section 12(b) of the Act: NONE
                                                                    ----

           Securities registered pursuant to 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. [ X ]

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

     The  aggregate  market value of voting stock held by  nonaffiliates  of the
registrant  at March  31,  2004 was  approximately  $22.4  million  based on the
closing  sale  price of the  registrant's  Common  Stock as listed on the Nasdaq
National  MarketSM  as of  September  30, 2003  ($34.73  per share).  Solely for
purposes of this calculation,  directors, executive officers and greater than 5%
stockholders are treated as affiliates.

     At June 25, 2004, the registrant had 1,664,957  shares of its Common Stock,
$1.00 par value, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders
(the "Proxy  Statement") are  incorporated by reference in Part III of this Form
10-K.
<PAGE>

                              CENTRAL BANCORP, INC.

                           ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS


                                     PART I
<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>             <C>                                                                               <C>
Item 1.    Business..............................................................................   3
Item 2.    Properties............................................................................  21
Item 3.    Legal Proceedings.....................................................................  22
Item 4.    Submission of Matters to a Vote of Security Holders...................................  22


                                     PART II


Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters.............  23
Item 6.    Selected Financial Data...............................................................  24
Item 7.    Management's Discussion and Analysis of Financial Condition and Results
                of Operations....................................................................  25
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk............................  34
Item 8.    Financial Statements and Supplementary Data...........................................  35
Item 9.    Changes in and Disagreements With Accountants on Accounting and
                Financial Disclosure.............................................................  64
Item 9A.   Controls and Procedures...............................................................  64

                                    PART III


Item 10.   Directors and Executive Officers of the Registrant....................................  65
Item 11.   Executive Compensation................................................................  65
Item 12.   Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters..................................................  65
Item 13.   Certain Relationships and Related Transactions........................................  66
Item 14.   Principal Accountant Fees and Services................................................  66

                                     PART IV


Item 15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................  66

</TABLE>

<PAGE>

                                     PART I

NOTE ON FORWARD-LOOKING STATEMENTS

     When used in this Annual  Report on Form 10-K,  the words or phrases  "will
likely   result,"  "are  expected  to,"  "will   continue,"  "is   anticipated,"
"estimate,"   "project"  or  similar   expressions   are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation  Reform Act of 1995. The Company  cautions readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made, and advises readers that various  factors,  including  changes in regional
and national economic  conditions,  changes in local  demographics,  unfavorable
judicial  decisions,  substantial  changes in levels of market  interest  rates,
technological  innovations,  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 the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.

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

GENERAL

     THE  COMPANY.  Central  Bancorp,  Inc.  (the  "Company"),  a  Massachusetts
corporation,  was  organized  by  Central  Co-operative  Bank  (the  "Bank")  on
September  30, 1998,  to acquire all of the capital stock of the Bank as part of
its  reorganization  into the  holding  company  form of  ownership,  which  was
completed  on  January  8,  1999.   Upon   completion  of  the  holding  company
reorganization,  the  Company's  common  stock,  par value  $1.00 per share (the
"Common Stock"), became registered under the Securities Exchange Act of 1934, as
amended (the "Act"). The Company is a registered bank holding company subject to
regulation  and  examination  by the Board of Governors  of the Federal  Reserve
System (the "Federal  Reserve  Board").  The Company has no  significant  assets
other than the common stock of the Bank 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  secured and unsecured  personal
loans,  and  commercial  and  industrial  loans.  The  Bank  also  maintains  an
investment  portfolio of various types of debt securities,  including  corporate
bonds and mortgage-backed securities, and a limited amount of equity securities.
In  fiscal  2002,  the  Bank  began  to  offer  investment  services  (including
annuities)  to its  customers  through  a  third  party  broker-dealer  and  its
insurance affiliate.

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

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



                                       3
<PAGE>

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

     The  operations  of the Bank 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,  credit  unions,  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, credit unions,
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.

     Changes in bank  regulation,  such as changes in the  products and services
banks  can offer and  involvement  in  non-banking  activities  by bank  holding
companies,  as well as bank  mergers  and  acquisitions,  can  affect the Bank's
ability to compete successfully.  Legislation and regulations have also expanded
the activities in which depository  institutions may engage.  The ability of the
Bank to compete successfully will depend upon how successfully it can respond to
the evolving competitive, regulatory, technological and demographic developments
affecting its operations.

FUTURE EXPANSION PLANS

     The Board of Directors has recently  adopted a five-year  strategic plan to
enhance long-term shareholder value through franchise growth. The strategic plan
calls for  expansion  and core  deposit  growth  through  marketing  and de novo
branching  within the Bank's market area of Middlesex  County in order to enable
the  Bank  to  take  greater  advantage  of the  opportunities  afforded  by the
favorable  demographics  of this market.  The strategic  plan also calls for the
Bank to continue to focus primarily on its traditional businesses of residential
and  commercial   real  estate   lending  and  to  grow  its  mortgage   banking
capabilities. The Board and management believe that the increased



                                       4
<PAGE>

asset  size and the  greater  access  to  deposits  as a  source  of funds to be
achieved  through the planned  expansion will enable the Bank to better leverage
operating efficiencies and technology without compromising its focus on personal
service and  relationships.  The strategic plan provides for this planned branch
expansion to be funded with the Company's  current  capital plus future earnings
and does not call for the raising of additional capital.

     While the Board and management  anticipate that this planned expansion will
enhance  long-term   shareholder   value,  new  branches   generally  require  a
significant  initial capital  investment and marketing and operational  expenses
before they become profitable.  As a result, management anticipates that, in the
short-term, net income may be negatively affected as the Bank incurs significant
capital  expenditures  and  non-interest  expenses  in  opening,  operating  and
marketing new branches before these branches can produce sufficient net interest
income to offset the increased expenses.

LENDING ACTIVITIES

     The  Bank's   lending  focus  is   concentrated   in  real  estate  secured
transactions,  including residential mortgage and home equity loans,  commercial
mortgage loans and  construction  loans.  For the year ended March 31, 2004, the
Bank originated  loans totaling $137.3  million.  Of the total loans  originated
during fiscal 2004, $64.3 million, or 46.8%, were residential mortgage loans and
$64.2 million,  or 46.8%, were commercial mortgage loans. During the years ended
March  31,  2004 and 2003,  the Bank  sold  $32.6  million  and  $35.7  million,
respectively,  of current year residential mortgage loan originations.  The sale
of loans in the  secondary  market  allows  the Bank to  continue  to make loans
during  periods when savings flows decline or funds are not otherwise  available
for lending purposes and to manage interest rate risk.

     The Bank's loan portfolio  decreased by $33.4  million,  or 8.7%, to $353.1
million at March 31, 2004 from $386.5  million at March 31,  2003.  The decrease
occurred as a result of the continuing high level of loan refinancing  activity,
particularly  residential mortgage loans, and management's decision to sell many
fixed-rate  residential  mortgages  originated  in fiscal  2004.  While the loan
portfolio decreased overall, commercial real estate loans grew by $39.0 million,
or 36.4%, in fiscal 2004. This growth is consistent with management's  strategic
intent due to the generally  more  favorable  yields and repricing  frequency of
these assets, as compared to other interest-earning assets.

     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>
-------
                             Amount       %      Amount       %      Amount     %       Amount     %       Amount    %
                             ------      --      ------      ---     ------    ---      ------    ---      ------   ---
                                                              (Dollars in thousands)
<S>                            <C>      <C>       <C>       <C>       <C>     <C>         <C>      <C>       <C>    <C>
Mortgage loans:
  Residential............  $171,682     48.2%   $236,649     60.7%   $246,045  66.2%    $248,459  71.9%   $243,570  76.1%
  Commercial.............   146,107     41.0     107,140     27.5      87,013  23.4       69,949  20.2      54,228  16.9
  Construction...........    25,112      7.0      30,294      7.8      20,998   5.6        9,152   2.6       9,765   3.1
  Home equity............     9,397      2.6       9,128      2.3       9,154   2.5       10,977   3.2       7,403   2.3
                           --------    -----    --------    -----    -------- -----     -------- -----    -------- -----
    Total mortgage loans    352,298     98.8     383,211     98.3     363,210  97.7      338,537  97.9     314,966  98.4
                           --------    -----    --------    -----    -------- -----     -------- -----    -------- -----

Other loans:
  Commercial and
   industrial............     3,198      0.9       5,319      1.4       6,901   1.9        4,979   1.4       3,349   1.1
  Consumer...............     1,129      0.3       1,287      0.3       1,596   0.4        2,277   0.7       1,698   0.5
                           --------    -----    --------    -----    -------- -----     -------- -----    -------- -----
    Total other loans....     4,327      1.2       6,606      1.7       8,497   2.3        7,256   2.1       5,047   1.6
                           --------    -----    --------    -----    -------- -----     -------- -----    -------- -----
    Total loans..........   356,625    100.0%    389,817    100.0%    371,707 100.0%     345,793 100.0%    320,013 100.0%
                           --------    =====    --------    =====    -------- =====     -------- =====    -------- =====

Less:
  Allowance for loan
   losses................     3,537                3,284                3,292              3,106             2,993
                           --------             --------             --------           --------          --------
    Loans, net...........  $353,088             $386,533             $368,415           $342,687          $317,020
                           ========             ========             ========           ========          ========
</TABLE>


                                       5
<PAGE>

     LOAN PORTFOLIO SENSITIVITY. The following table sets forth certain maturity
information  as of March 31, 2004  regarding the dollar amount of commercial and
industrial  loans  as  well  as  construction  loans  in the  Bank's  portfolio,
including  scheduled  repayments of  principal,  based on  contractual  terms to
maturity.  Demand loans,  loans having no schedule of  repayments  and no stated
maturity and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>

                                                           DUE AFTER
                                       DUE WITHIN         ONE THROUGH        DUE AFTER
                                        ONE YEAR          FIVE YEARS        FIVE YEARS           TOTAL
                                       ----------        -------------      ----------        ----------
<S>                                        <C>                 <C>              <C>               <C>
                                                         (In thousands)

Construction loans..................   $   19,657         $    2,689        $    2,766        $   25,112
Commercial and industrial loans.....        2,440                419               339             3,198
                                       ----------         ----------        ----------        ----------
     Total..........................   $   22,097         $    3,108        $    3,105        $   28,310
                                       ==========         ==========        ==========        ==========
</TABLE>

     Of  construction  loans and commercial  and industrial  loans maturing more
than one year after  March 31,  2004,  $953  thousand  have fixed rates and $5.3
million, have floating or variable rates.

     RESIDENTIAL  LENDING.  The Bank's  residential  mortgage loans at March 31,
2004 totaled $171.7 million,  or 48.2%, of the total loan portfolio.  Fixed-rate
residential  mortgages totaled $129.6 million, or 75.5%, of the residential loan
portfolio and  adjustable-rate  loans totaled $42.1  million,  or 24.5%,  of the
residential loan portfolio.

     With the  implementation of its mortgage banking initiative in fiscal 2003,
whereby the Bank is seeking to increase its origination of residential  mortgage
loans  and to  generate  additional  noninterest  income  via loan  sale  gains,
management  regularly  assesses the  desirability  of holding  newly  originated
long-term,  fixed-rate  residential mortgage loans in its portfolio. A number of
factors are evaluated to determine  whether or not to hold such loans including,
current and  projected  liquidity,  current  and  projected  interest  rate risk
profile,  projected growth in other  interest-earning  assets, e.g.,  commercial
real estate loans,  and projected  interest rates.  With the rate on the 30-year
fixed-rate residential mortgage loan reaching a 45-year low in 2003, the Company
experienced  $88.3 million in  residential  mortgage loan  prepayments in fiscal
2004.  Customers who  refinanced  their  mortgages  generally  refinanced  their
existing home loans with either a 15 or 30 year fixed-rate mortgage loan.

     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 three years, as its
primary index.  The margin at which  adjustable-rate  loans are generally set is
2.875  percentage  points over the stated index.  Interest rate  adjustments  on
adjustable mortgage loans are capped at two percentage points per adjustment and
six percentage points over the life of the loan.

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

     COMMERCIAL  REAL  ESTATE  AND  CONSTRUCTION  LENDING.  The Bank  originates
permanent and  construction  loans on commercial  real estate.  Commercial  real
estate  loans are  typically  secured  by  income-producing  properties  such as
apartment buildings,  office buildings,  industrial buildings and various retail
properties  and are written  with either  fixed or  adjustable  interest  rates.
Commercial  real estate  loans with fixed  interest  rates have terms  generally
ranging from one to five years while the interest rate on adjustable  rate loans
is  generally  set to the five year FHLB  classic  advance rate plus a margin of
2.00 to 3.00  percentage  points.  As of March 31, 2004,  commercial real estate
loans totaled $146.1 million and constituted 41.0% 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 $6.0 million,  the Bank's "house  lending limit" for
an individual  borrower.  Commercial real estate loans currently  offered



                                       6
<PAGE>

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
are granted in participation with other lenders.

     The Bank's construction loans totaled $25.1 million, or 7.0%, of the Bank's
loan  portfolio at March 31, 2004.  Construction  loans are short-term in nature
and have maturities  ranging from six months to two years. The Bank grants loans
to construct residential and commercial real estate, as well as land development
for individual  residential lots. Currently,  construction loans are made for up
to 80% of the projected  value of the completed  property,  based on independent
appraisals.  Funds are disbursed based on a schedule of completed work presented
to  the  Bank  and  confirmed  by  physical  inspection  of  the  property  by a
construction consultant and only after receipt of title updates.

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

     The growth in the commercial  mortgage loan portfolio in fiscal 2004, which
totaled  $39.0  million,  or 36.4%,  is  attributable  to the  expanded  team of
experienced  commercial lenders and credit administration  personnel established
in 2002. This planned growth was aided by opportunities created by the declining
rate environment prevailing during the past three years.

     HOME EQUITY  LINES OF CREDIT.  The Bank offers home equity  lines of credit
that are secured by the  borrower's  equity in his or her 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 totaled $9.4 million, or 2.6%, of the Bank's loan portfolio at
March 31, 2004.

     COMMERCIAL AND INDUSTRIAL,  CONSUMER AND OTHER LOANS. The Bank's commercial
and industrial,  consumer and other loans totaled $4.3 million,  or 1.2%, of the
total loan  portfolio on March 31, 2004.  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.



                                       7
<PAGE>

     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 and builders.  The Bank also utilizes
both in-house and traveling  originators in the origination of residential  real
estate loans.  Commercial real estate loans are originated by the Bank's team of
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,  in the case of  certain  residential  mortgage  loans to be sold,
qualified  independent  contract  underwriters.  Individual lending officers,  a
committee of loan officers and the Bank's Security  Committee have the authority
to approve loans up to various limits.  Applications are received in each of the
offices of the Bank.  Independent  certified and licensed appraisers are used to
appraise  the  property  intended  to  secure  real  estate  loans.  The  Bank's
underwriting criteria are designed to minimize the risks of each loan. There are
detailed  guidelines  concerning the types of loans that may be made, the nature
of the  collateral,  the information  that must be obtained  concerning the loan
applicant and follow-up inspections of collateral after the loan is made.

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

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

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


                                       8
<PAGE>

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

                                                                            At March 31,
                                                ------------------------------------------------------------------
                                                  2004          2003          2002           2001           2000
                                                --------      --------      -------        --------       --------
<S>                                               <C>           <C>           <C>            <C>             <C>
                                                                       (Dollars in thousands)

Loans accounted for on a non-accrual basis,
   non-performing loans......................   $    --       $    --       $     --       $     --       $  235
Restructured loans...........................        --            --             --             --           --
Real estate acquired by foreclosure..........        --            --             --             --           --
                                                -------       -------       --------       --------       ------

   Total non-performing assets...............   $    --       $    --       $     --       $     --       $  235
                                                =======       =======       ========       ========       ======

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

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

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

     At March 31,  2004,  there  were no loans  where  known  information  about
possible credit problems of borrowers  caused  management to have serious doubts
as to the ability of such borrowers to comply with present loan repayment terms.

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

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


                                       9
<PAGE>
     The  following  table  presents  activity in the  allowance for loan losses
during the years indicated.
<TABLE>
<CAPTION>

                                                               AT OR FOR THE YEARS ENDED MARCH 31,
                                                ------------------------------------------------------------------
                                                   2004          2003          2002          2001          2000
                                                ----------    ----------    ----------    ----------    ----------
<S>                                                 <C>          <C>           <C>           <C>           <C>
                                                                     (Dollars in thousands)

Balance at beginning of year...........         $  3,284         $3,292       $ 3,106       $ 2,993       $ 2,913
                                                --------       --------      --------      --------      --------

Provision..............................              200             --            --            --            --

Charge-offs:
  Residential mortgage.................               --             --            --            --            --
  Commercial mortgage..................               --             --            --            --            --

  Other loans..........................              (29)           (21)           (4)           (4)           (9)
                                                --------       --------      --------      --------      --------
    Total charge-offs..................              (29)           (21)           (4)           (4)           (9)
                                                --------       --------      --------      --------      --------

Recoveries:
  Residential mortgage.................               19             --            80            60             9
  Commercial mortgage..................               33             --           103            48            36

  Other loans..........................               30             13             7             9            44
                                                --------       --------      --------      --------      --------
    Total recoveries...................               82             13           190           117            89
                                                --------       --------      --------      --------      --------


Net (charge-offs) recoveries...........               53             (8)          186           113            80
                                                --------       --------      --------      --------      --------
Balance at end of year.................         $  3,537       $  3,284      $  3,292      $  3,106      $  2,993
                                                ========       ========      ========      ========      ========

Average loans outstanding during the year       $367,094       $378,502      $335,271      $341,732      $300,089
Ratio of net charge-offs to average loans          n/a           n/a           n/a           n/a           n/a
Total loans outstanding at end of year.         $357,424       $390,464      $371,707      $345,793      $320,013
Ratio of allowance for loan
  losses to loans at end of year.......            0.99%         0.84%         0.89%         0.90%         0.94%
</TABLE>

-----------
n/a means either not applicable or not meaningful



                                       10
<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>
                                                                              MARCH 31,
                                     -----------------------------------------------------------------------------------------------
                                            2004                2003              2002               2001               2000
                                     -----------------   -----------------  -----------------  ----------------  -------------------
                                                 % OF                % OF               % OF              % OF             % OF
                                               LOANS TO            LOANS TO           LOANS TO          LOANS TO          LOANS TO
                                      AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
                                     ------- ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
<S>                                     <C>       <C>     <C>       <C>       <C>     <C>       <C>        <C>      <C>      <C>
                                                                (Dollars in thousands)
Mortgage loans:
  Residential mortgage ............  $  446      48.2%   $  583      60.8%  $  636      66.2%  $1,637     71.9%  $1,333     76.1%
  Commercial mortgage .............   2,434      41.0     2,009      27.4    1,956      23.4    1,058     20.2    1,202     16.9
  Construction ....................     494       7.0       457       7.8      462       5.6      169      2.6      198      3.1
  Home equity .....................     101       2.6        94       2.3       98       2.5      163      3.2      178      2.3
                                     ------     -----    ------     -----   ------     -----   ------    -----   ------    -----
    Total mortgage loans ..........   3,475      98.8     3,143      98.3    3,152      97.7    3,027     97.9    2,911     98.4
Other loans .......................      62       1.2       141       1.7      140       2.3       79      2.1       82      1.6
                                     ------     -----    ------     -----   ------     -----   ------    -----   ------    -----
    Total..........................  $3,537     100.0%   $3,284     100.0%  $3,292     100.0%  $3,106    100.0%  $2,993    100.0%
                                     ======     =====    ======     =====   ======     =====   ======    =====   ======    =====

</TABLE>



                                       11
<PAGE>

INVESTMENT ACTIVITIES

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

     Investments  are classified as "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,   net  of  taxes,   reported  as  a  separate  component  of
stockholders' equity. Securities held to maturity are carried at amortized cost.
At March 31, 2004, all of the Bank's  marketable  investments were classified as
available for sale.

