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

                                  FORM 10-K
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C. 20549

(Mark One)

     [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended June 30, 2001

                                     OR

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

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

                       COMMISSION FILE NUMBER 0-23533

                           MYSTIC FINANCIAL, INC.
           (Exact name of registrant as specified in its charter)

           Delaware                                         04-3401049
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification No.)

                60 High Street, Medford, Massachusetts 02155
              (Address of principal executive office-zip code)
                          Telephone  (781) 395-2800

         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 $.01 per share
                              (Title of class)

      Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve 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 registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form
10-K  [X]

      As of August 31, 2001, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the Registrant was
approximately $20,079,975.

      As of August 31, 2001, 1,711,216 shares of Registrant's common stock
were outstanding.

                    Documents Incorporated by Reference:


Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III.

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

<PAGE>


                           MYSTIC FINANCIAL, INC.
                         ANNUAL REPORT ON FORM 10-K
                          FOR THE FISCAL YEAR ENDED
                                JUNE 30, 2001

                              TABLE OF CONTENTS


                                   PART I

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

                                   PART II

ITEM 5.    Market for Registrant's Common Equity and Related
            Stockholder Matters                                          26
ITEM 6.    Selected Financial Data                                       27
ITEM 7.    Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                    28
ITEM 7A.   Quantitative and Qualitative Disclosures About Market Risk    39
ITEM 8.    Financial Statements and Supplementary Data                   40
ITEM 9.    Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure                                     40

                                  PART III

ITEM 10.   Directors and Executive Officers of the Registrant            41
ITEM 11.   Executive Compensation                                        41
ITEM 12.   Security Ownership of Certain Beneficial Owners
            and Management                                               41
ITEM 13.   Certain Relationships and Related Transactions                41

                                   PART IV

ITEM 14.   Exhibits, Financial Statement Schedules and Reports
            on Form 8-K                                                  41

SIGNATURES                                                               43

<PAGE>


                                   PART I

ITEM 1.  BUSINESS

General

      On January 8, 1998, Medford Co-operative Bank (the "Bank") completed
its conversion from mutual to stock form and became a wholly owned
subsidiary of Mystic Financial, Inc. ("Mystic" or the "Company").  On such
date, the Company sold 2,711,125 shares of its common stock, par value
$0.01 per share (the "Common Stock"), to the public, at a per share price
of $10.00.  The conversion of the Bank from mutual to stock form, the
formation of the Company as the holding company for the Bank and the
issuance and sale of the Common Stock are herein referred to collectively
as the "Conversion."  The Conversion raised $25.7 million in net proceeds.
Mystic used $3.2 million of retained net proceeds to fund a loan to its
Employee Stock Ownership Plan ("ESOP") to purchase 216,890 shares of the
Common Stock in open-market purchases following completion of the
Conversion.

      The Company's principal business activity consists of the ownership
of the Bank.  The Company also invests in short-term investment grade
marketable securities and other liquid investments.  The Company has no
significant liabilities (other than those of the Bank).  The Company
neither owns nor leases any property but instead uses the premises and
equipment of the Bank.  At the present time, the Company does not employ
any persons other than certain officers of the Bank who do not receive any
extra compensation as officers of the Company.  The Company utilizes the
support staff of the Bank from time to time, as needed.  Additional
employees may be hired as deemed appropriate by the management of the
Company.  Unless otherwise disclosed, the information presented in this
Annual Report on Form 10-K represents the activity of the Bank for the
period prior to January 8, 1998 and the consolidated activity of Mystic and
the Bank thereafter.

      The Bank is a Massachusetts chartered stock co-operative bank founded
in 1886 with three full-service offices and one educational branch office
in Medford, Massachusetts and full-service offices in Lexington and
Arlington, Massachusetts. The Bank's deposits have been federally insured
since 1986 and are currently insured by the Bank Insurance Fund  ("BIF") of
the Federal Deposit Insurance Corporation ("FDIC") and the Share Insurance
Fund of the Co-operative Central Bank. The Bank has been a member of the
Co-operative Central Bank since 1932 and a member of the Federal Home Loan
Bank ("FHLB") since 1988. The Bank is subject to comprehensive examination,
supervision and regulation by the Commissioner of Banks of the Commonwealth
of Massachusetts (the "Commissioner") and the FDIC. These regulations are
intended primarily for the protection of depositors and borrowers.  The
Bank exceeded all of its regulatory capital requirements at June 30, 2001.

      The business of the Bank consists of attracting deposits from the
general public and using these funds to originate various types of loans
primarily in eastern Middlesex County, Massachusetts, including mortgage
loans secured by one- to four-family residences, commercial loans secured
by general business assets and commercial real estate loans secured by
commercial property, and to invest in U.S. Government and Federal Agency
and other securities.  To a lesser extent, the Bank engages in various
forms of consumer and home equity lending.  The Bank's profitability
depends primarily on its net interest income, which is the difference
between the interest income it earns on its loans and investment portfolio
and its cost of funds, which consists mainly of interest paid on deposits
and on borrowings from the FHLB.  Net interest income is affected by the
relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rates earned or paid on these balances.  When
interest-earning assets approximate or exceed interest-bearing liabilities,
any positive interest rate spread will generate net interest income.

<PAGE>  1


      The Bank has one active subsidiary, Mystic Securities Corporation,
which was established for the sole purpose of acquiring and holding
securities.  All securities held by Mystic Securities Corporation are
investments which are permissible for banks to hold under Massachusetts
law.

Market Area

      The Bank's main office and three branch offices are located in
Medford, Middlesex County, Massachusetts.  The Bank has a full-service
office in Lexington, Middlesex County, Massachusetts, which opened in
November 1998 and in Arlington, Middlesex County, Massachusetts, which
opened in May 2000.  The city of Medford, containing approximately 60,000
residents, is located approximately seven miles from downtown Boston in the
northern suburbs of Boston, bounded by the towns of Malden, Everett,
Somerville, Stoneham, Winchester and Arlington.  The city of Medford is
easily accessible from downtown Boston via Interstate 93 and is accessible
via other state roads connecting the communities within the Route 128
corridor surrounding Boston.  As an established metropolitan suburb,
Medford consists mostly of developed single- and multi-family properties
within a network of well-maintained neighborhoods.  The town of Lexington
is a community consisting mainly of single-family homes while the town of
Arlington contains a greater mix of small businesses and single- and multi-
family housing.  The Bank considers its primary market area to be the
communities of Medford, Malden, Everett, Stoneham, Arlington, Winchester,
Somerville, Melrose, and Lexington, Massachusetts.

      The economic base of the Bank's market area is diversified and
includes a number of financial service institutions, industrial and
manufacturing companies, hospitals and other health care facilities and
educational institutions. The major employers in the Medford area are Tufts
University, the city of Medford, Lawrence Memorial Hospital, and the Meadow
Glen Mall, with approximately 1,900, 1,400, 900 and 900 employees each,
respectively.  Management believes that the housing vacancy rate in Medford
is very low.  The majority of the Bank's lending and deposit activity has
historically been in Medford, although the commercial loan department has
been largely responsible for expanded business throughout eastern Middlesex
County.  Middlesex County, located in eastern Massachusetts to the north
and west of the city of Boston, is part of the Boston metropolitan area.
Based on US Census and HUD estimates for 2000, the median household income
for Middlesex County is $65,000.

      Management believes that the Bank's lending success has been due, in
part, to the favorable income, population and housing demographics in
Medford and in the Bank's market area.  At the same time, the growth of the
market area and delineated lending area and their proximity to Boston has
resulted in a highly competitive environment among the many financial
institutions competing for deposits and loans.

Competition

      The Bank experiences competition both in attracting and retaining
savings deposits and in the making of mortgage, commercial and other loans.
Direct competition for savings deposits primarily comes from larger
commercial banks and other savings institutions located in or near the
Bank's primary market area which often have significantly greater financial
and technological resources than the Bank. Additional significant
competition for savings deposits comes from credit unions, money market
funds and brokerage firms.

      With regard to lending competition in the local market area, the Bank
experiences the most significant competition from the same institutions
providing deposit services, most of whom have placed an emphasis on real
estate lending as a line of business. In addition, the Bank competes with
local and regional mortgage companies, independent mortgage brokers and
credit unions in originating mortgage

<PAGE>  2


and non-mortgage loans.  The primary factors in competing for loans are
interest rates and loan origination fees and the range of services offered
by the various financial institutions.

      Competition from other financial institutions operating in the Bank's
local community includes a number of both large and small commercial banks
and savings institutions.  The Bank has experienced growth in loans and
deposits in recent years primarily due to an increased emphasis on
marketing products and services.  However, competition remains high in the
marketplace.

Lending Activities

      The Bank originates loans through its three offices located in
Medford and its offices in Lexington and Arlington, Massachusetts. The
principal lending activities of the Bank are the origination of
conventional mortgage loans for the purpose of purchasing or refinancing
owner-occupied, one- to four-family residential properties in its
designated community reinvestment area, consisting of the Massachusetts
communities of Medford, Malden, Everett, Stoneham, Arlington, Winchester,
Somerville, Lexington and Melrose, and the origination of commercial loans
secured by commercial real estate and commercial assets within eastern
Middlesex County. To a lesser extent, the Bank also originates consumer
loans including home equity and passbook loans.

      In the past several years, the Bank has made a major commitment to
small business commercial lending.  The Bank has expanded its commercial
lending department with the addition of senior officers with considerable
commercial lending expertise and has developed a support staff to run the
commercial loan department.

      The Bank's ten largest loan relationships, outstanding as of June 30,
2001, ranged from $1.5 million to $3.8 million.  As of the same date, all
such relationships were performing in accordance with their respective
terms.

      Loan Portfolio.  The following table presents selected data relating
to the composition of the Bank's loan portfolio by type of loan on the
dates indicated.

<TABLE>
<CAPTION>

                                                                  At June 30,
                                     ----------------------------------------------------------------------
                                             2001                     2000                     1999
                                     --------------------     --------------------     --------------------
                                      Amount      Percent      Amount      Percent      Amount      Percent
                                      ------      -------      ------      -------      ------      -------
                                                             (Dollars in Thousands)


                                  <c>          <c>         <c>          <c>         <c>          <c>
Residential mortgage loans           $138,163      64.2%      $127,862      67.6%      $107,216      69.3%
Commercial real estate loans           50,483      23.5         41,294      21.8         33,980      22.0
Commercial loans                       13,514       6.3         10,881       5.8          7,109       4.6
Consumer loans                          1,532       0.7          1,526       0.8          1,546       1.0
Home equity loans                       3,880       1.8          3,470       1.8          2,076       1.3
Construction loans                      9,282       4.3          5,686       3.0          4,122       2.7
                                     --------------------------------------------------------------------
      Total loans                     216,854     100.8        190,719     100.8        156,049     100.9
Less:
Deferred loan orig. fees (costs)           35       0.0            (12)      0.0             12       0.0
Allowance for loan losses               1,784       0.8          1,531       0.8          1,348       0.9
                                     --------------------------------------------------------------------
      Loan, net                      $215,035     100.0%      $189,200     100.0%      $154,689     100.0%
                                     ====================================================================

</TABLE>

      One-to-Four Family Residential Real Estate Lending.  The primary
emphasis of the Bank's lending activity is the origination of conventional
mortgage loans on one-to-four family residential

<PAGE>  3


dwellings located in the Bank's primary market area.  As of June 30, 2001,
loans on one-to-four family residential properties accounted for 64.2% of
the Bank's net loan portfolio.

      The Bank's mortgage loan originations are for terms of up to 30
years, amortized on a monthly basis with interest and principal due each
month. Residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms as borrowers may
refinance or prepay loans at their option, without penalty. Conventional
residential mortgage loans granted by the Bank customarily contain "due-on-
sale" clauses which permit the Bank to accelerate the indebtedness of the
loan upon transfer of ownership of the mortgaged property.

      The Bank makes conventional mortgage loans and uses standard Federal
National Mortgage Association ("FNMA") documents, to allow for the sale of
qualifying loans in the secondary mortgage market. The Bank's lending
policies generally limit the maximum loan-to-value ratio on mortgage loans
secured by owner-occupied properties to 95% of the lesser of the appraised
value or purchase price of the property, with the condition that private
mortgage insurance is required on loans with a loan-to-value ratio in
excess of 80%.

      Since the early 1980s, the Bank has offered adjustable-rate mortgage
loans with terms of up to 30 years.  Adjustable-rate loans offered by the
Bank include loans which reprice every one or three years and provide for
an interest rate which is based on the interest rate paid on U.S. Treasury
securities of a corresponding term, plus a margin of up to 250 basis
points, or 2.5%.  Additionally, the Bank offers an adjustable-rate loan
which reprices every five years from its inception.  The Bank also has on
its books an adjustable interest rate loan product with an interest rate
fixed for seven years which reprices annually for its term thereafter.  The
Bank currently offers adjustable-rate loans with initial rates below those
which would prevail under the foregoing computations, based upon the Bank's
determination of market factors and competitive rates for adjustable-rate
loans in its market area. For adjustable-rate loans, borrowers are
qualified at the initial rate.

      Historically, the Bank has retained all adjustable-rate mortgages it
originates. The Bank's adjustable-rate mortgages include limits on
increases or decreases of the interest rate of the loan.  The interest rate
may increase or decrease by 2% per year and 5% over the life of the loan
for the Bank's one-year adjustable rate mortgages, by 3% per adjustment
period and 6% over the life of the loan for the Bank's three-year
adjustable rate mortgages, by 2% per adjustment period and 6% over the life
of the loan for the Bank's five-year adjustable-rate loans, and by 2% per
adjustment period and 5% over the life of the loan for the Bank's seven-
year adjustable-rate mortgages.  The retention of adjustable-rate mortgage
loans in the Bank's loan portfolio helps reduce the Bank's exposure to
increases in interest rates.  However, there are unquantifiable credit
risks resulting from potential increased costs to the borrower as a result
of the repricing of adjustable-rate mortgage loans.  During periods of
rising interest rates, the risk of default on adjustable-rate mortgage
loans may increase due to the upward adjustment of interest cost to the
borrower.

      During the year ended June 30, 2001, the Bank originated $22.4
million in adjustable-rate mortgage loans and $21.0 million in fixed-rate
mortgage loans. Of the fixed-rate loans originated, the Bank sold $4.3
million of fixed-rate loans with terms of greater than 15 years and
retained $16.7 million of fixed-rate loans, which had terms of 15 to 30
years.  Approximately 21.0% of all loan originations during fiscal 2001
were refinances of loans already in the Bank's loan portfolio. At June 30,
2001, the Bank's loan portfolio included $66.4 million in adjustable-rate
one-to-four family residential mortgage loans or 30.9% of the Bank's net
loan portfolio, and $71.7 million in fixed-rate one-to-four family
residential mortgage loans, or 33.3% of the Bank's net loan portfolio.

<PAGE>  4


      Commercial Real Estate Loans.  At June 30, 2001, the Bank's
commercial real estate loan portfolio consisted of 156 loans, totaling
$50.5 million, or 23.5% of net loans. The Bank's largest aggregate loan
relationship is a commercial borrower with an outstanding balance of $3.8
million at June 30, 2001 secured by various properties in Massachusetts.
Commercial real estate loans are administered by the commercial loan
department as described below under "Commercial Loans."

      Commercial real estate lending entails additional risks compared with
one-to-four family residential lending.  Because payments on loans secured
by commercial real estate properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject, to a greater extent, to adverse conditions in the real estate
market or the economy.  Also, commercial real estate loans typically
involve large loan balances to single borrowers or groups of related
borrowers and the payment experience on such loans is typically dependent
on the successful operation of a real estate project and/or the collateral
value of the commercial real estate securing the loan.

      Commercial Loans.  In the past several years, the Bank has made a
major commitment to small business commercial lending.  The Bank has worked
to develop a niche of making commercial loans to companies which have from
$500,000 to $15.0 million in sales and is an approved lender of the Small
Business Administration.   At June 30, 2001, the Bank's commercial loan
portfolio consisted of 215 loans, totaling $13.5 million, or 6.3% of net
loans.

      Commercial loans are expected to comprise a growing portion of the
Bank's loan portfolio in the future.  Unless otherwise structured as a
mortgage on commercial real estate, such loans generally are limited to
terms of five years or less.  Substantially all such commercial loans have
variable interest rates tied to the prime rate as reported in The Wall
Street Journal.  Whenever possible, the Bank collateralizes these loans
with a lien on commercial real estate, or alternatively, with a lien on
business assets and equipment and the personal guarantees from principals
of the borrower.

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

      Consumer Loans.  The Bank's consumer loans consist of share-secured
loans, and other consumer loans, including automobile loans and credit card
loans.  At June 30, 2001, the consumer loan portfolio totaled $1.5 million
or 0.7% of net loans. Consumer loans are generally offered for terms of up
to five years at fixed interest rates.  Consumer loans generally do not
exceed $25,000 individually.

      The Bank makes share-secured loans up to 90% of the amount of the
depositor's savings account balance. The interest rate on the loan is 4%
higher than the rate being paid on the account. The Bank also makes other
consumer loans, which may or may not be secured. The terms of such loans
usually depend on the collateral.

      The Bank makes loans for automobiles, both new and used, directly to
the borrowers. The loans are generally limited to 90% of the purchase price
or the retail value listed by the National Automobile

<PAGE>  5


Dealers Book.  The terms of the loans are determined by the age and
condition of the collateral. Collision insurance policies are required on
all of these loans.

      The Bank makes unsecured credit card loans generally up to $5,000 at
fixed rates of interest.  At June 30, 2001, the Bank had unsecured credit
card loans totaling $377,000.

      Consumer loans are generally originated at higher interest rates than
residential mortgage loans but also tend to have a higher credit risk than
residential loans due to the loan being unsecured or secured by rapidly
depreciable assets.  Despite these risks, the Bank's level of consumer loan
delinquencies generally have been low.  No assurance can be given, however,
that the Bank's delinquency rate on consumer loans will continue to remain
low in the future, or that the Bank will not incur future losses on these
activities.

      Home Equity Loans.  The Bank also originates home equity loans that
are secured by available equity based on the appraised value of owner-
occupied one-to-four family residential property.  Home equity loans will
be made for up to 80% of the appraised value of the property (less the
amount of the first mortgage).  Home equity loans are offered at adjustable
rates and fixed rates.  The adjustable interest rate is the prime rate as
reported in The Wall Street Journal.  Fixed rate home equity loans have
terms of ten years or less and adjustable rate home equity loans have terms
of 15 years or less with up to a five year final payment if the loan is not
fully amortized at the end of the 15 year term.  At June 30, 2001, the Bank
had $3.9 million in home equity loans with unused credit available to
existing borrowers of $4.3 million.

      Construction Loans.  The Bank engages in construction lending
primarily for the construction of single-family residences and a limited
number of construction loans for commercial properties.  At present all are
construction loans for the construction/renovation of single-family housing
developments.  All construction loans are secured by first liens on the
property.  Loan proceeds are disbursed as construction progresses and
inspections warrant.  Loans involving construction financing present a
greater risk than loans for the purchase of existing homes, since
collateral values and construction costs can only be estimated at the time
the loan is approved.  Because payment on loans secured by construction
properties are dependent upon the sale of completed homes or the successful
operation of the completed property, repayment of such loans may be
subject, to a greater extent, to adverse conditions in the real estate
market or the economy.  At June 30, 2001, the Bank's construction loan
portfolio totaled $18.9 million offset by $9.6 million in unadvanced
principal.

      Loan Commitments.  The Bank generally makes loan commitments to
borrowers not exceeding 60 days. At June 30, 2001, the Bank had $5.0
million in loan commitments outstanding, all for the origination of one-to-
four family residential real estate loans, home equity loans, commercial
loans and commercial real estate loans.  In addition, unadvanced funds on
construction loans, lines of credit and credit card loans were $25.6
million on June 30, 2001.

      Loan Solicitation and Loan Fees.  Loan originations are derived from
a number of sources, including the Bank's existing customers, referrals,
realtors, advertising and "walk-in" customers at the Bank's office.
Additionally, the Bank has two residential loan originators, both of whom
actively cover the local community, working with local real estate brokers
and agents to identify and contact potential new customers.

      Upon receipt of a loan application from a prospective borrower, a
credit report and verifications are ordered to verify specific information
relating to the loan applicant's employment, income and credit standing.
For all mortgage loans, an appraisal of real estate intended to secure the
proposed loan is obtained from an independent appraiser who has been
approved by the Bank's Board of Directors. Fire and casualty insurance are
required on all loans secured by improved real estate.  Insurance on other

<PAGE>  6


collateral is required unless waived by the Loan Committee.  The Board of
Directors of the Bank has the responsibility and authority for the general
supervision over the loan policies of the Bank. The Board has established
written lending policies for the Bank.  All residential and commercial real
estate mortgages and commercial business loans must be ratified by the
Bank's Board of Directors. In addition, certain designated officers of the
Bank have authority to approve loans not exceeding specified levels, while
the Board of Directors must approve loans in excess of (a) $300,000 for
commercial real estate loans; (b) $100,000 for commercial loans; (c) loans
over the current FNMA limit for residential mortgage loans; and (d) $20,000
for consumer loans.

      Interest rates charged by the Bank on all loans are primarily
determined by competitive loan rates offered in its market area and
interest rate costs of the source of funding for the loan. The Bank may
charge an origination fee on new mortgage loans. The net origination fees
are deferred and amortized into income over the life of the loan. At June
30, 2001, the amount of net deferred loan origination fees was $35,000.

      Loan Maturities.  The following table sets forth certain information
at June 30, 2001 regarding the dollar amount of loans maturing in the
Bank's portfolio based on their contractual terms to maturity, including
scheduled repayments of principal. Demand loans and loans having no stated
schedule of repayments and no stated maturity are reported as due in one
year or less.

<TABLE>
<CAPTION>

                                    Residential     Commercial
                                     Mortgage       Real Estate     Construction     Commercial     Consumer      Total
                                      Loan(1)          Loans           Loans           Loans         Loans        Loans
                                    -----------     -----------     ------------     ----------     --------      -----
                                                                       (In Thousands)


                                  <c>              <c>             <c>             <c>            <c>         <c>
Total loans schedule to mature:
  In 1 year or less                  $     41         $   235         $18,875         $ 7,844        $   48      $ 27,043
  After 1 year through 5 years          1,342          50,248               -           4,388         1,013        56,991
  Beyond 5 years                      140,660               -               -           1,282           471       142,413
                                     ------------------------------------------------------------------------------------
      Total                          $142,043         $50,483         $18,875         $13,514        $1,532      $226,447
                                     ====================================================================================

Loan balance by type scheduled
 to mature after 1 year:
  Fixed-rate                         $ 70,449         $ 3,321               -         $ 3,550        $1,484      $ 78,804
  Adjustable-rate                      71,553          46,927               -           2,120             -       120,600

<FN>
--------------------
<F1>  For purposes of this schedule, home equity loans with  revolving and
      fixed rates, have been included in  residential mortgage loans.
</FN>
</TABLE>

      Originations and Sales of Loans.  The Bank is a qualified
seller/servicer for FNMA. Beginning in 1987, the Bank began to sell a
portion of its fixed-rate loans with terms in excess of 15 years to FNMA.
All of the Bank's sales to FNMA have been made with servicing retained on
the loans.  At June 30, 2001, the Bank was servicing $22.2 million in loans
for FNMA.  Depending upon market conditions, the Bank retains a portion of
its fixed-rate loans from time to time.  In addition, the Bank has also
sold loans to other private investors.  At June 30, 2001, the Bank was
servicing $1.5 million of such loans.