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

                                                                                At March 31,
                                                            --------------------------------------------------
                                                                 2004                2003               2002
                                                                 -----              ------             -----
          <S>                                                     <C>                 <C>               <C>
                                                                             (Dollars in thousands)

  U. S. Government and agency obligations.................  $   10,086          $    8,247         $   13,996
  Corporate bonds.........................................      38,638              38,727             38,568
  Mortgage-backed securities..............................      31,575              12,056             18,340
  Marketable equity securities............................       3,472               2,081              2,980
                                                            ----------          ----------         ----------
      Total investment securities.........................  $   83,771          $   61,111         $   73,884
                                                            ==========          ==========         ==========

      Percentage of total assets..........................        17.1%               12.8%              15.8%
                                                                  ====                ====               ====
</TABLE>


     At March 31, 2004, the Bank owned  securities  issued by several  companies
having a fair value that  exceeded 10% of the  Company's  stockholders'  equity.
Such securities  consisted  primarily of debt  obligations.  The following table
summarizes the Bank's aggregate holdings of each issuer.

         ISSUER                     AMORTIZED COST        MARKET VALUE
         ------                     --------------        ------------
                                            (In thousands)

         AT&T                              $5,161              $5,557
         Ford Motor Credit                  5,054               5,312
         Boeing Capital Corp.               5,026               5,431
         Hewlett Packard                    5,012               5,506
         GMAC                               4,618               4,904



                                       12
<PAGE>

     The following  table sets forth the scheduled  maturities,  amortized cost,
fair values and average yields for the Bank's debt securities at March 31, 2004.
<TABLE>
<CAPTION>

                                                    More Than        More Than
                             One Year or Less  One to Five Years Five to Ten Years  More than Ten Years   Total Investment Portfolio
                             ----------------  ----------------- -----------------  -------------------   --------------------------
                             Amortized Average Amortized Average Amortized Average  Amortized  Average    Amortized  Fair  Average
                                Cost    Yield    Cost     Yield     Cost    Yield      Cost     Yield        Cost    Value  Yield
                             --------- ------- --------- ------- --------- -------  ---------  -------    ---------  ----- -------
<S>                             <C>      <C>      <C>      <C>      <C>      <C>       <C>       <C>        <C>       <C>    <C>
                                                               (Dollars in thousands)


U.S. government and agency
 obligations.................$    --      --%   $ 7,998    4.56%   $  2,000   4.00%   $    --      --%    $ 9,998   $10,086  4.45%
Corporate bonds..............    500    7.41     32,179    6.15       3,109   6.52         --      --      35,788    38,638  6.20
Mortgage-backed securities...     --      --        686    7.00      14,784   4.18     15,807    4.21      31,277    31,575  4.26
                             -------            -------            --------           -------             -------   -------
Total........................$   500            $40,863            $ 19,893           $15,807             $77,063   $80,299
                             =======            =======            ========           =======             =======   =======
</TABLE>


DEPOSITS AND BORROWED FUNDS

     GENERAL.  Savings  accounts and other types of deposits have  traditionally
been an  important  source of the Bank's  funds for use in lending and for other
general business purposes. In addition to deposits,  the Bank derives funds from
loan  repayments,   loan  sales,  borrowings  and  from  other  operations.  The
availability  of funds is influenced by the general level of interest  rates and
other market  conditions.  Scheduled  loan  repayments  are a relatively  stable
source  of  funds  while  deposit  inflows  and  outflows  vary  widely  and are
influenced by prevailing interest rates and 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  accounts,  money market
deposit accounts, regular savings accounts, term deposit accounts and retirement
savings plans. The Bank has  historically  not actively  solicited or advertised
for deposits outside of its market area or solicited brokered  deposits.  During
fiscal  2003,  the Bank did enter into a retail CD  brokerage  agreement  with a
major brokerage firm and considers this  arrangement to be a secondary source of
liquidity.  The Bank  attracts  deposits  through  its  branch  office  network,
automated  teller  machines,  the Internet and by paying rates  competitive with
other Massachusetts financial institutions.

     DEPOSIT ACCOUNTS. The following table shows the distribution of the average
balance 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,
                                  --------------------------------------------------------------------------------------------
                                              2004                            2003                           2002
                                  ---------------------------    -----------------------------    ---------------------------
                                           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....... $  29,998     10.5%       --%    $   29,586    10.7%        --%    $ 24,535      9.0%        --%
NOW accounts..................    36,980     13.0       .53         37,271    13.4        .64       36,177     13.2       1.12
Passbook and other savings
    accounts..................    72,925     25.5       .63         70,489    25.4       1.10       67,322     24.7       1.32
Money market deposit accounts.    44,125     15.4      1.55         33,695    12.1       1.83       16,869      6.2       1.75
Term deposit certificates.....   101,688     35.6      3.06        106,572    38.4       3.72      127,906     46.9       5.13
                               ---------   ------               ----------   -----                --------    -----
    Total deposits............ $ 285,716    100.0%     1.56%    $  277,613   100.0%      2.02%    $272,809    100.0%      2.98%
                               =========   ======               ==========   =====                ========    =====
</TABLE>



                                       13
<PAGE>

     TIME  DEPOSITS IN EXCESS OF $100,000.  The  following  table  indicates the
amount of the Bank's time deposits of $100,000 or more by time  remaining  until
maturity as of March 31, 2004 (in thousands).


        Maturity Period:
           Three months or less..............................$   5,106
           Three through six months..........................    4,329
           Six through twelve months.........................    5,624
           Over twelve months................................   12,548
                                                             ---------
                 Total.......................................$  27,607
                                                             =========

     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 commercial
real estate loans and all the Bank's  stock in the FHLB of Boston.  At March 31,
2004,  the Bank had  advances  outstanding  from the FHLB of  Boston  of  $141.1
million.  Proceeds from these  advances were  primarily  used to fund the Bank's
loan  growth.  Additional  sources of borrowed  funds  include The  Co-operative
Central Bank Reserve Fund and the Federal Reserve Bank.

     The following  table sets forth certain  information  regarding  borrowings
from the FHLB of Boston, including short-term borrowings under a line of credit,
at the dates and for the periods indicated.
<TABLE>
<CAPTION>

                                                                                 At or for the
                                                                             Years Ended March 31,
                                                                 ------------------------------------------------
                                                                    2004               2003               2002
                                                                 ----------         ----------         ----------
<S>                                                                 <C>                <C>                 <C>
                                                                                (Dollars in thousands)

Amounts outstanding at end of period.........................   $  141,100          $ 144,400          $164,000
Weighted average rate at end of period.......................         4.82%             4.81%              4.39%
Maximum amount of borrowings outstanding
  at any month end...........................................   $  144,400          $ 165,500          $164,000
Approximate average amounts outstanding......................   $  143,455          $ 155,590          $124,680
Approximate weighted average rate during the year............         4.89%             4.67%              5.41%
</TABLE>


SUBSIDIARIES

     In April  1998 and July  2003,  the  Bank  established  Central  Securities
Corporation and Central Securities  Corporation II, respectively,  Massachusetts
corporations,  as  wholly  owned  subsidiaries  of the Bank for the  purpose  of
engaging  exclusively  in buying,  selling  and  holding,  on their own  behalf,
securities  that may be held  directly  by the  Bank.  These  subsidiaries  hold
government agency obligations,  corporate bonds and  mortgage-backed  securities
and qualify under Section 38B of Chapter 63 of the Massachusetts General Laws as
a Massachusetts security corporation.

     In July 1999, the Bank established  Central Preferred  Capital  Corporation
("CPCC"), a Massachusetts corporation which elected to be taxed as a real estate
investment trust ("REIT") for federal and Massachusetts tax purposes.  CPCC held
mortgage loans which were  previously  originated by the Bank. In December 2003,
the Bank liquidated its REIT subsidiary in a tax-free transaction.


                                       14
<PAGE>



                           REGULATION AND SUPERVISION

REGULATION AND SUPERVISION OF THE COMPANY

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

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

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

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

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



                                       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.

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

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


                                       16
<PAGE>

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

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

     Beginning  six months  after the SEC  determines  that the PCAOB is able to
carry  out its  functions,  it will be  unlawful  for any  person  that is not a
registered  public  accounting firm ("RPAF") to audit an SEC-reporting  company.
Under the Act, a RPAF is prohibited from performing  statutorily  mandated audit
services  for a  company  if  such  company's  chief  executive  officer,  chief
financial officer,  comptroller,  chief accounting officer or any person serving
in equivalent  positions has been employed by such firm and  participated in the
audit of such company during the one-year period  preceding the audit initiation
date.  SOX also  prohibits  any  officer or  director  of a company or any other
person  acting  under their  direction  from  taking any action to  fraudulently
influence,  coerce,  manipulate or mislead any  independent  public or certified
accountant  engaged in the audit of the Company's  financial  statements for the
purpose of rendering the financial statement's  materially  misleading.  The SEC
has  prescribed  rules  requiring  inclusion of an internal  control  report and
assessment by management  in the annual report to  shareholders,  with which the
Company will be required to comply  beginning  with its fiscal year ending March
31,  2006.  SOX  requires the RPAF that issues the audit report to attest to and
report  on  management's  assessment  of the  Company's  internal  controls.  In
addition,  SOX requires that each  financial  report  required to be prepared in
accordance with (or reconciled to) generally accepted accounting  principles and
filed  with  the SEC  reflect  all  material  correcting  adjustments  that  are
identified by a RPAF in accordance with generally accepted accounting principles
and the rules and regulations of the SEC.

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

REGULATION AND SUPERVISION OF THE BANK

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

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



                                       17
<PAGE>

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

     In  addition  to the  leverage  ratio (the ratio of Tier 1 capital to total
assets),  state-chartered  nonmember  banks  must  maintain  a minimum  ratio of
qualifying  total  capital to  risk-weighted  assets of at least 8%, of which at
least half 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  pre-tax  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, 2004, the Bank's ratio of Tier 1 capital to average assets was
7.92%,  its ratio of Tier 1 capital to  risk-weighted  assets was 10.75% and its
ratio of total risk-based capital to risk-weighted assets was 11.80%.

     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.

     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 data
reported  to  regulators,  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 was 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,  2004,



                                       18
<PAGE>

the Bank was considered well capitalized. In addition, FDIC-insured institutions
are required to pay  assessments  to the FDIC to help fund interest  payments on
certain bonds issued by the  Financing  Corporation  ("FICO"),  an agency of the
federal government established to finance takeovers of insolvent thrifts.

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

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

     Under  the  implementing   regulations,   the  federal  banking  regulators
generally  measure an  institution's  capital adequacy on the basis of its total
risk-based  capital  ratio  (the  ratio of its total  capital  to  risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio (the  ratio of its core  capital to
adjusted total assets).  The following  table shows the capital ratios  required
for the various prompt corrective action categories.
<TABLE>
<CAPTION>

                                                     Adequately                                     Significantly
                           Well Capitalized          Capitalized         Undercapitalized        Undercapitalized
                           ----------------          -----------         ----------------        ----------------
<S>                             <C>                     <C>                    <C>                         <C>
Total risk-based
    capital ratio           10.0% or more            8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio            6.0% or more            4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio               5.0% or more            4.0% or more *      Less than 4.0% *        Less than 3.0%
</TABLE>
-----------
*  3.0% if the 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
                                       19
<PAGE>

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.

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

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

     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 and Regulation W further  prohibit a depository  institution from
extending  credit to or offering  any other  services,  or fixing or varying the
consideration for such extension of credit or service, on the condition that the
customer obtain some  additional  service from the institution or certain of its
affiliates or not obtain services of a competitor of the institution, subject to
certain limited exceptions.

     MASSACHUSETTS  STATE LAW. As a  Massachusetts-chartered  co-operative bank,
the Bank is subject to the applicable  provisions of  Massachusetts  law and the
regulations of the Commissioner adopted thereunder. The Bank derives its lending
and investment  powers from these laws,  and is subject to periodic  examination
and reporting requirements by and of the Commissioner.  In addition, the Bank is
required to make  periodic  reports to the  Co-operative  Central Bank. In 1990,
legislation was enacted  permitting  banks nationwide to enter the Bank's market


                                       20
<PAGE>

area and  compete  for  deposits  and loan  originations.  The  approval  of the
Commissioner  is  required  prior  to  any  merger  or  consolidation,   or  the
establishment or relocation of any branch office.

EMPLOYEES

     At March 31, 2004,  the Company and the Bank  employed 102 full-time and 40
part-time  employees.  The Company's and Bank's employees are not represented by
any  collective  bargaining  agreement.  Management  of  the  Company  and  Bank
considers its relations with its employees to be good.

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

     The Bank owns all its  offices,  except the  Burlington,  Malden and Woburn
High School 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 amortization. At March 31, 2004,
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, 2004:
<TABLE>
<CAPTION>

                                                                                                   NET BOOK
                                                                           YEAR                     VALUE AT
                  OFFICE LOCATION                                         OPENED                 MARCH 31, 2004
                  ---------------                                         ------                 --------------
                                                                                                  (in thousands)
                <S>                                                        <C>                          <C>
            MAIN OFFICE
            399 Highland Avenue
            Somerville, MA.............................................    1974                       $  309

            BRANCH OFFICES:
            175 Broadway
            Arlington, MA..............................................    1982                          131

            85 Wilmington Road
            Burlington, MA.............................................    1978 (a)                        3

            1192 Boylston Street
            Chestnut Hill (Brookline), MA..............................    1954                          124

            137 Pleasant Street
            Malden, MA.................................................    1975 (b)                       31

            846 Main Street
            Melrose, MA................................................    1994                          212

            275 Main Street
            Woburn, MA.................................................    1980                          459

            198 Lexington Street
            Woburn, MA.................................................    1974                          160

            Woburn High School
            Woburn, MA.................................................    2002 (c)                       30

            OPERATIONS CENTER
            17 Inner Belt Road
            Somerville, MA.............................................    1994 (d)                       10


                                       21
<PAGE>

                                                                                                   NET BOOK
                                                                           YEAR                     VALUE AT
                  OFFICE LOCATION                                         OPENED                 MARCH 31, 2004
                  ---------------                                         ------                 --------------
                                                                                                  (in thousands)
            COMMERCIAL LOAN CENTER
            401 Highland Avenue........................................    2002 (e)                    $  38
            Somerville, MA

            RESIDENTIAL LOAN CENTER
            403 Highland Avenue
            Somerville, MA.............................................    2002 (f)                       42
</TABLE>

---------------
(a)  The lease for the Burlington branch expires in 2007 with no renewal option.
(b)  The lease for the  Malden  branch  expires in 2005 with an option to extend
     the lease for one ten-year term.
(c)  The lease for the  Woburn  High  School  branch is for one year,  renewable
     annually.
(d)  The lease for the Operations Center expires in 2005 with no renewal option.
(e)  The lease for the Commercial  Loan Center expires in 2006 with an option to
     extend for one three-year term.
(f)  The lease for the Residential Loan Center expires in 2005 with an option to
     extend for one three-year term.

     At March 31, 2004, the net book value of the Bank's  premises and equipment
was $2.1 million.

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

     The Company  from time to time is involved as a plaintiff  or  defendant in
various legal actions incidental to its business,  none of which are believed to
be material,  either individually or collectively,  to the results of operations
and  financial  condition  of the  Company.  See  Note  12 to  the  accompanying
consolidated   financial  statements  for  additional   information  related  to
litigation which was resolved during fiscal 2004.

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.


                                       22
<PAGE>



                                     PART II

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

     The Company's common stock is quoted on the Nasdaq National  MarketSM under
the symbol "CEBK." At March 31, 2004,  there were 1,664,957 shares of the common
stock outstanding and approximately 244 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  2004 and fiscal  2003 as reported by the Nasdaq
National MarketSM,  and the amounts and payable dates of the cash dividends paid
during  each  quarter  of fiscal  2004 and  fiscal  2003.  The stock  quotations
constitute interdealer prices without retail markups,  markdowns or commissions,
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>

         Common Stock Prices                                                 Cash Dividends (payable dates)

         Fiscal 2004                  High           Low                        Fiscal 2004      Amount
         --------------------------------------------------------               ------------------------
          <S>                        <C>               <C>                       <C>               <C>
         6/30/03                    $35.00          $31.05                      5/16/03           $0.12
         9/30/03                     35.74           34.37                      8/15/03            0.12
         12/31/03                    38.00           34.41                      11/14/03           0.12
         3/31/04                     38.00           33.00                      2/13/04            0.12

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

     The  following  table  sets  forth  information   regarding  the  Company's
repurchases of its Common Stock during the quarter ended March 31, 2004.
<TABLE>
<CAPTION>

                                                                            (c)
                                                                           Total                 (d)
                                                                        Number of              Maximum
                                        (a)                           Shares Purchased     Number of Shares
                                       Total               (b)           as Part of        that May Yet Be
                                     Number of           Average           Publicly        Purchased Under
                                       Shares           Price Paid     Announced Plans       the Plans or
              Period                 Purchased          per Share        or Programs            Programs
              ------                 ---------          ----------    -----------------    ----------------
              <S>                       <C>               <C>                <C>                  <C>
   January 2004
   Beginning date: January 1             --                 --                --                  --
   Ending date:  January 31

   February 2004
   Beginning date: February 1            --                 --                --                  --
   Ending date:  February 29

   March 2004
   Beginning date: March 1               511 (1)          $36.55              --                  --
   Ending date: March 31

   Total                                 511              $36.55              --                  --
</TABLE>

---------------------
(1)      These shares were purchased by a grantor trust of the Company
         established pursuant to the Company's Deferred Compensation Plan for
         Non-Employee Directors. The shares were not part of an announced
         repurchase program.



                                       23
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------
<TABLE>
<CAPTION>

                                                                 At or for the Year Ended March 31,
                                                ------------------------------------------------------------
                                                  2004         2003         2002         2001        2000
                                                --------   -----------    --------     --------    --------
<S>                                                <C>        <C>           <C>          <C>         <C>
                                                   (Dollars and shares in thousands, except per share data)
BALANCE SHEET

Total assets................................   $ 490,897    $  477,208   $  468,219   $  449,337   $  409,557
Total loans.................................     357,424       390,464      371,707      345,793      320,013
Investment securities, available for sale...      83,771        61,111       73,884       49,388       68,316
Deposits....................................     295,920       287,959      261,907      287,167      258,339
Borrowings..................................     145,256       144,576      164,000      121,000      111,000
Total stockholders' equity..................      43,454        39,443       38,954       38,212       37,397

Shares outstanding..........................       1,665         1,662        1,633        1,684        1,810

STATEMENTS OF OPERATIONS

Net interest and dividend income............   $  15,570    $   17,257   $   14,413   $   13,914   $   13,375
Provision for loan losses...................         200            --           --           --           --
Net gain (loss) from sale and write-down of
    investment securities...................        (135)         (308)        (150)         680        1,013
Gain on sale of loans.......................         295           796           --           --           --
Other non-interest income...................         966           917          838          608          656
Total non-interest expenses.................      12,401        13,877       10,464       10,330        9,345
Income before cumulative effect of
    accounting change.......................       2,936         2,187        2,860        3,109        3,567
Net income..................................       2,936         2,187        2,860        3,109        3,333
Earnings per common share after cumulative
    effect of accounting change - diluted...        1.88          1.37         1.72         1.81         1.77

SELECTED RATIOS

Interest rate spread........................        2.96%        3.29%         2.85%        2.80%        3.11%
Net yield on interest-earning assets........        3.36         3.71          3.36         3.38         3.64
Non-interest expenses to average assets.....        2.60         2.91          2.38         2.44         2.47
Equity-to-assets............................        8.85         8.27          8.32         8.50         9.13
Return on average assets before cumulative
    effect of change in accounting principle        0.62         0.46          0.65         0.74         0.94
Return on average stockholders' equity
    before cumulative effect of change in
    accounting principle....................        6.98         5.52          7.62         8.11         9.49
Dividend payout ratio.......................       23.23        33.24         23.39        22.42        20.67
Book value per share........................      $26.10       $23.73        $23.85       $22.69       $20.66
Tangible book value per share...............       24.76        22.38         22.49        21.19        19.11
</TABLE>

                                       24
<PAGE>



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

GENERAL

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

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

     The  following is a discussion  and  analysis of the  Company's  results of
operations  for the last three fiscal years and its  financial  condition at the
end of fiscal  years 2004 and 2003.  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.

FUTURE EXPANSION PLANS

     For information  regarding the Bank's future  expansion plans, see "Item 1.
Business - Future Expansion Plans."

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

     Management  believes  the  allowance  for loan losses  policy is a critical
accounting  policy that requires 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 inherent  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

     OVERVIEW.  The Company's results of operations during the past three fiscal
years have been  influenced  by several  significant  factors.  From a recurring
operating perspective, the generally declining trend in both short and long-term
interest  rates from January 2001 until March 2004 has had a significant  impact
on both the  balance  sheet and  income  statement.  Most  notably,  residential
mortgage loans,  which have  historically been the Company's largest asset, have
declined  $76.8  million,  or 30.9%,  from  $248.5  million at March 31, 2001 to


                                       25
<PAGE>

$171.7  million  at March 31,  2004.  With home  mortgage  rates  declining  and
ultimately  hitting  a 45 year  low in 2003,  consumers  have  refinanced  their
mortgages,   oftentimes  on  multiple  occasions,   to  take  advantage  of  the
opportunity to lock in these low rates for up to 30 years. Since the second half
of fiscal 2003, the Company has sold the majority of its current originations of
fixed-rate  residential mortgage loans in order to better manage its exposure to
changing rates and, as a result,  has  experienced a shift in its asset mix from
residential to commercial mortgage loans. Management has favored commercial real
estate lending in recent years due to the shorter repricing  characteristics  of
these  loans  (generally  every 5 years),  acceptable  yields and the  favorable
economic market conditions in the Company's lending area.

     With the declining  rate trend referred to above,  the Company  experienced
reductions  in both  its  yield  on  interest-earning  assets  and  its  cost of
interest-bearing  liabilities  since fiscal 2001, as summarized in the following
table:

                                    YIELD            COST              SPREAD
                                    -----            ----              ------

         Fiscal 2001                7.50%            4.70%             2.80%
         Fiscal 2002                6.83             3.98              2.85
         Fiscal 2003                6.48             3.19              3.29
         Fiscal 2004                5.84             2.88              2.96

     As this table indicates, the declining rate trend had a favorable impact on
the Company's net interest margin through fiscal 2003. This trend was also aided
by the  relatively  high ratio of loans to  interest-earning  assets  maintained
during this entire period,  especially through fiscal 2003. In fiscal 2004, this
favorable  trend reversed as more assets were repriced  downward  (mostly due to
loan prepayments and modifications) than were liabilities.

     The  unfavorable  trend  in the  net  interest  margin  in  fiscal  2004 is
primarily  reflective of the limitations the Company had in reducing its overall
cost of funds.  This  limitation  is due to two factors.  First,  the  Company's
utilization of long-term FHLB advances, which averaged $143.4 million during the
year, had limited repricing opportunity as only $5.3 million in advances matured
in fiscal 2004. These advances can not be prepaid without a substantial penalty,
which management has elected not to pay.  Second,  the ability to reduce deposit
rates  in the  current  year  was  limited  after  the two  prior  years of rate
reductions as well as competitive market factors.

     The Company's  overall  financial results in fiscal 2003 and 2004 were also
affected by two  significant  non-operating  items,  namely,  state  legislation
affecting the taxation of its former REIT  subsidiary and  shareholder and other
litigation.  Each of these items adversely affected overall financial results in
fiscal  2003  and  favorably  affected  financial  results  in  fiscal  2004  as
demonstrated in the following table (in thousands):

                                                      2004               2003
                                                      ----               ----

         Net income, as reported                     $2,936            $2,187
         REIT taxation                                 (374)              835
         Shareholder and other litigation,
           net of insurance recoveries                 (329)            1,080
                                                     ------            ------
         Pro forma earnings                          $2,233            $4,102
                                                     ------            ------

     The  Company's  earnings  in fiscal 2003 were  adversely  affected by state
legislation  (the "REIT  legislation")  passed in March 2003 that  retroactively
eliminated  the  dividends  received  deduction on dividends  received  from the
Bank's former REIT subsidiary.  The REIT legislation  resulted in an increase in
the  Company's  provision  for income taxes of $835  thousand in fiscal 2003. In
June 2003,  a group of banks  negotiated  a  settlement  with the  Massachusetts
Department of Revenue  ("DOR") and, as a result,  the Bank  recognized in fiscal
2004 a reduction in the Company's provision for income taxes of $374 thousand.

     The legal fees associated  with the litigation  with certain  shareholders,
who  initially  filed suit  against the Company in October  2002  following  the
annual meeting of shareholders  and an accrual for a commercial  claim,  totaled
approximately  $1.1  million,  net of taxes,  in fiscal  2003.  The  Company has
coverage  under its  directors'  and



                                       26
<PAGE>

officers'  liability  insurance policy for  reimbursement of certain legal fees.
During fiscal 2004, insurance recoveries in excess of related legal fees totaled
$329 thousand, net of taxes.

     INTEREST RATE SPREAD.  The Company's and the Bank's  operating  results are
significantly  affected  by its net  interest  spread,  which is the  difference
between the yield on loans and investments and the interest cost of deposits and
borrowings.  The interest  spread is affected by economic  conditions and market
factors  that  influence  interest  rates,  loan demand and deposit  flows.  The
following  table  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,
                           -------------------------------------------------------------------------------------------------
                                           2004                           2003                          2002
                           ----------------------------------  ---------------------------  --------------------------------
                                                      Average                     Average                        Average
                               Average                 Yield/  Average             Yield/   Average               Yield/
                               Balance    Interest      Cost   Balance   Interest   Cost    Balance    Interest    Cost
                               -------    --------    -------  -------   -------- --------  -------    --------  --------
<S>                               <C>       <C>         <C>      <C>        <C>      <C>      <C>         <C>       <C>
                                                                  (Dollars in thousands)
ASSETS:
Interest-earning assets:
  Mortgage loans........      $ 361,305   $ 22,797      6.31%  $370,505   $25,033   6.76%   $327,743   $ 23,682   7.23%
  Other loans...........          5,769        363      6.29      7,997       505   6.31       7,528        555   7.37
                              ---------   --------             --------   -------           --------   --------
   Total loans..........        367,094     23,160      6.31    378,502    25,538   6.75     335,271     24,237   7.23
  Short-term investments         20,342        204      1.00      7,620       125   1.64      22,076        866   3.92
  Investment securities.         76,637      3,743      4.88     78,928     4,466   5.66      71,427      4,170   5.84
                              ---------   --------             --------   -------           --------   --------
   Total investments....         96,979      3,947      4.07     86,548     4,591   5.30      93,503      5,036   5.39
                              ---------   --------             --------   -------           --------   --------
   Total interest-earning
    assets                      464,073     27,107      5.84    465,050    30,129   6.48     428,774     29,273   6.83
                                          --------                        -------                      --------
Allowance for loan losses        (3,400)                         (3,287)                      (3,234)
Non-interest-earning assets      16,317                          14,406                       14,951
                              ---------                        --------                     --------
      Total  assets.....      $ 476,991                        $476,169                     $440,491
                              =========                        ========                     ========

LIABILITIES AND STOCKHOLDERS'
  EQUITY:
Interest-bearing liabilities:
  Deposits..............      $ 255,718   $  4,436      1.73   $248,027   $ 5,601    2.26   $248,274      8,119   3.27
  Other borrowings......          1,977         82      4.15        505         9    1.78        477         10   2.10
  Advances from FHLB of
   Boston...............        143,381      7,019      4.90    155,085     7,262    4.68    124,203      6,731   5.42
                              ---------   --------             --------   -------           --------   --------
      Total interest-bearing
         liabilities....        401,074     11,537      2.88    403,617    12,872    3.19    372,954     14,860   3.98
                                          --------     -----              -------   -----              --------  -----
Non-interest-bearing deposits    29,998                          29,586                       24,535
Other liabilities.......          3,862                           3,371                        4,481
                              ---------                        --------                     --------
      Total liabilities         434,934                         436,574                      401,970
Stockholders' equity....         42,057                          39,595                       38,521
                              ---------                        --------                     --------
      Total liabilities and
       stockholders' equity   $ 476,991                        $476,169                      $440,491
                              =========                        ========                     ========
Net interest and dividend
  income                                  $ 15,570                        $17,257                       $14,413
                                          ========                        =======                       =======
Interest rate spread....                                2.96%                        3.29%                        2.85%
                                                       =====                        =====                        =====
Net yield on interest-earning
  assets................                                3.36%                        3.71%                        3.36%
                                                       =====                        =====                        =====
</TABLE>




                                       27
<PAGE>

     RATE/VOLUME  ANALYSIS.  The  effect on net  interest  income of  changes in
interest  rates and  changes  in the  amounts  of  interest-earning  assets  and
interest-bearing  liabilities  is shown in the following  table.  Information is
provided on changes for the fiscal years  indicated  attributable  to changes in
interest  rates and  changes  in  volume.  Changes  due to  combined  changes in
interest rates and volume are allocated  between  changes in rate and changes in
volume proportionally to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
                                                2004    vs.    2003                 2003    vs.   2002
                                         ---------------------------------    ------------------------------
                                                   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.......................  $   (608)    $(1,628)   $ (2,236)   $ 2,958    $(1,607)    $ 1,351
  Other loans..........................      (139)         (3)       (142)        33        (83)        (50)
                                         --------     -------    --------    -------    -------     -------
      Total income from loans..........      (747)     (1,631)     (2,378)     2,991     (1,690)      1,301
                                         --------     -------    --------    -------    -------     -------
  Short-term investments...............       143         (64)         79       (393)      (348)       (741)
  Investment securities................      (126)       (597)       (723)       428       (132)        296
                                         --------     -------    --------    -------    -------     -------
      Total income from investments....        17        (661)       (644)        35       (480)       (445)
                                         --------     -------    --------    -------    -------     -------
      Total interest and dividend income     (730)     (2,292)     (3,022)     3,026     (2,170)        856
                                         --------     -------    --------    -------    -------     -------

Interest expense:
  Deposits.............................      171      (1,336)     (1,165)        (8)    (2,510)     (2,518)
  Other borrowings.....................       51          22          73          1         (2)         (1)
  Advances from FHLB of Boston.........     (562)        319        (243)     1,529       (998)        531
                                         -------     -------    --------    -------    -------     -------
      Total interest expense...........     (340)       (995)     (1,335)     1,522     (3,510)     (1,988)
                                         -------     -------    --------    -------    -------     -------

Net interest and dividend income.......  $  (390)    $(1,297)   $ (1,687)   $ 1,504    $ 1,340     $ 2,844
                                         =======     =======    ========    =======    =======     =======
</TABLE>

     INTEREST  AND  DIVIDEND  INCOME.  The Company  experienced  a $1.7  million
overall  decrease in net interest  and dividend  income for the year ended March
31, 2004 compared to fiscal 2003. The balance of average interest-earning assets
was virtually  unchanged between years,  however,  the Company shifted its asset
mix towards  shorter-term  investments in response to the decline in residential
mortgage  rates to  forty-five  year lows.  With the decline in interest  rates,
management decided that most fixed-rate residential mortgage loans would be sold
in the secondary  market rather than put into the loan portfolio.  During fiscal
2004,  $32.6 million of such loans were sold. This strategy,  combined with loan
prepayments  of $88.3  million  caused by the desire of  customers  to refinance
their mortgages at favorable  rates,  lead to a reduction in the average balance
of loans of $11.4 million in fiscal 2004.  This  reduction  occurred  despite an
increase in the commercial real estate portfolio of $39.0 million between years.
The decline in average loan balances was offset by an increase in investments of
$10.4 million which increase was entirely in short-term investments.

     Interest  income on loans decreased by $2.4 million to $23.2 million due to
the aforementioned  decline in the average balance of loans and a 44 basis point
decline in the average rate earned.  Interest income on investments decreased by
$644 thousand in fiscal 2004 due to a 123 basis point yield reduction, partially
offset by the  aforementioned  increase in average  holdings.  The  reduction in
yield on investments  reflects the $12.7 million increase in the average balance
of short-term investments which had a yield of 1.0% in fiscal 2004.

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



                                       28
<PAGE>

overall  total average  balance of  interest-earning  assets  increased by $36.3
million  from  fiscal  2002  to  fiscal  2003,  and  the  average  yield  on all
interest-earning  assets  decreased  by 35 basis  points  between the two fiscal
years.

     INTEREST  EXPENSE.  Interest  expense  decreased  $1.3  million  from $12.9
million  in fiscal  2003 to $11.5  million  in fiscal  2004.  This  decrease  is
attributable  to a 31 basis  point  reduction  in the  overall  cost of funds in
fiscal   2004  and  a  $2.5   million   decline  in  the   average   balance  of
interest-bearing  liabilities. This overall decrease is entirely attributable to
a 53 basis point  reduction in the cost of deposits as the cost of FHLB advances
increased  22 basis  points in fiscal  2004.  This  increase  was  caused by the
maturing  of lower  cost  advances  during  the  year.  This  trend is likely to
continue in fiscal 2005 as the advances  maturing during the coming year bear an
average  cost of 3.38%,  or 1.44%  less than the  average  cost of all  advances
outstanding at March 31, 2004.

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

     PROVISION  FOR LOAN  LOSSES.  During the year  ended  March 31,  2004,  the
Company  provided  $200 thousand for loan losses while no provision was recorded
in  the  prior  two  years.  While  the  Company's  loan  quality,  as  measured
principally  by  delinquency  rates,   charge-offs  and  loan   classifications,
continues to be outstanding,  the shifting of the mix of the loan portfolio to a
greater  portion of  commercial  real  estate  loans  indicated  the need for an
increase in the  allowance for loan losses in fiscal 2004. At March 31, 2004 and
2003, the Company had no non-performing loans.

     NON-INTEREST  INCOME.  Total non-interest  income declined $279 thousand in
fiscal  2004 from $1.4  million in fiscal  2003 to $1.1  million in the  current
year. This decline was  attributable  to an overall  reduction in gains on asset
sales, net of impairment write-downs, of $328 thousand. Loan sale gains declined
by $501  thousand  as a greater  portion of loans were sold in fiscal  2003 on a
"mandatory  delivery"  basis which  results in a higher gain rate than the "best
efforts  delivery"  basis used in 2004.  In addition,  loan sale gains in fiscal
2004 were  adversely  affected  by the late  delivery  of  certain  loans to the
investor,  which  caused the  selling  price of such loans to be reduced by $240
thousand.  During  fiscal 2004,  the Company  recognized  additional  impairment
write-downs  of  $130  thousand  in  marketable   equity  securities  which  had
experienced a decline in fair value judged to be other than  temporary  compared
to $803 thousand in such write-downs in the prior year.

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

         NON-INTEREST EXPENSES.