      Originations for the year ended June 30, 2001 increased in all loan
categories except commercial real estate loans which decreased slightly.
Loan sales increased during the same period as the Bank sold long term
fixed-rate residential loans with servicing retained.  Historically, the
Bank has not purchased loans.  However, the Bank may in the future consider
making limited loan purchases, including purchases of commercial loans and
commercial real estate loans.

<PAGE>  7


      The following table sets forth information with respect to
originations and sales of loans during the periods indicated.

<TABLE>
<CAPTION>

                                                       Years Ended June 30,
                                                ----------------------------------
                                                  2001         2000         1999
                                                  ----         ----         ----
                                                          (In thousands)


                                             <c>          <c>          <c>
Beginning balance                               $189,200     $154,689     $138,593
                                                ----------------------------------
  Mortgage originations                           43,378       37,513       47,662
  Consumer loan originations                       3,834        3,716        2,494
  Commercial real estate loan originations        12,004       13,260       13,713
  Commercial loan originations                    20,053       12,598        5,313
  Commercial construction loan originations       11,859        9,569        3,080
                                                ----------------------------------
      Total loans originated                      91,128       76,656       72,262
                                                ----------------------------------

Less:
  Amortization and payoffs                        60,716       39,937       42,901
  Provision for loan losses                          275          200          145
  Total loans sold                                 4,302        1,433       13,120
  Loan participations sold                           ---          575          ---
                                                ----------------------------------
Ending balance                                  $215,035     $189,200     $154,689
                                                ==================================

</TABLE>

      Non-Performing Assets, Asset Classification and Allowances for
Losses.  Management and the Security Committee of the Board of Directors
perform a monthly review of all delinquent loans and loans are placed on a
non-accrual status when loans are over 90 days past due or, in the opinion
of management, the collection of principal and interest are doubtful.  One
of the primary tools used to manage and control problem loans is the Bank's
"Watch-List," a listing of all loans or commitments larger than $50,000,
that are considered to have characteristics that could result in loss to
the Bank if not properly supervised.  The list is managed by the Senior
Lending Officer for Commercial Loans, Senior Loan Officer for Mortgage
Lending, Chief Executive Officer, and Vice President, Residential Lending
(the "Watch-List Committee"), who meet periodically to discuss the status
of the loans on the Watch-List and to add or delete loans from the list.
The Board of Directors can request that a loan relationship be placed on
Watch-List status.

      Real estate acquired by the Bank as a result of foreclosure is
classified as real estate owned until such time as it is sold. When such
property is acquired, it is recorded at the lower of the unpaid principal
balance or its fair value. Any required write-down of the loan to its fair
value is charged to the allowance for loan losses.

<PAGE>  8


      The following table sets forth the Bank's problem assets and loans at
the dates indicated.

<TABLE>
<CAPTION>

                                                         Years Ended June 30,
                                                      ---------------------------
                                                       2001      2000       1999
                                                       ----      ----       ----
                                                        (Dollars in thousands)


                                                   <c>        <c>       <c>
Loans 30-89 days past due
 (not included in non-performing loans)               $1,854     $ 540     $1,685
Loans 90 days past due
 (not included in non-performing loans)                  276       148        ---
                                                      ---------------------------
Total delinquent loans                                $2,130     $ 688     $1,685
                                                      ===========================

Delinquent loans as a percentage of net loans           0.99%     0.36%      1.09%
                                                      ===========================

Non-performing loans (over 90 days past due)          $   15     $   2     $  ---
Foreclosed real estate                                   ---       ---        ---
                                                      ---------------------------
      Total non-performing assets                     $   15     $   2     $  ---
                                                      ===========================

Non-performing loans as a percent of net loans          0.01%     0.00%      0.00%
Non-performing assets as a percent of total loans       0.01%     0.00%      0.00%

</TABLE>

      At June 30, 2001, management was not aware of any loans not currently
classified as non-accrual, 90 days past due or restructured but which may
be so classified in the near future because of concerns over the borrower's
ability to comply with repayment terms.

      Federal regulations require each banking institution to classify its
asset quality on a regular basis. In addition, in connection with
examinations of such banking institutions, federal and state examiners have
authority to identify problem assets and, if appropriate, classify them.
An asset is classified substandard if it is determined to be inadequately
protected by the current net worth and paying capacity of the obligor or of
the collateral pledged, if any.  As a general rule, the Bank will classify
a loan as substandard if the Bank can no longer rely on the borrower's
income as the primary source for repayment of the indebtedness and must
look to secondary sources such as guarantors or collateral.  An asset is
classified as doubtful if full collection is highly questionable or
improbable.  An asset is classified as loss if it is considered
uncollectible, even if a partial recovery could be expected in the future.
The regulations also provide for a special mention designation, described
as assets which do not currently expose a banking institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close
attention.  Assets classified as substandard or doubtful require a banking
institution to establish general allowances for loan losses.  If an asset
or portion thereof is classified as a loss, a banking institution must
either establish specific allowances for loan losses in the amount of the
portion of the asset classified as a loss, or charge off such amount.
Examiners may disagree with a banking institution's classifications and
amounts reserved. If a banking institution does not agree with an
examiner's classification of an asset, it may appeal this determination to
the Regional Director of the FDIC.  At June 30, 2001, the Bank had no
assets classified as doubtful or loss, and $762,000 classified as
substandard.

      In originating loans, the Bank recognizes that credit losses will
occur and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term
of the loan, general economic conditions and, in the case of a secured
loan, the quality of the security for the loan.  It is management's policy
to maintain an adequate general allowance for loan losses based on, among
other things, evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality.  Further, after properties are
acquired following loan defaults, additional losses may occur with respect
to such properties while the Bank is holding them for sale.  The Bank
increases its allowances for loan losses and losses on real estate owned by
charging provisions for losses against the

<PAGE>  9


Bank's income.  Specific reserves are also recognized against specific
assets when management believes it is warranted.

      While the Bank believes it has established its existing allowances
for loan losses in accordance with GAAP, there can be no assurance that
regulators, in reviewing the Bank's loan portfolio, will not request the
Bank to increase its allowance for loan losses, thereby negatively
affecting the Bank's financial condition and earnings.  Alternately, there
can be no assurance that increases in the Bank's allowance for loan losses
will occur.

      The following table analyzes activity in the Bank's allowance for
loan losses for the years indicated.

<TABLE>
<CAPTION>

                                                             Years Ended June 30,
                                                      ----------------------------------
                                                        2001         2000         1999
                                                        ----         ----         ----
                                                            (Dollars in thousands)


                                                   <c>          <c>          <c>
Average loans, net                                    $205,837     $173,319     $144,663
                                                      ==================================
Year-end net loans                                    $215,035     $189,200     $154,689
                                                      ==================================

  Allowance for loan losses at beginning of year      $  1,531     $  1,348     $  1,236
  Provision charged to operations                          275          200          145

Recoveries:
Real estate mortgage:
  Residential                                              ---          ---          ---
  Commercial                                               ---          ---          ---
Commercial loans                                             2          ---          ---
Consumer and home equity                                     3            6            3
Construction                                               ---          ---          ---
                                                      ----------------------------------
      Total recoveries                                       5            6            3
                                                      ----------------------------------

Loans charged-off:
Real estate-mortgage:
  Residential                                              ---          ---          ---
  Commercial                                               ---          ---          ---
Commercial loans                                           ---          ---           (2)
Consumer and home equity                                   (27)         (23)         (34)
Construction                                               ---          ---          ---
                                                      ----------------------------------
  Loans charged-off                                        (27)         (23)         (36)
                                                      ----------------------------------

  Allowance for loan losses at end of year            $  1,784     $  1,531     $  1,348
                                                      ==================================

Ratios:
  Allowance for loan losses to year-end net loans         0.83%        0.81%        0.87%

  Net charge-offs to average loans, net                   0.01%        0.01%        0.02%
  Net charge-offs to allowance for loan losses            1.23%        1.11%        2.45%

</TABLE>

<PAGE>  10


      The following table sets forth a breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that
the allowance can be allocated by category only on an approximate basis.
These allocations are not necessarily indicative of future losses and do
not restrict the use of the allowance to absorb losses in any other loan
category.

<TABLE>
<CAPTION>

                                                                       At June 30,
                                    -----------------------------------------------------------------------------------
                                              2001                         2000                         1999
                                    ------------------------     ------------------------     -------------------------
                                                Percent of                   Percent of                   Percent of
                                               Loans in Each                Loans in Each                Loans in Each
                                                Category to                  Category to                  Category to
                                    Amount      Total Loans      Amount      Total Loans      Amount      Total Loans
                                    ------     -------------     ------     -------------     ------     -------------
                                                                  (Dollars in thousands)


                                 <c>           <c>            <c>           <c>            <c>           <c>
Real estate-mortgage:
  Residential                       $  578         61.0%         $  563         64.6%         $  563         67.4%
  Commercial                           767         22.3             687         20.9             592         21.4
Commercial Loans                       240          6.0             172          5.5             133          4.5
Consumer and home equity                34          2.4              19          2.5              15          2.3
Construction                           165          8.3              90          6.5              45          4.4
                                    -----------------------------------------------------------------------------
Total allowance for loan losses     $1,784        100.0%         $1,531        100.0%         $1,348        100.0%
                                    =============================================================================

</TABLE>

Investment Activities

      General.  The Bank is required to maintain an amount of liquid assets
appropriate for its level of net savings withdrawals and current
borrowings. It has generally been the Bank's policy to maintain a liquidity
portfolio in excess of regulatory requirements.  The Bank uses several
measures to assess the adequacy of its liquidity.  At June 30, 2001, the
Bank's liquidity was adequate to meet its foreseeable needs.  Liquidity
levels may be increased or decreased depending upon the yields on
investment alternatives, management's judgment as to the attractiveness of
the yields then available in relation to other opportunities, management's
expectations of the level of yield that will be available in the future and
management's projections as to the short-term demand for funds to be used
in the Bank's loan origination and other activities.

      The Bank invests in U.S. Treasury and Federal Agency securities,
mortgage-backed securities, bank certificates of deposits, equity
securities, corporate debt securities and overnight federal funds. The
balance of securities maintained by the Bank in excess of regulatory
requirements reflects management's historical objective of maintaining
liquidity at a level that assures the availability of adequate funds,
taking into account anticipated cash flows and available sources of credit,
for meeting withdrawal requests and loan commitments and making other
investments.

      The Bank purchases securities through a primary dealer of U.S.
Government obligations or such other mortgage-backed securities, securities
dealers authorized by the Board of Directors and requires that the
securities be delivered to a safekeeping agent before the funds are
transferred to the broker or dealer. The Bank purchases securities pursuant
to an investment policy established by the Board of Directors.

<PAGE>  11


      Available for sale securities are reported at fair value with
unrealized gains or losses reported as a separate component of other
comprehensive income/loss.  Held-to-maturity securities are carried at
amortized cost.  The following table sets forth the Company's securities at
the dates indicated.

<TABLE>
<CAPTION>

                                                                  At June 30,
                                   -------------------------------------------------------------------------
                                           2001                      2000                      1999
                                   ---------------------     ---------------------     ---------------------
                                   Amortized      Fair       Amortized      Fair       Amortized      Fair
                                     Cost         Value        Cost         Value        Cost         Value
                                   ---------      -----      ---------      -----      ---------      -----
                                                                (In thousands)


                                 <c>          <c>          <c>          <c>          <c>          <c>
Securities available for sale:
------------------------------
Marketable equity securities        $ 3,222      $ 3,537      $ 2,459      $ 3,054      $ 2,287      $ 3,247
U.S. Government and Federal
 Agency obligations                   9,498        9,505       18,821       18,337       24,323       24,027
Other bonds and obligations           5,542        5,489        2,547        2,393        4,556        4,498
Mortgage-backed securities           10,389       10,289        8,709        8,668            -            -
                                   -------------------------------------------------------------------------
      Total                         $28,651      $28,820      $32,536      $32,452      $31,166      $31,772
                                   =========================================================================

Securities held to maturity:
----------------------------
U.S. Government and Federal
 Agency obligations                       -            -            -            -          500          501
Other bonds and obligations               -            -            -            -        1,000        1,001
                                   -------------------------------------------------------------------------
      Total                         $     -      $     -      $     -      $     -      $ 1,500      $ 1,502
                                   =========================================================================

</TABLE>

      The following table sets forth the scheduled maturities, carrying
values and average yields for the Company's debt securities at June 30,
2001.

<TABLE>
<CAPTION>

                                                                        At June 30, 2001
                                  --------------------------------------------------------------------------------------------
                                    One Year of Less       One to Five Years        Over Five Years              Totals
                                  --------------------    --------------------    --------------------    --------------------
                                  Amortized    Average    Amortized    Average    Amortized    Average    Amortized    Average
                                    Cost        Yield       Cost        Yield       Cost        Yield       Cost        Yield
                                  ---------    -------    ---------    -------    ---------    -------    ---------    -------
                                                                     (Dollars in thousands)


                                <c>          <c>        <c>          <c>        <c>          <c>        <c>          <c>
Securities available for sale:
------------------------------
U.S. Government and Federal
 Agency obligations                $  ---        ---%      $ 9,498      5.27%      $   ---       ---%      $ 9,498      5.27%
Other bonds and obligations         1,000       6.90         3,081      6.37         1,461      5.07         5,542      6.12
Mortgage-backed securities            ---        ---           ---       ---        10,389      6.12        10,389      6.12
                                   ------                  -------                 -------                 -------
      Total                        $1,000       6.90%      $12,579      5.54%      $11,850      5.99%      $25,429      5.80%
                                   ======                  =======                 =======                 =======

</TABLE>

Deposit Activity and Other Sources Of Funds

      General.  Deposits are the primary source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank
derives funds from principal repayments and interest payments on loans and
investments as well as other sources arising from operations in the
production of net earnings. Loan repayments and interest payments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources, or on a longer
term basis for general business purposes.

      Deposits.  Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad selection of deposit
instruments, including checking accounts, passbook savings, NOW accounts,
demand deposits, money market accounts and certificates of deposit. Deposit
account terms vary, with the principal differences being the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate.

<PAGE>  12


      The Bank's policies are designed primarily to attract deposits from
local residents and businesses rather than to solicit deposits from areas
outside its primary market. The Bank does not accept deposits from brokers

due to the volatility and rate sensitivity of such deposits. Interest rates
paid, maturity terms, service fees and withdrawal penalties are established
by the Bank on a periodic basis. Determination of rates and terms are
predicated upon funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.

      During the past several years, there has been an increase in demand
deposit and NOW accounts, resulting from the increase in commercial
customers during this time period.  NOW account balances are volatile due
to a large deposit relationship with a law firm which maintains short-term
deposits in real estate conveyancing accounts and has significant
fluctuations in deposit account balances, particularly at month-end.

      The following table sets forth the various types of deposit accounts
at the Bank and the balances in these accounts at the dates indicated.

<TABLE>
<CAPTION>

                                                          At June 30,
                             ----------------------------------------------------------------------
                                     2001                     2000                     1999
                             --------------------     --------------------     --------------------
                              Amount      Percent      Amount      Percent      Amount      Percent
                              ------      -------      ------      -------      ------      -------
                                                     (Dollars in thousands)


                          <c>          <c>         <c>          <c>         <c>          <c>
Savings deposit              $ 44,302      19.7%      $ 42,413      21.8%      $ 40,903      25.4%
NOW accounts                   38,544      17.1         33,927      17.5         29,361      18.3
Money market deposits          18,591       8.3          8,370       4.3          7,020       4.4
Demand deposits                18,889       8.4         16,346       8.4          8,556       5.3
Certificates of deposits      104,424      46.5         93,079      48.0         75,027      46.6
                             --------------------------------------------------------------------
      Total deposits         $224,750     100.0%      $194,135     100.0%      $160,867     100.0%
                             ====================================================================

</TABLE>

      For more information on the Bank's deposit accounts, see Note 6 of
Notes to Consolidated Financial Statements.

      The following table indicates the amount of the Bank's certificates
of deposit of $100,000 or more by time remaining until maturity at June 30,
2001.

<TABLE>
<CAPTION>

                                                      Weighted
                                                      Average
      Maturity Period     Certificates of Deposit       Rate
      ---------------     -----------------------     --------
                       (Dollars in thousands)

        
                       <c>                  <c>
        0-3 months                $ 6,021              5.68%
        3-6 months                  5,623              5.23
        6-12 months                13,081              5.77
        1-2 years                   6,941              6.05
        2-3 years                   1,859              5.94
        > 3 years                   1,859              6.12
                                  -------
              Total               $35,384              5.75%
                                  =======
</TABLE>

      Borrowings.  Deposits historically have been the primary source of
funds for the Bank's lending and investment activities and for its general
business activities. The Bank is authorized, however, to use advances from
the Federal Home Loan Bank ("FHLB") to supplement its supply of lendable
funds and to meet liquidity requirements.  Due to recent lending activity
and demand for liquidity, the Bank has utilized this borrowing power, and
has received advances from the FHLB.  Advances from the FHLB are secured by
the Bank's stock in the FHLB, the Bank's deposits at the FHLB and a portion
of the Bank's

<PAGE>  13


mortgage loans and securities. The Bank had FHLB advances of $44.6 million
outstanding at June 30, 2001.

      The FHLB functions as a central reserve bank providing credit for
savings institutions and certain other financial institutions. As a member,
the Bank is required to own capital stock in the FHLB and is authorized to
apply for advances on the security of such stock and certain of its home
mortgages and other assets (principally, securities which are obligations
of, or guaranteed by the United States) provided certain standards related
to creditworthiness have been met.

Personnel

      As of June 30, 2001, the Bank had 55 full-time employees and 25 part-
time employees.  The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees
to be good.

                         FEDERAL AND STATE TAXATION

Federal Taxation

      General.  The following is intended only as a discussion of material
tax matters and does not purport to be a comprehensive description of the
tax rules applicable to the Bank or the Company.  The Bank has not been
audited by the IRS during the last five years.  For federal income tax
purposes, the Company and the Bank file consolidated income tax returns and
report their income on a fiscal year basis using the accrual method of
accounting and are subject to federal income taxation in the same manner as
other corporations with some exceptions, including particularly the Bank's
tax reserve for bad debts, discussed below.

      Distributions.  To the extent that the Bank makes "non-dividend
distributions" to shareholders, such distributions will be considered to
result in distributions from the Bank's "base year reserve," i.e., its
reserve as of April 30, 1988, to the extent thereof and then from its
supplemental reserve for losses on loans, and an amount based on the amount
distributed will be included in the Bank's taxable income.  Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, distributions in redemption of stock and
distributions in partial or complete liquidation.  However, dividends paid
out of the Bank's current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not constitute non-
dividend distributions and, therefore, will not be included in the Bank's
income.

      The amount of additional taxable income created from a non-dividend
distribution is equal to the lesser of the Bank's base year reserve and
supplemental reserve for losses on loans; or an amount that, when reduced
by the tax attributable to the income, is equal to the amount of the
distribution.  Thus, in certain situations, approximately one and one-half
times the non-dividend distribution would be includable in gross income for
federal income tax purposes, assuming a 34% federal corporate income tax
rate.

      Elimination of Dividends; Dividends Received Deduction.   The Company
may exclude from its income 100% of dividends received from the Bank as a
member of the same affiliated group of corporations.  A 70% dividends
received deduction generally applies with respect to dividends received
from domestic corporations that are not members of such affiliated group,
except that an 80% dividends received deduction applies if the Company and
the Bank own more than 20% of the stock of a corporation paying a dividend.

<PAGE>  14


State and Local Taxation

      The Bank is subject to an annual Massachusetts excise (income) tax
equal to 10.50% of its pre-tax income, adjusted for certain items.  Taxable
income includes gross income as defined under the Code, plus interest from
bonds, notes and evidences of indebtedness of any state, including
Massachusetts, less deductions, but not the credits, allowable under the
provisions of the Code.  In addition, carryforwards and carrybacks of net
operating losses are not allowed.

      The Bank's active subsidiary, Mystic Securities Corporation, was
established solely for the purpose of acquiring and holding securities
which are permissible for banks to hold under Massachusetts law.  Mystic
Securities Corporation is classified with the Massachusetts Department of
Revenue as a "security corporation" under Massachusetts law, qualifying it
to take advantage of the low 1.32% income tax rate on gross income
applicable to companies that are so classified.

      State of Delaware.  As a Delaware holding company not earning income
in Delaware, the Company is exempted from Delaware corporate income tax but
is required to file an annual report with and has paid an annual franchise
tax to the State of Delaware.

      For additional information regarding taxation, see Note 8 of the
Notes to Consolidated Financial Statements.

                                 REGULATION

General

      As a co-operative bank chartered by the Commonwealth of
Massachusetts, the Bank is subject to extensive regulation under state law
with respect to many aspects of its banking activities; this state
regulation is administered by the Commissioner.  In addition, as a bank
whose deposits are insured by the FDIC under the BIF, the Bank is subject
to deposit insurance assessments by the FDIC, and the FDIC has examination
and supervisory authority over the Bank, with a broad range of enforcement
powers.  Finally, the Bank is required to maintain reserves against
deposits according to a schedule established by the Federal Reserve System.
These laws and regulations have been established primarily for the
protection of depositors and the deposit insurance funds, not bank
stockholders.

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

Massachusetts Banking Laws and Supervision

      Massachusetts co-operative banks such as the Bank are regulated and
supervised by the Commissioner.  The Commissioner is required to regularly
examine each state-chartered bank.  The approval of the Commissioner is
required to establish or close branches, to merge with another bank, to
form a bank holding company, to issue stock or to undertake many other
activities.  Any Massachusetts bank that does not operate in accordance
with the regulations, policies and directives of the Commissioner is
subject to sanctions.  The Commissioner may under certain circumstances
suspend or remove directors or officers of a bank who have violated the
law, conducted a bank's business in a manner which is unsafe, unsound or
contrary to the depositors' interests, or been negligent in the performance
of their duties.