     2004 v. 2003.  Non-interest  expenses  decreased $1.5 million during fiscal
2004 as compared to the year ended March 31,  2003.  Exclusive  of the impact of
the costs of litigation and related insurance  recoveries for a commercial claim
and  shareholder  litigation,  both  of  which  were  settled  in  fiscal  2004,
non-interest expenses would have increased $694 thousand, or 5.7%. This increase
is primarily due to increases in salaries and employee benefits ($325 thousand),
marketing  expenses  ($381  thousand)  and  other  non-interest  expenses  ($215
thousand), partially offset by a decrease in professional fees ($206 thousand).

     Salaries and employee benefits increased $325 thousand,  or 4.7%, in fiscal
2004 as compared to the prior year.  This  increase was primarily due to average
salary increases of 4.0%, increases in staffing in the residential



                                       29
<PAGE>

lending  area,  as well as increases in health  insurance  and pension  expense.
These  increase  were  substantially  offset  by a $461  thousand  reduction  in
incentive compensation.

     Professional  fees decreased $2.1 million in fiscal 2004 as compared to the
prior year.  Exclusive of the legal fees associated with shareholder  litigation
incurred in both fiscal 2003 and 2004, and an insurance recovery of $3.1 million
recognized in fiscal 2004,  professional fees would have decreased $206 thousand
in fiscal 2004.  This decrease is largely due to the additional  legal and other
professional  fees  incurred in fiscal  2003 in  connection  with the  contested
election of  directors  at the  Company's  September  2002  annual  stockholders
meeting.

     Marketing  expenses  increased $381 thousand,  or 96.7%,  in fiscal 2004 as
compared to the prior year. This significant  increase  resulted from additional
promotion of  residential  and commercial  loan products  throughout the year as
well as  deposit  promotions  during  the  second  half of the  year.  The  Bank
initiated a major  marketing  initiative,  including its first-ever use of radio
advertisements,  in March 2004 to promote the Bank, in general, and its new free
checking  account.  The Bank anticipates that competition for deposit  customers
will continue to increase as a result of the recent Bank of America  acquisition
of Fleet Bank. Other financial institutions,  including credit unions, have also
been more active in their promotions in recent months,  which will likely result
in the  continuation  of  marketing  spending  at higher  rates than in the past
though not at the level which occurred in fiscal 2004.

     Other  non-interest  expenses  decreased  $85  thousand  in fiscal  2004 as
compared to the prior year.  Exclusive of  settlement  costs  associated  with a
commercial claim, such expenses would have increased $215 thousand, or 13.5%, in
fiscal 2004.  This  increase is primarily  due to increases in insurance  costs,
primarily  directors  and  officers  liability  insurance,  a  record  retention
project, contributions and lending related costs.

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

     Salaries and employee  benefits  increased by $1.3  million,  or 23.4%,  in
fiscal  2003 as  compared  to  fiscal  2002  due to  several  factors  including
additional  lending personnel in both the residential and commercial real estate
areas, an overall salary increase of approximately  4%,  additional ESOP expense
associated  with shares  acquired  during the year and bonuses of $461  thousand
earned in connection with the Bank's management incentive  compensation plan (no
bonuses were earned in fiscal 2002).

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

     Professional  fees  increased by $1.4 million in fiscal 2003 as compared to
fiscal 2002 due primarily to legal fees  associated with litigation with certain
of  the  Company's  shareholders  and,  to a  lesser  extent,  legal  and  other
professional  fees  incurred  in  connection  with  the  contested  election  of
directors at the 2002 annual meeting of stockholders. Professional fees incurred
for such  activities  aggregated  approximately  $1.65  million in fiscal  2003.
Exclusive of such costs,  professional fees would have been  approximately  $758
thousand in fiscal 2003.

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

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

     INCOME TAXES. The effective rates of income tax expense for the years ended
March  31,  2004,  2003 and 2002 were  28.3%,  54.3%  and  38.3%,  respectively.
Exclusive of the impact of an  additional  state tax provision  necessitated  by
2003 tax  legislation  and the related  settlement of such taxes in fiscal 2004,
the  Company's  effective  tax rate was 36.9% and 38.2% in fiscal 2004 and 2003,
respectively.



                                       30
<PAGE>

     The  Governor  of  Massachusetts  signed  legislation  on  March  5,  2003,
expressly  disallowing  deductions for dividends received from a REIT, resulting
in such dividends being subject to state taxation. In addition,  the legislation
applied  retroactively  to tax years ending on or after  December  31, 1999.  In
fiscal 2003, the Company provided  additional income taxes of $835 thousand as a
result of this legislation.

     Given  the  significant   financial   impact  of  this  issue  on  numerous
Massachusetts  financial  institutions and the  considerable  uncertainty of the
constitutionality of the retroactive provisions of the legislation, a settlement
was reached in June 2003 among the DOR and the  majority  of affected  financial
institutions. This settlement provided that 50% of all dividends received by the
Bank from its REIT  subsidiary  from 1999 through  December 2002 were subject to
state  income  taxes.  In  addition,  interest  on the  related  taxes  was also
assessed. In settlement of this matter, the Bank paid $431 thousand in June 2003
and also  recognized a reduction in its tax  provision of $374  thousand,  which
increased net income by the same amount in fiscal 2004.

FINANCIAL CONDITION

     Total assets at March 31, 2004 amounted to $490.9  million,  an increase of
$13.7 million,  or 2.9%, from $477.2 million at March 31, 2003.  Total assets at
March 31, 2003 amounted to $477.2 million, an increase of $9.0 million, or 1.9%,
from $468.2  million at March 31,  2002.  The modest  growth in assets in fiscal
2004 was primarily caused by the deposit increase of $7.9 million. During fiscal
2003,  the  increase  in the  deposits  of $26.1  million was used to repay FHLB
advances, which contributed to the modest asset growth in fiscal 2003.

     Net loans  decreased $33.4 million to $353.1 million at March 31, 2004 from
$386.5  million at March 31, 2003 while  short-term  investments  and investment
securities increased $22.0 million and $22.6 million, respectively,  during this
same period.  This shift in asset mix  reflects  the impact of the  reduction in
longer-term  interest  rates to a forty-five  year low in 2003 and the resulting
decision by management to allow the residential  loan portfolio,  which consists
primarily of 15 to 30 year fixed-rate  loans, to decline by $65.0 million during
fiscal 2004. During this same period,  commercial mortgage loans increased $39.0
million  reflecting  management's  preference  for these  loans,  which  have an
adjustable  interest rate generally  adjusting every 5 years based on the 5-year
FHLB  classic  advance  rate.  This  shift in asset mix is part of  management's
strategy  to better  balance its  exposure  to a sustained  increase in interest
rates in future periods.

     Net loans  increased $18.1 million to $386.5 million at March 31, 2003 from
$368.4 million at March 31, 2002. At March 31, 2003,  mortgage loans were $383.2
million,  a $20.0 million increase from March 31, 2002. The increase in mortgage
loans was  entirely  attributable  to increases  in  commercial  real estate and
construction   loans,   which   increased   $20.1   million  and  $9.3  million,
respectively.  The growth in commercial real estate loans and construction loans
is attributable to the addition of experienced  commercial lenders and expansion
of the credit  administration  function in recent  years.  Residential  mortgage
loans decreased $9.4 million during fiscal 2003 and  represented  60.7% of loans
at March 31, 2003 compared to 66.2% at March 31, 2002.  During fiscal 2003,  the
Bank commenced operation of its mortgage banking  initiative,  which resulted in
the sale of $35.7 million in fixed rate residential mortgage loans.

     Total  deposits  at March 31,  2004 were  $295.9  million,  a $7.9  million
increase  from $288.0  million in the prior year.  This  increase  includes core
deposit  growth of $10.9  million,  or 5.9%,  partially  offset by a decrease in
certificates  of deposit of $3.0 million.  This shift in deposit mix continues a
trend which began in 2001.  Since March 31, 2001,  certificates  of deposit have
declined  from 52.9% of total  deposits to 34.2% at March 31, 2004.  This change
largely  reflects the declining  interest  rates and the  Company's  decision to
reduce the promotion of term deposits  during this period.  Money market deposit
accounts continued to be the primary area of core deposit growth again in fiscal
2004.  Because of the tiered pricing used with these accounts,  they continue to
attract  larger  depositors as  approximately  80% of such deposits at March 31,
2004 are in accounts with a balance in excess of $50,000.  It is uncertain  what
impact  a  sustained  rise in  interest  rates  may have on the  balances  being
maintained in these accounts.

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

                                       31
<PAGE>

the  Bank's  Community  Package  Account  product,  low  interest  rates and the
             ---------------------------
continuing uncertainty in the stock market.

     Advances from the FHLB of Boston  decreased to $141.1  million at March 31,
2004 from $144.4  million at March 31, 2003.  The Bank  decreased its borrowings
from the FHLB of Boston in both fiscal 2004 and 2003  consistent with its intent
of reducing the utilization of FHLB advances.

     Stockholders'  equity  increased  to $43.5  million at March 31,  2004 from
$39.4 million at March 31, 2003 due  primarily to $4.2 million in  comprehensive
income.

LIQUIDITY

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

     The Bank's principal sources of liquidity are customer deposits, repayments
of loans and mortgage-backed  securities, 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 investment purchases.

     Deposits have been a relatively stable source of funds for the Bank despite
significant competition.  During fiscal 2004, deposit balances increased by $7.9
million to $295.9  million from $288.0  million at March 31, 2003. As previously
noted, the mix of deposits  continued to shift towards core deposits,  including
money market  deposits,  in fiscal 2004.  Core deposits  currently make up about
two-thirds of the Bank's total deposits, with certificates of deposits making up
the remaining one-third of deposits. Money market deposits have been the fastest
growing  component of core deposits,  partially because of the larger individual
balances  typical of these accounts.  At March 31, 2004,  approximately  80%, or
$45.0  million,  of such  deposits  were in accounts with a balance in excess of
$50,000.  While the balances in these  accounts have  consistently  increased in
recent years, it is uncertain what impact a sustained rise in interest rates may
have on the balances being maintained in these accounts.

     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, 2004 and 2003, the Bank had outstanding FHLB of Boston
advances of $141.1 million and $144.4 million,  respectively. The FHLB of Boston
advances are secured  primarily by a blanket lien on residential  first mortgage
loans,  U.S.  Government  and  agency  securities  and all  stock in the FHLB of
Boston.  At March 31, 2004, the Bank had  approximately  $28.0 million in unused
borrowing capacity at the FHLB of Boston.

     The Bank also may obtain funds from the Federal Reserve Bank of Boston, the
Co-operative  Central  Bank  Reserve  Fund and  through  a retail  CD  brokerage
agreement with a major brokerage firm. The Bank views these borrowing facilities
as secondary sources of liquidity and has had no need to use them.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK

     The Company is a party to financial instruments with off-balance sheet risk
including  commitments  to extend  credit  under  existing  lines of credit  and
commitments to originate and sell loans. These instruments  involve,  to varying
degrees,  elements  of credit  and  interest  rate risk in excess of the  amount
recognized in the consolidated balance sheets.


                                       32
<PAGE>

     Off-balance  sheet financial  instruments  whose contract amounts represent
credit and interest rate risk are summarized as follows:
<TABLE>
<CAPTION>

                                                                  March 31, 2004   March 31, 2003
                                                                  --------------   --------------
                                                                             (In thousands)
<S>                                                                     <C>              <C>

Commitments to originate new loans................................... $ 21,379        $ 31,376
Unfunded commitments to extend credit under existing ................   26,648          25,338
     equity line and commercial lines of credit
Commitments to sell loans held for sale..............................    5,603           4,810
</TABLE>

     The Company  does not have any special  purpose  entities or other  similar
forms of off-balance sheet financing arrangements.  Management believes that the
Bank has adequate sources of liquidity to fund these commitments.

     Commitments  to originate new loans or to extend  credit are  agreements to
lend to a customer as long as there is no violation of any condition established
in the contract.  Loan  commitments  generally expire within 30 to 45 days. Most
home equity line commitments are for a term of 15 years, and commercial lines of
credit are generally  renewable on an annual basis.  Commitments  generally have
fixed expiration dates or other termination clauses and may require payment of a
fee.  Since many of the  commitments  are expected to expire without being drawn
upon, the total  commitment  amounts do not  necessarily  represent  future cash
requirements.  The  Company  evaluates  each  customer's  creditworthiness  on a
case-by-case basis. The amounts of collateral  obtained,  if deemed necessary by
the Company upon extension of credit, is based on management's credit evaluation
of the borrower.

     Commitments  to sell loans held for sale are  agreements to sell loans on a
best efforts  delivery basis to a third party at an agreed upon price.  At March
31, 2004, the aggregate fair value of these commitments  exceeded the book value
of the loans to be sold.

CONTRACTUAL OBLIGATIONS

     The  following  table  sets  forth  information   regarding  the  Company's
contractual obligations as of March 31, 2004.
<TABLE>
<CAPTION>

                                                                 Payments Due by Period
                                       -----------------------------------------------------------------------------
                                                      Less than                                           More than
                                       Total            1 year         2-3 years         4-5 years      Over 5 years
                                       -----          ---------        ---------         ---------      ------------
                                                                      (in thousands)
 <S>                                    <C>             <C>              <C>               <C>              <C>

Deposits.............................$  295,920       $ 256,913         $  23,517         $ 15,490         $     --
Advances from FHLB...................   141,100          13,300            24,800           33,000           70,000
Short-term borrowings................       845             845                --               --               --
ESOP loan............................     3,311             388               776              776            1,371
Operating lease obligations..........       317             133               144               40               --
                                     ----------       ---------         ---------         --------         --------
Total obligations....................$  441,493       $ 271,579         $  49,237         $ 49,306         $ 71,371
                                     ==========       =========         =========         ========         ========
</TABLE>


                                       33
<PAGE>

IMPACT OF INFLATION AND CHANGING PRICES

     The  consolidated  financial  statements and related data presented in this
Form 10-K have been prepared in conformity with accounting  principles generally
accepted in the United  States of America,  which  require  the  measurement  of
financial position and operating results in terms of historical dollars, without
considering  changes in the relative  purchasing power of money over time due to
inflation. Unlike many industrial companies,  substantially all of the assts and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a more  significant  impact on the Bank's  performance than the general level of
inflation.  Over short periods of time,  interest rates may not necessarily move
in the same direction or in the same magnitude as inflation.

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, 2004, 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, 2004 were 12.14% and 11.80%, respectively.

     To complement the risk-based  standards,  the FDIC adopted a leverage ratio
(adjusted  stockholders'  equity divided by total average  assets) of 3% for the
most highly rated banks and 4%-5% for all others.  The  leverage  ratio is to be
used in tandem with the risk-based  capital ratios as the minimum  standards for
banks.  The  Company's  and the  Bank's  leverage  ratios  were 8.13% and 7.92%,
respectively, at March 31, 2004.

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

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

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

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

     The Bank quantifies its  interest-rate  risk exposure using a sophisticated
simulation  model.  Simulation  analysis is used to measure the  exposure of net
interest  income to changes in  interest  rates  over a specific  time  horizon.
Simulation analysis involves projecting future interest income and expense under
various rate  scenarios.  The  simulation is based on forecasted  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 forecasted cash flows and management's
assumptions is compared to net interest  income  projections  based on immediate
shifts of 300 basis  points  upward and 75 (2004) and 100  (2003)  basis  points
downward.  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%.



                                       34
<PAGE>

     The following table indicates the projected  change in net interest income,
and sets forth such change as a percentage of estimated net interest income, for
the twelve month period  following the date indicated  assuming an immediate and
parallel  shift for all  market  rates  with other  rates  adjusting  to varying
degrees  in  each  scenario  based  on  both   historical  and  expected  spread
relationships:
<TABLE>
<CAPTION>

                                                                          AT MARCH 31,
                                                 ------------------------------------------------------------
                                                           2004                                 2003
                                                 ------------------------------------------------------------
                                                 AMOUNT       % CHANGE                  AMOUNT       % CHANGE
                                                 ------       --------                  ------       --------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                                <C>           <C>                      <C>             <C>
300 basis point increase in rates..............  $(1,236)       (8.1)%                 $ (1,325)        (7.6)%
100 basis point decrease in rates (2003).......                                            (342)        (2.0)
75 basis point decrease in rates (2004)........     (315)       (2.1)
</TABLE>


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

Consolidated Balance Sheets........................................  36

Consolidated Statements of Income..................................  37

Consolidated Statement of Changes in Stockholders' Equity..........  38

Consolidated Statements of Cash Flows..............................  40

Notes to Consolidated Financial Statements.........................  41

Reports of Independent Registered Public Accounting Firms..........  62


                                       35
<PAGE>

                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                           Consolidated Balance Sheets
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                               March 31,
                                                                                  ---------------------------------
                                                                                     2004                  2003
                                                                                  -----------           -----------
<S>                                                                                     <C>                  <C>
ASSETS
Cash and due from banks                                                           $     7,113           $     5,996
Short-term investments                                                                 27,224                 5,226
                                                                                  -----------           -----------
     Cash and cash equivalents                                                         34,337                11,222
                                                                                  -----------           -----------
Certificate of deposit (note 11)                                                        1,211                    --
Investment securities available for sale (amortized cost of $80,201
     in 2004 and $59,500 in 2003) (note 2)                                             83,771                61,111
Stock in Federal Home Loan Bank of Boston (notes 2 and 7)                               8,300                 8,300
The Co-operative Central Bank Reserve Fund (note 2)                                     1,576                 1,576
                                                                                  -----------           -----------
    Total investments                                                                  93,647                70,987
                                                                                  -----------           -----------
Loans held for sale (note 1)                                                              799                   647

Loans (note 3)                                                                        356,625               389,817
Less allowance for loan losses (note 4)                                                 3,537                 3,284
                                                                                  -----------           -----------
     Net loans                                                                        353,088               386,533
                                                                                  -----------           -----------
Accrued interest receivable                                                             2,203                 2,380
Banking premises and equipment, net (note 5)                                            2,113                 1,869
Deferred tax asset, net (note 8)                                                          243                   719
Goodwill, net (note 1)                                                                  2,232                 2,232
Other assets                                                                            1,024                   619
                                                                                  -----------           -----------
    Total assets                                                                  $   490,897           $   477,208
                                                                                  ===========           ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits (note 6)                                                               $   295,920           $   287,959
  Short-term borrowings                                                                   845                   176
  Federal Home Loan Bank advances (notes 2 and 7)                                     141,100               144,400
  ESOP loan (note 11)                                                                   3,311                    --
  Advance payments by borrowers for taxes and insurance                                 1,182                   999
  Accrued expenses and other liabilities                                                5,085                 4,231
                                                                                  -----------           -----------
    Total liabilities                                                                 447,443               437,765
                                                                                  -----------           -----------
Commitments and Contingencies (notes 8, 9 and 12) Stockholders' equity (note
10):
  Preferred stock $1.00 par value; authorized 5,000,000 shares; none issued                --                    --
  Common stock $1.00 par value; authorized 15,000,000 shares;
     2,030,251 shares issued at March 31, 2004 and
     2,027,727 shares issued at March 31, 2003                                          2,030                 2,028
  Additional paid-in capital                                                           12,920                12,751
  Retained income                                                                      36,855                34,601
  Treasury stock (365,294 shares at March 31, 2004 and
      2003), at cost                                                                   (7,311)               (7,249)
  Accumulated other comprehensive income                                                2,293                 1,002
  Unearned compensation - ESOP (note 11)                                               (3,333)               (3,690)
                                                                                  ------------          -----------
    Total stockholders' equity                                                         43,454                39,443
                                                                                  -----------           -----------
    Total liabilities and stockholders' equity                                    $   490,897           $   477,208
                                                                                  ===========           ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       36
<PAGE>



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

                                                                          Years Ended March 31,
                                                              ---------------------------------------------
                                                                 2004              2003             2002
                                                              ------------      ----------       ----------
<S>                                                               <C>              <C>              <C>
Interest and dividend income:
  Mortgage loans                                              $   22,797      $   25,033         $  23,682
  Other loans                                                        363             505               555
  Short-term investments                                             204             125               866
  Investments                                                      3,743           4,466             4,170
                                                              ----------      ----------         ---------
    Total interest and dividend income                            27,107          30,129            29,273
                                                              ----------      ----------         ---------
Interest expense:
  Deposits                                                         4,436           5,601             8,119
  Advances from Federal Home Loan Bank of Boston                   7,019           7,262             6,731
  Other borrowings                                                    82               9                10
                                                              ----------      ----------         ---------
    Total interest expense                                        11,537          12,872            14,860
                                                              ----------      ----------         ---------
    Net interest and dividend income                              15,570          17,257            14,413
Provision for loan losses (note 4)                                   200              --                --
                                                              ----------      ----------         ---------
    Net interest and dividend income after
      provision for loan losses                                   15,370          17,257            14,413
                                                              ----------      ----------         ---------
Non-interest income:
  Deposit service charges                                            600             571               492
  Net losses from sales and write-downs
      of investment securities (note 2)                             (135)           (308)             (150)
  Gain on sales of loans                                             295             796                --
  Brokerage income                                                   138              94               100
  Other income                                                       228             252               246
                                                              ----------      ----------         ---------
    Total non-interest income                                      1,126           1,405               688
                                                              ----------      ----------         ---------
Non-interest expenses:
  Salaries and employee benefits (note 11)                         7,187           6,862             5,562
  Occupancy and equipment (note 5)                                 1,159           1,137             1,124
  Data processing service fees                                     1,093           1,136               966
  Professional fees (note 12)                                        334           2,410             1,051
  Marketing                                                          775             394               261
  Other expenses (note 1)                                          1,853           1,938             1,500
                                                              ----------      ----------         ---------
    Total non-interest expenses                                   12,401          13,877            10,464
                                                              ----------      ----------         ---------
    Income before income taxes                                     4,095           4,785             4,637
Provision for income taxes (note 8)                                1,159           2,598             1,777
                                                              ----------      ----------         ---------
      Net income                                              $    2,936      $    2,187         $   2,860
                                                              ==========      ==========         =========

Earnings per common share (note 1):
    Basic                                                     $     1.89      $     1.38         $    1.73
                                                              ==========      ==========         =========
    Diluted                                                   $     1.88      $     1.37         $    1.72
                                                              ==========      ==========         =========

Weighted average common shares outstanding - basic                 1,551           1,584             1,650
Weighted average common and equivalent shares
   outstanding - diluted                                           1,565           1,599             1,665
</TABLE>

See accompanying notes to consolidated financial statements.

                                       37
<PAGE>



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

                                                                                                               Accumulated
                                                                Additional                                         Other
                                                  Common          Paid-In       Retained       Treasury        Comprehensive
                                                   Stock          Capital        Income          Stock         Income (Loss)
     -------------------------------------------------------------------------------------------------------------------------------
       <S>                                        <C>               <C>            <C>            <C>             <C>
     Balance at March 31, 2001                   $   1,970     $    11,190   $    30,950      $   (5,230)      $      (431)
     Net income                                         --              --         2,860              --                --
     Other comprehensive income net of tax:
         Unrealized loss on securities, net
           of reclassification adjustment               --              --            --              --              (195)

           Comprehensive income

     Purchase of shares by ESOP (note 11)               --              --            --              --                --
     Purchase of treasury stock                         --              --            --          (1,924)               --
     Dividends paid ($.40 per share)                    --              --          (669)             --                --
     Proceeds from exercise of stock options            30             462            --              --                --
     Amortization of unearned compensation
         - ESOP                                         --             175            --              --                --
     Other equity transactions                          --             107            --             (35)               --
                                                 ---------     -----------   -----------      ----------       -----------
     Balance at March 31, 2002                   $   2,000     $    11,934   $    33,141      $   (7,189)      $      (626)
     Net income                                         --              --         2,187              --                --
     Other comprehensive income net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               --              --            --              --             1,628

           Comprehensive income

     Purchase of shares by ESOP (note 11)               --              --            --              --                --
     Proceeds from exercise of stock options            28             488            --              --                --
     Tax benefit of stock options                       --              66            --              --                --
     Director deferred compensation  transactions       --              45            --             (60)               --
     Dividends paid ($.44 per share)                    --              --          (727)             --                --
     Amortization of unearned compensation
         - ESOP                                         --             218            --              --                --
                                                 ---------     -----------   -----------      ----------       -----------
     Balance at March 31, 2003                   $   2,028     $    12,751   $    34,601      $   (7,249)      $     1,002
     Net income                                         --              --         2,936              --                --
     Other comprehensive income net of tax:
         Unrealized gain on securities, net
           of reclassification adjustment               --              --            --              --             1,291

           Comprehensive income

     Proceeds from exercise of stock options             2              45            --              --                --
     Tax benefit of stock options                       --              18            --              --                --
     Director deferred compensation  transactions       --              60            --             (62)               --
     Dividends paid ($.48 per share)                    --              --          (682)             --                --
     Amortization of unearned compensation
         - ESOP                                         --              46            --              --                --
                                                 ---------     -----------    ----------      ----------       -----------
     Balance at March 31, 2004                   $   2,030     $    12,920    $   36,855      $   (7,311)      $     2,293
                                                 =========     ===========    ==========      ==========       ===========
<CAPTION>

                                                   Unearned              Total
                                                 Compensation        Stockholders'
                                                     ESOP               Equity
                                                 -----------------------------------
<S>                                                     <C>               <C>
Balance at March 31, 2001                        $    (237)         $    38,212
 Net income                                              --                2,860
 Other comprehensive income net of tax:
     Unrealized loss on securities, net
       of reclassification adjustment                    --                 (195)
                                                                     -----------
       Comprehensive income                                                2,665
                                                                     -----------
 Purchase of shares by ESOP (note 11)                  (199)                (199)
 Purchase of treasury stock                              --               (1,924)
 Dividends paid ($.40 per share)                         --                 (669)
 Proceeds from exercise of stock options                 --                  492
 Amortization of unearned compensation
     - ESOP                                             130                  305
 Other equity transactions                               --                   72
                                                 ----------          -----------
 Balance at March 31, 2002                       $     (306)         $    38,954
 Net income                                              --                2,187
 Other comprehensive income net of tax:
     Unrealized gain on securities, net
       of reclassification adjustment                    --                1,628
                                                                     -----------
       Comprehensive income                                                3,815
                                                                     -----------
 Purchase of shares by ESOP (note 11)                (3,595)              (3,595)
 Proceeds from exercise of stock options                 --                  516
 Tax benefit of stock options                            --                   66
 Director deferred compensation  transactions            --                  (15)
 Dividends paid ($.44 per share)                         --                 (727)
 Amortization of unearned compensation
     - ESOP                                             211                  429
                                                 ----------          -----------
 Balance at March 31, 2003                       $   (3,690)         $    39,443
 Net income                                              --                2,936
 Other comprehensive income net of tax:
     Unrealized gain on securities, net
       of reclassification adjustment                    --                1,291
                                                                     -----------
       Comprehensive income                                                4,227
                                                                     -----------
 Proceeds from exercise of stock options                 --                   47
 Tax benefit of stock options                            --                   18
 Director deferred compensation  transactions            --                   (2)
 Dividends paid ($.48 per share)                         --                 (682)
 Amortization of unearned compensation
     - ESOP                                             357                  403
                                                 ----------          -----------
 Balance at March 31, 2004                       $   (3,333)         $    43,454
                                                 ==========          ===========

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       38
<PAGE>
The Company's other  comprehensive  income (loss) and related tax effect for the
years ended March 31 are as follows:
<TABLE>
<CAPTION>

                                                                                                          2004
                                                                                   -------------------------------------------------
                                                                                      Before-Tax     Tax (Benefit)     After-Tax
 in thousands                                                                           Amount          Expense          Amount
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>            <C>                <C>
 Unrealized gains on securities:
       Unrealized net holding gains during period                                       $     1,824      $     622        $   1,202
       Add reclassification adjustment for net losses included  in net
        income                                                                                  135             46               89
                                                                                        --------------------------------------------
                 Other comprehensive income                                             $     1,959      $     668        $   1,291
                                                                                        ============================================

                                                                                                          2003
                                                                                   -------------------------------------------------
                                                                                      Before-Tax     Tax (Benefit)     After-Tax
 In thousands                                                                           Amount          Expense          Amount
------------------------------------------------------------------------------------------------------------------------------------
 Unrealized gains on securities:
       Unrealized net holding gains during period                                       $     2,306      $     901        $   1,405
       Add reclassification adjustment for net losses included in net
        income                                                                                  308             85              223
                                                                                        --------------------------------------------
                 Other comprehensive income                                             $     2,614      $     986        $   1,628
                                                                                        ============================================

                                                                                                          2002

                                                                                   -------------------------------------------------
                                                                                      Before-Tax     Tax (Benefit)     After-Tax
 in thousands                                                                           Amount          Expense          Amount
------------------------------------------------------------------------------------------------------------------------------------
 Unrealized losses on securities:
       Unrealized net holding losses during period                                       $     (451)    $    (163)       $     (288)
       Add reclassification adjustment for net losses included  in net
        income                                                                                  150            57                93
                                                                                         -------------------------------------------
                 Other comprehensive loss                                                $     (301)    $    (106)       $     (195)
                                                                                         ===========================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       39

<PAGE>
                      CENTRAL BANCORP, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                             (Dollars In Thousands)
<TABLE>
<CAPTION>

                                                                              Years Ended March 31,
                                                                   ------------------------------------------
                                                                      2004             2003           2002
                                                                   ----------       ----------     ----------
<S>                                                                     <C>            <C>             <C>
Cash flows from operating activities:
Net income                                                        $   2,936         $  2,187      $    2,860
   Adjustments to reconcile net income to net cash provided
      by operating activities
       Depreciation and amortization                                    319              314             372
       Amortization of premiums and discounts                           165              269             176
       Amortization of goodwill                                          --               --             288
       Provision for loan losses                                        200               --              --
       Stock-based compensation                                         332              429             305
       Increase in deferred tax assets, net                            (194)            (462)           (380)
       Net losses from sales and write-downs of
           investment securities                                        135              308             150
       Gain on sale of loans                                           (295)            (796)             --
   Originations of loans held for sale                              (32,823)         (36,364)             --
   Proceeds from the sale of loans originated for sale               32,966           36,513              --
   (Increase) decrease in accrued interest receivable                   177              150            (104)
   (Increase) decrease in other assets, net                            (348)             (26)            109
   Increase (decrease) in advance payments by borrowers for
       taxes and insurance                                              183             (112)           (109)
   Increase (decrease) in accrued expenses and other liabilities     (2,175)           2,043             509
                                                                  ----------        --------      ----------
       Net cash provided by operating activities                      1,578            4,453           4,176
                                                                  ---------         --------      ----------
Cash flows from investing activities:
  Net (increase) decrease in loans                                   33,245          (18,110)        (25,728)
  Principal payments on mortgage-backed securities                    5,453            7,426           7,246
  Purchases of investment securities                                (40,431)          (6,210)        (61,256)
  Proceeds from sales of investment securities                          482            7,638           2,885
  Maturities and redemptions of investment securities                13,500            6,000          26,000
  Due to broker                                                       3,029               --              --
  Purchase of certificate of deposit                                 (1,200)              --              --
  Purchase of stock in FHLB of Boston                                    --               --          (2,150)
  Purchase of banking premises and equipment, net                      (563)            (346)           (190)
                                                                  ----------        --------      ----------
       Net cash provided by (used in) investing activities           13,515           (3,602)        (53,193)
                                                                  ---------         --------      ----------
Cash flows from financing activities:
  Net increase (decrease) in deposits                                 7,961           26,052         (25,260)
  Proceeds from FHLB advances                                         2,000           39,000          65,000
  Repayments of FHLB advances                                        (5,300)         (55,600)        (25,000)
  Proceeds from ESOP loan                                             3,506               --              --
  Repayments of ESOP loan                                              (195)              --              --
  Net increase (decrease) in short-term borrowings                      669           (2,824)          3,000
  Proceeds from exercise of stock options                                47              516             492
  Purchase of treasury stock                                             --               --          (1,924)
  Payments of dividends, net                                           (682)            (727)           (669)
  Purchase of stock by ESOP                                              --           (3,595)           (199)
  Other equity transactions                                              16              (15)             72
                                                                  ---------         --------      ----------
       Net cash provided by financing activities                      8,022            2,807          15,512
                                                                  ---------         --------      ----------
       Net increase (decrease) in cash and cash equivalents          23,115            3,658         (33,505)
Cash and cash equivalents at beginning of year                       11,222            7,564          41,069
                                                                  ---------         --------      ----------
Cash and cash equivalents at end of year                          $  34,337         $ 11,222      $    7,564
                                                                  =========         ========      ==========
Supplemental disclosure of cash flow information:
     Cash paid during the period for:
         Interest                                                 $  11,591         $ 12,938      $   14,883
         Income taxes                                             $   2,005         $  2,820      $    1,715
</TABLE>

See accompanying notes to consolidated financial statements.

                                       40
<PAGE>
CENTRAL BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2004

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"),  as well as
wholly-owned subsidiaries of the Bank.

     The Company was organized at the direction of the Bank in September 1998 to
acquire  all of the  capital  stock of the Bank  upon  the  consummation  of the
reorganization  of the Bank into the holding  company  form of  ownership.  This
reorganization  was  completed  in January  1999.  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.
Most  of  the  Bank's   activities  are  with   customers   located  in  eastern
Massachusetts.  As set forth in Note 3  herein,  the Bank  concentrates  in real
estate lending.  Management believes that the Bank does not have any significant
concentrations in any one customer or industry.

     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 Cash Equivalents

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
cash and due from banks,  money market  mutual fund  investments,  federal funds
sold and other short-term  investments having an original maturity of 90 days or
less.

     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 $400,000 at March 31, 2004.

         Investments

     Debt securities that management has the positive intent and ability to hold
to maturity are classified as  held-to-maturity  and reported at cost,  adjusted
for  amortization  of premiums and  accretion of  discounts,  both computed by a
method that approximates the effective yield method.  Debt and equity securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading and reported at fair value, with unrealized gains
and losses  included in earnings.  Debt and equity  securities not classified as
either  held-to-maturity  or trading are  classified as  available-for-sale  and
reported at fair value,  with unrealized gains and losses excluded from earnings
and reported as a separate  component of stockholders'  equity and comprehensive
income.

     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



                                       41
<PAGE>

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.

     The Company's  investments  in the Federal Home Loan Bank of Boston and the
Co-operative Central Bank Reserve Fund are accounted for at cost.

         Loans

     Loans  are  reported  at the  principal  amount  outstanding,  adjusted  by
unamortized  discounts,  premiums,  and net deferred loan origination  costs and
fees.  Loans  classified  as held for sale are stated at the lower of  aggregate
cost or market value. The Company enters into forward commitments  (generally on
a best  efforts  delivery  basis) to sell loans in order to reduce  market  risk
associated  with  the  origination  of  loans  held for  sale.  Market  value is
estimated based on outstanding investor  commitments.  Net unrealized losses, if
any, are provided for in a valuation  allowance by charges to operations.  Loans
are sold on a servicing released basis.

     Loan origination  fees, net of certain direct loan  origination  costs, are
deferred and are amortized into interest income over the  contractual  loan term
using the level-yield method. At March 31, 2004 and 2003, net deferred loan fees
of $521,000 and  $781,000,  respectively,  were offset  against the related loan
balances for financial presentation purposes.

     Interest income on loans is recognized on an accrual basis using the simple
interest  method.  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.

     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 probable losses based on an evaluation of known
and inherent risks in the  portfolio.  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 quarterly basis.  Primary  considerations in this evaluation are prior loan
loss  experience,  the  character and size of the loan  portfolio,  business and
economic conditions, loan growth, delinquency trends,  nonperforming loan trends
and other asset quality factors. 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


                                       42
<PAGE>

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  including  collateral type and  loan-to-value  ratios.
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.

         Banking Premises and Equipment

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

         Goodwill

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial  Accounting  Standards  No.  142,  "Goodwill  and Other
Intangible  Assets"  ("SFAS 142") which is effective for fiscal years  beginning
after December 15, 2001. The Company  adopted SFAS 142 as of April 1, 2002. SFAS
142  addresses  the  method of  identifying  and  measuring  goodwill  and other
intangible  assets having  indefinite lives acquired in a business  combination,
eliminates further  amortization of goodwill,  and requires periodic  impairment
evaluations  of  goodwill  using  a fair  value  methodology  prescribed  in the
statement. As a result of adopting SFAS 142, the Company no longer amortizes the
goodwill balance of $2,232,000. Impairment testing is required at least annually
or more  frequently  as a result of an event or change in  circumstances  (e.g.,
recurring  operating  losses by the  acquired  entity)  that would  indicate  an
impairment adjustment may be necessary.  Impairment testing was performed during
2003 and 2004 and in each analysis,  it was determined that an impairment charge
was not required.