<PAGE>  15


      All Massachusetts-chartered co-operative banks are required to be
members of the Co-operative Central Bank and are subject to its
assessments.  The Co-operative Central Bank maintains the Share Insurance
Fund, a private deposit insurer, which insures all deposits in member banks
in excess of FDIC deposit insurance limits.  In addition, the Co-operative
Central Bank acts as a source of liquidity to its members in supplying them
with low-cost funds, and purchasing certain qualifying obligations from
them.

      Major changes in Massachusetts law in 1982 and 1983 substantially
expanded the powers of co-operative banks, and made their powers virtually
identical to those of state-chartered commercial banks.  The powers which
Massachusetts-chartered co-operative banks can exercise under these laws
are summarized below.

      Lending Activities.  A Massachusetts chartered co-operative bank may
make a wide variety of mortgage loans.  Fixed-rate loans, adjustable-rate
loans, participation loans, graduated payment loans, construction loans,
condominium and co-operative loans, second mortgage loans and other types
of loans may be made in accordance with applicable regulations.  Mortgage
loans may be made on real estate in Massachusetts or in another New England
state if the bank making the loan has an office there or under certain
other circumstances.  In addition, certain mortgage loans may be made on
improved real estate located anywhere in the United States. Commercial
loans may be made to corporations and other commercial enterprises with or
without security.  With certain exceptions, such loans may be made without
geographic limitation.  Consumer and personal loans may be made with or
without security and without geographic limitation.  Loans to individual
borrowers generally will be limited to 20% of the total of the Bank's
capital accounts and stockholders' equity.

      Investments Authorized.  Massachusetts-chartered co-operative banks
have broad investment powers under Massachusetts law, including so-called
"leeway" authority for investments that are not otherwise specifically
authorized.  The investment powers authorized under Massachusetts law are
restricted by federal law to permit, in general, only investments of the
kinds that would be permitted for national banks. The Bank has authority to
invest in all of the classes of loans and investments that are permitted by
its existing loan and investment policies.

      Payment of Dividends.  Under Massachusetts banking laws, a stock co-
operative bank may declare and pay a dividend on its capital stock out of
the bank's net profits.  Net profits means the remainder of all earnings
from current operations plus actual recoveries on loans and investments and
other assets after deducting from the total, all current operating
expenses, actual losses, accrued dividends on preferred stock, if any, and
all current operating expenses, actual losses, accrued dividends on
preferred stock, if any, and all federal and state taxes.  A dividend,
however, may not be declared, credited or paid by a stock co-operative bank
so long as there is impairment of capital stock.

      Prior approval of the Commissioner is required if the Bank intends to
declare dividends on its common stock for any period other than for which
dividends are declared upon the preferred stock; or the total of all
dividends declared by the Bank in any calendar year shall exceed the total
of its net profits for that year combined with its retained net profit of
the preceding two years, less any required transfer to surplus or a fund
for the retirement of any preferred stock.

      In addition, federal law also may limit the amount of dividends that
may be paid by the Bank.

      Branches.  With the approval of the Commissioner, bank branches may
be established in any city or town in Massachusetts; in addition, co-
operative banks may operate automated teller machines at any of their
offices or, with the Commissioner's approval, anywhere in Massachusetts.
Sharing of ATMs or "networking" is also permitted with the Commissioner's
approval. Massachusetts chartered co-operative

<PAGE>  16


banks may also operate ATMs outside of Massachusetts if permitted to do so
by the law of the jurisdiction in which the ATM is located.

      Interstate Acquisitions.  An out-of-state bank may (subject to
various regulatory approvals and to reciprocity in its home state)
establish and maintain bank branches in Massachusetts by (i) merging with a
Massachusetts bank that has been in existence for at least three years,
(ii) acquiring a branch or branches of a Massachusetts bank without
acquiring the entire bank, or (iii) opening such branches de novo.
Massachusetts banks' ability to exercise similar interstate banking powers
in other states depends upon the laws of the other states.  For example,
according to the law of the bordering state of New Hampshire, out-of-state
banks may acquire New Hampshire banks by merger, but may not establish de
novo branches in New Hampshire.

      Other Powers.  Massachusetts-chartered co-operative banks may also
lease machinery and equipment, act as trustee or custodian for tax
qualified retirement plans, establish trust departments and act as
professional trustee or fiduciary, provide payroll services for their
customers, issue or participate with others in the issuance of mortgage-
backed securities and establish mortgage banking companies and discount
securities brokerage operations.  Some of these activities require the
prior approval of the Commissioner.

Federal Banking Regulations

      Capital Requirements.  Under FDIC regulations, state-chartered banks
that are not members of the Federal Reserve System ("state non-member
banks"), such as the Bank, are required to comply with minimum leverage
capital requirements.  For an institution determined by the FDIC to not be
anticipating or experiencing significant growth and to have well
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and to be in general a strong
banking organization, rated composite 1 under the Uniform Financial
Institutions Ranking System (the CAMELS rating system) established by the
Federal Financial Institutions Examination Council, the minimum capital
leverage requirement is a ratio of Tier 1 capital to total assets of 3%.
For all other institutions, the minimum leverage capital ratio is 4% unless
a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the bank.  Tier 1 capital is the sum of
common stockholders' equity, non-cumulative perpetual preferred stock
(including any related retained earnings) and minority investments in
certain subsidiaries, less most intangible assets.

      The FDIC regulations also require that co-operative banks meet a
risk-based capital standard.  The risk-based capital standard requires the
maintenance of a ratio of total capital, which is defined as the sum of
Tier 1 capital and Tier 2 capital, to risk-weighted assets of at least 8%
and a ratio of Tier 1 capital to risk-weighted assets of at least 4%.  In
determining the amount of risk-weighted assets, all assets, plus certain
off balance sheet items, are multiplied by a risk-weight of 0% to 100%,
based on the risks the FDIC believes are inherent in the type of asset or
item.

      The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to
declines in the economic value of a bank's capital due to changes in
interest rates when assessing the bank's capital adequacy.  Under such a
risk assessment, examiners will evaluate a bank's capital for interest rate
risk on a case-by-case basis, with consideration of both quantitative and
qualitative factors.  According to the agencies, applicable considerations
include:

      *  the quality of the bank's interest rate risk management process;
      *  the overall financial condition of the bank; and
      *  the level of other risks at the bank for which capital is needed.

<PAGE>  17


      Institutions with significant interest rate risk may be required to
hold additional capital.  The agencies also issued a joint policy statement
providing guidance on interest rate risk management, including a discussion
of the critical factors affecting the agencies' evaluation of interest rate
risk in connection with capital adequacy.

      The following table shows the Company's and the Bank's leverage
ratio, its Tier 1 risk-based capital ratio, and its total risk-based
capital ratio, at June 30, 2001.

<TABLE>
<CAPTION>

                                                                                            Minimum
                                                                                          To Be Well
                                                                      Minimum          Capitalized Under
                                                                      Capital          Prompt Corrective
                                                Actual              Requirement        Action Provisions
                                           -----------------     -----------------     -----------------
                                           Amount      Ratio     Amount      Ratio     Amount      Ratio
                                           ------      -----     ------      -----     ------      -----
                                                              (Dollars in thousands)


                                        <c>         <c>       <c>         <c>       <c>         <c>
Total Capital to Risk Weighted Assets
  Consolidated                             $30,799     17.5%     $14,106     8.0%          N/A      N/A
  Bank                                      29,401     16.7       14,069     8.0       $17,586     10.0%
Tier 1 Capital to Risk Weighted Assets
  Consolidated                              28,897     16.4        7,053     4.0           N/A      N/A
  Bank                                      27,499     15.6        7,034     4.0        10,551      6.0
Tier 1 Capital to Average Assets
  Consolidated                              28,897     10.1       11,426     4.0           N/A      N/A
  Bank                                      27,499      9.7       11,365     4.0        14,206      5.0

</TABLE>

      As the preceding table shows, the Company and the Bank exceeded the
minimum capital adequacy requirements at June 30, 2001.

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

      The FDIC has authority under federal law to appoint a conservator or
receiver for an insured bank under certain circumstances.  The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for
an insured state bank if that bank was "critically undercapitalized" on
average during the calendar quarter beginning 270 days after the date on
which the bank became "critically undercapitalized."  For this purpose,
"critically undercapitalized" means having a ratio of tangible equity to
total assets equal to or less than 2%.  See "-Prompt Corrective Action."
The FDIC may also appoint a conservator or receiver for a state bank on the
basis of the institution's financial condition or upon the occurrence of
certain events, including: (i) insolvency (whereby the assets of the bank
are less than its liabilities to depositors and others); (ii) substantial
dissipation of assets or earnings through violations of law or unsafe or
unsound practices; (iii) existence of an unsafe or unsound condition to
transact business; (iv) likelihood that the bank will be unable to meet the
demands of its depositors or to pay its obligations in the normal course of
business; and (v) insufficient capital, or the incurring or likely
incurring of losses that will deplete substantially all of the
institution's capital with no reasonable prospect of replenishment of
capital without federal assistance.

<PAGE>  18


      Deposit Insurance.  The FDIC has adopted a risk-based deposit
insurance assessment system.  The FDIC assigns an institution to one of
three capital categories based on the institution's financial information,
as of the reporting period ending seven months before the assessment
period, consisting of (1) well capitalized, (2) adequately capitalized or
(3) undercapitalized, and one of three supervisory subcategories within
each capital group.  The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information that the FDIC
determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds.  An institution's assessment
rate depends on the capital category and supervisory category to which it
is assigned.  Assessment rates for BIF deposits currently range from 0
basis points to 27 basis points.  The Bank's assessment rate is currently 0
basis points.  The FDIC is authorized to raise the assessment rates in
certain circumstances, including to maintain or achieve the designated
reserve ratio of 1.25%, which requirement the BIF currently meets.  The
FDIC has exercised its authority to raise rates in the past and may raise
insurance premiums in the future.  If such action is taken by the FDIC, it
could have an adverse effect on the earnings of the Bank.  In addition,
legislation requires BIF-insured institutions like the Bank to assist in
the payment of FICO bonds.

      Under the Federal Deposit Insurance Act (the "FDI Act"), insurance of
deposits may be terminated by the FDIC upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the Division.
The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

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

      A bank's loans to its executive officers, directors, any owner of 10%
or more of its stock and any of certain entities affiliated to any such
person (each an "insider") are subject to the conditions and limitations
imposed by Section 22(h) of the Federal Reserve Act and the Federal Reserve
Board's Regulation O thereunder. Under Section 22(h), loans to an insider
may not exceed, together with all other outstanding loans to such person
and affiliated interests, the loans-to-one-borrower limit applicable to
national banks (generally 15% of the institution's unimpaired capital and
surplus), and all loans to all such persons in the aggregate may not exceed
the institution's unimpaired capital and unimpaired surplus. Regulation O
also prohibits the making of loans in an amount greater than either (a)
$500,000 or (b) the greater of $25,000 or 5% of the bank's unimpaired
capital and surplus, unless such loans are approved in advance by a
majority of the Board of Directors of the bank, with any "interested"
director not participating in the voting. Further, Regulation O requires
that loans to insiders be made on terms

<PAGE>  19


substantially the same as those that are offered in comparable transactions
to other persons. Regulation O also prohibits a depository institution from
paying the overdrafts over $1,000 of any of its executive officers or
directors unless they are paid pursuant to written pre-authorized extension
of credit or transfer of funds plans.  Also, loans to an executive officer,
other than loans for the education of the officer's children and certain
loans secured by the officer's residence, may not exceed the lesser of (a)
$100,000 or (b) the greater of $25,000 or 2.5% of the bank's capital stock,
surplus fund and undivided profits.

      State chartered non-member banks are further subject to the
requirements and restrictions of 12 U.S.C. [SECTION]1972 on certain tying
arrangements and extensions of credit by correspondent banks. Specifically,
this statute (i) prohibits a depository institution from extending credit
to or offering any other service, or fixing or varying the consideration
for such extension of credit or service, on the condition that the customer
obtain some additional service from the institution or certain of its
affiliates or not obtain services of a competitor of the institution,
subject to certain exceptions, and (ii) also 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.

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

      The Interagency Guidelines, among other things, call upon a
depository institution to establish internal loan-to-value limits for real
estate loans that are not in excess of the following supervisory limits:
(i) for loans secured by raw land, the supervisory loan-to-value limit is
65% of the value of the collateral; (ii) for land development loans (i.e.,
loans for the purpose of improving unimproved property prior to the
erection of structures), the supervisory limit is 75%; (iii) for loans for
the construction of commercial, multi-family or other nonresidential
property, the supervisory limit is 80%; (iv) for loans for the construction
of one- to four-family properties, the supervisory limit is 85%; and (v)
for loans secured by other improved property (e.g., farmland, completed
commercial property and other income-producing property including non owner
occupied, one- to four-family property), the limit is 85%. Although no
supervisory loan-to-value limit has been established for owner-occupied,
one- to four-family and home equity loans, the Interagency Guidelines state
that for any such loan with a loan-to-value ratio that equals or exceeds
90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.

      Safety and Soundness Standards.  Pursuant to the requirements of
FDICIA, as amended by the Riegle Community Development and Regulatory
Improvement Act of 1994, each federal banking agency, including the FDIC,
has adopted guidelines establishing general standards relating to internal
controls, information and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, asset quality,
earnings, and compensation, fees and benefits.  In general, the guidelines
require, among other things, appropriate systems and practices to identify
and manage the risks and exposures specified in the guidelines.  The
guidelines prohibit excessive compensation as an unsafe and unsound
practice and describe compensation as excessive when the amounts paid are
unreasonable or disproportionate to the services performed by an executive
officer, employee, director, or principal

<PAGE>  20


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

      Prompt Corrective Action.  FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions.
The FDIC, as well as the other federal banking regulators, adopted
regulations governing the supervisory actions that may be taken against
undercapitalized institutions.  The regulations establish five categories,
consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized."  The FDIC's regulations defines the five capital
categories as follows:  Generally, an institution will be treated as "well
capitalized" if its ratio of total capital to risk-weighted assets is at
least 10%, its ratio of core capital to risk-weighted assets is at least
6%, its ratio of core capital to total assets is at least 5%, and it is not
subject to any order or directive by the FDIC to meet a specific capital
level.  An institution will be treated as "adequately capitalized" if its
ratio of total capital to risk-weighted assets is at least 8%, its ratio of
core capital to risk-weighted assets is at least 4%, and its ratio of core
capital to total assets is at least 4% (3% if the bank receives the highest
rating on the CAMELS financial institutions rating system) and it is not a
well-capitalized institution.  An institution that has total risk-based
capital of less than 8%, Tier 1 risk-based capital of less than 4% or a
leverage ratio that is less than 4% (or less than 3% if the institution is
rated a composite "1" under the CAMELS rating system) would be considered
to be "undercapitalized."  An institution that has total risk-based capital
of less than 6%, core capital of less than 3% or a leverage ratio that is
less than 3% would be considered to be "significantly undercapitalized,"
and an institution that has a tangible capital to assets ratio equal to or
less than 2% would be deemed to be "critically undercapitalized." At June
30, 2001, the Bank was categorized as "well capitalized."

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

      The FDIC has a broad range of grounds under which it may appoint a
receiver or conservator for an insured depositary bank.  If one or more
grounds exist for appointing a conservator or receiver for a bank, the FDIC
may require the bank to issue additional debt or stock, sell assets, be
acquired by a depository bank holding company or combine with another
depository bank. Under FDICIA, the FDIC is required to appoint a receiver
or a conservator for a critically undercapitalized bank within 90 days
after the bank becomes critically undercapitalized or to take such other
action that would better achieve the

<PAGE>  21


purposes of the prompt corrective action provisions.  Such alternative
action can be renewed for successive 90-day periods.  However, if the bank
continues to be critically undercapitalized on average during the quarter
that begins 270 days after it first became critically undercapitalized, a
receiver must be appointed, unless the FDIC makes certain findings that the
bank is viable.

      Community Reinvestment.  Under the Community Reinvestment Act
("CRA"), as implemented by FDIC regulations, a bank savings association has
a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including
low and moderate income neighborhoods.  The CRA does not establish specific
lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and
services that it believes are best suited to its particular community,
consistent with the CRA.  The CRA requires the FDIC, in connection with its
examination of a bank, to assess the bank's record of meeting the credit
needs of its community and to take such record into account in its
evaluation of certain applications by such bank.  The CRA also requires all
institutions to make public disclosure of their CRA ratings.  The Bank
received a "High Satisfactory" CRA rating in its most recent examination
from the Commonwealth of Massachusetts.

      The CRA regulations establish an assessment system that bases a
bank's rating on its actual performance in meeting community needs.  In
particular, the assessment system focuses on three tests: (a) a lending
test, to evaluate the institution's record of making loans in its service
areas; (b) an investment test, to evaluate the institution's record of
investing in community development projects, affordable housing, and
programs benefiting low or moderate income individuals and businesses; and
(c) a service test, to evaluate the institution's delivery of services
through its branches, ATMs, and other offices.  Small banks would be
assessed pursuant to a streamlined approach focusing on a lesser range of
information and performance standards.  The term "small bank" is defined as
including banks with less than $250 million in assets or an affiliate of a
holding company with banking and thrift assets of less than $1 billion,
which would include the Bank.

Holding Company Regulation

      Federal Regulation.  The Company is subject to examination,
regulation and periodic reporting under the Bank Holding Company Act (the
"BHCA"), as administered by the Federal Reserve Board (the "FRB").  The FRB
has adopted capital adequacy guidelines for bank holding companies on a
consolidated basis substantially similar to those of the FDIC for the Bank.
As of June 30, 2001, the Company's total capital and Tier 1 capital ratios
exceeded these minimum capital requirements.

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

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

<PAGE>  22


FRB, that has received a composite "1" or "2" rating at its most recent
bank holding company inspection by the FRB, and that is not the subject of
any unresolved supervisory issues.

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

      In addition, a bank holding company which does not qualify as a
financial holding company under the Gramm-Leach-Bliley Financial Services
Modernization Act of 1999 (the "GLBA") is generally prohibited from
engaging in, or acquiring direct or indirect control of any company engaged
in non-banking activities.  One of the principal exceptions to this
prohibition is for activities found by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be
permissible.  Some of the principal activities that the Federal Reserve
Board has determined by regulation to be so closely related to banking as
to be permissible are:

      *  making or servicing loans;
      *  performing certain data processing services;
      *  providing discount brokerage services;
      *  acting as fiduciary, investment or financial advisor;
      *  leasing personal or real property;
      *  making investments in corporations or projects designed primarily
         to promote community welfare; and
      *  acquiring a savings and loan association.

      Bank holding companies that do qualify as a financial holding company
may engage in activities that are financial in nature or incident to
activities which are financial in nature.  Bank holding companies may
qualify to become a financial holding company if:

      *  each of its depository institution subsidiaries is "well capitalized";
      *  each of its depository institution subsidiaries is "well managed";
      *  each of its depository institution subsidiaries has at least a
         "satisfactory" Community Reinvestment Act rating at its most
         recent examination; and
      *  the bank holding company has filed a certification with the
         Federal Reserve Board that it elects to become a financial holding
         company.

      As of June 30, 2001, the Company had registered as a financial
holding company.

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

Federal Home Loan Bank System

      The Bank is a member of the FHLB System, which consists of 12
regional Federal Home Loan Banks subject to supervision and regulation by
the Federal Housing Finance Board ("FHFB"). The Federal Home Loan Banks
provide a central credit facility primarily for member institutions.  As a
member of the FHLB, the Bank is required to acquire and hold shares of
capital stock in the FHLB in an amount equal to 1% of the aggregate unpaid
principal of its home mortgage loans, home purchase

<PAGE>  23


contracts, and similar obligations, but not less than $500.  The Bank was
in compliance with this requirement with an investment in FHLB stock at
June 30, 2001, of $2.5 million.

      The FHLB serves as a reserve or central bank for its member
institutions within its assigned region. It is funded primarily from
proceeds derived from the sale of consolidated obligations of the FHLB
System. It offers advances to members in accordance with policies and
procedures established by the FHFB and the Board of Directors of the FHLB.
Long-term advances may only be made for the purpose of providing funds for
residential housing finance.

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

Federal Reserve System

      Pursuant to regulations of the FRB, a bank must maintain average
daily reserves equal to 3% on the first $46.5 million of net transaction
accounts (subject to an exemption for the first $4.9 million), plus 10% on
the remainder. This percentage is subject to adjustment by the FRB. Because
required reserves must be maintained in the form of vault cash or in a non-
interest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's interest-
earning assets. As of June 30, 2001, the Bank met its reserve requirements.

Financial Services Modernization Bill

      On November 12, 1999, former President Clinton signed the GLBA,
federal legislation intended to modernize the financial services industry
by establishing a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms and other financial
service providers.  Generally, the GLBA (i) repeals the historical
restrictions and eliminates many federal and state law barriers to
affiliations among banks, securities firms, insurance companies and other
financial service providers, (ii) provides a uniform framework for the
functional regulation of the activities of banks, savings institutions and
their holding companies, (iii) broadens the activities that may be
conducted by national banks, banking subsidiaries of bank holding companies
and their financial subsidiaries, (iv) provides an enhanced framework for
protecting the privacy of consumer information, (v) adopts a number of
provisions related to the capitalization, membership, corporate governance
and other measures designed to modernize the Federal Home Loan Bank system,
(vi) modifies the laws governing the implementation of the Community
Reinvestment Act and (vii) addresses a variety of other legal and
regulatory issues affecting both day-to-day operations and long-term
activities of financial institutions.

      The GLBA allows bank holding to engage in a wider variety of
financial activities than permitted under prior law, particularly with
respect to insurance and securities activities.  In addition, in a change
from prior law, bank holding companies may be owned, controlled or acquired
by any company engaged in financially related activities.

<PAGE>  24


      The Company does not believe that the GLBA has had a material adverse
effect on the Company's operations thus far.  However, to the extent that
the GLBA permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further
consolidation. This could result in a growing number of larger financial
institutions that offer a wider variety of financial services than the
Company currently offers and that can aggressively compete in the markets
currently served by the Company.

Federal Securities Laws

      The Company's Common Stock is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").  Accordingly, the Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the
Exchange Act.

ITEM 2.  PROPERTIES

      The following table sets forth certain information at June 30, 2001
regarding the Bank's office facilities which are owned by the Bank, with
the exception of the High School Educational Branch, Lexington and
Arlington offices, which are leased, and certain other information relating
to its property at that date.