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

                                                           Net Income      Basic EPS      Diluted EPS
                                                           ----------      ---------      -----------
         <S>                                                    <C>           <C>              <C>
         As reported...................................      $2,860            $1.73          $1.72
         Goodwill amortization.........................         288             0.18           0.17
                                                             ------          -------         ------
         As adjusted...................................      $3,148            $1.91          $1.89
                                                             ======            =====          =====
</TABLE>


         Pension Benefits

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



                                       43
<PAGE>

         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, "Accounting for Stock-Based Compensation."

     No options  were  granted  during  the years  2002 to 2004 and  forfeitures
during these years were insignificant.  Consequently,  no material difference in
net  income  occurred  in this  period 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.

         Earnings Per Share

     Basic earnings per share ("EPS") is computed by dividing  income  available
to  common  stockholders  by  the  weighted-average   number  of  common  shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution that
could occur if  securities  or other  contracts to issue common  stock,  such as
stock options,  were exercised or converted into common stock.  Unallocated ESOP
shares are not treated as being  outstanding in the  computation of either basic
or diluted EPS. At March 31, 2004 and 2003, there were approximately 107,000 and
118,000 unallocated ESOP shares, respectively.

Recent Accounting Pronouncements

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

     In  December  2003,  the FASB  issued  Interpretation  No.  46R (FIN  46R),
"Consolidation of Variable Interest Entities -An  Interpretation of ARB No. 51,"
to expand upon and strengthen existing accounting guidance that addresses when a
company should include in its financial  statements the assets,  liabilities and
activities  of  another  entity.  Until now, a company  generally  has  included
another entity in its combined  financial  statements  only if it controlled the
entity  through voting  interests.  FIN 46R changes that guidance by requiring a
variable  interest  entity,  as  defined,  to be  combined  by a company if that
company is subject to a majority of the risk of loss from the variable  interest
entity's  activities  or is  entitled  to  receive a  majority  of the  entity's
residual  returns  or both.  FIN 46R also  requires  disclosure  about  variable
interest  entities that the company is not required to consolidate  but in which
it has a significant  variable  interest.  Application of FIN 46R is required in
financial  statements  for periods ending after March 15, 2004. The Company does
not believe that the  application of FIN 46R will have a material  impact on the
Company's financial position or results of operations.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of Both  Liabilities and Equity,"
which  establishes   standards  for  how  certain  financial   instruments  with
characteristics   of  both   liabilities  and  equity  should  be  measured  and
classified.   Certain  financial   instruments  with   characteristics  of  both
liabilities  and equity will be required to be classified  as a liability.  This
statement is effective for financial  instruments entered into or modified after
May 31,  2003,  and July 1, 2003 for all other  financial  instruments  with the
exception of existing  mandatorily  redeemable  financial  instruments issued by
limited life subsidiaries  which have been indefinitely  deferred from the scope
of the  statement.  The Company  does not believe the  adoption of SFAS 150 will
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

     In December 2003, the American  Institute of Certified  Public  Accountants
("AICPA")  issued  Statement of Position  ("SOP") 03-3,  "Accounting for Certain
Loans or Debt  Securities  Acquired  in a  Transfer."  SOP 03-3  requires  loans
acquired  through a transfer,  such as a business  combination,  where there are


                                       44
<PAGE>

differences  in expected  cash flows and  contractual  cash flows due in part to
credit quality be recognized at their fair value. The excess of contractual cash
flows over  expected  cash flows is not to be  recognized  as an  adjustment  of
yield,  loss accrual,  or valuation  allowance.  Valuation  allowances cannot be
created nor "carried  over" in the initial  accounting  for loans  acquired in a
transfer  on loans  subject  to SFAS  No.  114,  "Accounting  by  Creditors  for
Impairment of a Loan." This SOP is effective for loans  acquired  after December
31,  2004,  with early  adoption  encouraged.  The Company  does not believe the
adoption  of SOP 03-3 will have a  material  impact on the  Company's  financial
position or results of operations.

     In March  2004,  FASB's  Emerging  Issues  Task  Force  ("EITF")  reached a
consensus on EITF 03-01, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain  Investments." The Issue provides guidance in determining
the meaning of  other-than-temporary  impairment and its application to debt and
equity  investments  within  the  scope of SFAS No.  115 and  equity  securities
accounted  for  under  the cost  method.  The Issue  also  provides  a model for
determining  whether  investments  within  its scope are  other-then-temporarily
impaired. Certain disclosure requirements of this Issue are effective for fiscal
years ended after December 15, 2003.  Certain other disclosure  requirements and
the use of the  impairment  model is  effective  in  reporting  interim  periods
beginning after June 15, 2004. The Company has provided the disclosures required
by this  Issue in Note 2  herein.  The  Company  believes  its  methodology  for
assessing the existence of an  other-than-temporary  impairment of a security is
similar to that set forth in EITF 03-01 and that the  adoption of this  standard
will not have a material impact on the Company's  financial  position or results
of operations.

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, 2004
                                                       -----------------------------------------------------------------------

                                                          AMORTIZED               GROSS UNREALIZED                 FAIR
                                                             COST               GAINS             LOSSES           VALUE
                                                       ----------------- -------------------- --------------- ----------------
          <S>                                                 <C>                  <C>               <C>            <C>
      U.S. Government and agency obligations              $   9,998            $     88           $    --        $ 10,086
      Corporate bonds                                        35,788               2,850                --          38,638
      Mortgage-backed securities                             31,277                 405              (107)         31,575
                                                          ---------            --------           --------       --------
          Total debt securities                              77,063               3,343              (107)         80,299
      Marketable equity securities                            3,138                 453              (119)          3,472
                                                          ---------           ---------           -------        --------

                     Total                                $  80,201            $  3,796           $  (226)       $ 83,771
                                                          =========            ========           =======        ========



                                                                                   MARCH 31, 2003
                                                       -----------------------------------------------------------------------

                                                          AMORTIZED               GROSS UNREALIZED                 FAIR
                                                             COST               GAINS             LOSSES           VALUE
                                                       ----------------- -------------------- --------------- ----------------

     U.S. Government and agency obligations               $   8,000            $    247            $   --        $  8,247
     Corporate bonds                                         36,912               2,006              (191)         38,727
     Mortgage-backed securities                              11,840                 298               (82)         12,056
                                                          ---------            --------            ------        --------
         Total debt securities                               56,752               2,551              (273)         59,030
     Marketable equity securities                             2,748                  32              (699)          2,081
                                                          ---------            --------            ------        --------

                     Total                                $  59,500            $  2,583            $ (972)       $ 61,111
                                                          =========            ========            ======        ========
</TABLE>

                                       45
<PAGE>

     Gross  unrealized  losses and fair value at March 31, 2004,  aggregated  by
investment category and length of time that individual securities have been in a
continuous unrealized loss position follows:
<TABLE>
<CAPTION>

                                                             LESS THAN                      GREATER THAN
                                                             12 MONTHS                        12 MONTHS
                                               ------------------------------------ ------------------------------
                                                     FAIR             UNREALIZED     FAIR VALUE      UNREALIZED
                                                     VALUE              LOSSES                         LOSSES
                                               ------------------  ---------------- -------------- ---------------
               <S>                                     <C>                <C>            <C>              <C>
      Mortgage-backed securities                     $  6,958            $  58          $1,974         $    49
      Marketable equity securities                        589               12             593             107
                                                     --------            -----          ------         -------
          Total temporarily impaired securities      $  7,547            $  70          $2,567         $   156
                                                     ========            =====          ======         =======
</TABLE>

     As of March 31, 2004,  securities  held in the  investment  portfolio  with
unrealized losses have been evaluated by management and management has concluded
that an  other-than-temporary  impairment  does not exist at March 31, 2004. The
primary  reason these  securities  are in an unrealized  loss position is due to
changes in market conditions and interest rates. Most of the securities are debt
securities  whose  values  fluctuate  daily based on the current  interest  rate
environment.  Management  considers  the  credit  worthiness  of the  issuer  in
evaluating impairment.

     The maturity  distribution  (based on  contractual  maturities)  and annual
yields of debt securities at March 31, 2004 are as follows:
<TABLE>
<CAPTION>

                                                              Amortized            Fair           Annual
                                                                Cost              Value            Yield
                                                           ---------------- -----------------  -------------
             <S>                                                   <C>            <C>               <C>

         Due within one year                                   $     500        $     525            7.41%
         Due after one year but within five years                 40,863           43,381            5.85
         Due after five years but within ten years                19,893           20,392            4.54
         Due after ten years                                      15,807           16,001            4.21
                                                               ---------        ---------
                                                               $  77,063        $  80,299            5.16
                                                               =========        =========
</TABLE>

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

     Proceeds from sales of investment  securities  and related gains and losses
for the years ended March 31, 2004,  2003, and 2002 (all classified as available
for sale) were as follows:
<TABLE>
<CAPTION>

                                                                 2004             2003             2002
                                                                 ----             ----             ----
             <S>                                                 <C>              <C>              <C>
         Proceeds from sales                                  $   482           $7,638            $2,885
         Gross gains                                               --              495               546
         Gross losses                                               5               --                54
</TABLE>

     During the years ended March 31, 2004,  2003 and 2002, the Bank  recognized
write-downs  in  certain  equity  securities   totaling  $130,  $803  and  $642,
respectively,  as a result  of  declines  in the fair  value of such  securities
judged to be  other-than-temporary.  These  write-downs  are not included in the
preceding table.

     A mortgage-backed  security with an amortized cost of $1,612 and fair value
of $1,566 at March 31,  2004,  was  pledged to provide  collateral  for  certain
customers.  In addition,  investment  securities carried at $30,769 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 was required to invest in stock
of the FHLB of Boston in an amount which,  until April 2004,  was equal to 1% of
its outstanding  home loans or 1/20th of its outstanding  advances from the FHLB
of Boston,  whichever was higher.  In April 2004, the FHLB of Boston amended its
capital structure at which time the Company's FHLB of Boston stock was converted
to Class B stock.  Such stock is redeemable at


                                       46
<PAGE>

par value five  years  after  filing for a  redemption  or upon  termination  of
membership.  The FHLB of Boston may, but is not obligated to, repurchase Class B
stock prior to  expiration  of the five-year  redemption  notice.  Under the new
capital structure, the Bank's stock investment requirement is an amount equal to
the sum of .35% of certain specified assets (such assets totaled $265,000 at the
time of the change in capital  structure)  plus 4.5% of the Bank's  advances and
certain  other  specified  items.  In  connection  with the  adoption of the new
capital structure,  the Bank was not required to increase its investment in FHLB
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, 2004 and 2003 are summarized below:
<TABLE>
<CAPTION>

                                                                         2004             2003
                                                                       --------         --------
               <S>                                                        <C>              <C>
         Real estate loans:
           Residential real estate                                     $ 171,682        $ 236,649
           Commercial real estate                                        146,107          107,140
           Construction                                                   25,112           30,294
           Home equity lines of credit                                     9,397            9,128
                                                                       ---------        ---------
               Total real estate loans                                   352,298          383,211
                                                                       ---------        ---------
         Commercial loans                                                  3,198            5,319
         Consumer loans                                                    1,129            1,287
                                                                       ---------        ---------
               Total loans                                               356,625          389,817
         Less: allowance for loan losses                                  (3,537)          (3,284)
                                                                       ---------        ---------
               Total loans, net                                        $ 353,088        $ 386,533
                                                                       =========        =========
</TABLE>

     The Bank had no  non-accrual  loans at March 31, 2004 and 2003.  During the
years ended March 31, 2004 2003 and 2002, there were no impaired loans.

     Mortgage loans serviced by the Bank for others  amounted to $747 and $1,361
at March 31, 2004 and 2003, respectively.

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

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

                                                                          2004             2003
                                                                       ----------       ----------
               <S>                                                        <C>               <C>
         Balance at beginning of year                                  $     919        $     865
            New loans                                                        378              444
            Repayment of principal                                          (396)            (390)
                                                                       ----------       ---------
         Balance at end of year                                        $     901        $     919
                                                                       =========        =========
</TABLE>

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



                                       47
<PAGE>

NOTE 4. ALLOWANCE FOR LOAN LOSSES (IN THOUSANDS)

     A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>

                                                                          Years ended March 31,
                                                              --------------------------------------------
                                                                 2004              2003             2002
                                                               --------          --------         --------
                 <S>                                             <C>               <C>               <C>


         Balance at beginning of year                         $   3,284         $  3,292         $   3,106
             Provision charged to expense                           200               --                --
             Amounts charged-off                                    (29)             (21)               (4)
             Recoveries on accounts previously charged-off           82               13               190
                                                              ---------         --------         ---------
         Balance at end of year                               $   3,537         $  3,284         $   3,292
                                                              =========         ========         =========
</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
                                                                 2004              2003          Useful Lives
                                                              ----------        ----------       ------------
            <S>                                                 <C>                <C>              <C>

         Land                                                 $     589         $    589
         Buildings and improvements                               2,571            2,401           50 years
         Furniture and fixtures                                   6,244            5,876           3-5 years
         Leasehold improvements                                     660              635           5-6 years
                                                              ---------         --------
                                                                 10,064            9,501
         Less accumulated depreciation and amortization          (7,951)          (7,632)
                                                              ----------        --------
                   Total                                      $   2,113         $  1,869
                                                              =========         ========
</TABLE>

     Depreciation  and amortization for the years ended March 31, 2004, 2003 and
2002 amounted to $319, $314 and $372, respectively, and is included in occupancy
and equipment expense in the accompanying consolidated statements of income.

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

                               Years Ending March 31,
                               ----------------------------
                                          2005                 $  133
                                          2006                     80
                                          2007                     64
                                          2008                     40


     Certain leases contain renewal options the potential impact of which is not
included above. Rental expense for the years ended March 31, 2004, 2003 and 2002
was  $147,  $145 and  $133,  respectively,  and is  included  in  occupancy  and
equipment expense in the accompanying consolidated statements of income.


                                       48
<PAGE>



NOTE 6. DEPOSITS (DOLLARS IN THOUSANDS)

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

                                                           2004             2003
                                                        --------------------------
                <S>                                         <C>               <C>
         Demand deposit accounts                         $ 27,881          $ 31,523
         NOW accounts                                      37,106            38,047
         Passbook and other savings accounts               73,737            71,629
         Money market deposit accounts                     56,084            42,687
                                                         --------          --------
             Total non certificate accounts               194,808           183,886
                                                         --------          --------
         Term deposit certificates
                Certificates of  $100 and above            27,607            26,259
                Certificates less than $100                73,505            77,814
                                                         --------          --------
             Total term deposit certificates              101,112           104,073
                                                         --------          --------
                                                         $295,920          $287,959
                                                         ========          ========
</TABLE>

     Contractual  maturities of term deposit  certificates with weighted average
interest rates at March 31, 2004 are as follows:
<TABLE>
<CAPTION>

                                                            Amount               Rate
                                                          -----------            ----
                               <S>                            <C>                <C>
                           Within 1 year                  $    62,105            2.38%
                           Over 1 to 3 years                   23,517            3.35
                           Over 3 years                        15,490            4.40
                                                          -----------
                                                          $   101,112            2.92
                                                          ===========
</TABLE>


NOTE 7. FEDERAL HOME LOAN BANK ADVANCES (DOLLARS IN THOUSANDS)

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

                                                      2004                                2003
                                              ------------------------           ------------------------
                                                Amount           Rate              Amount           Rate
                                              ---------          ----            ----------         ----
<S>                                              <C>             <C>                <C>              <C>
Within 1 year                                 $  13,300          3.38%           $   5,300          3.61%
1-2 years                                        15,300          4.96               13,300          3.38
2-3 years                                         9,500          3.67               15,300          4.96
3-4 years                                        18,000          5.58                7,500          3.98
4-5 years                                        15,000          5.13               18,000          5.58
Over 5 to 10 years                               70,000          4.96               83,000          4.98
Over 10 years                                        --            --                2,000          5.49
                                              ---------                          ---------
                                              $ 141,100          4.82            $ 144,400          4.81
                                              =========                          =========
</TABLE>

     At March 31, 2004,  advances totaling $107,000 were callable prior to their
scheduled  maturity of which $93,000 were callable  during fiscal 2005. The Bank
is subject to a substantial  penalty in the event it elects to prepay any of its
FHLB of Boston advances.

     The FHLB of Boston is authorized to make advances to its members subject to
such  regulations  and  limitations  as the  Federal  Home Loan  Bank  Board may
prescribe.  The  advances are secured by FHLB of Boston stock and a blanket lien
on certain qualified collateral, defined principally as 90% of the fair value of
U.S.  Government and federal agency obligations and 75% of the carrying value of
first  mortgage  loans on  owner-occupied  residential  property.  In  addition,
certain  multi-family  property loans are pledged to secure FHLB  advances.  The
Bank's  unused  borrowing  capacity  with the FHLB of Boston  was  approximately
$28,000 at March 31, 2004.