<TABLE>
<CAPTION>

                                                        Year        Square         Net Book
                                                      Completed     Footage         Value
                                                      ---------     -------        --------
                                                                                (In thousands)


                     <c>                             <c>          <c>            <c>
Main Office             60 High Street
                        Medford, MA  02155              1931         7,000          $1,022

West Medford Office     430 High Street
                        Medford, MA  02155              1970         2,500              21

Salem Street Office     201 Salem Street
                        Medford, MA  02155              1995         3,500             881

Lexington Office        1793 Massachusetts Avenue
                        Lexington, MA  02420            1998         3,000              96

Arlington Office        856 Massachusetts Avenue
                        Arlington, MA                   2000           500             234

High School             489 Winthrop Street
Educational Branch      Medford, MA  02155              1986             -               -
                                                                                    ------

    Net Book Value                                                                  $2,254
                                                                                    ======

</TABLE>

      The Bank also owns an office building adjacent to its main office,
located at 66 High Street, Medford, MA  02155, which had a net book value
of $1.6 million at June 30, 2001.  The Bank uses a portion of the top floor
of this building to house some of its administrative and clerical services
and leases the remaining space to third-party tenants.

      At June 30, 2001, the net book value of the Bank's computer equipment
and other furniture, fixtures and equipment at its existing offices totaled
$239,000.  For more information, see Note 4 of the Notes to Consolidated
Financial Statements.

<PAGE>  25


ITEM 3.  LEGAL PROCEEDINGS

      The Company is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of
business.  Such routine legal proceedings in the aggregate are believed by
management to be immaterial to the Company's consolidated financial
condition and results of operations.

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

      None.


                                   PART II

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

      The Company's common stock is traded on the Nasdaq National Market
under the symbol "MYST."  The table below shows the high and low sales
price during the periods indicated.  The Company's common stock began
trading on January 8, 1998, the date of the conversion and initial public
offering.  At June 29, 2001, the last trading date in the Company's fiscal
year, the Company's common stock closed at $15.68.  On August 31, 2001,
there were 1,711,216 shares of the Company's common stock outstanding,
which were held of record by approximately 900 stockholders, not including
persons or entities who hold the stock in nominee or "street" name through
various brokerage firms.

      The Board of Directors considers paying dividends, dependent on the
results of operations and financial condition of the Company, tax
considerations, industry standards, economic conditions, regulatory
restrictions and other factors.  There are significant regulatory
limitations on the Company's ability to pay dividends depending on the
dividends it receives from its subsidiary, Medford Co-operative Bank, which
are subject to regulations and the Bank's continued compliance with all
regulatory capital requirements and the overall health of the institution.

<TABLE>
<CAPTION>

             Quarter Ended                    High         Low       Dividends
             -------------                    ----         ---       ---------


                                          <c>         <c>           <c>
Fiscal year ended June 30, 2001:
  Fourth Quarter ended June 30, 2001         $16.100     $14.250       $0.08
  Third Quarter ended March 31, 2001          16.000      13.875        0.08
  Second Quarter ended December 31, 2000      14.000      13.125        0.08
  First Quarter ended September 30, 2000      13.750      12.000        0.07
Fiscal year ended June 30, 2000:
  Fourth Quarter ended June 30, 2000          12.500       9.750        0.07
  Third Quarter ended March 31, 2000          11.500       9.875        0.07
  Second Quarter ended December 31, 1999      12.313      10.250        0.06
  First Quarter ended September 30, 1999      13.500      10.625        0.06

</TABLE>

<PAGE>  26


ITEM 6.  SELECTED FINANCIAL DATA

      The following table sets forth selected financial data concerning the
Company at the dates and for the years indicated. The following data is
qualified in its entirety by the detailed information and consolidated
financial statements appearing elsewhere in this Annual Report on Form 10-
K.

<TABLE>
<CAPTION>

                                                          At or for the Years Ended June 30,
                                           ---------------------------------------------------------------
                                              2001         2000         1999          1998          1997
                                              ----         ----         ----          ----          ----
                                                    (Dollars in thousands, except per share data)


                                        <c>          <c>          <c>           <c>           <c>
Balance sheet data:
  Total assets                             $ 300,402    $ 263,888    $ 215,214     $ 199,049     $ 149,653
  Loans, net                                 215,035      189,200      154,689       138,593       114,568
  Securities:
    Available for sale                        28,820       32,452       31,772        14,749         3,819
    Held to maturity                               -            -        1,500        12,006        17,504
  Deposits                                   224,750      194,135      160,867       144,766       129,303
  Borrowings                                  44,618       38,750       18,978        16,505         7,532
  Total stockholders' equity                  29,015       29,189       34,052        36,127        11,940
Asset quality data:
  Non-performing loans                            15            2            -           150           365
  Allowance for loan losses                    1,784        1,531        1,348         1,236           977
Number of:
  Mortgage loans outstanding                   1,694        1,609        1,626         1,548         1,384
  Deposit accounts                            22,252       21,661       19,644        18,920        18,809
  Full service offices                             5            5            4             3             3
Number of employees:
  Full-time                                       55           62           52            48            44
  Part-time                                       25           28           21            21            22
Statement of income data:
  Interest and dividend income             $  19,422    $  16,177    $  13,745     $  12,210     $   9,899
  Interest expense                             9,967        7,446        6,221         5,648         4,911
                                           ---------------------------------------------------------------
  Net interest income                          9,455        8,731        7,524         6,562         4,988
  Provision for loan losses                      275          200          145           245           272
                                           ---------------------------------------------------------------
  Net interest income after provision
   for loan losses                             9,180        8,531        7,379         6,317         4,716
  Other income                                 1,196          945        1,136         1,035           882
  Operating expenses                           8,470        6,715        6,042         4,774         4,330
                                           ---------------------------------------------------------------
  Income before income taxes                   1,906        2,761        2,473         2,578         1,268
  Provision for income taxes                     721        1,072          971         1,031           527
                                           ---------------------------------------------------------------
  Net income                               $   1,185    $   1,689    $   1,502     $   1,547     $     741
                                           ===============================================================
Per share data:
  Weighted average shares outstanding-
   basic                                   1,731,874    2,024,201    2,375,440           N/A           N/A
  Basic earnings per share                 $    0.68    $    0.83    $    0.63           N/A           N/A
  Weighted average shares outstanding -
   diluted                                 1,767,902    2,024,201    2,375,440           N/A           N/A
  Diluted earnings per share               $    0.67    $    0.83    $    0.63           N/A           N/A
  Cash dividends paid per share            $    0.31    $    0.26    $    0.21     $    0.05           N/A
  Book value per share                     $   16.39    $   16.43    $   15.06     $   14.50           N/A

<PAGE>  27


<CAPTION>

                                                         At or for the Years Ended June 30,
                                           ---------------------------------------------------------------
                                              2001         2000         1999          1998          1997
                                              ----         ----         ----          ----          ----


                                        <c>          <c>          <c>           <c>           <c>
Selected operating ratios:
  Interest rate spread(1)                       3.11%        3.43%        3.26%         3.54%         3.63%
  Net interest margin(2)                        3.70         4.04         3.96          4.05          3.84
  Return on average assets                      0.44         0.74         0.75          0.90          0.54
  Return on average equity                      4.04         5.37         4.29          6.70          6.40
  Operating expenses as a percent
   of average total assets                      3.15         2.95         3.01          2.79          3.15
  Efficiency ratio(3)                          79.53        69.40        69.77         62.84         73.76
Asset quality ratios:
  Non-performing loans as a percent
   of net loans                                 0.01         0.00         0.00          0.11          0.32
  Non-performing loans as a percent
   of total assets                              0.01         0.00         0.00          0.08          0.24
  Allowance for loan losses as a percent
   of non-performing loans                    11,893       76,550          N/A           824           268
  Net charge-offs (recoveries) to average
    Loans                                       0.01         0.01         0.02         (0.01)         0.04
Capital ratios:
  Average equity to average assets             10.91        13.81        17.48         13.48          8.42
  Regulatory Tier 1 leverage capital ratio     10.12        11.35        16.05         19.07          8.08
  Total equity to total assets                  9.66        11.06        15.82         18.15          7.98

<FN>
--------------------
<F1>  Interest rate spread represents the difference between weighted
      average yield on interest-earning assets and the weighted average
      cost of interest-bearing liabilities.
<F2>  Net interest margin represents net interest income divided by average
      interest-earning assets.
<F3>  Operating expenses divided by the sum of net interest income and
      other income.
</FN>
</TABLE>

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

General

      Medford Co-operative Bank (the "Bank") completed its conversion from
a mutual to a stock institution and was simultaneously acquired by Mystic
Financial, Inc. ("Mystic" or the "Company") on January 8, 1998.  The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes thereto included within
this report.

      The Company and the Bank may from time to time make written or oral
"forward-looking statements." These forward-looking statements may be
contained in this annual filing with the Securities and Exchange Commission
(the "SEC"), the Annual Report to Shareholders, other filings with the SEC,
and in other communications by the Company and the Bank, which are made in
good faith pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The words "may," "could,"
"should," "would," "believe," "anticipate," "estimate," "expect," "intend,"
"plan" and similar expressions are intended to identify forward-looking
statements.

      Forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties.  The following factors, many of which are subject to change
based on various other factors beyond the Company's control, and other
factors discussed in this Form 10-K, as well as other

<PAGE>  28


factors identified in the Company's filings with the SEC and those
presented elsewhere by management from time to time, could cause its
financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward-looking
statements:

      *  the strength of the United States economy in general and the
         strength of the local economies in which the Company and the Bank
         conduct operations;
      *  the effects of, and changes in, trade, monetary and fiscal
         policies and laws, including interest rate policies of the Federal
         Reserve Board;
      *  inflation, interest rate, market and monetary fluctuations;
      *  the timely development of and acceptance of new products and
         services and the perceived overall value of these products and
         services by users, including the features, pricing and quality
         compared to competitors' products and services;
      *  the willingness of users to substitute competitors' products and
         services for the Company's and the Bank's products and services;
      *  the Company's and the Bank's success in gaining regulatory
         approval of their products and services, when required;
      *  the impact of changes in financial services' laws and regulations
         (including laws concerning taxes, banking, securities and
         insurance);
      *  the impact of technological changes;
      *  acquisitions;
      *  changes in consumer spending and saving habits; and
      *  the Company's and the Bank's success at managing the risks
         involved in their business.

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

      The business of the Bank consists of attracting deposits from the
general public and using these funds to originate various types of loans
primarily in eastern Middlesex County, Massachusetts, including mortgage
loans secured by one-to-four family residences, commercial loans secured by
general business assets, commercial real estate loans secured by commercial
property, and to invest in U.S. Government and Federal Agency and other
securities.  To a lesser extent, the Bank engages in various forms of
consumer and home equity lending.

      The Company's profitability depends primarily on its net interest
income, which is the difference between the interest income it earns on its
loans and investment portfolio and its cost of funds, which consists mainly
of interest paid on deposits and on borrowings from the FHLB.  Net interest
income is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on these
balances.  When interest-earning assets approximate or exceed interest-
bearing liabilities, any positive interest rate spread will generate net
interest income.

      The Company's profitability is also affected by the level of other
(noninterest) income and operating expenses.  Other income consists
primarily of service fees, loan servicing and other loan fees and gains on
sales of securities.  Operating expenses consist of salaries and benefits,
occupancy related expenses and other general operating expenses.

      The operations of the Bank, and banking institutions in general, are
significantly influenced by general economic conditions and related
monetary and fiscal policies of financial institution's regulatory
agencies.  Deposit flows and the cost of funds are influenced by interest
rates on competing investments and general market rates of interest.
Lending activities are affected by the demand for financing real

<PAGE>  29


estate and other types of loans, which in turn are affected by the interest
rates at which such financing may be offered and other factors affecting
loan demand and the availability of funds.

Business Strategy

      The Bank's business strategy is to operate as a well-capitalized,
profitable and independent community bank dedicated to financing home
ownership, small business and consumer needs in its market area and
providing quality service to its customers.  The Bank has implemented this
strategy by: (i) monitoring the needs of customers and providing quality
service; (ii) emphasizing consumer-oriented banking by originating
residential mortgage loans and consumer loans, and by offering various
deposit accounts and other financial services and products; (iii) recently
increasing its emphasis on commercial banking and lending by originating
loans for small businesses and providing greater services in its commercial
and commercial real estate loan department; (iv) maintaining high asset
quality through conservative underwriting; and (v) producing stable
earnings.

Asset/Liability Management

      A principal operating objective of the Bank is to produce stable
earnings by achieving a favorable interest rate spread that can be
sustained during fluctuations in prevailing interest rates.  Since the
Bank's principal interest-earning assets have longer terms to maturity than
its primary source of funds, i.e., deposit liabilities, increases in
general interest rates will generally result in an increase in the Bank's
cost of funds before the yield on its asset portfolio adjusts upward.  The
Bank has sought to reduce its exposure to adverse changes in interest rates
by attempting to achieve a closer match between the periods in which its
interest-bearing liabilities and interest-earning assets can be expected to
reprice through the origination of adjustable-rate mortgages and loans with
shorter terms and the purchase of other shorter term interest-earning
assets.

      The term "interest rate sensitivity" refers to those assets and
liabilities which mature and reprice periodically in response to
fluctuations in market rates and yields.  As noted above, one of the
principal goals of the Bank's asset/liability program is to maintain and
match the interest rate sensitivity characteristics of the asset and
liability portfolios.

      In order to properly manage interest rate risk, the Bank's Board of
Directors has established an Asset/Liability Management Committee ("ALCO")
made up of members of management to monitor the difference between the
Bank's maturing and repricing assets and liabilities and to develop and
implement strategies to decrease the "negative gap" between the two.  The
primary responsibilities of the committee are to assess the Bank's
asset/liability mix, recommend strategies to the Board that will enhance
income while managing the Bank's vulnerability to changes in interest rates
and report to the Board the results of the strategies used.

      Since the early 1980s, the Bank has stressed the origination of
adjustable-rate residential mortgage loans and adjustable-rate home equity
loans.  The Bank regularly sells fixed rate loans with terms in excess of
15 years.  Since 1995, the Bank has also emphasized commercial loans with
short-term maturities or repricing intervals as well as commercial real
estate mortgages with short-term repricing intervals.  In addition, the
Bank has used borrowings from the FHLB to fund the maturity or repricing
interval of certain commercial real estate mortgages.  At June 30, 2001,
the Bank's loan portfolio included $66.4 million of adjustable-rate one-to-
four family mortgage loans, $48.0 million of adjustable-rate commercial
real estate loans, $6.6 million of adjustable-rate or short-term commercial
loans, and $2.9 million of adjustable-rate home equity loans.  Together,
these loans represent 57.6% of the Bank's net loans at June 30, 2001.  See
"Business-Lending Activities."

<PAGE>  30


Average Balances, Interest and Average Yields

      The following table sets forth certain information relating to the
Company's average balance sheet and reflect the average yield on assets and
average cost of liabilities for the years indicated and the average yields
earned and rates paid for the years indicated.  Such yields and costs are
derived by dividing income or expense by the average monthly balances of
assets and liabilities, respectively, for the years presented.  Average
balances are derived from daily balances.  Loans on nonaccrual status are
included in the average balances of loans shown in the table.  The
securities in the following table are presented at amortized cost.

<TABLE>
<CAPTION>

                                                                          Years Ended June 30,
                                     ---------------------------------------------------------------------------------------------
                                                  2001                            2000                            1999
                                     -----------------------------   -----------------------------   -----------------------------
                                                Interest   Average              Interest   Average              Interest   Average
                                     Average     Earned     Yield/   Average     Earned     Yield/   Average     Earned     Yield/
                                     Balance    or Paid     Rate     Balance    or Paid     Rate     Balance    or Paid     Rate
                                     -------    --------   -------   -------    -------    -------   -------    --------   -------
                                                                         (Dollars in thousands)


                                  <c>         <c>        <c>      <c>         <c>        <c>      <c>         <c>        <c>
Interest-earning assets:
  Loans, net                         $205,837    $16,597    8.06%    $173,319    $13,699    7.90%    $144,663    $11,377    7.86%

  Securities                           29,595      1,785    6.03%      31,196      1,822    5.84%      25,077      1,388    5.53%
  Other earning assets(1)              19,883      1,040    5.23%      11,822        656    5.55%      20,282        980    4.83%
                                     -------------------             -------------------             -------------------
    Total interest-earning assets     255,315     19,422    7.61%     216,337     16,177    7.48%     190,022     13,745    7.23%
                                                 -------                         -------
Cash and due from banks                 6,320                           4,905                           3,999
Other assets                            6,867                           6,576                           6,438
                                     --------                        --------                        --------
    Total assets                     $268,502                        $227,818                        $200,459
                                     ========                        ========                        ========

Interest-bearing liabilities:
  Regular and other deposits         $ 42,640        946    2.22%    $ 41,498        940    2.27%    $ 40,630        991    2.44%
  Now accounts                         29,472        433    1.47%      23,954        358    1.49%      23,297        379    1.63%
  Money market deposits                12,415        485    3.91%       6,947        160    2.30%       6,745        172    2.55%
  Certificate of deposit               92,451      5,332    5.77%      79,063      4,061    5.14%      67,464      3,575    5.30%
                                     -------------------             -------------------             -------------------
    Total interest-bearing
     deposits                         176,978      7,196    4.07%     151,462      5,519    3.64%     138,136      5,117    3.70%
  FHLB borrowings                      44,400      2,771    6.24%      32,314      1,927    5.96%      18,620      1,104    5.93%
                                     -------------------             -------------------             -------------------
    Total interest-bearing
     liabilities                      221,378      9,967    4.50%     183,776      7,446    4.05%     156,756      6,221    3.97%
                                                 -------                         -------
Demand deposit accounts                16,258                          11,149                           7,530
Other liabilities                       1,562                           1,438                           1,134
                                     --------                        --------                        --------
    Total liabilities                 239,198                         196,363                         165,420
Stockholders' equity                   29,304                          31,455                          35,039
                                     --------                        --------                        --------
    Total liabilities and
     stockholders' equity            $268,502                        $227,818                        $200,459
                                     ========                        ========                        ========

Net interest income                              $ 9,455                         $ 8,731                         $ 7,524
                                                 =======                         =======                         =======
Interest rate spread                                        3.11%                           3.43%                           3.26%
Net interest margin                                         3.70%                           4.04%                           3.96%
Interest-earning assets/
 interest-bearing liabilities            1.15x                           1.18x                           1.21x

<FN>
--------------------
<F1>  Other earning assets include Bank Investment Fund, Liquidity Fund,
      FHLB overnight deposits, federal funds sold, the Co-operative Central
      Bank Reserve Fund and money market accounts.
</FN>
</TABLE>

<PAGE>  31


Rate/Volume Analysis

      The following table sets forth certain information regarding changes
in interest income and interest expense of the Company for the years
indicated.  For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to:
(i) changes in volume (changes in volume multiplied by old rate); and (ii)
changes in rates (change in rate multiplied by old volume). Changes in
rate-volume (changes in rate multiplied by the changes in volume) are
allocated between changes in rate and changes in volume.

<TABLE>
<CAPTION>

                                     Year Ended June 30,             Year Ended June 30,
                                        2001 vs 2000                    2000 vs 1999
                                     Increase (decrease)             Increase (decrease)
                                 ---------------------------     ---------------------------
                                           Due to                          Due to
                                 ---------------------------     ---------------------------
                                  Rate     Volume      Total      Rate     Volume      Total
                                  ----     ------      -----      ----     ------      -----
                                                        (In thousands)


                              <c>       <c>        <c>        <c>       <c>        <c>
Interest and dividend income:
  Loans, net                     $ 283     $2,615     $2,898     $  59     $2,263     $2,322
  Securities                        58        (95)       (37)       81        353        434
  Other earning assets             (40)       424        384       130       (454)      (324)
                                 -----------------------------------------------------------
      Total                        301      2,944      3,245       270      2,162      2,432
                                 -----------------------------------------------------------

Interest expense:
  Deposits                         684        993      1,677       (84)       486        402
  Borrowed funds                    93        751        844         6        817        823
                                 -----------------------------------------------------------
      Total                        777      1,744      2,521       (78)     1,303      1,225
                                 -----------------------------------------------------------
Change in net interest income    $(476)    $1,200     $  724     $ 348     $  859     $1,207
                                 ===========================================================
</TABLE>

Financial Condition and Results of Operations

      The Company's operating results depend primarily upon its net
interest income, which is the difference between the interest income earned
on its interest-bearing assets (loans and securities), and the interest
expense paid on its interest-bearing liabilities (deposits and FHLB
borrowings).  Operating results are also significantly affected by
provisions for loan losses, other income and operating expenses.  Each of
these factors is significantly affected not only by the Company's policies,
but, to varying degrees, by general economic and competitive conditions and
by policies of state and federal regulatory authorities.

Comparison of Financial Condition at June 30, 2001 and 2000

      The Company's total assets amounted to $300.4 million at June 30,
2001 compared to $263.9 million at June 30, 2000, an increase of $36.5
million or 13.8%.  The increase in total assets is primarily attributable
to an increase in net loans of $25.8 million or 13.7% and an increase in
cash and cash equivalents of $14.8 million or 47.2%.

      Cash and cash equivalents was $46.1 million at June 30, 2001 compared
to $31.3 million at June 30, 2000.  Cash and cash equivalents increased at
June 30, 2001 due to an increase of $13.4 million in short-term investments
to $16.7 million at June 30, 2001 from $3.3 million at June 30, 2000.  The
increase in short-term investments was caused by increased deposits
resulting from a money market deposit promotion, and an increase in
liquidity needed for a large deposit relationship with a law firm which
maintains short-term deposits in real estate conveyancing accounts and has
significant fluctuations in its deposit account balances, particularly at
month-end.  The Company's increased liquidity position also reflects
generally slower loan demand and a decision not to extend long-term
investments in the current interest rate environment.

<PAGE>  32


      Net loans increased by $25.8 million or 13.7% to $215.0 million or
71.6% of total assets at June 30, 2001 as compared to $189.2 million or
71.7% of total assets at June 30, 2000 as the Bank continued its emphasis
on originating and retaining residential mortgage loans and commercial and
commercial real estate loans.   Securities held by the Company decreased by
$3.5 million or 10.1% to $31.3 million at June 30, 2001 from $34.9 million
at June 30, 2000.  The slight decrease in the Company's securities
portfolio reflects the Company's decision to invest a greater portion of
its assets in cash and cash equivalents in the current interest rate
environment.

      Total deposits increased by $30.6 million or 15.8% to $224.8 million
at June 30, 2001 from $194.1 million at June 30, 2000.  The increase
occurred primarily in money market deposits as a result of a deposit
promotion.  Money market deposits increased to $18.6 million at June 30,
2001 from $8.4 million at June 30, 2000, an increase of $10.2 million or
122.1%.  Certificates of deposit increased to $104.4 million at June 30,
2001 from $93.1 million at June 30, 2000, an increase of $11.3 million or
12.2%.  Demand deposits increased to $18.9 million at June 30, 2001 from
$16.3 million at June 30, 2000, an increase of $2.5 million or 15.6% as a
result of the Bank's continuing emphasis on developing relationships with
small business.  There was also an increase in all deposit categories.