                                       49
<PAGE>

NOTE 8. INCOME TAXES (DOLLARS IN THOUSANDS)

     The  components of the  provision for income taxes for the years  indicated
are as follows:
<TABLE>
<CAPTION>

                                                                      Years Ended March 31,
                                                            ------------------------------------------
                                                                2004           2003            2002
                                                            ------------    ----------     -----------
<S>                                                               <C>          <C>             <C>
Current
      Federal                                                $   1,113       $  1,708        $ 1,930
      State                                                       (148)         1,352            229
                                                             ---------       --------        -------
      Total current provision                                      965          3,060          2,159
Deferred (prepaid)                                                 194           (462)          (382)
                                                             ---------       --------        -------
                                                             $   1,159       $  2,598        $ 1,777
                                                             =========       ========        =======
</TABLE>


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

                                                                   Years Ended March 31,
                                                           --------------------------------------
                                                             2004          2003         2002
                                                           ----------   -----------   ----------
<S>                                                            <C>          <C>          <C>
Statutory Federal tax rate                                    34.0%       34.0 %        34.0 %
Items affecting Federal income tax rate:
       Dividends received deduction                           (0.4)       (0.3)          (0.4)
       Goodwill amortization                                    --          --            2.1
       State income taxes                                      3.3         2.7            2.6
       Retroactive REIT legislation and settlement            (9.1)       16.1             --
       ESOP expense                                             --         1.5            1.3
       Other                                                   0.5         0.3           (1.3)
                                                              ----       -----          -----
Effective tax rate                                            28.3%       54.3%          38.3%
                                                              ====       =====          =====
</TABLE>


     During 2002, the Massachusetts Department of Revenue ("DOR") issued notices
of  intent  to  assess  additional  state  excise  taxes to  numerous  financial
institutions in  Massachusetts  that had formed a real estate  investment  trust
(REIT)  subsidiary.  The DOR contended that dividends received by the banks from
such subsidiaries were fully taxable in  Massachusetts.  Subsequently,  in March
2003, the Governor of Massachusetts  signed legislation,  expressly  disallowing
deductions for dividends received from a REIT, resulting in such dividends being
subject to state taxation.  In addition,  this law applied  retroactively to tax
years ending on or after December 31, 1999. In fiscal 2003, the Company provided
additional  state  taxes,  including  interest,  net of the related  federal tax
benefit, of $835.

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


                                       50
<PAGE>
         The components of gross deferred tax assets and gross deferred tax
liabilities that have been recognized as of March 31 are as follows:

                                                        2004             2003
                                                       ---------      ---------
         Deferred tax assets:
             Allowance for loan losses                   $  651       $    549
             Deferred loan origination fees                  32             42
             Depreciation                                   277            324
             Post-employee retirement benefit
               accrual                                      238            239
             Write-down of investments securities           500            460
             Deferred expenses                               --            524
             Other                                           88             65
                                                        -------       --------
                   Gross deferred tax asset               1,786          2,203
                                                        -------       --------
         Deferred tax liabilities:
             Unrealized gain on securities, net           1,277            607
             Accrued dividend receivable                     18             27
             Deferred loan origination costs                248            219
             Deferred income                                 --            631
                                                        -------       --------
                   Gross deferred tax liability           1,543          1,484
                                                        -------       --------
                   Net deferred tax asset               $   243       $    719
                                                        =======       ========

     Based on the Company's historical and current pre-tax earnings,  management
believes  it is more  likely  than not that the  Company  will  realize  the net
deferred tax asset existing at March 31, 2004. Further,  management believes the
existing net  deductible  temporary  differences  will reverse during periods in
which the Company generates net taxable income.  At March 31, 2004,  recoverable
income taxes, plus estimated taxes for fiscal 2005, exceed the amount of the net
deferred tax asset.  There can be no assurance,  however,  that the Company 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 Company  continues to carry on the business of banking.
In  addition,  the balance of the  pre-1988  bad debt  reserves  continues to be
subject to  provision  of present  law that  requires  recapture  in the case of
certain excess  distributions  to  shareholders.  The tax effect of pre-1988 bad
debt reserves  subject to recapture in the case of certain excess  distributions
is approximately $1,300.

NOTE 9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (IN THOUSANDS)

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

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


                                       51
<PAGE>

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

                                                                           2004            2003
                                                                       -------------   --------------
            <S>                                                             <C>             <C>
         Unused lines of credit                                           $14,340         $15,153
         Unadvanced portions of construction loans                          6,391           9,260
         Unadvanced portions of commercial loans                            5,917             925
         Commitments to originate commercial mortgage loans                16,387          18,526
         Commitments to originate residential mortgage loans                4,992          12,850
         Commitments to sell residential mortgage loans                     5,603           4,810
</TABLE>


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

NOTE 10. STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

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

     In  October  1991,  the  Company  adopted a  Shareholder  Rights  Agreement
("Rights Plan") entitling each shareholder, other than an Acquiring Person or an
Adverse Person as defined below,  to purchase the Company's  stock at a discount
price  in the  event  any  person  or group of  persons  exceeded  predetermined
ownership  limitations of the Company's  outstanding common stock (an "Acquiring
Person") and, in certain  circumstances,  engaged in specific  activities deemed
adverse to the interests of the Company's  shareholders  (an "Adverse  Person").
The Rights Plan was due to expire in October 2001,  but was renewed by the Board
of Directors during fiscal 2002 and is now scheduled to expire in October 2011.

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

     The Bank is subject to various regulatory capital requirements administered
by the federal banking  agencies.  Failure to meet minimum capital  requirements
can initiate certain mandatory and possibly additional  discretionary actions by
regulators  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, 2004, the Bank met
all capital adequacy requirements to which it is subject.


                                       52
<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, 2004:
  COMPANY (CONSOLIDATED)
      Total capital                       $42,613       12.14%          $28,070        =>8.00%              N/A        N/A
      Tier 1 capital                       38,929       11.09            14,035        =>4.00               N/A        N/A
      Tier 1 leverage capital              38,929        8.13            19,153        =>4.00               N/A        N/A
   BANK
      Total capital                        41,376       11.80            28,060        =>8.00           $35,074     =>10.00%
      Tier 1 capital                       37,692       10.75            14,030        =>4.00            21,044     => 6.00
      Tier 1 leverage capital              37,692        7.92            19,027        =>4.00            23,783     => 5.00

As of March 31, 2003:
  COMPANY (CONSOLIDATED)
      Total capital                        39,076       12.05            25,950        =>8.00               N/A        N/A
      Tier 1 capital                       35,792       11.03            12,975        =>4.00               N/A        N/A
      Tier 1 leverage capital              35,792        7.41            19,299        =>4.00               N/A        N/A
   BANK
       Total capital                       35,949       11.08            25,950        =>8.00            32,437     =>10.00
       Tier 1 capital                      32,665       10.07            12,975        =>4.00            19,462     => 6.00
       Tier 1 leverage capital             32,665        6.77            19,299        =>4.00            24,124     => 5.00
</TABLE>
=>  means equal or greater than

NOTE 11. EMPLOYEE BENEFITS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

PENSION AND SAVINGS PLANS

     As a participating  employer in the Cooperative 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 $449, $319 and $289
for the years ended March 31, 2004, 2003 and 2002, respectively. Forfeitures are
used to reduce expenses of the plans.



                                       53
<PAGE>

EMPLOYEE STOCK OWNERSHIP PLAN

     The Bank  maintains  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.  All full-time  employees who have  completed one year of
service with the Bank are eligible to participate in the ESOP.

     During fiscal 2002, the Company's  Board of Directors  authorized a loan to
the ESOP to  acquire up to an  additional  5% of  outstanding  shares of Company
stock.  During  fiscal  2003,  loans to purchase up to an  additional  $3,200 in
shares  for the  ESOP  were  authorized.  At March  31,  2004,  $1,942  remained
available  under this  authorization.  During fiscal 2003 and 2002,  114,864 and
7,222 shares,  respectively,  were  purchased at a purchase  price of $3,595 and
$199, respectively.

     Through  October 2003,  the ESOP repaid its loans to the Company with funds
from the Bank's  contributions  to the ESOP along with  dividends on unallocated
ESOP shares.  These loans had terms of up to 20 years. In October 2003, the ESOP
refinanced these loans from the Company with a third party lender. In connection
with this refinancing,  the Company received proceeds of $3,506, of which $2,250
was contributed to the Bank's capital. The loan bears interest at the prevailing
prime rate plus 1/2% and matures in March 2012. Principal payments of $97 are to
be made each  quarter.  The loan is  collateralized  by the  ESOP's  unallocated
Company  stock, a certificate of deposit of $1,200 and a pledge of the Company's
stock in the Bank. In addition, the Company guarantees repayment of the loan.

     As more fully  disclosed in Note 12, the Company  entered into a settlement
agreement with certain  shareholders in August 2003. The terms of that agreement
limit the ESOP's right to acquire  shares  through August 2005 to purchases from
either PL  Capital,  LLC and its  affiliates  or former  employees  of the Bank,
unless PL Capital,  LLC and its  affiliates  ownership of Company  stock becomes
less than 5%.

     Compensation   expense  is  recognized  as  the  shares  are  allocated  to
participants  based  upon the  fair  value of the  shares  at the time  they are
allocated.  As a result, changes in the 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 2004,  2003 and 2002 amounted to
$332, $429 and $305, respectively.

STOCK OPTION PLAN

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

        Stock option activity is as follows for the years indicated:
<TABLE>
<CAPTION>

                                                Number of             Weighted Average
                                                  Shares            Shares Exercise Price
                                             -----------------    ------------------------
            <S>                                     <C>                   <C>
        Balance  March 31,  2001                    90,000               $17.830
          Forfeited                                   (799)               16.625
          Exercised                                (29,588)               16.617
                                                  --------
        Balance March 31,  2002                     59,613                18.448
          Exercised                                (28,139)               18.308
                                                  --------
        Balance March 31,  2003                     31,474                18.572
          Exercised                                 (2,524)               18.469
                                                  --------
        Balance March 31, 2004                      28,950                18.581
                                                  ========
</TABLE>

     The exercise  price of an option may not be less than the fair market value
of the Company's  common stock on the date of grant of the option and may not be
exercisable  more than ten years  after  the date of grant.  At March 31,  2004,
33,299 shares were reserved for issuance under the remaining plan.



                                       54
<PAGE>

     All stock  options are fully vested and  exercisable  at the time of grant.
The range of exercise prices and weighted average remaining contractual lives of
outstanding stock options at March 31, 2004 are as follows:

       EXERCISE                      NUMBER                   REMAINING
         PRICE                    OUTSTANDING                   LIFE
       --------                   -----------                 ---------
        $16.625                     13,325                    6.7 years
         20.250                     15,625                    5.7 years


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
2004 and 2003.
<TABLE>
<CAPTION>

                                                                       2004                     2003
                                                              ---------------------     ----------------------
                                                              Life         Medical        Life        Medical
                                                              ----         -------        ----        -------
              <S>                                             <C>           <C>            <C>          <C>
         Actuarial present value of benefits obligation:
            Retirees                                          $  (244)     $  (377)     $  (229)     $  (357)
            Fully eligible participants                           (16)         (67)         (14)         (57)
                                                              -------      -------      -------      -------
                   Total                                      $  (260)     $  (444)     $  (243)     $  (414)
                                                              =======      =======      =======      =======

         Change in projected benefit obligation:
            Accumulated benefit obligations at prior year-end $  (243)     $  (414)     $  (232)     $  (746)
            Service cost less expense component                    --           --           --           --
            Interest cost                                         (16)         (27)         (16)         (27)
            Actuarial gain (loss)                                  (1)         (27)           4          330
            Assumptions                                           (10)         (15)          (9)         (29)
            Benefits paid                                          10           39           10           58
                                                              -------      -------      -------      -------
              Accumulated benefit obligations at year-end     $  (260)     $  (444)     $  (243)     $  (414)
                                                              =======      =======      =======      =======

         Change in plan assets:
            Fair value of plan assets at prior year-end       $    --      $    --      $    --      $    --
            Actual return on plan assets                           --           --           --           --
            Employer contribution                                  10           39           10           58
            Benefits paid and expenses                            (10)         (39)         (10)         (58)
                                                              -------      -------      -------      -------
              Fair value of plan assets at current year-end   $    --      $    --      $    --      $    --
                                                              =======      =======      =======      =======

         Funded                                               $  (260)     $  (444)     $  (243)     $  (414)
         Unrecognized net obligation                               77          223           86          248
         Unrecognized prior year service                           --           --           --           --
         Unrecognized net loss (gain)                             (57)        (127)         (72)        (180)
                                                              -------      -------      -------      -------
                                                              $  (240)     $  (348)     $  (229)     $  (346)
                                                              =======      =======      =======      =======

         Reconciliation of (accrual) prepaid:
            (Accrued) prepaid pension cost at beginning
               of year                                        $  (229)     $  (346)     $  (219)     $  (371)
            Minus net periodic cost                               (21)         (41)         (20)         (33)
            Plus employer contributions, net                       10           39           10           58
                                                              -------      -------      -------      -------
            (Accrued) prepaid cost at end of year             $  (240)     $  (348)     $  (229)     $  (346)
                                                              =======      =======      =======      =======

         Benefit obligation weighted average assumption
            as of fiscal year-end:
             Discount rate                                     6.00%         6.00%        6.50%        6.50%
             Expected return on plan assets                    6.00          6.00         6.50         6.50
             Rate of compensation increase                       --            --           --           --
</TABLE>

                                       55
<PAGE>
<TABLE>
<CAPTION>
                                                                            1 Percentage Point Increase
                                                                ------------------------------------------------
                                                                         2004                     2003
                                                                ---------------------     ----------------------
                                                                 Life         Medical        Life        Medical
                                                                 ----         -------        ----        -------
              <S>                                              <C>           <C>            <C>          <C>
         Impact of 1% change in health care trend rates:
            Effect on total service and interest cost components  $   N/A     $     (2)        N/A     $   (2)
            Effect on the post retirement benefit obligations         N/A           29         N/A         27

         Components of net periodic benefit cost:
            Service cost                                          $    --     $     --     $    --     $   --
            Interest cost                                              16           27          16         27
            Expected return on plan assets                             --           --          --         --
            Amortization of prior service cost                          8           25           9         25
            Recognized actuarial (gain) loss                           (3)         (11)         (5)       (19)
                                                                  -------     --------     -------     ------
                    Net periodic benefit cost                     $    21     $     41     $    20     $   33
                                                                  =======     ========     =======     ======

         Periodic benefit cost weighted average assumptions:
            Discount rate                                           6.50%        6.50%         7.25%    7.00%
            Expected return on plan assets                          6.50%        6.50%         7.25%    7.00%
            Rate of compensation increase                            --            --            --       --
</TABLE>

     For measurement purposes, a 13.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for the fiscal year ended March
31, 2004. The rate was assumed to decrease gradually to 5.5% for the fiscal year
ending March 31, 2008 and remain at that level thereafter.

NOTE 12. LEGAL PROCEEDINGS (IN THOUSANDS)

     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 had 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 was
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 sought damages of $165 plus interest of  approximately  $175
and 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. In January 2004, the parties reached a settlement,  which
resulted in a payment by the Bank, net of insurance,  of $400, of which $350 had
been accrued in the year ended March 31, 2003.

     The  Company and certain  present  and former  directors  had been named in
related  federal  and  state  court  lawsuits  brought  by PL  Capital,  LLC and
affiliates  ("PL  Capital")  and also by  Lawrence  B.  Seidman  and  affiliates
("Seidman"),  respectively, current and former stockholders, in which PL Capital
and Seidman had  challenged  the  directors'  determination  that PL Capital and
Seidman  secretly acted in concert in violation of the Company's Rights Plan. On
August 4, 2003, the Company and the directors,  former  directors and affiliated
entities  that were parties to the  litigation  entered  into an Agreement  (the
"Agreement")  with PL Capital,  LLC and its  affiliated  persons  and  entities,
pursuant to which all the parties settled all of the pending  litigation between
them and  filed  with the  appropriate  courts  the  filings  necessary  for the
litigation to be dismissed.  As part of the Agreement,  a payment of $400, which
was reimbursed by insurance, was made to PL Capital.

     The  Company had been  working  with its  insurance  carrier to recover its
legal defense  costs,  including the  settlement  payment noted in the preceding
paragraph, incurred in connection with the PL Capital and Seidman litigation. In
connection therewith, the Company received insurance recoveries of $3,093 during
the year ended  March 31,  2004.  These  recoveries  have been  classified  with
professional fees in the accompanying consolidated statements of income.



                                       56
<PAGE>

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 AND CERTIFICATE OF DEPOSIT

     The  carrying   values   reported  in  the  balance  sheet  for  short-term
investments and the certificate of deposit 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 AND LOANS HELD FOR SALE

     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.  The fair  value of loans  held for sale is  determined  based on the
unrealized gain or loss on such loans.

         ACCRUED INTEREST RECEIVABLE

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

         STOCK IN FHLB OF BOSTON

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

         THE CO-OPERATIVE CENTRAL BANK RESERVE FUND

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

         DEPOSITS

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


                                       57
<PAGE>
         ADVANCES FROM FHLB OF BOSTON

     Fair values of non-callable  advances from the FHLB of Boston are estimated
based on the  discounted  cash  flow of  scheduled  future  payments  using  the
respective  year-end  published  rates  for  advances  with  similar  terms  and
remaining  maturities.  Fair values of callable advances from the FHLB of Boston
are estimated  using the prepayment  fee payable to the FHLB of Boston  assuming
all such advances were prepaid on the reporting date.

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

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

         OFF-BALANCE SHEET INSTRUMENTS

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

     The  estimated  carrying  amounts and fair  values of the Bank's  financial
instruments are as follows:
<TABLE>
<CAPTION>
                                                                          MARCH 31, 2004                MARCH 31, 2003
                                                                     -------------------------      ------------------------
                                                                      CARRYING       ESTIMATED       CARRYING     ESTIMATED
                                                                       AMOUNT       FAIR VALUE        AMOUNT      FAIR VALUE
                                                                      --------      ----------       --------     ----------
        <S>                                                             <C>            <C>             <C>           <C>
     ASSETS
          Cash and due from banks                                    $   7,113      $   7,113         $  5,996      $  5,996
          Short-term investments                                        27,224         27,224            5,226         5,226
          Certificate of deposit                                         1,211          1,211               --            --
          Investment securities                                         83,771         83,771           61,111        61,111
          Loans held for sale                                              799            810              647           665
          Net loans                                                    353,088        358,753          386,533       392,700
          Stock in Federal Home Loan Bank of Boston, at cost             8,300          8,300            8,300         8,300
          The Co-operative Central Bank Reserve Fund                     1,576          1,576            1,576         1,576
          Accrued interest receivable                                    2,203          2,203            2,380         2,380

     LIABILITIES
          Deposits                                                    $295,920      $ 297,345         $287,959      $290,325
          Short-term borrowings                                            845            845              176           176
          Advances from FHLB of Boston                                 141,100        152,422          144,400       160,104
          ESOP loan                                                      3,311          3,311               --            --
          Advance payments by borrowers for taxes and insurance          1,182          1,182              999           999
          Accrued interest payable                                         647            647              606           606
</TABLE>



                                       58
<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:
<TABLE>
<CAPTION>
                                                                                                   March 31,
                                                                                          -----------------------------
   BALANCE SHEETS                                                                            2004             2003
   --------------------------------------------------------------------------------------------------------------------
     <S>                                                                                        <C>            <C>
   ASSETS
   Cash deposit in subsidiary bank                                                          $    107       $        93
   Certificate of deposit (note 11)                                                            1,211                --
   Investment in subsidiary                                                                   42,217            36,326
   ESOP loan (note 11)                                                                            --             3,660
   Other assets                                                                                   --               394
                                                                                            --------       -----------
     Total assets                                                                           $ 43,535       $    40,473
                                                                                            ========       ===========
   LIABILITIES AND STOCKHOLDERS' EQUITY
   Accrued taxes and other liabilities                                                      $     81       $     1,030
   Total stockholders' equity                                                                 43,454            39,443
                                                                                            --------       -----------
     Total liabilities and stockholders' equity                                             $ 43,535       $    40,473
                                                                                            ========       ===========
</TABLE>
<TABLE>
<CAPTION>


                                                                                          Years Ended March 31,
                                                                                  --------------------------------------
  STATEMENTS OF INCOME                                                               2004            2003          2002
  ----------------------------------------------------------------------------------------------------------------------
    <S>                                                                               <C>             <C>           <C>
  Dividends from subsidiary                                                         $1,000        $ 2,437     $  2,500


  Interest income                                                                       98             92           --
  Non-interest income (expenses) (note 12)                                              87         (2,006)         (466)
                                                                                    ------        -------     ---------
         Income before income taxes                                                  1,185            523         2,034
  Income tax benefit (provision)                                                       (63)           650           154
                                                                                    ------       --------     ---------
         Income before equity in undistributed net income of subsidiary              1,122          1,173         2,188
  Equity in undistributed net income of subsidiary                                   1,814          1,014           672
                                                                                    ------       --------     ---------
          Net income                                                                $2,936        $ 2,187     $   2,860
                                                                                    ======        =======     =========
</TABLE>

                                       59

<PAGE>
<TABLE>
<CAPTION>

                                                                                           Years Ended March 31,
                                                                                    ------------------------------------
  STATEMENTS OF CASH FLOWS                                                            2004         2003         2002
  ----------------------------------------------------------------------------------------------------------------------
     <S>                                                                                <C>         <C>           <C>
  Cash flows from operating activities:
     Net income                                                                     $  2,936     $ 2,187      $  2,860
     Adjustments to reconcile net income to net cash provided by operating
         activities:
       Equity in undistributed net income of subsidiary                               (1,814)     (1,014)         (672)
       Decrease (increase) in other assets                                               394        (394)           --
       Increase (decrease) in accrued taxes and other liabilities                       (949)      1,030           (71)
                                                                                    --------     -------      --------
            Net cash provided by operating activities                                    567       1,809         2,117
                                                                                    --------     -------      --------
  Cash flows from investing activities:
     ESOP loans, net of repayment                                                      3,660      (3,461)         (199)
     Purchase of certificate of deposit                                               (1,200)         --            --
     Investment in subsidiary                                                         (2,366)         --            --
                                                                                     -------     -------      --------
            Net cash provided by (used in) investing activities                           94      (3,461)         (199)
                                                                                    --------     -------      --------
  Cash flows from financing activities:


     Proceeds from exercise of stock options                                              47         516           492
     Purchase of treasury stock                                                           --          --        (1,924)
     Cash dividends paid, net                                                           (682)       (727)         (669)
     Other, net                                                                          (12)        (14)           --
                                                                                    --------     -------      --------
            Net cash used by financing activities                                       (647)       (225)       (2,101)
                                                                                    --------     -------      --------
  Net increase (decrease) in cash  in subsidiary bank                                     14      (1,877)         (183)
  Cash  in subsidiary bank at beginning of year                                           93       1,970         2,153
                                                                                    --------     -------      --------
  Cash  in subsidiary bank at end of year                                           $    107     $    93      $  1,970
                                                                                    ========     =======      ========
</TABLE>

NOTE 15. QUARTERLY RESULTS OF OPERATIONS  (UNAUDITED) (IN THOUSANDS,  EXCEPT PER
SHARE DATA)

     The following tables  summarize the operating  results on a quarterly basis
for the years ended March 31, 2004 and 2003.
<TABLE>
<CAPTION>
                                                                              2004
                                                     ------------------------------------------------------
                                                          First      Second         Third         Fourth
                                                          -----      ------         -----         ------
<S>                                                       <C>          <C>           <C>             <C>
Interest and dividend income.......................  $   7,023    $   6,816       $  6,576       $   6,692
Interest expense...................................      2,914        2,875          2,883           2,865
                                                     -----------------------------------------------------
     Net interest and dividend income..............      4,109        3,941          3,693           3,827
Provision for loan losses..........................         50           50             50              50
Non-interest income................................        414          163            307             242
Non-interest expenses..............................      3,003        2,756          3,017           3,625
                                                     -----------------------------------------------------
     Income before income taxes....................      1,470        1,298            933             394
Income tax.........................................        182          468            358             151
                                                     -----------------------------------------------------
     Net income....................................  $   1,288    $     830       $    575       $     243
                                                     =====================================================
Earnings per common share -- basic.................  $    0.83    $    0.54       $   0.37       $    0.16
                                                     =====================================================
Earnings per common share -- diluted...............  $    0.83    $    0.53       $   0.37       $    0.15
                                                     =====================================================
</TABLE>

                                       60
<PAGE>
<TABLE>
<CAPTION>
                                                                              2003
                                                     -----------------------------------------------------
                                                          First      Second         Third         Fourth
                                                          -----      ------         -----         ------
<S>                                                       <C>         <C>            <C>            <C>
Interest and dividend income.......................  $   7,563    $   7,450       $  7,600       $   7,516
Interest expense...................................      3,283        3,334          3,248           3,007
                                                     -----------------------------------------------------
     Net interest and dividend income..............      4,280        4,116          4,352           4,509
Non-interest income................................        223           58            306             818
Non-interest expenses..............................      2,891        3,132          3,200           4,654
                                                     -----------------------------------------------------
     Income before income taxes....................      1,612        1,042          1,458             673
Income tax.........................................        585          374            548           1,091
                                                     -----------------------------------------------------
     Net income (loss).............................  $   1,027    $     668       $    910       $    (418)
                                                     =====================================================
Earnings (loss) per common share -- basic..........  $    0.64    $    0.42       $   0.58       $   (0.27)
                                                     =====================================================
Earnings (loss) per common share -- diluted........  $    0.63    $    0.42       $   0.58       $   (0.27)
                                                     =====================================================
</TABLE>

     During  the  quarter  ended  March 31,  2004,  the Bank  initiated  a major
marketing  program to promote the Bank and its new free  checking  product  and,
separately,  its high-yielding  money market account.  Total marketing  expenses
during the quarter  were $371,  or 48% of the  marketing  expenses  for the year
ended March 31, 2004.

     During the quarter ended March 31, 2003, the Bank  recognized  gains on the
sales of loans of $768 and impairment  write-downs of certain  marketable equity
securities totaling $115.

     As more fully  described  in Note 8, the Bank  provided  additional  income
taxes of $835 in the quarter  ended  March 31,  2003 as a result of  legislation
affecting  the  taxation  of  dividends  received  by the  Bank  from  its  REIT
subsidiary. In addition, included in non-interest expenses for the quarter ended
March 31, 2003,  are an accrual of $350 for the Bank's  portion of the estimated
cost of resolution of a commercial  claim filed in 2002 and legal fees of $1,076
incurred in a dispute with certain of the Company's shareholders.



                                       61
<PAGE>
                [LETTERHEAD OF VITALE, CATURANO & COMPANY, P.C.]


             Report of Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders of
Central Bancorp, Inc.:

We have audited the consolidated balance sheet of Central Bancorp, Inc. and
subsidiary (the "Company") as of March 31, 2004 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
year then ended. 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 audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides 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, 2004 and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Vitale, Caturano & Company, P.C.

VITALE, CATURANO & COMPANY, P.C.

Boston, Massachusetts
April 27, 2004

                                       62
<PAGE>



             Report of Independent Registered Public Accounting Firm


The Board of Directors and Stockholders
Central Bancorp, Inc.

We have audited the accompanying consolidated balance sheet of Central Bancorp,
Inc. and subsidiary (the Company) as of March 31, 2003 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years ended March 31, 2003 and 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

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

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

/s/ KPMG LLP

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


                                       63
<PAGE>

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

     KPMG LLP served as the Company's independent auditors for the 2003 and 2002
fiscal  years.  On  November  17,  2003,  KPMG LLP's  appointment  as  principal
accountants was terminated and the Company  engaged Vitale,  Caturano & Company,
P.C.  ("Vitale")  as its  principal  accountants.  The  engagement of Vitale was
approved  by the  Audit  Committee  of  the  Company's  Board  of  Directors.  A
representative  of Vitale is  expected  to be present  at the Annual  Meeting to
respond  to  stockholders'  questions  and will have the  opportunity  to make a
statement if he or she so desires.

     KPMG  LLP  served  as the  Company's  independent  auditors  to  audit  the
Company's consolidated financial statements as of and for the fiscal years ended
March 31,  2003 and 2002.  KPMG  LLP's  reports  on the  Company's  consolidated
financial  statements  as of and for the fiscal  years  ended March 31, 2003 and
2002 did not  contain an adverse  opinion or  disclaimer  of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.

     During  the two  fiscal  years  ended  March  31,  2003 and  2002,  and the
subsequent  interim period from April 1, 2003 through  November 17, 2003,  there
were no  disagreements  with KPMG LLP on any matter of accounting  principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements,  if not  resolved  to the  satisfaction  of KPMG LLP,  would have
caused KPMG LLP to make reference to the subject matter of the  disagreements in
their report on the financial statements for such years.

ITEM 9A.  CONTROLS AND PROCEDURES
---------------------------------

     As of the end of the  period  covered  by this  report,  management  of the
Company  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation  of  the  Company's  principal  executive  officer  and  principal
financial officer, of the effectiveness of the Company's disclosure controls and
procedures.  Based on this evaluation, the Company's principal executive officer
and principal financial officer concluded that the Company's disclosure controls
and  procedures  are  effective  in  ensuring  that  information  required to be
disclosed  by the  Company  in  reports  that it  files  or  submits  under  the
Securities Exchange Act of 1934, as amended, is recorded, processed,  summarized
and reported,  within the time periods  specified in the Securities and Exchange
Commission's  rules  and  forms.  It  should  be noted  that the  design  of the
Company's  disclosure  controls  and  procedures  is based in part upon  certain
reasonable  assumptions about the likelihood of future events,  and there can be
no reasonable  assurance  that any design of disclosure  controls and procedures
will  succeed  in  achieving  its  stated  goals  under  all  potential   future
conditions,  regardless  of how remote.  The Company's  principal  executive and
financial  officers have  concluded that the Company's  disclosure  controls and
procedures are, in fact, effective at a reasonable assurance level.

     In addition,  there have been no changes in the Company's  internal control
over financial  reporting (to the extent that elements of internal  control over
financial  reporting are subsumed  within  disclosure  controls and  procedures)
identified in connection  with the evaluation  described in the above  paragraph
that occurred  during the Company's  last fiscal  quarter,  that has  materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.

                                       64
<PAGE>



                                    PART III

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

     The  information  contained  under the  sections  captioned  "Proposal I --
Election  of  Directors"  and  "Section  16(a)  Beneficial  Ownership  Reporting
Compliance" in the Company's  definitive  proxy statement for the Company's 2004
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.

     The  Company has  adopted a Code of Ethics  that  applies to the  Company's
officers, directors and employees.

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  "Principal  Holders  of  Voting
          Securities" 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

          Management  of the Company  knows of no  arrangements,  including  any
          pledge by any person of  securities  of the Company,  the operation of
          which may at a  subsequent  date  result in a change in control of the
          Company.

     (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.


                                       65
<PAGE>

     The  following  table sets forth  certain  information  with respect to the
Company's equity compensation plan as of March 31, 2004.
<TABLE>
<CAPTION>

                                                                                                              (c)
                                                                                                    Number of securities
                                                (a)                                                 remaining  available
                                     Number of securities to be               (b)                    for future  issuance
                                      issued upon exercising        Weighted-average exercise     under equity compensation
                                    upon exercise of outstanding       price of outstanding        plan (excluding securities
Plan Category                       options, warrants and rights  options, warrants and rights     reflected in column (a))
-------------                       ----------------------------  ----------------------------     --------------------------
<S>                                             <C>                           <C>                           <C>
Equity compensation plans                      28,950                          $18.581                      33,299
  approved by security holders

Equity compensation plans not
  approved by security holders                     --                               --                          --
                                               ------                          -------                      ------

       Total (1)                               28,950                          $18.581                      33,299
                                               ======                          =======                      ======
</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.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section captioned "Independent Auditors" in the Proxy Statement.


                                     PART IV

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

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

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

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

     (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
          --------

          The exhibits  required by Item 601 of Regulation  S-K are either filed
          as  part of this  Annual  Report  on  Form  10-K  or  incorporated  by
          reference herein.


                                       66
<PAGE>

(b)       REPORTS ON FORM 8-K. The Registrant filed the following Current
          --------------------
          Reports on Form 8-K during the fourth quarter of the fiscal year
          ended March 31, 2004:

           Date of Report        Item(s) Reported     Financial Statements Filed
           --------------        ----------------     --------------------------
           January 23, 2004            7, 12                         N/A

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

          The following exhibits are filed as exhibits to this report.
<TABLE>
<CAPTION>

           Exhibit No.   Description
           -----------   -----------
            <S>               <C>
           3.1*          Articles of Organization of Central Bancorp, Inc.
           3.2           Amended Bylaws of Central Bancorp, Inc.
           4.1           Shareholder  Rights Agreement,  dated as of October 11, 2001, by and between Central Bancorp,  Inc. and
                         Registrar and Transfer  Company,  as Rights Agent,  as amended and restated as of January 29, 2003, and
                         as amended on February 11, 2003, May 22, 2003, July 24, 2003 and August 4, 2003
           10.1*         Employment Agreement between the Bank and John D. Doherty, dated October 24, 1986 +
           10.2*         First Amendment to Employment Agreement between the Bank and John D. Doherty, dated March 31, 1992 +
           10.3*         Second Amendment to Employment Agreement between the Bank and John D. Doherty, dated June 8, 1995 +
           10.4*         Third  Amendment to the  Employment  Agreement  between the Bank and John D. Doherty,  dated January 8,
                         1999 +
           10.5*         Severance Agreement between the Bank and William P. Morrissey, dated December 14, 1994 +
           10.6*         Severance Agreement between the Bank and David W. Kearn, dated December 14, 1994 +
           10.7*         Severance Agreement between the Bank and Paul S. Feeley, dated May 14, 1998 +
           10.8*         Amendments to Severance  Agreements  between the Bank and Messrs.  Feeley,  Kearn and Morrissey,  dated
                         January 8, 1999. +
           10.09**       1999 Stock Option and Incentive Plan +
           10.10***      Deferred Compensation Plan for Non-Employee Directors  +
           10.11         Senior Management Incentive Plan, as amended +
           10.12****     Severance Agreement between the Bank and Michael K. Devlin, dated February 25, 2002. +
           14*****       Code of Ethics
           21            Subsidiaries of Registrant
           23.1          Consent of Vitale, Caturano & Company, P.C.
           23.2          Consent of KPMG LLP
           31.1          Rule 13a-14(a) Certification of Chief Executive Officer
           31.2          Rule 13a-14(a) Certification of Chief Financial Officer
           32            Section 1350 Certifications
</TABLE>
     --------------

+      Management contract or compensatory plan.

*      Incorporated  by reference to the Form 10-K for the fiscal year ended
       March 31, 1999, filed with the SEC on June 28, 1999.

**     Incorporated by reference to the  Registration  Statement on Form S-8
       (File No. 333-87005) filed on September 13, 1999.

***    Incorporated by reference to the  Registration  Statement on Form S-8
       (File No. 333-49264) filed on November 3, 2000.

****   Incorporated  by reference to the Annual Report on Form 10-K for the
       fiscal year ended March 31, 2002 filed with the SEC on June 28, 2002.

*****  Incorporated  by reference to the Current Report on Form 8-K filed with
       the SEC on April 13, 2004.

                                       67
<PAGE>
                                   SIGNATURES

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

                             CENTRAL BANCORP, INC.

Date:  June 25, 2004         By: /s/ John D. Doherty
                                 ----------------------------------------------
                                 John D. Doherty
                                 Chairman, President and Chief Executive Officer
                                 (Duly Authorized Representative)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S>                                                                                          <C>
By: /s/ John D. Doherty                                                         Date:  June 25, 2004
    -------------------------------------------------
       John D. Doherty
       Chairman, President and Chief Executive Officer

By: /s/ Michael K. Devlin                                                       Date:  June 25, 2004
    -------------------------------------------------
       Michael K. Devlin
       Senior Vice President, Treasurer
       and Chief Financial Officer
       (Principal Financial and Accounting Officer)

By: /s/ Gregory W. Boulos                                                       Date:  June 25, 2004
    -------------------------------------------------
       Gregory W. Boulos
       Director

By: /s/ Paul E. Bulman                                                          Date:  June 25, 2004
    -------------------------------------------------
       Paul E. Bulman
       Director

By: /s/ Joseph R. Doherty                                                       Date:  June 25, 2004
    -------------------------------------------------
      Joseph R. Doherty
      Director

By: /s/ Richard J. Fates                                                        Date:  June 25, 2004
    -------------------------------------------------
       Richard J. Fates
       Director

By: /s/ Richard J. Lashley                                                      Date:  June 25, 2004
    -------------------------------------------------
       Richard J. Lashley
       Director

By: /s/ James F. Linnehan                                                       Date:  June 25, 2004
    -------------------------------------------------
       James F. Linnehan
       Director

By: /s/ Albert J. Mercuri, Jr.                                                  Date:  June 25, 2004
    -------------------------------------------------
       Albert J. Mercuri, Jr.
       Director

By: /s/ John J. Morrissey                                                       Date:  June 25, 2004
    -------------------------------------------------
       John J. Morrissey
       Director

By: /s/ Edward F. Sweeney, Jr.                                                  Date:  June 25, 2004
    -------------------------------------------------
       Edward F. Sweeney, Jr.
       Director
</TABLE>