      Total borrowings increased by $5.9 million to $44.6 million at June
30, 2001 from $38.8 million at June 30, 2000.  The Company's continued use
of borrowed funds reflects additional funding needed to support its growth
in net loans.  In addition, the Bank has secured longer-term borrowed funds
with original maturities ranging up to 15 years in order to improve its
interest rate risk and fund longer-term assets including fixed-rate
residential mortgage loans held for portfolio and mortgage-backed
securities held for investment.

      Stockholders' equity decreased by $200,000 to $29.0 million at June
30, 2001 from $29.2 million at June 30, 2000 as a result of the repurchase
of 117,614 shares of common stock held in treasury at a cost of $1.6
million, dividends paid of $524,000, offset by an increase in the net
unrealized gain on securities available for sale of $173,000, net income of
$1.2 million, proceeds from exercise of stock options of $60,000, a
reduction in unearned RRP stock of $224,000, and a reduction in unearned
ESOP shares of $339,000.

      Book value per share of common stock was $16.39 as of June 30, 2001
as compared to $16.43  as of June 30, 2000.  In calculating book value per
share, the number of shares of common stock outstanding is reduced by the
number of shares held by the ESOP that have not been allocated or not
committed to be released to participants' individual accounts, unearned RRP
shares and treasury stock.  There were 1,769,902 shares of common stock
outstanding as of June 30, 2001 for purposes of calculating the Company's
book value per share.

Comparison of the Operating Results for the Years Ended June 30, 2001 and 2000

      Net Income.  Net income was $1,185,000 for the year ended June 30,
2001 as compared to $1,689,000 for the year ended June 30, 2000.  This
$504,000 decrease in net income during the period was the result of an
increase in operating expenses of $1.8 million largely related to a one-
time, non-recurring pre-tax charge of $861,000 relating to a contractual
payment made to the Company's former President and Chief Executive Officer
and a full year's operating expense for the company's branch office opened
in Arlington, Massachusetts in May 2000, offset by an increase in other
income of $251,000, and a decrease in provision for income taxes of
$351,000.  The return on average assets for the year ended June 30, 2001
was .44% compared to .74% for the year ended June 30, 2000.  The return on
average equity for the year ended June 30, 2001 was 4.04% compared to 5.37%
for the year ended June 30, 2000.

<PAGE>  33


      Earnings per share on a basic and diluted basis was $.68 and $.67,
respectively, for the year ended June 30, 2001 compared to $.83 on a basic
and diluted basis for the year ended June 30, 2000.

      Interest Income.  Total interest and dividend income increased by
$3.2 million or 20.1% to $19.4 million for the year ended June 30, 2001
from $16.2 million for the year ended June 30, 2000.  The increase in
interest income was primarily the result of a higher level of loans and
other earning assets, partially offset by a decrease in securities.  The
average balance of net loans for the year ended June 30, 2001 was $205.8
million compared to $173.3 million for the year ended June 30, 2000.  The
average yield on net loans was 8.06% for the year ended June 30, 2001
compared to 7.90% for the year ended June 30, 2000.  The average balance of
other earning assets for the year ended June 30, 2001 was $19.9 million
compared to $11.8 million for the year ended June 30, 2000.  The average
yield on other earning assets was 5.23% for the year ended June 30, 2001
compared to 5.55% for the year ended June 30, 2000.  The average balance of
securities for the year ended June 30, 2001 was $29.6 million compared to
$31.2 million for the year ended June 30, 2000.  The average yield on
securities was 6.03% for the year ended June 30, 2001 compared to 5.84% for
the year ended June 30, 2000.

      Interest Expense.  Total interest expense increased by $2.5 million
or 33.9% to $10.0 million for the year ended June 30, 2001 from $7.4
million for the year ended June 30, 2000.  The increase in interest expense
resulted from an increase in the overall deposit balances as well as an
increase in FHLB borrowings.  Average interest-bearing deposits increased
by $25.5 million or 16.8% to $177.0 million for the year ended June 30,
2001.  Average borrowings increased by $12.1 million to $44.4 million for
the year ended June 30, 2001 from $32.3 million for the year ended June 30,
2000.  The average rate on interest-bearing deposits increased 43 basis
points to 4.07% for the year ended June 30, 2001 from 3.64% for the year
ended June 30, 2000, while the average rate on borrowed funds increased 28
basis points to 6.24% from 5.96% during the same period.

      Net Interest Income.  Net interest income for the year ended June 30,
2001 was $9.5 million as compared to $8.7 million for the year ended June
30, 2000.  The $724,000 or 8.3% increase is attributed to the $3.2 million
increase in interest and dividend income partially offset by the $2.6
million increase in interest expense on deposits and borrowed funds.  The
average yield on interest earning assets increased 13 basis points to 7.61%
for the year ended June 30, 2001 from 7.48% for the year ended June 30,
2000, while the average cost on interest-bearing liabilities increased by
45 basis points to 4.50% for the year ended June 30, 2001 from 4.05% for
the year ended June 30, 2000.  As a result, the interest rate spread
decreased by 32 basis points to 3.11% for the year ended June 30, 2001 from
3.43% for the year ended June 30, 2000.  The interest rate spread decreased
due to a higher volume of interest bearing liabilities during a period of
generally rising interest rates.

      Provision for Loan Losses.  The provision for loan losses was
$275,000 for the year ended June 30, 2001 as compared to $200,000 for the
year ended June 30, 2000.  The increase reflects the growth in net loans
and continued emphasis on small business lending.  At June 30, 2001, the
balance of the allowance for loan losses was $1,784,000 or .82% of total
loans.  During the year ended June 30, 2001, $27,000 was charged against
the allowance for loan losses while $5,000 in recoveries was credited to
the allowance for loan losses.  At June 30, 2000, the balance of the
allowance for loan losses was $1,531,000 or .80% of total loans.  During
the year ended June 30, 2000, $23,000 was charged against allowance for
loan losses while $6,000 in recoveries was credited to the allowance for
loan losses.  There was one non-performing loan of $15,000 at June 30,
2001.  At June 30, 2000, there was one non-performing loan of $2,000.

      Other Income.  Other income was $1.2 million for the year ended June
30, 2001 compared to $945,000 for the year ended June 30, 2000.  The
$251,000 or 26.6% increase was the result of an increase

<PAGE>  34


in customer service fees of $125,000, an increase in miscellaneous income
of $80,000, and an increase in the gain on the sale of securities of
$46,000.

      Operating Expenses.  Operating expenses increased by  $1.8 million or
26.1% to $8.5 million for the year ended June 30, 2001 from $6.7 million
for the year ended June 30, 2000.  Salaries and employee benefits increased
by $1.3 million, of which $861,000 is attributable to a one-time, non-
recurring pre-tax charge related to a contractual payment made to the
Company's former President and Chief Executive Officer.  Other general and
administrative expenses increased by $220,000 reflecting increases in
professional fees of $213,000.  Occupancy and equipment expense increased
by $155,000 attributable to a full year's worth of operating expenses
associated with the Arlington branch location opened in May 2000.  Data
processing expenses increased by $49,000 due to increased computer service
bureau costs.  Annual operating expenses are expected to increase in future
periods due to the increased cost of operating as a publicly held stock
institution.

Comparison of Financial Condition at June 30, 2000 and 1999

      The Company's total assets amounted to $263.9 million at June 30,
2000 compared to $215.2 million at June 30, 1999, an increase of $48.7
million or 22.6%.  The increase in total assets is primarily attributable
to an increase in net loans of $34.5 million or 22.3% and an increase in
cash and cash equivalents of $12.6 million or 67.4%.

      Cash and cash equivalents was $31.3 million at June 30, 2000 compared
to $18.7 million at June 30, 1999.  Cash and cash equivalents increased at
June 30, 2000 due to an increase of $5.5 million in federal funds sold to
$17.2 million at June 30, 2000 from $11.7 million at June 30, 1999.  The
increase in federal funds sold was caused by an increase in the liquidity
needed for a large deposit relationship with a law firm which maintains
short-term deposits in real estate conveyancing accounts and has
significant fluctuations in its deposit account balances, particularly at
month-end.  In addition, cash and cash equivalents increased at June 30,
2000 due an increase in deposits resulting from a certificate of deposit
promotion and the opening of a new branch office in Arlington,
Massachusetts.  The increase also reflects the Company's decision to
increase liquidity and shorter-term investments in a period of generally
rising interest rates.

      Net loans increased by $34.5 million or 22.3% to $189.2 million or
71.7% of total assets at June 30, 2000 as compared to $154.7 million or
71.9% of total assets at June 30, 1999 as the Bank continued its emphasis
on originating and retaining residential mortgage loans and commercial and
commercial real estate loans.   Securities held by the Company increased by
$538,000 or 1.6% to $34.9 million at June 30, 2000 from $34.4 million at
June 30, 1999.  The slight increase in the Company's securities portfolio
reflects the Company's decision to invest a greater portion of its assets
in cash and cash equivalents in a period of generally rising interest
rates.

      Total deposits increased by $33.3 million or 20.7% to $194.1 million
at June 30, 2000 from $160.9 million at June 30, 1999.  The increase
occurred primarily in certificates of deposit as a result of deposit
promotions and the opening of the Bank's new office in Arlington,
Massachusetts in May 2000.  Certificates of deposit increased to $93.1
million at June 30, 2000 from $75.0 million at June 30, 1999, an increase
of $18.1 million or 24.1%.  Demand deposits increased to $16.3 million at
June 30, 2000 from $8.6 million at June 30, 1999, an increase of $7.8
million or 91.1% as a result of the Bank's continuing emphasis on
developing relationships with small businesses.  There was also an increase
in all other deposit categories.

      Total borrowings increased by $19.8 million to $38.8 million at June
30, 2000 from $19.0 million at June 30, 1999.  The Company's continued use
of borrowed funds reflects additional funding needed to

<PAGE>  35


support its growth in net loans.  In addition, the Bank has secured longer-
term borrowed funds with original maturities ranging up to 15 years in
order to improve its interest rate risk and fund longer-term assets
including fixed-rate residential mortgage loans held for portfolio and
mortgage-backed securities held for investment.

      Stockholders' equity decreased by $4.9 million to $29.2 million at
June 30, 2000 from $34.1 million at June 30, 1999 as a result of the
repurchase of 436,180 shares of common stock held in treasury at a cost of
$4.9 million, the repurchase of 102,942 shares of common stock at a cost of
$1.3 million to fund the Company's Recognition and Retention Plan ("RRP"),
dividends paid of $522,000, and a reduction in the net unrealized gain on
securities available for sale of $449,000, offset by net income of $1.7
million, a reduction in unearned RRP stock of $364,000, and a reduction in
unearned ESOP shares of $289,000.

      Book value per share of common stock was $16.43 as of June 30, 2000
as compared to $15.06 as of June 30, 1999.  In calculating book value per
share, the number of shares of common stock outstanding is reduced by the
number of shares held by the ESOP that have not been allocated or not
committed to be released to participants' individual accounts, unearned RRP
shares and treasury stock.  There were 1,776,866 shares of common stock
outstanding as of June 30, 2000 for purposes of calculating the Company's
book value per share.

Comparison of the Operating Results for the Years Ended June 30, 2000 and 1999

      Net Income.  Net income was $1,689,000 for the year ended June 30,
2000 as compared to $1,502,000 for the year ended June 30, 1999.  This
$187,000 increase in net income during the period was the result of an
increase of $1.2 million in net interest income, offset by a decrease in
other income of $191,000, an increase in operating expenses of $673,000,
and an increase in provision for income taxes of $101,000.  The return on
average assets for the year ended June 30, 2000 was .74% compared to .75%
for the year ended June 30, 1999.  The return on average equity for the
year ended June 30, 2000 was 5.37% compared to 4.29% for the year ended
June 30, 1999.

      Earnings per share on a basic and diluted basis was $.83 for the year
ended June 30, 2000 compared to $.63 for the year ended June 30, 1999.

      Interest Income.  Total interest and dividend income increased by
$2.4 million or 17.7% to $16.2 million for the year ended June 30, 2000
from $13.7 million for the year ended June 30, 1999.  The increase in
interest income was primarily the result of a higher level of loans and
securities, partially offset by a decrease in other earning assets.  The
average balance of net loans for the year ended June 30, 2000 was $173.3
million compared to $144.7 million for the year ended June 30, 1999.  The
average yield on net loans was 7.90% for the year ended June 30, 2000
compared to 7.86% for the year ended June 30, 1999.  The average balance of
securities for the year ended June 30, 2000 was $31.2 million compared to
$25.1 million for the year ended June 30, 1999.  The average yield on
securities was 5.84% for the year ended June 30, 2000 compared to 5.53% for
the year ended June 30, 1999.  The average balance of other earning assets
for the year ended June 30, 2000 was $11.8 million compared to $20.3
million for the year ended June 30, 1999.  The average yield on other
earning assets was 5.55% for the year ended June 30, 2000 compared to 4.83%
for the year ended June 30, 1999.

      Interest Expense.  Total interest expense increased by $1.2 million
or 19.7% to $7.4 million for the year ended June 30, 2000 from $6.2 million
for the year ended June 30, 1999.  The increase in interest expense
resulted from an increase in the overall deposit balances as well as an
increase in FHLB borrowings.  Average interest-bearing deposits increased
by $13.3 million or 9.7% to $151.5 million for the year ended June 30,
2000.  Average borrowings increased by $13.7 million to $32.3 million for the

<PAGE>  36


year ended June 30, 2000 from $18.6 million for the year ended June 30,
1999.  The average rate on interest-bearing deposits decreased six basis
points to 3.64% for the year ended June 30, 2000 from 3.70% for the year
ended June 30, 1999, while the average rate on borrowed funds increased
three basis points to 5.96% from 5.93% during the same period.

      Net Interest Income.  Net interest income for the year ended June 30,
2000 was $8.7 million as compared to $7.5 million for the year ended June
30, 1999.  The $1.2 million or 16.0% increase is attributed to the $2.4
million increase in interest and dividend income partially offset by the
$1.2 million increase in interest expense on deposits and borrowed funds.
The average yield on interest earning assets increased 25 basis points to
7.48% for the year ended June 30, 2000 from 7.23% for the year ended June
30, 1999, while the average cost on interest-bearing liabilities increased
by eight basis points to 4.05% for the year ended June 30, 2000 from 3.97%
for the year ended June 30, 1999.  As a result, the interest rate spread
increased to 17 basis points to 3.43% for the year ended June 30, 2000 from
3.26% for the year ended June 30, 1999.  The interest rate spread increased
due to a higher volume of loans and securities during a period of generally
rising interest rates.

      Provision for Loan Losses.  The provision for loan losses was
$200,000 for the year ended June 30, 2000 as compared to $145,000 for the
year ended June 30, 1999.  The increase reflects the growth in net loans
and continued emphasis on small business lending.  At June 30, 2000, the
balance of the allowance for loan losses was $1,531,000 or .80% of total
loans.  During the year ended June 30, 2000, $23,000 was charged against
the allowance for loan losses while $6,000 in recoveries was credited to
the allowance for loan losses.  At June 30, 1999, the balance of the
allowance for loan losses was $1,348,000 or .86% of total loans.  During
the year ended June 30, 1999, $36,000 was charged against allowance for
loan losses while $3,000 in recoveries was credited to the allowance for
loan losses.  There was one non-performing loan of $2,000 at June 30, 2000.
At June 30, 1999, there were no non-performing loans.

      Other Income.  Other income was $945,000 for the year ended June 30,
2000 compared to $1.1 million for the year ended June 30, 1999.  The
$191,000 or 16.8% decrease was primarily the result of a decrease in the
gain on the sale of mortgage loans of $97,000, a decrease in the gain on
the sale of securities of $114,000, a decrease in miscellaneous income of
$23,000, and a decrease in the Co-operative Central Bank Share Insurance
Fund special dividend of $16,000, partially offset by an increase in
customer service fees of $67,000.

      Operating Expenses.  Operating expenses increased by  $673,000 or
11.1% to $6.7 million for the year ended June 30, 2000 from $6.1 million
for the year ended June 30, 1999.  Salaries and employee benefits increased
by $654,000, of which $196,000 was attributable to a full year's worth of
expense for   the Company's Recognition and Retention Plan adopted in March
1999.  Salaries and benefits also increased because of a full year's worth
of expense related to the full-service office opened in Lexington,
Massachusetts, in November 1998 and a partial year's expense related to the
full-service office opened in Arlington, Massachusetts in May 2000.  Normal
salary increases also contributed to the increase.   Occupancy and
equipment expense increased by $158,000 due to rental expense, real estate
taxes, and equipment depreciation costs associated with the opening of the
Lexington and Arlington offices.

      Data processing expense decreased by $33,000, while other general and
administrative expenses decreased by $106,000 as a result of lower
insurance costs and lower professional fees.  Annual operating expenses are
expected to increase in future periods due to the increased cost of
operating as a publicly held stock institution.

<PAGE>  37


Liquidity and Capital Resources

      The Company's primary sources of funds consist of deposits,
borrowings, repayment and prepayment of loans, sales and participations of
loans, maturities of securities and interest-bearing deposits, and funds
provided from operations.  While scheduled repayments of loans and
maturities of securities are predictable sources of funds, deposit flows
and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions, and competition.  The Company uses its
liquidity resources primarily to fund existing and future loan commitments,
to fund net deposit outflows, to invest in other interest-earning assets,
to maintain liquidity, and to meet operating expenses.

      The Company is required to maintain adequate levels of liquid assets.
This guideline, which may be varied depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term
borrowings.  The Company has historically maintained a level of liquid
assets in excess of regulatory requirements.  The Company's liquidity ratio
at June 30, 2001 was 81.5%, using the short-term assets to short-term
liabilities formula defined under the Federal Deposit Insurance
Corporation's Uniform Bank Performance Reports.

      A major portion of the Company's liquidity consists of cash and cash
equivalents, short-term U.S. Government and federal agency obligations, and
corporate bonds.  The level of these assets is dependent upon the Company's
operating, investing, lending and financing activities during any given
period.

      Liquidity management is both a daily and long-term function of
management.  If the Company requires funds beyond its ability to generate
them internally, the Company believes it could borrow additional funds from
the FHLB.  At June 30, 2001, the Company had borrowings of $44.6 million
from the FHLB.

      At June 30, 2001, the Company had $5.0 million in outstanding
commitments to originate loans.  The Company anticipates that it will have
sufficient funds available to meet its current loan origination
commitments.  Certificates of deposit which are scheduled to mature in one
year or less totaled $78.0 million at June 30, 2001.  Based upon historical
experience, management believes that a significant portion of such deposits
will remain with the Bank.

      At June 30, 2001, the Company and the Bank exceeded all of their
regulatory capital requirements.  For further information regarding the
Company's and the Bank's regulatory capital at June 30, 2001 see
"Regulation-Federal Banking Regulations-Capital Requirements."

Impact of Inflation and Changing Prices

      The consolidated financial statements and related data presented
herein have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and results of operations in terms of
historical dollars without considering changes in the relative purchasing
power of money over time because of inflation.  Unlike most industrial
companies, virtually all of the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a more significant
impact on the Company's performance than the effects of general levels of
inflation.  Interest rates do not necessarily move in the same direction or
in the same magnitude as the prices of goods and services.

<PAGE>  38


Impact of New Accounting Standards

      In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which, as
amended by SFAS Nos. 137 and 138, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.  This Statement establishes
accounting and reporting standards for derivative instruments and hedging
activities, including certain derivative instruments embedded in other
contracts, and requires that an entity recognize all derivatives as assets
or liabilities in the balance sheet and measure them at fair value.  This
Statement was adopted July 1, 2000 and impacted the Banks' accounting for
written covered call options.  As written covered call options do not
qualify for hedge accounting, the changes in fair value of the option is
reflected in net income whereas, the changes in fair value of marketable
equity securities subject to option will continue to be included in
stockholders' equity as other comprehensive income or loss.  The cumulative
effect of this change in accounting principle during the year ended June
30, 2001 was an increase in net income of $3,000, net of tax effects.

      In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets."  These Statements
change the accounting for business combinations and goodwill and intangible
assets.  SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001.  Use of
the pooling-of-interests method is prohibited.  SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach.  In addition, this Statement requires that acquired intangible
assets, as defined, be amortized over their useful lives.  This Standard
would be effective for the Company no later than July 1, 2002.  Management
does not anticipate that the adoption of these Statements will have a
material impact on the consolidated financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Market risk is the risk of loss in a financial instrument arising
from adverse changes in market rates/prices such as interest rates, foreign
currency exchange rates, commodity prices, and equity prices.  The
Company's primary market risk exposure is interest rate risk.  The ongoing
monitoring and management of this risk is an important component of the
Company's asset/liability management process which is governed by policies
established by its Board of Directors that are reviewed and approved
annually.  The Board of Directors delegates responsibility for carrying out
the asset/liability management policies to the Asset/Liability Management
Committee ("ALCO").  In this capacity, ALCO develops guidelines and
strategies affecting the Company's asset/liability management related
activities based upon estimated market risk sensitivity, policy limits and
overall market interest rate levels and trends.

      The ALCO is composed of members of management and the Board of
Directors to monitor the difference between the Company's maturing and
repricing assets and liabilities and to develop and implement strategies to
manage the possible change in the Company's net interest margin resulting
from changes in interest rates.  The primary responsibilities of the ALCO
are to assess the Company's asset/liability mix, recommend strategies to
the board that will enhance income while managing the Company's
vulnerability to changes in interest rates and report to the board the
results of the strategies used.

      Interest rate risk represents the sensitivity of earnings to changes
in market interest rates.  As interest rates change the interest income and
expense streams associated with the Company's financial instruments also
change thereby affecting net interest income ("NII"), the primary component
of the Company's earnings.  During the year ended June 30, 2001, the
Company began using working with a

<PAGE>  39


consulting group to perform its interest rate risk simulation analysis.
ALCO utilizes the results of a simulation model to quantify the estimated
exposure of NII to sustained interest rate changes.  While ALCO routinely
monitors simulated NII sensitivity over a rolling one-year horizon, it also
utilizes additional tools to monitor potential longer-term risk.

      The simulation model captures the impact of changing interest rates
on the interest income received and interest expense paid on all assets and
liabilities reflected on the Company's balance sheet.  This sensitivity
analysis is compared to board and ALCO policy limits which specify a
maximum tolerance level for NII exposure over a one year horizon, assuming
no balance sheet growth, given both a 200 basis point upward and downward
shift in interest rates.  The Company uses various other assumptions in its
sensitivity analysis.  For securities, in the event of a call provision, if
the interest rate is lower than the contractual rate, reinvestment is
assumed at the lower rate.  For residential mortgage loans, the Company
uses the PSA method to generate different prepayment assumptions.
Commercial loans and commercial real estate loans do not include any
amortization or prepayment amounts.  For money market accounts, NOW
accounts, and regular savings deposits, not all deposits within these
categories are assumed to increase by the full extent of the interest rate
shift based upon management's judgment as to deposit elasticity.  The
following reflects the Company's NII sensitivity analysis as of June 30,
2001.

<TABLE>
<CAPTION>

                                    Estimated NII Sensitivity
                                    -------------------------
              Rate Change           Year One         Year Two
              -----------           --------         --------

              
                   <c>              <c>
              +200 basis points      4.75%           13.65%
              -200 basis points     (6.24%)          (8.28%)

</TABLE>

      The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of expected
operating results.  These hypothetical estimates are based upon numerous
assumptions including: the nature and timing of interest rate levels
including yield curve shape, prepayments on loans and securities, changes
in deposit levels, pricing decisions on loans and deposits, reinvestment of
asset and liability cash flows, and others.  While assumptions are
developed based upon current economic and local market conditions, the
Company cannot make any assurances as to the predictive nature of these
assumptions including how customer preferences or competitor influences
might change.

      In addition, as market conditions vary from those assumed in the
sensitivity analysis, actual results will also differ due to: prepayment
and refinancing levels likely deviating from those assumed, the varying
impact of interest rate changes caps or floors on adjustable rate assets,
the potential effect of changing debt service levels on customers with
adjustable rate loans, depositor early withdrawals and product preference
changes, and other internal and external variables.  Furthermore, the
sensitivity analysis does not reflect actions that ALCO might take in
responding to or anticipating changes in interest rates.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Consolidated Financial Statements of Mystic Financial, Inc. and
Subsidiary are included in pages F-1 through F-38 of this report.

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

      None.

<PAGE>  40


                                  PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following information included on pages 6 through 10, and page 21
of the Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders (the "Proxy Statement") is incorporated herein by reference:
"Election of Directors," "Information as to Nominees and Continuing
Directors," "Nominees for Election as Director," "Executive Officers," and
" - Section 16(a) Beneficial Ownership Reporting Compliance."

ITEM 11.  EXECUTIVE COMPENSATION

      The following information included on pages 11 through 19 of the
Proxy Statement is incorporated herein by reference: "Compensation of
Directors and Executive Officers-Directors' Compensation," "-Executive
Compensation," "-Employment Agreements," and "-Benefits."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following information included on pages 3 through 5 of the Proxy
Statement is incorporated herein by reference: "Security Ownership of
Certain Beneficial Owners and Management-Principal Stockholders of the
Company" and "-Security Ownership of Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The following information included on page 21 of the Proxy Statement
is incorporated herein by reference: "Compensation of Directors and
Executive Officers-Transactions with Certain Related Persons."

                                   PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

          (a)  Listed below are all financial statements and exhibits filed
               as part of this report:

          (1)  The consolidated balance sheets of Mystic Financial, Inc.
               and subsidiary as of June 30, 2001 and 2000 and the related
               consolidated statements of income, changes in stockholders'
               equity and cash flows for each of the years in the three-
               year period ended June 30, 2001, together with the related
               notes and the independent auditors' report of Wolf &
               Company, P.C. independent certified public accountants.
          (2)  Schedules omitted as they are not applicable.
          (3)  Exhibits

<PAGE>  41


<TABLE>
<CAPTION>

Exhibit No.     Description
-----------     -----------


             <c>
3.1             Certificate of Incorporation of Mystic Financial, Inc.*

3.2             Bylaws of Mystic Financial, Inc.*

4.3             Specimen of Stock Certificate of Mystic Financial, Inc.*

10.1            Employee Stock Ownership Plan and Trust Agreement of Mystic Financial, Inc.*

10.2            Employment Agreement between Medford Co-operative Bank and Ralph W. Dunham. *

10.3            Employment Agreement between Medford Co-operative Bank and John O'Donnell. *

10.4            Employment Agreement between Medford Co-operative Bank and Thomas G. Burke. *

10.5            Employment Agreement between Medford Co-operative Bank and Robert Kaminer **

10.6            Severance Pay Plan of Medford Co-operative Bank **

10.7            Mystic Financial, Inc. Retirement Plan for Non-employee Directors ***

21.1            Subsidiaries of the Registrant. *

23.1            Consent of Wolf & Company, P.C.

99.1            Proxy Statement for the 2001 Annual Meeting of Stockholders of Mystic Financial, Inc.
                (filed with the Securities and Exchange Commission on September 26, 2001).

<FN>
--------------------
*     Incorporated herein by reference to Registration Statement
      No. 333-34447 on Form S-1 of Mystic Financial, Inc. filed with the
      Securities and Exchange Commission on August 27, 1997, as amended.
**    Incorporated herein by reference to the Quarterly Report on Form 10-Q
      of Mystic Financial, Inc. filed with the Securities and Exchange
      Commission on November 14, 2000.
***   Incorporated herein by reference to the Quarterly Report on Form 10-Q
      of Mystic Financial, Inc. filed with the Securities and Exchange
      Commission on February 21, 2001.
(b)   The Company filed a Form 8-K on April 16, 2001, which included a
      press release announcing the retirement of Robert H. Surabian as the
      President and Chief Executive Officer of the Company and the Bank.
</FN>
</TABLE>

<PAGE>  42


                                 SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it has duly caused this
report to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Medford, Commonwealth of Massachusetts, on
September 19, 2001.

                                     Mystic Financial, Inc.


                                     By: /s/ Ralph W. Dunham
                                         --------------------------------
                                         Ralph W. Dunham
                                         President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed by the following persons in the
capacities and on the dates indicated.

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

/s/ Ralph W. Dunham            Director, President, Chief    September 19, 2001
----------------------------   Executive Officer, and
Ralph W. Dunham                Treasurer (Principal
                               executive officer)

/s/ Deborah A. McNeill         Principal financial and       September 19, 2001
----------------------------   accounting officer
Deborah A. McNeill

/s/ Julie Bernardin            Director                      September 19, 2001
----------------------------
Julie Bernardin


/s/ Frederick N. Dello Russo   Director                      September 19, 2001
----------------------------
Frederick N. Dello Russo

/s/ John A. Hackett            Director                      September 19, 2001
----------------------------
John A. Hackett

/s/ Richard M. Kazanjian       Director                      September 19, 2001
----------------------------
Richard M. Kazanjian

/s/ John W. Maloney            Director                      September 19, 2001
----------------------------
John W. Maloney

/s/ John J. McGlynn            Director, Chairman of the     September 19, 2001
----------------------------   Board
John J. McGlynn

/s/ Lorraine P. Silva          Director                      September 19, 2001
----------------------------
Lorraine P. Silva

<PAGE>  43


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       Page
                                                                       ----

Independent Auditors' Report                                            F-2

Consolidated Balance Sheets as of June 30, 2001 and 2000                F-3

Consolidated Statements of Income for each of the years
      in the three-year period ended June 30, 2001                      F-4

Consolidated Statements of Changes in Stockholders'
      Equity for each of the years in the three-year period
      ended June 30, 2001                                               F-5

Consolidated Statements of Cash Flows for
      each of the years in the three-year period ended
      June 30, 2001                                                     F-6

Notes to Consolidated Financial Statements                              F-8

<PAGE>  F-1


                    [Letterhead of Wolf & Company, P.C.]

                        INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
 of Mystic Financial, Inc.

We have audited the consolidated balance sheets of Mystic Financial, Inc.
and subsidiary as of June 30, 2001 and 2000, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mystic
Financial, Inc. and subsidiary as of June 30, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-
year period ended June 30, 2001 in conformity with accounting principles
generally accepted in the United States of America.

/s/ Wolf & Company, P.C.

Boston, Massachusetts
July 20, 2001

<PAGE>  F-2


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                   ASSETS

                                                             June 30,
                                                     ----------------------
                                                       2001          2000
                                                       ----          ----
                                                     (Dollars In Thousands)


                                                  <c>           <c>
Cash and due from banks                              $ 10,459      $ 10,842
Federal funds sold                                     18,992        17,181
Short-term investments                                 16,678         3,308
                                                     ----------------------
      Total cash and cash equivalents                  46,129        31,331

Securities available for sale, at fair value           28,820        32,452
Federal Home Loan Bank stock, at cost                   2,532         2,438
Loans, net of allowance for loan losses of $1,784
 and $1,531, respectively                             215,035       189,200
Mortgage loans held for sale                              274           543
Banking premises and equipment, net                     2,493         2,805
Real estate held for investment, net                    1,649         1,673
Accrued interest receivable                             1,410         1,324
Due from Co-operative Central Bank                        929           929
Other assets                                            1,131         1,193
                                                     ----------------------
                                                     $300,402      $263,888
                                                     ======================

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                             $224,750      $194,135
Federal Home Loan Bank borrowings                      44,618        38,750
Mortgagors' escrow accounts                               756           672
Accrued interest payable                                  558           481
Accrued expenses and other liabilities                    705           661
                                                     ----------------------
      Total liabilities                               271,387       234,699
                                                     ----------------------

Commitments and contingencies (Note 9)

Stockholders' equity:
  Preferred stock, $.01 par value, 1,000,000
   shares authorized; none issued                           -             -
  Common stock, $.01 par value, 5,000,000
   shares authorized; 2,716,125 and 2,711,125
   shares issued, respectively                             27            27
  Additional paid-in capital                           25,643        25,601
  Retained earnings                                    15,956        15,295
  Treasury stock, at cost - 820,041 shares and
   702,427 shares, respectively                       (10,055)       (8,424)
  Accumulated other comprehensive income (loss)           118           (55)
  Unearned ESOP shares                                 (1,967)       (2,324)
  Unearned RRP shares                                    (707)         (931)
                                                     ----------------------
      Total stockholders' equity                       29,015        29,189
                                                     ----------------------
                                                     $300,402      $263,888
                                                     ======================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-3


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                 Years Ended June 30,
                                                          ---------------------------------
                                                            2001         2000         1999
                                                            ----         ----         ----
                                                    (Dollars In Thousands, Except Per Share Data)


                                                     <c>          <c>          <c>
Interest and dividend income:
  Interest and fees on loans                              $16,597      $13,699      $11,377
  Interest and dividends on securities                      1,785        1,822        1,388
  Other interest                                            1,040          656          980
                                                          ---------------------------------
      Total interest and dividend income                   19,422       16,177       13,745
                                                          ---------------------------------

Interest expense:
  Deposits                                                  7,196        5,519        5,117
  Federal Home Loan Bank borrowings                         2,771        1,927        1,104
                                                          ---------------------------------
      Total interest expense                                9,967        7,446        6,221
                                                          ---------------------------------
Net interest income                                         9,455        8,731        7,524
Provision for loan losses                                     275          200          145
                                                          ---------------------------------
Net interest income, after provision for loan losses        9,180        8,531        7,379
                                                          ---------------------------------

Other income:
  Customer service fees                                       809          684          617
  Gain on sale of securities available for sale, net          174          128          242
  Co-operative Central Bank Share Insurance Fund
   special dividend                                            35           35           51
  Miscellaneous                                               178           98          226
                                                          ---------------------------------
      Total other income                                    1,196          945        1,136
                                                          ---------------------------------

Operating expenses:
  Salaries and employee benefits                            5,437        4,106        3,452
  Occupancy and equipment expenses                            907          752          594
  Data processing expenses                                    345          296          329
  Other general and administrative expenses                 1,781        1,561        1,667
                                                          ---------------------------------
      Total operating expenses                              8,470        6,715        6,042
                                                          ---------------------------------
Income before income taxes                                  1,906        2,761        2,473
Provision for income taxes                                    721        1,072          971
                                                          ---------------------------------
Net income                                                $ 1,185      $ 1,689      $ 1,502
                                                          =================================

Earnings per share - basic                                $  0.68      $  0.83      $  0.63
                                                          =================================

Weighted average shares outstanding - basic             1,731,874    2,024,201    2,375,440
                                                        ===================================

Earnings per share - diluted                              $  0.67      $  0.83      $  0.63
                                                          =================================

Weighted average shares outstanding - diluted           1,767,902    2,024,201    2,375,440
                                                        ===================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-4


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  Years Ended June 30, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                              Accumulated
                                           Additional                            Other       Unearned    Unearned      Total
                                  Common    Paid-In    Retained   Treasury   Comprehensive     ESOP        RRP      Stockholders'
                                  Stock     Capital    Earnings    Stock     Income (Loss)    Shares      Shares       Equity
                                  ------   ----------  --------   --------   -------------   --------    --------   --------------
                                                                      (Dollars In Thousands)


                                <c>      <c>        <c>        <c>           <c>         <c>           <c>         <c>
Balance at June 30, 1998           $27      $25,710    $13,173    $    (21)     $   432     $ (3,194)     $    -      $ 36,127
                                                                                                                      --------
Comprehensive income:
  Net income                         -            -      1,502           -            -            -           -         1,502
  Change in net unrealized
   gains/losses on securities
   available for sale, net of
   reclassification adjustment
   and tax effects                   -            -          -           -          (38)           -           -           (38)
                                                                                                                      --------
      Total comprehensive income                                                                                         1,464
                                                                                                                      --------
Cash dividends paid ($0.21 per
 share)                              -            -       (547)          -            -            -           -          (547)
Purchase of treasury stock
 (264,127 shares)                    -            -          -      (3,464)           -            -           -        (3,464)
Decrease in unearned ESOP
 shares                              -          (22)         -           -            -          494           -           472
                                   -------------------------------------------------------------------------------------------
Balance at June 30, 1999            27       25,688     14,128      (3,485)         394       (2,700)          -        34,052
                                                                                                                      --------
Comprehensive income:
  Net income                         -            -      1,689           -            -            -           -         1,689
  Change in net unrealized
   gains/losses on securities
   available for sale, net of
   reclassification adjustment
   and tax effects                   -            -          -           -         (449)           -           -          (449)
                                                                                                                      --------
      Total comprehensive income                                                                                         1,240
                                                                                                                      --------
Cash dividends paid ($0.26
 per share)                          -            -       (522)          -            -            -           -          (522)
Purchase of treasury stock
 (436,180 shares)                    -            -          -      (4,939)           -            -           -        (4,939)
Decrease in unearned ESOP shares     -          (87)         -           -            -          376           -           289
Purchase of RRP shares               -            -          -           -            -            -      (1,295)       (1,295)
Decrease in unearned RRP shares      -            -          -           -            -            -         364           364
                                   -------------------------------------------------------------------------------------------
Balance at June 30, 2000            27       25,601     15,295      (8,424)         (55)      (2,324)       (931)       29,189
                                                                                                                      --------
Comprehensive income:
  Net income                         -            -      1,185           -            -            -           -         1,185
  Change in net unrealized
   gains/losses on securities
   available for sale, net of
   reclassification adjustment
   and tax effects                   -            -          -           -          173            -           -           173
                                                                                                                      --------
      Total comprehensive income                                                                                         1,358
                                                                                                                      --------
Cash dividends paid ($0.31
 per share)                          -            -       (524)          -            -            -           -          (524)
Purchase of treasury stock
 (117,614 shares)                    -            -          -      (1,631)           -            -           -        (1,631)
Stock options exercised
 (5,000 shares)                      -           60          -           -            -            -           -            60
Decrease in unearned ESOP shares     -          (18)         -           -            -          357           -           339
Decrease in unearned RRP shares      -            -          -           -            -            -         224           224
                                   -------------------------------------------------------------------------------------------
Balance at June 30, 2001           $27      $25,643    $15,956    $(10,055)     $   118     $ (1,967)     $ (707)     $ 29,015
                                   ===========================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-5


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Years Ended June 30,
                                                                       ----------------------------------
                                                                         2001         2000         1999
                                                                         ----         ----         ----
                                                                                 (In Thousands)


                                                                    <c>          <c>          <c>
Cash flows from operating activities:
  Net income                                                           $  1,185     $  1,689     $  1,502
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Provision for loan losses                                               275          200          145
    Net amortization (accretion) of securities                              (51)         (29)          39
    Gain on sales of loans                                                   (8)          (3)          (3)
    Amortization of unearned ESOP shares                                    339          289          472
    Amortization of unearned RRP stock                                      224          364            -
    Gain on sales of securities available for sale, net                    (174)        (128)        (242)
    Depreciation expense                                                    418          375          363
    Deferred income tax benefit                                             (75)         (82)         (63)
    Net change in:
      Loans held for sale                                                   269         (137)        (326)
      Accrued interest receivable                                           (86)         (59)        (166)
      Other assets                                                           58         (646)        (108)
      Accrued interest payable                                               77          147           46
      Accrued expenses and other liabilities                                 44          466         (446)
                                                                       ----------------------------------
        Net cash provided by operating activities                         2,495        2,446        1,213
                                                                       ----------------------------------

Cash flows from investing activities:
  Activity in available-for-sale securities:
    Sales                                                                20,388        9,888        1,071
    Maturities, prepayments and calls                                    14,769          331        7,505
    Purchases                                                           (31,048)     (11,432)     (25,453)
  Maturities, prepayments and calls of held to maturity securities            -        1,500       10,504
  Purchase of Federal Home Loan Bank stock                                  (94)      (1,358)         (83)
  Loans originated, net of payments received                            (30,413)     (36,386)     (16,572)
  Proceeds from sales of loans                                            4,311        1,678          334
  Purchases of banking premises and equipment                               (45)        (466)        (405)
  Additions to real estate held for investment                              (37)           -           (1)
                                                                       ----------------------------------
        Net cash used by investing activities                           (22,169)     (36,245)     (23,100)
                                                                       ----------------------------------

                                 (continued)

See accompanying notes to consolidated financial statements.

<PAGE>  F-6


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

              CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)

<CAPTION>
                                                                              Years Ended June 30,
                                                                       ----------------------------------
                                                                         2001         2000         1999
                                                                         ----         ----         ----
                                                                                 (In Thousands)


                                                                    <c>          <c>          <c>
Cash flows from financing activities:
  Net increase in deposits                                               30,615       33,268       16,101
  Proceeds from borrowings                                               17,900       35,200        3,600
  Repayment of borrowings                                               (12,032)     (15,428)      (1,127)
  Net increase in mortgagors' escrow accounts                                84          125           66
  Purchase of treasury stock                                             (1,631)      (4,939)      (3,464)
  Proceeds from exercise of stock options                                    60            -            -
  Purchase of RRP shares                                                      -       (1,295)           -
  Cash dividends paid                                                      (524)        (522)        (547)
                                                                       ----------------------------------
        Net cash provided by financing activities                        34,472       46,409       14,629
                                                                       ----------------------------------
Net change in cash and cash equivalents                                  14,798       12,610       (7,258)

Cash and cash equivalents at beginning of year                           31,331       18,721       25,979
                                                                       ----------------------------------

Cash and cash equivalents at end of year                               $ 46,129     $ 31,331     $ 18,721
                                                                       ==================================
Supplemental information:
  Interest paid                                                        $  9,890     $  7,299     $  6,175
  Income taxes paid                                                         969        1,215        1,232
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-7


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  Years Ended June 30, 2001, 2000 and 1999

l.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and business

The consolidated financial statements include the accounts of Mystic
Financial, Inc. (the "Company") and its wholly-owned subsidiary, Medford Co-
operative Bank (the "Bank"). The Bank has two wholly-owned subsidiaries,
Mystic Securities Corp., which engages in the purchase and sale of
securities and Mystic Investment Inc. which is inactive. Mystic Financial,
Inc. became the Bank's holding company on January 8, 1998 in connection with
the Bank's conversion from mutual to stock form. Effective May 25, 2000, the
Company changed its classification from a bank holding company to a
financial holding company. All significant intercompany accounts have been
eliminated in consolidation.

The Bank provides a variety of financial services to individuals and
businesses through its six offices in Medford, Arlington and Lexington,
Massachusetts. Its primary deposit products are checking, savings and term
certificate accounts, and its primary lending products are residential and
commercial mortgage, commercial and consumer loans.

Use of estimates

In preparing consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the balance sheet date and reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation reserve for
deferred tax assets.

Cash equivalents

Cash equivalents include amounts due from banks, federal funds sold and
short-term investments with original maturities of three months or less.

Short-term investments

Short-term investments are carried at cost, which approximates fair value,
and consist of money market funds and interest-bearing deposits in the Bank
Investment Fund-Liquidity Fund.

<PAGE>  F-8


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Securities

Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and recorded at amortized
cost. Securities not classified as held to maturity or trading, including
equity securities with readily determinable fair values, are classified as
"available for sale" and recorded at fair value, with unrealized gains and
losses excluded from earnings and reported in other comprehensive
income/loss.

Purchase premiums and discounts are recognized in interest income by the
interest method over the terms of the securities. Declines in the fair value
of securities below their cost that are deemed to be other than temporary
are reflected in earnings as realized losses. Gains and losses on the sale
of securities are recorded on the trade date using the specific
identification method.

Loans

The Bank grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio consists of mortgage loans in the
Greater Boston area. The ability of the Bank's debtors to honor their
contracts is dependent upon the local real estate market and economy in this
area.

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their
outstanding unpaid principal balances adjusted for charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated
loans. Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest
method.

The accrual of interest on loans is discontinued at the time the loan is
over 90 days delinquent. Loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest
on these loans is accounted for on the cash-basis or cost-recovery method,
until qualifying for return to accrual. Loans are returned to accrual status
when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.

A loan is considered impaired when, based on current information and events,
it is probable that a creditor will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. Impaired loans are generally maintained on a
non-accrual basis. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are
not classified as impaired.

<PAGE>  F-9


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Loans (concluded)

Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower's prior payment record,
and the amount of the shortfall in relation to the principal and interest
owed. Impairment is measured on a loan by loan basis by the fair value of
the existing collateral.

Large groups of smaller balance homogeneous loans are collectively evaluated
for impairment. Accordingly, the Bank does not separately identify
individual consumer loans for impairment disclosures.

Allowance for loan losses

The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management believes the
uncollectibility of the loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.

The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are classified as either doubtful,
substandard or special metion. For such loans that are also classified as
impaired, an allowance is established when the collateral value of the
impaired loan is lower than the carrying value of that loan. The general
component covers non-classified loans and is based on historical loss
experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect management's estimate of
probable losses. The unallocated component of the allowance reflects the
margin if imprecision inherent in the underlying assumptions used in the
methodologies for estimating losses in the portfolio.

Mortgage loans held for sale

Loans originated and intended for sale in the secondary market are carried
at the lower of cost or estimated fair value in the aggregate. Fair value is
based on commitments on hand from investors or prevailing market prices. Net
unrealized losses, if any, are recognized through a valuation allowance by
charges to income.

<PAGE>  F-10


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Banking premises and equipment and real estate held for investment

Land is carried at cost. Buildings, equipment and improvements are stated at
cost, less accumulated depreciation, computed on the straight-line method
over the estimated useful lives of the assets.

Pension plan

It is the Company's policy to fund pension plan costs in the year of
accrual.

Transfers of financial assets

Transfers of financial assets are accounted for as sales, when control over
the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when (1) the assets have been isolated from the Bank, (2)
the transferee obtains the right (free of conditions that constrain it from
taking advantage of that right) to pledge or exchange the transferred
assets, and (3) the Bank does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.

Income taxes

Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
accordingly through the provision for income taxes. The Bank's base amount
of its federal income tax reserve for loan losses is a permanent difference
for which there is no recognition of a deferred tax liability. However, the
loan loss allowance maintained for financial reporting purposes is a
temporary difference with allowable recognition of a related deferred tax
asset, if it is deemed realizable.

Employee stock ownership plan ("ESOP")

Compensation expense is recognized based on the current market price of
shares committed to be released to employees. All shares released and
committed to be released are deemed outstanding for purposes of earnings per
share calculations. Dividends declared on all allocated shares held by the
ESOP are charged to retained earnings. The value of unearned shares to be
allocated to ESOP participants for future services not yet performed is
reflected as a reduction of stockholders' equity.

<PAGE>  F-11


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock compensation plans

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the
award and is recognized over the service period, which is usually the
vesting period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date
(or other measurement date) over the amount an employee must pay to acquire
the stock. Stock options issued under the Company's stock option plan have
no intrinsic value at the grant date, and under APB No. 25 no compensation
cost is recognized for them. The Company has elected to continue with the
accounting methodology in APB No. 25 and, as result, has provided pro forma
disclosures of net income and earnings per share and other disclosures, as
if the fair value based method of accounting had been applied. (See note
12.)

Earnings per common share

Basic earnings per share represents income available to common stock divided
by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that
would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the
assumed conversion. Potential common shares that may be issued by the
Company relate solely to outstanding stock options and unearned RRP shares,
and are determined using the treasury stock method.

Comprehensive income/loss

Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available-
for-sale securities, are reported as a separate component of the equity
section of the consolidated balance sheet, such items, along with net
income, are components of comprehensive income/loss.

<PAGE>  F-12


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Comprehensive income/loss (concluded)

The components of other comprehensive income/loss and related tax effects
are as follows:

<TABLE>
<CAPTION
                                                  Years Ended June 30,
                                             ----------------------------
                                              2001       2000        1999
                                              ----       ----        ----
                                                 (Dollars In Thousands)


                                          <c>        <c>         <c>
Change in unrealized holding gains/losses
 on available-for-sale securities            $ 427      $(562)      $ 183
Reclassification adjustment for gains
 realized in income                           (174)      (128)       (242)
                                             ----------------------------
Change in net unrealized gains/losses          253       (690)        (59)
Tax effect                                     (80)       241          21
                                             ----------------------------
Net-of-tax amount                            $ 173      $(449)      $ (38)
                                             ============================
</TABLE>

Segments

The Company, through the branch network of its subsidiary, Medford Co-
operative Bank, provides a broad range of financial services to individuals
and businesses. These services include checking, savings and term
certificate deposits; lending; credit card servicing; and ATM processing
services. While the Company's chief decision-makers monitor the revenue
streams of the various Company products and services, operations are managed
and financial performance is evaluated on a Company-wide basis. Accordingly,
all of the Company's banking operations are considered by management to be
aggregated in one reportable operating segment.

Change in accounting principle

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which, as amended by SFAS Nos. 137 and 138, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. This Statement
establishes accounting and reporting standards for derivative instruments
and hedging activities, including certain derivative instruments embedded in
other contracts, and requires that an entity recognize all derivatives as
assets or liabilities in the balance sheet and measure them at fair value.
This Statement was adopted July 1, 2000 and impacted the Bank's accounting
for written covered call options. As written covered call options do not
qualify for hedge accounting, the changes in fair value of the option is
reflected in net income whereas, the changes in fair value of marketable
equity securities subject to option will continue to be included in
stockholders' equity as other comprehensive income or loss. The cumulative
effect of this change in accounting principle during the year ended June 30,
2001 was an increase in net income of $3,000, net of tax effects.

<PAGE>  F-13


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

Subsequent accounting changes

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." These Statements
change the accounting for business combinations and goodwill and intangible
assets. SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is prohibited. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. In addition, this Statement requires that acquired intangible
assets, as defined, be amortized over their useful lives. This Standard
would be effective for the Company no later than July 1, 2002. Management
does not anticipate that the adoption of these Statements will have a
material impact on the consolidated financial statements.

2.    SECURITIES AVAILABLE FOR SALE

The amortized cost and estimated fair value of securities with gross
unrealized gains and losses is as follows:

<TABLE>
<CAPTION>
                                                   June 30, 2001
                                 -------------------------------------------------
                                                Gross          Gross
                                 Amortized    Unrealized     Unrealized     Fair
                                   Cost         Gains          Losses       Value
                                 ---------    ----------     ----------     -----
                                                  (In Thousands)


                               <c>            <c>           <c>         <c>
U.S. Government and
 federal agency obligations       $ 9,498        $ 14          $  (7)      $ 9,505
Mortgage-backed securities         10,389           4           (104)       10,289
Other bonds and obligations         5,542          30            (83)        5,489
Marketable equity securities        3,222         604           (289)        3,537
                                  ------------------------------------------------
      Total                       $28,651        $652          $(483)      $28,820
                                  ================================================
</TABLE>

<PAGE>  F-14


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SECURITIES (concluded)

<TABLE>
<CAPTION>
                                                   June 30, 2000
                                 -------------------------------------------------
                                                Gross          Gross
                                 Amortized    Unrealized     Unrealized     Fair
                                   Cost         Gains          Losses       Value
                                 ---------    ----------     ----------     -----
                                                  (In Thousands)


                               <c>            <c>           <c>         <c>

U.S. Government and
 federal agency obligations       $18,821        $  -          $(484)      $18,337
Mortgage-backed securities          8,709           1            (42)        8,668
Other bonds and obligations         2,547           -           (154)        2,393
Marketable equity securities        2,459         755           (160)        3,054
                                  ------------------------------------------------
      Total                       $32,536        $756          $(840)      $32,452
                                  ================================================
</TABLE>

The amortized cost and estimated fair value of debt securities by
contractual maturity at June 30, 2001 is shown below. Expected maturities
will differ from contractual maturities because issuers may have the right
to call or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                 Amortized      Fair
                                   Cost         Value
                                 ---------      -----
                                      (In Thousands)


                               <c>          <c>
Within 1 year                     $ 1,000      $   997
Over 1 year to 5 years             12,579       12,616
Over 5 years                        1,461        1,381
                                  --------------------
                                   15,040       14,994

Mortgage-backed securities         10,389       10,289
                                  --------------------
      Total                       $25,429      $25,283
                                  ====================
</TABLE>

During the years ended June 30, 2001, 2000 and 1999, proceeds from sales of
securities available for sale amounted to $20,388,000, $9,888,000 and
$1,071,000, respectively. Gross realized gains for 2001, 2000 and 1999
amounted to $637,000, $420,000 and $275,000, respectively, and gross
realized losses were $463,000, $292,000 and $33,000, respectively.

<PAGE>  F-15


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.    LOANS

A summary of the balances of loans follows:

<TABLE>
<CAPTION>
                                                June 30,
                                         ----------------------
                                           2001          2000
                                           ----          ----
                                             (In Thousands)


                                      <c>           <c>
Mortgage loans on real estate:
  Fixed residential                      $ 71,729      $ 67,243
  Adjustable residential                   66,434        60,619
  Commercial                               50,483        41,294
  Construction                              9,282         5,686
  Home equity lines of credit               3,880         3,470
                                         ----------------------
                                          201,808       178,312

Other loans:
  Commercial                                6,792         6,411
  Commercial lines of credit                6,722         4,470
  Personal                                  1,532         1,526
                                         ----------------------
                                           15,046        12,407
                                         ----------------------
      Total loans                         216,854       190,719
  Net deferred loan costs (fees)              (35)           12
  Allowance for loan losses                (1,784)       (1,531)
                                         ----------------------
      Loans, net                         $215,035      $189,200
                                         ======================
</TABLE>

An analysis of the allowance for loan losses follows

<TABLE>
<CAPTION>
                                       Years Ended June 30,
                                   ----------------------------
                                    2001       2000       1999
                                    ----       ----       ----
                                          (In Thousands)


                                <c>        <c>        <c>
Balance at beginning of year       $1,531     $1,348     $1,236
Provision for loan losses             275        200        145
Recoveries                              5          6          3
Charge-offs                           (27)       (23)       (36)
                                   ----------------------------

Balance at end of year             $1,784     $1,531     $1,348
                                   ============================
</TABLE>

<PAGE>  F-16


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

LOANS (concluded)

At June 30, 2001, the recorded investment in impaired loans amounted to
$15,000, none of which related to loans with a corresponding valuation
allowance. No additional funds are committed to be advanced in connection
with impaired loans. There were no impaired loans at June 30, 2000. The
average investment in impaired loans for the years ended June 30, 2001,
2000, and 1999 amounted to $19,000, $36,000 and $191,000, respectively, and
interest income recognized on a cash basis on impaired loans amounted to $0,
$5,000 and $23,000, respectively. Non-accrual loans amounted to $15,000 and
$2,000 at June 30, 2001 and 2000, respectively.

On a fee basis, the Bank services loans it has originated and sold to
others. At June 30, 2001 and 2000, such loans amounted to $23,749,000 and
$23,465,000, respectively. All loans serviced for others were sold without
recourse provisions.

4.    BANKING PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation of banking premises and
equipment is as follows:

<TABLE>
<CAPTION>
                                               June 30,
                                        --------------------
                                          2001         2000
                                          ----         ----
                                            (In Thousands)


                                     <c>          <c>
Banking premises:
  Land                                  $   242      $   242
  Buildings and improvements              2,447        2,447
Equipment                                 2,541        2,496
                                        --------------------
                                          5,230        5,185
Less accumulated depreciation            (2,737)      (2,380)
                                        --------------------
                                        $ 2,493      $ 2,805
                                        ====================
</TABLE>

Depreciation expense for the years ended June 30, 2001, 2000 and 1999
amounted to $357,000, $318,000 and $307,000, respectively.

<PAGE>  F-17


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.    REAL ESTATE HELD FOR INVESTMENT

Real estate held for investment represents property adjacent to the Bank's
main office which is primarily leased as commercial retail and office space.
The Bank occupies a portion of the building for its own activities. A
summary of the cost and accumulated depreciation is as follows:

<TABLE>
<CAPTION>
                                            June 30,
                                       ------------------
                                        2001        2000
                                         (In Thousands)


                                    <c>         <c>
Land                                   $   34      $   34
Building                                2,266       2,229
                                       ------------------
                                        2,300       2,263
Less accumulated depreciation            (651)       (590)
                                       ------------------
                                       $1,649      $1,673
                                       ==================
</TABLE>

Depreciation expense for the years ended June 30, 2001, 2000 and 1999
amounted to $61,000, $57,000 and $56,000, respectively.

The following is a schedule of minimum future rental income on noncancelable
leases:

<TABLE>
<CAPTION>
Year Ending
  June 30,           Amount
-----------          ------
                 (In Thousands)

    
              <c>
    2002             $ 86
    2003               48
    2004               40
    2005               28
    2006                6
                     ----

                     $208
                     ====
</TABLE>

The provisions of the lease agreements provide that the tenants are
responsible for utilities and certain repairs. Certain of the leases also
contain provisions that the tenants are responsible for a percentage of real
estate taxes and certain other costs.

Rental income for the years ended June 30, 2001, 2000 and 1999 amounted to
$124,000, $134,000 and $141,000, respectively.

<PAGE>  F-18


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.    DEPOSITS

A summary of deposit balances by type is as follows:

<TABLE>
<CAPTION>
                                                    June 30,
                                             ----------------------
                                               2001          2000
                                               ----          ----
                                                  (In Thousands)


                                          <c>           <c>
NOW accounts                                 $ 38,544      $ 33,927
Demand deposits                                18,889        16,346
Regular and other deposits                     44,302        42,413
Money market deposits                          18,591         8,370
                                             ----------------------
      Total non-certificate accounts          120,326       101,056
                                             ----------------------

Term certificates less than $100,000           69,040        68,686
Term certificates of $100,000 or more          35,384        24,393
                                             ----------------------
      Total certificate accounts              104,424        93,079
                                             ----------------------

      Total deposits                         $224,750      $194,135
                                             ======================
</TABLE>

A summary of certificate accounts, by maturity, is as follows:

<TABLE>
<CAPTION>
                                  June 30, 2001        June 30, 2000
                                -----------------    -----------------
                                         Weighted             Weighted
                                          Average              Average
                                Amount     Rate      Amount     Rate
                                ------   --------    ------   --------
                                       (Dollars In Thousands)


                            <c>         <c>      <c>         <c>
Within 1 year                  $ 77,955    5.42%    $75,758     5.61%
Over 1 year to 3 years           23,234    5.84      16,960     5.81
Over 3 years to 5 years           3,235    6.09         361     5.62
                               --------             -------

                               $104,424    5.53%    $93,079     5.65%
                               ========             =======
</TABLE>

<PAGE>  F-19


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.    FEDERAL HOME LOAN BANK BORROWINGS

Federal Home Loan Bank borrowings consist of the following at June 30, 2001
and 2000:

<TABLE>
<CAPTION>
                                                        Weighted Average
                                      Amount             Interest Rate
                                -------------------     ----------------
         Maturity                2001        2000       2001      2000
         --------                ----        ----       ----      ----
                                  (In Thousands)


                             <c>         <c>         <c>       <c>
Year ending June 30, 2001       $     -     $ 3,000        -%     6.16%
Year ending June 30, 2002         2,950       2,950     6.31      6.31
Year ending June 30, 2003         4,000       4,000     6.07      6.07
Year ending June 30, 2004         5,600       3,600     5.80      5.30
Year ending June 30, 2005        12,400      10,500     6.83      6.84
Year ending June 30, 2006           600         600     6.05      6.05
Thereafter                       18,200      13,200     5.14      5.77
Amortizing advance, due on
 August 14, 2006, requiring
 monthly payments of $7,793
 including interest                 868         900     6.97      6.97
                                -------------------

                                $44,618     $38,750     5.90%     6.15%
                                ===================
</TABLE>

The following is a summary of maturities of borrowings at June 30, 2001:

<TABLE>
<CAPTION>
Year Ending
 June 30,           Amount
-----------         ------
                (In Thousands)


                <c>
2002               $ 2,980
2003                 4,035
2004                 5,638
2005                12,441
2006                   644
Thereafter          18,880
                   -------
                   $44,618
                   =======
</TABLE>

<PAGE>  F-20


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FEDERAL HOME LOAN BANK BORROWINGS (concluded)

The Bank also has an available line of credit of $3,529,000 with the Federal
Home Loan Bank of Boston ("FHLB") at an interest rate that adjusts daily.
Borrowings under the line are limited to 2% of the Bank's total assets. All
borrowings from the Federal Home Loan Bank of Boston are secured by a
blanket lien on qualified collateral, defined principally as 75% of the
carrying value of first mortgage loans on owner-occupied residential
property and 90% of the market value of U.S. Government and federal agency
securities.

8.    INCOME TAXES

Allocation of federal and state income taxes between current and deferred
portions is as follows:

<TABLE>
<CAPTION>
                              Years Ended June 30,
                           --------------------------
                           2001      2000       1999
                           ----      ----       ----
                                 (In Thousands)


                        <c>      <c>        <c>
Current tax provision:
  Federal                  $635     $  870     $  776
  State                     161        284        258
                           --------------------------
      Total current         796      1,154      1,034
                           --------------------------

Deferred tax benefit:
  Federal                   (55)       (61)       (45)
  State                     (20)       (21)       (18)
                           --------------------------
      Total deferred        (75)       (82)       (63)
                           --------------------------

      Total provision      $721     $1,072     $  971
                           ==========================
</TABLE>

The reasons for the differences between the statutory federal income tax
rate and the effective tax rates are summarized as follows:

<TABLE>
<CAPTION>
                                                Years Ended June 30,
                                              -------------------------
                                              2001      2000      1999
                                              ----      ----      ----


                                           <c>       <c>       <c>
Statutory rate                                34.0%     34.0%     34.0%
Increase (decrease) resulting from:
  State taxes, net of federal tax benefit      4.9       6.3       6.4
  Other, net                                  (1.1)     (1.5)     (1.1)
                                              ------------------------

Effective tax rates                           37.8%     38.8%     39.3%
                                              ========================
</TABLE>


<PAGE>  F-21


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

INCOME TAXES (continued)

The components of the net deferred tax asset included in other assets are as
follows:

<TABLE>
<CAPTION>
                                  June 30,
                               --------------
                               2001      2000
                               ----      ----
                               (In Thousands)


                            <c>       <c>
Deferred tax asset:
  Federal                      $ 622     $552
  State                          215      206
                               --------------
                                 837      758
Valuation reserve on asset       (24)     (24)
                               --------------
                                 813      734
                               --------------

Deferred tax liability:
  Federal                       (112)     (54)
  State                          (45)     (19)
                               --------------
                                (157)     (73)
                               --------------

Net deferred tax asset         $ 656     $661
                               ==============
</TABLE>

The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows:

<TABLE>
<CAPTION>
                                                                 June 30,
                                                              --------------
                                                              2001     2000
                                                              ----     ----
                                                              (In Thousands)


                                                           <c>      <c>
Allowance for loan losses                                     $730     $621
Net unrealized gain/loss on securities available for sale      (51)      29
Other                                                            1       35
                                                              -------------
                                                               680      685
Valuation reserve                                              (24)     (24)
                                                              -------------

Net deferred tax asset                                        $656     $661
                                                              =============
</TABLE>

<PAGE>  F-22


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

INCOME TAXES (concluded)

A summary of the change in the net deferred tax asset is as follows:

<TABLE>
<CAPTION>
                                                 Years Ended June 30,
                                                ----------------------
                                                2001     2000     1999
                                                ----     ----     ----
                                                    (In Thousands)


                                             <c>      <c>      <c>
Balance at beginning of year                    $661     $338     $254
Deferred tax benefit                              75       82       63
Deferred tax on net unrealized gain/loss on
 securities available for sale                   (80)     241       21
                                                ----------------------

Balance at end of year                          $656     $661     $338
                                                ======================
</TABLE>

There was no change in the valuation reserve during the years ended June 30,
2001, 2000 and 1999.

The federal income tax reserve for loan losses at the Bank's base year
amounted to $2,663,000. If any portion of the reserve is used for purposes
other than to absorb the losses for which established, approximately 150% of
the amount actually used (limited to the amount of the reserve) would be
subject to taxation in the fiscal year in which used. As the Bank intends to
use the reserve only to absorb loan losses, a deferred income tax liability
of $1,090,000 has not been provided.

9.    COMMITMENTS AND CONTINGENCIES

Loan commitments

The Bank is a 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 commitments to extend credit and advance
funds under lines of credit and credit card loans. These instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the accompanying consolidated financial
statements.

<PAGE>  F-23


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES (continued)

Loan commitments (concluded)

The Bank's exposure to credit loss is represented by the contractual amount
of these instruments. The Bank uses the same credit policies in making
commitments as it does for on-balance-sheet instruments. A summary of
financial instruments outstanding whose contract amounts represent credit
risk is as follows:

<TABLE>
<CAPTION>
                                                         June 30,
                                                    ------------------
                                                     2001       2000
                                                     ----       ----
                                                      (In Thousands)


                                                 <c>        <c>
Commitments to grant mortgage loans                 $4,373     $ 5,074
Commitments to grant commercial loans                  615      10,983
Unadvanced funds on home equity lines of credit      4,284       3,107
Unadvanced funds on credit card loans                2,047       1,796
Unadvanced funds on commercial lines of credit       9,634       6,101
Unadvanced funds on construction loans               9,593       7,076
Standby letters of credit                              412         305
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as
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. The commitments for lines of
credit and credit card loans may expire without being drawn upon; therefore,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a case-
by-case basis. The commitments for mortgage loans and home equity lines of
credit are collateralized by real estate. Commercial loans and lines of
credit are secured by various assets of the borrowers. Credit card loans are
generally unsecured.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those letters of
credit are primarily issued to support public and private borrowing
arrangements. Letters of credit outstanding as of June 30, 2001 have
expiration dates within ten years. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank generally holds collateral supporting
those commitments if deemed necessary.

Employment agreements

The Company and the Bank have entered into employment agreements with
certain executive officers. The agreements provide for base salaries,
participation in employee benefit plans and, in the event of termination of
employment, certain lump-sum severance payments and continuation of
benefits. However, such employment may be terminated for cause, as defined
in the agreements, without incurring any continuing obligations.

<PAGE>  F-24


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES (continued)

Employment agreements (concluded)

Effective April 9, 2001, the then President retired and received the
benefits due him under his employment agreement, as amended. During the
years ended June 30, 2001, 2000 and 1999, compensation expense under these
agreements amounted to $861,000, $7,000 and $13,000, respectively.

Director's retirement plan

Effective November 8, 2000, the Company adopted a retirement plan for non-
employee Directors of the Company. Under the Plan, eligible directors will
receive a lump sum benefit equal to three times their annual compensation
(as defined), upon retirement from the Board of Directors, death, disability
or upon a change of control (as defined). The liability for the benefits is
being accrued over the terms of active service for the Directors. Total
expense under this Plan amounted to $117,000 for the year ended June 30,
2001.

Severance pay plan

Effective November 8, 2000, the Bank established a severance pay plan which
entitles eligible employees to receive a lump sum benefit equal to one
month's salary in the event of a change of control (as defined).

Lease commitments

Pursuant to the terms of the noncancelable lease agreements in effect at
June 30, 2001, the future minimum rent commitments for leased premises are
as follows:

<TABLE>
<CAPTION>
Year Ending
 June 30,           Amount
-----------         ------
                (In Thousands)


                 <c>
2002                $  260
2003                   260
2004                   260
2005                   203
2006                   121
Thereafter             272
                    ------

      Total         $1,376
                    ======
</TABLE>

The leases contain certain options to extend for two to four five-year
periods and contain provisions for reimbursement of real estate taxes and
certain other costs. The costs of such rentals and reimbursements are not
included above. Rent expense for the years ended June 30, 2001, 2000 and
1999 amounted to $260,000, $191,000 and $91,000, respectively.

<PAGE>  F-25


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

COMMITMENTS AND CONTINGENCIES (concluded)

Contingencies

Various legal claims arise from time to time in the normal course of
business which, in the opinion of management, will have no material effect
on the Company's consolidated financial position or results of operations.

10.   STOCKHOLDERS' EQUITY

Stock conversion

On January 8, 1998, the Bank converted from a mutual to a stock institution.
Mystic Financial, Inc. became the Bank's holding company in connection with
the conversion and issued 2,711,125 shares of common stock at $10.00 per
share. Net proceeds were $25,737,000 after conversion costs of $1,374,000.

At the time of the conversion, the Bank established a liquidation account in
the amount of $11,761,000. In accordance with Massachusetts statute, the
liquidation account will be maintained for the benefit of eligible account
holders who continue to maintain their accounts in the Bank after the
conversion. The liquidation account will be reduced annually to the extent
that eligible account holders have reduced their qualifying deposits.
Subsequent increases will not restore an eligible account holder's interest
in the liquidation account. In the event of a complete liquidation, each
eligible account holder will be entitled to receive a distribution in an
amount equal to their current adjusted liquidation account balance, to the
extent that funds are available.

Minimum regulatory capital requirements

The Company (on a consolidated basis) and the Bank are 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 Company's and the
Bank's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and
the Bank must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Prompt corrective
action provisions are not applicable to financial holding companies.

<PAGE>  F-26


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

STOCKHOLDERS' EQUITY (concluded)

Minimum regulatory capital requirements (concluded)

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following tables) of total and Tier I capital (as defined in
the regulations) to risk weighted assets (as defined) and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of June
30, 2001 and 2000, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.

As of June 30, 2001, the most recent notification from the Federal Deposit
Insurance Corporation 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 total risk-based, Tier I risk-
based and Tier I leverage ratios as set forth in the following tables. There
are no conditions or events that management believes have changed the Bank's
category. The Company's and the Bank's actual capital amounts and ratios are
also presented in the tables.

<TABLE>
<CAPTION>
                                                                                            Minimum
                                                                                          To Be Well
                                                                      Minimum          Capitalized Under
                                                                      Capital          Prompt Corrective
                                                Actual              Requirement        Action Provisions
                                           -----------------     -----------------     -----------------
                                           Amount      Ratio     Amount      Ratio     Amount      Ratio
                                           ------      -----     ------      -----     ------      -----
                                                              (Dollars In Thousands)


                                        <c>         <c>       <c>         <c>       <c>         <c>
June 30, 2001:
Total Capital to Risk Weighted Assets
  Consolidated                             $30,799     17.5%     $14,106     8.0%          N/A      N/A
  Bank                                      29,401     16.7       14,069     8.0       $17,586     10.0%
Tier I Capital to Risk Weighted Assets
  Consolidated                              28,897     16.4        7,053     4.0           N/A      N/A
  Bank                                      27,499     15.6        7,034     4.0        10,551      6.0
Tier I Capital to Average Assets
  Consolidated                              28,897     10.1       11,426     4.0           N/A      N/A
  Bank                                      27,499      9.7       11,365     4.0        14,206      5.0

June 30,2000:
Total Capital to Risk Weighted Assets
  Consolidated                             $30,775     20.2%     $12,174     8.0%          N/A      N/A
  Bank                                      27,737     18.3       12,121     8.0       $15,151     10.0%
Tier I Capital to Risk Weighted Assets
  Consolidated                              29,244     19.2        6,087     4.0           N/A      N/A
  Bank                                      26,206     17.3        6,060     4.0         9,090      6.0
Tier I Capital to Average Assets
  Consolidated                              29,244     11.4       10,309     4.0           N/A      N/A
  Bank                                      26,206     10.8        9,719     4.0        12,149      5.0
</TABLE>

<PAGE>  F-27


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.    RELATED PARTY TRANSACTIONS

At June 30, 2001 and 2000, total loans to directors and officers of the Bank
greater than $60,000 on an individual basis amounted to $2,434,000 and
$2,675,000, respectively. During the years ended June 30, 2001 and 2000,
total principal additions were $264,000and $957,000, respectively, and total
principal payments were $505,000 and $351,000, respectively.

12.    EMPLOYEE BENEFIT PLANS

Pension plans

The Bank provides pension benefits for its employees through membership in
Plan C of the Defined Benefit Plan of the Co-operative Banks Employees
Retirement Association ("CBERA"). The plan is a multi-employer plan where
the contributions by each bank are not restricted to provide benefits to the
employees of the contributing bank. Each employee reaching the age of 21 and
having completed 1,000 hours of service in one consecutive twelve-month
period beginning with such employee's date of employment automatically
becomes a participant in the retirement plan. A participant in the plan is
not vested until they have performed two years of service, at which time
they become 20% vested. Participants become 100% vested when credited with
six years of service.

Total pension expense for the years ended June 30, 2001, 2000 and 1999
amounted to $137,000, $110,000 and $115,000, respectively.

In addition, the Bank has a savings and retirement plan, which qualifies
under Section 401(k) of the Internal Revenue Code, for its employees through
membership in Plan A of the Defined Benefit Plan of CBERA. Each employee
reaching the age of 21 and having completed 1,000 hours of service in one
consecutive twelve-month period beginning with such employee's date of
employment automatically becomes a participant in the savings and retirement
plan. The plan provides for voluntary contributions by participating
employees ranging from one percent to twelve percent of their compensation,
subject to certain limitations. The Bank matches 50% of an employee's
voluntary contribution up to ten percent of the employee's compensation.

Total expense under the Section 401(k) plan for the years ended June 30,
2001, 2000 and 1999 amounted to $69,000, $54,000 and $63,000, respectively.

Employee stock ownership plan

Effective January 8, 1998, the Company established and the Bank adopted an
ESOP, for the benefit of eligible employees who have attained age 21 and
have completed one year of service.

<PAGE>  F-28


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

EMPLOYEE BENEFIT PLANS (continued)

Employee stock ownership plan (concluded)

The Company loaned the ESOP $3,194,000 to fund the purchase of 216,890
shares of common stock of the Company in open-market purchases following
completion of the Bank's conversion from mutual to stock form. The Bank
intends to make annual contributions to the ESOP in an aggregate amount at
least equal to the principal and interest requirements on the loan. The loan
is for a term of 10 years, bears interest at 8% per annum and requires
annual principal payments of $319,000 plus interest.

Shares purchased by the ESOP are pledged as collateral for the loan, and are
held in a suspense account until released for allocation among participants
in the ESOP as the loan is repaid. The pledged shares are released annually
from the suspense account in an amount proportional to the repayment of the
ESOP loan for each plan year. The released shares are allocated among the
accounts of participants on the basis of the participant's compensation for
the year of allocation. Benefits generally become vested at the rate of 20%
per year with vesting to begin after an employee's completion of three years
of service and full vesting to occur after seven years of service.
Participants also become immediately vested upon termination of employment
due to death, retirement at age 65 or older, permanent disability or upon
the occurrence of a change of control. Forfeitures will be reallocated among
remaining participating employees, in the same proportion as contributions.
Vested benefits may be paid in a single sum or installment payments and are
payable upon death, retirement at age 65 or older, disability or separation
from service.

Shares held by the ESOP include the following:

<TABLE>
<CAPTION>
                                                       June 30,
                                             --------------------------
                                                 2001            2000
                                                 ----            ----


                                          <c>             <c>
Allocated                                        59,211          46,579
Committed to be allocated                        11,418          12,520
Unallocated                                     146,261         157,791
                                             --------------------------

      Total                                     216,890         216,890
                                             ==========================

Fair value of unallocated ESOP shares        $2,293,000      $1,903,000
                                             ==========================
</TABLE>

Cash dividends received on allocated shares are allocated to participants
and cash dividends received on shares held in suspense are applied to repay
the outstanding debt of the ESOP.

Total expense applicable to the ESOP amounted to $338,000, $289,000 and
$279,000 for the years ended June 30, 2001, 2000, and 1999, respectively.

<PAGE>  F-29


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

EMPLOYEE BENEFIT PLANS (continued)

Stock option plan

On March 24, 1999, the Company's stockholders approved the 1999 Stock Option
Plan (the "Stock Option Plan"). Under the Stock Option Plan, the Company may
grant options to its directors, officers and employees for up to 257,355
shares of common stock. Both incentive stock options and non-qualified stock
options may be granted under the Stock Option Plan. The exercise price of
each option equals the market price of the Company's stock on the date of
grant and an option's maximum term is ten years. Options generally vest over
a five year period.

The Company applies APB Opinion 25 and related Interpretations in accounting
for the Stock Option Plan. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Company's Stock Option Plan been
determined based on the fair value at the grant dates for awards under the
plan consistent with the method prescribed by SFAS No. 123, the Company's
net income and earnings per share would have been adjusted to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                         Years Ended June 30,
                                               ----------------------------------------
                                                  2001           2000           1999
                                                  ----           ----           ----
                                                (In Thousands, except per share data)


                            <c>             <c>            <c>            <c>
Net income                     As reported     $1,185,000     $1,689,000     $1,502,000
                               Pro forma        1,118,000      1,616,000      1,466,000

Basic earnings per share       As reported           0.68           0.83           0.63
                               Pro forma             0.65           0.80           0.62

Diluted earnings per share     As reported           0.67           0.83           0.63
                               Pro forma             0.63           0.80           0.62
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The weighted-average assumptions
used for grants during the year ended June 30, 1999 were dividend yield of
2.0%, expected life of 7 years, expected volatility of 14%, and a risk-free
interest rate of 5.2%.

<PAGE>  F-30


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

EMPLOYEE BENEFIT PLANS (continued)

Stock option plan (concluded)

A summary of the status of the Company's stock option plan is as follows:

<TABLE>
<CAPTION>
                                                                Year Ended June 30,
                                       ----------------------------------------------------------------------
                                               2001                     2000                     1999
                                       --------------------     --------------------     --------------------
                                                   Weighted                 Weighted                 Weighted
                                                   Average                  Average                  Average
                                                   Exercise                 Exercise                 Exercise
                                       Shares       Price       Shares       Price       Shares       Price
                                       ------      --------     ------      --------     ------      --------


                                    <c>          <c>         <c>          <c>         <c>          <c>
Fixed Options:
  Outstanding at beginning of year     226,364      $12.06      226,364      $12.06            -      $    -
  Granted                                    -           -            -           -      226,364       12.06
  Exercised                              5,000       12.06            -           -            -           -
  Forfeited                             36,673       12.06            -           -            -           -
                                       -------                  -------                  -------
Outstanding at end of year             184,691      $12.06      226,364      $12.06      226,364      $12.06
                                       =======                  =======                  =======

Options exercisable at year-end         48,873      $12.06       45,273      $12.06            -      $    -

</TABLE>

The weighted-average fair values of options granted during the year ended
June 30, 1999 was $2.67.

Information pertaining to options outstanding at June 30, 2001 is as
follows:

<TABLE>
<CAPTION>
                       Options Outstanding                  Options Exercisable
             ----------------------------------------     ------------------------
                              Weighted
                               Average       Weighted                     Weighted
                              Remaining      Average                      Average
Exercise       Number        Contractual     Exercise       Number        Exercise
 Price       Outstanding        Life          Price       Exercisable      Price
--------     -----------     -----------     --------     -----------     --------

 
           <c>              <c>           <c>           <c>            <c>
 $12.06        184,691          7.75          $12.06        48,873         $12.06
</TABLE>

<PAGE>  F-31


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

EMPLOYEE BENEFIT PLANS (concluded)

Recognition and retention plan

On March 24, 1999, the Company's stockholders approved the Company's
adoption of the 1999 Recognition and Retention Plan (the "RRP"), which
allows the Company to grant restricted stock awards ("Awards") to certain
officers, employees and outside directors. The RRP is authorized to acquire
no more than 102,942 shares of Common stock in the open market. Shares
generally vest at a rate of up to 20% per year with the first vesting period
ending December 31, 1999. The aggregate purchase price of all shares
acquired by the RRP will be reflected as a reduction of stockholders' equity
and amortized to compensation expense as the Company's employees and
directors become vested in their stock awards. During the years ended June
30, 2001 and 1999, awards were granted with respect to 4,500 and 96,342
shares, respectively. No shares were granted for the year ended June 30,
2000. Shares forfeited amounted to 14,670 for the year ended June 30, 2001.
As of June 30, 2001, 38,536 vested shares had been distributed to eligible
participants. Compensation expense amounted to $254,000, $290,000 and
$94,000 for the years ended June 30, 2001, 2000 and 1999, respectively.
Compensation expense is based on the fair value of the common stock on the
grant date.

Benefit restoration plan

In June 1998, the Company adopted the Benefit Restoration Plan ("BRP") in
order to provide the then President with the benefits that would be due to
him under the defined benefit pension plan, the 401(k) Plan and the ESOP if
such benefits were not limited under the Internal Revenue Code. Effective
April 9, 2001, the then President retired and received the benefits under
the BRP. Total expense related to the BRP amounted to $48,000, $53,000 and
$61,000 for the years ended June 30, 2001, 2000 and 1999, respectively.

13.   RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES

Federal and state banking regulations place certain restrictions on
dividends paid and loans or advances made by the Bank to the Company. The
total amount of dividends which may be paid at any date is generally limited
to the retained earnings of the Bank, and loans or advances are limited to
10% of the Bank's capital stock and surplus on a secured basis. In addition,
dividends paid by the Bank to the Company would be prohibited if the effect
thereof would cause the Bank's capital to be reduced below applicable
minimum capital requirements. At June 30, 2001, $10,544,000 of the Company's
equity in the Bank was restricted and funds available for loans and advances
amounted to $1,133,000.

<PAGE>  F-32


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14.   FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of estimated fair values of all financial instruments
where it is practicable to estimate such values. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.

The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:

      Cash and cash equivalents: The carrying amounts of cash, federal funds
      sold and short-term investments approximate fair values.

      Securities: Fair values for securities, excluding Federal Home Loan
      Bank stock, are based on quoted market prices. The carrying value of
      Federal Home Loan Bank stock approximates fair value based on the
      redemption provisions of the Federal Home Loan Bank.

      Loans: For variable-rate loans that reprice frequently and with no
      significant change in credit risk, fair values are based on carrying
      values. Fair values for loans held for sale are based on quoted market
      prices. Fair values for all other loans are estimated using discounted
      cash flow analyses, using interest rates currently being offered for
      loans with similar terms to borrowers of similar credit quality. Fair
      values for non-performing loans are estimated using underlying
      collateral values when applicable.

      Deposit liabilities: Fair values for interest and non-interest
      checking, passbook savings, and certain types of money market accounts
      are, by definition, equal to the amount payable on demand at the
      reporting date (i.e., their carrying amounts). Fair values for term
      certificates of deposit are estimated using a discounted cash flow
      calculation that applies interest rates currently being offered on
      certificates to a schedule of aggregated expected monthly maturities.

      Federal Home Loan Bank borrowings: Fair values for borrowings are
      estimated using discounted cash flow analysis based on the Bank's
      current incremental borrowing rates for similar types of borrowing
      arrangements.

      Accrued interest: The carrying amounts of accrued interest approximate
      fair value.

<PAGE>  F-33


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)

      Off-balance-sheet instruments: Fair values for off-balance-sheet
      lending commitments are based on fees currently charged to enter into
      similar agreements, taking into account the remaining terms of the
      agreements and the counterparties' credit standing and are not
      material.

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

<TABLE>
<CAPTION>
                                                           June 30,
                                        -----------------------------------------------
                                                2001                      2000
                                        ---------------------     ---------------------
                                        Carrying      Fair        Carrying      Fair
                                         Amount       Value        Amount       Value
                                        --------      -----       --------      -----
                                                        (In Thousands)


                                     <c>          <c>          <c>          <c>
Financial assets;
  Cash and cash equivalents             $ 46,129     $ 46,129     $ 31,331     $ 31,331
  Securities available for sale           28,820       28,820       32,452       32,452
  Federal Home Loan Bank stock             2,532        2,532        2,438        2,438
  Loans, net                             215,035      216,398      189,200      185,429
  Mortgage loans held for sale               274          274          543          543
  Accrued interest receivable              1,410        1,410        1,324        1,324

Financial liabilities:
  Deposits                               224,750      227,014      194,135      195,628
  Federal Home Loan Bank borrowings       44,618       44,165       38,750       37,477
  Accrued interest payable                   558          558          481          481
</TABLE>

<PAGE>  F-34


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15.   CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

Condensed financial information pertaining only to Mystic Financial, Inc.,
is as follows:

                               BALANCE SHEETS
                               --------------

<TABLE>
<CAPTION>
                                                            June 30,
                                                     ----------------------
                                                       2001          2000
                                                       ----          ----
                                                         (In Thousands)


                                                  <c>           <c>
Assets
------

Cash and due from banks                              $    149      $    226
Federal funds sold                                         45            29
Short-term investments                                    990         2,500
                                                     ----------------------
      Total cash and cash equivalents                   1,184         2,755

Investment in common stock of Bank                     27,599        26,320
Other assets                                              232           122
                                                     ----------------------

      Total assets                                   $ 29,015      $ 29,197
                                                     ======================

Liabilities and Stockholder's Equity
------------------------------------

Accrued expenses                                     $      -      $      8
                                                     ----------------------

Stockholder's equity:
  Preferred stock                                           -             -
  Common Stock                                             27            27
  Additional paid-in capital                           25,643        25,601
  Retained earnings                                    15,956        15,295
  Treasury stock, at cost                             (10,055)       (8,424)
  Accumulated other comprehensive income (loss)           118           (55)
  Unearned ESOP shares                                 (1,967)       (2,324)
  Unearned RRP shares                                    (707)         (931)
                                                     ----------------------
      Total stockholders' equity                       29,015        29,189
                                                     ----------------------

      Total liabilities and stockholders' equity     $ 29,015      $ 29,197
                                                     ======================
</TABLE>

<PAGE>  F-35


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

        CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (continued)

                            STATEMENTS OF INCOME
                            --------------------

<TABLE>
<CAPTION>
                                                  Years Ended June 30,
                                             ------------------------------
                                              2001        2000        1999
                                              ----        ----        ----
                                                     (In Thousands)


                                          <c>         <c>         <c>
Income:
  Interest on investments                    $  101      $  302      $  516
  Interest on ESOP loan                         201         270         188
  Loss on sale of securities                      -        (188)          -
  Miscellaneous income                            7           9          10
                                             ------------------------------
      Total income                              309         393         714

Operating expenses                              324         130         307
                                             ------------------------------

Income (loss) before income taxes and
 equity in undistributed income of Bank         (15)        263         407
Income tax (benefit) provision                   (6)        105         163
                                             ------------------------------
                                                 (9)        158         244
Equity in undistributed income of Bank        1,194       1,531       1,258
                                             ------------------------------

      Net income                             $1,185      $1,689      $1,502
                                             ==============================
</TABLE>

<PAGE>  F-36


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (concluded)

                          STATEMENTS OF CASH FLOWS
                          ------------------------

<TABLE>
<CAPTION>
                                                                Years Ended June 30,
                                                           -------------------------------
                                                            2001        2000        1999
                                                            ----        ----        ----
                                                                   (In Thousands)


                                                        <c>         <c>         <c>
Cash flows from operating activities:
  Net income                                               $ 1,185     $ 1,689     $ 1,502
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Equity in undistributed income of Bank                  (1,194)     (1,531)     (1,258)
    (Accretion) amortization of investments                      -         (17)         12
    Loss on sale of securities available for sale                -         188           -
    Amortization of unearned ESOP shares                       339         289         472
    Amortization of unearned RRP shares                        224         364           -
    Other, net                                                 (30)      1,227        (456)
                                                           -------------------------------
      Net cash provided by operating activities                524       2,209         272
                                                           -------------------------------

Cash flows from investing activities:
  Purchases of securities available for sale                     -           -      (5,307)
  Proceeds from sales of securities available for sale           -       6,140       7,505
                                                           -------------------------------
      Net cash provided by investing activities                  -       6,140       2,198
                                                           -------------------------------

Cash flows from financing activities:
  Purchase of treasury stock                                (1,631)     (4,939)     (3,464)
  Proceeds from exercise of stock options                       60           -           -
  Purchase of RRP shares                                         -      (1,295)          -
  Cash dividends paid                                         (524)       (522)       (547)
                                                           -------------------------------
      Net cash used by financing activities                 (2,095)     (6,756)     (4,011)
                                                           -------------------------------

Net change in cash and cash equivalents                     (1,571)      1,593      (1,541)

Cash and cash equivalents at beginning of year               2,755       1,162       2,703
                                                           -------------------------------

Cash and cash equivalents at end of year                   $ 1,184     $ 2,755     $ 1,162
                                                           ===============================
</TABLE>

<PAGE>  F-37


                    MYSTIC FINANCIAL, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

16. QUARTERLY DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    Years Ended June 30,
                                         ------------------------------------------------------------------------------------
                                                           2001                                        2000
                                         ----------------------------------------    ----------------------------------------
                                         Fourth      Third     Second      First     Fourth      Third     Second      First
                                         Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                         -------    -------    -------    -------    -------    -------    -------    -------
                                                                (In Thousands, Except Per Share Data)


                                      <c>        <c>        <c>        <c>        <c>        <c>        <c>        <c>
Interest and dividend income             $ 4,922    $ 4,905    $ 4,873    $ 4,722    $ 4,445    $ 4,070    $ 3,938    $ 3,724
Interest expense                          (2,579)    (2,543)    (2,497)    (2,348)    (2,130)    (1,937)    (1,776)    (1,603)
                                         ------------------------------------------------------------------------------------

Net interest income                        2,343      2,362      2,376      2,374      2,315      2,133      2,162      2,121
Provision for loan losses                   (100)       (75)       (50)       (50)       (50)       (35)       (75)       (40)
                                         ------------------------------------------------------------------------------------

Net interest income, after provision
 for loan losses                           2,243      2,287      2,326      2,324      2,265      2,098      2,087      2,081
Other income                                 219        325        361        291        232        226        271        216
Operating expenses (1)                    (2,758)    (1,906)    (2,001)    (1,805)    (1,807)    (1,709)    (1,706)    (1,493)
                                         ------------------------------------------------------------------------------------

Income (loss) before income taxes           (296)       706        686        810        690        615        652        804

Benefit (provision) for income taxes         123       (264)      (266)      (314)      (271)      (229)      (255)      (317)
                                         ------------------------------------------------------------------------------------

Net income (loss)                        $  (173)   $   442    $   420    $   496    $   419    $   386    $   397    $   487
                                         ====================================================================================

Basic earnings (loss) per share          $ (0.10)   $  0.26    $  0.24    $  0.28    $  0.23    $  0.20    $  0.19    $  0.22
                                         ====================================================================================
Diluted earnings (loss) per share        $ (0.10)   $  0.25    $  0.24    $  0.28    $  0.23    $  0.20    $  0.19    $  0.22
                                         ====================================================================================

<FN>
--------------------
<F1>  During the fourth quarter 2001, operating expenses increased primarily
      due to a one-time, non-recurring pre-tax charge of $861,000 relating
      to a contractual payment made to the Company's former President and
      Chief Executive Officer (See Note 9).
</FN>
</TABLE>

<PAGE>  F-38