U.S. SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                 FORM 10-KSB

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the Fiscal Year Ended December 31, 2001

                                     OR

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                       Commission File Number: 0-24791

                         MASSACHUSETTS FINCORP, INC
                         --------------------------
               (Name of small business issuer in its charter)

                 Delaware                               04-3431804
---------------------------------------------      -------------------
(State or other jurisdiction of incorporation      (I.R.S. Employer
             or organization)                      Identification No.)

70 Quincy Avenue, Quincy, Massachusetts                   02169
---------------------------------------                ----------
(Address of principal executive offices)               (Zip Code)

Issuer's telephone number:                         (617) 769-1100
                                                   --------------

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

Securities registered under Section 12(g)
 of the Exchange Act:                              Common Stock, par value
                                                   $.01 per share
                                                   -----------------------
                                                       (Title of Class)

      Check whether the Issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.

                           YES    [X]    NO    [ ]

      Check if no disclosure of delinquent filers in response to Item 405
of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.    [X]

      The Issuer's revenues for the fiscal year under report were $8,339,117.

      As of March 21, 2002, there were issued and outstanding 523,884
shares of the Registrant's Common Stock. Based on the average of the bid
and ask prices, the aggregate market value of the Common Stock outstanding
held by the nonaffiliates of the Registrant on March 21, 2002, was
$7,785,896 (409,784 shares at $19.00 per share).

                     DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement for the Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-KSB.


<PAGE>  1


                                    INDEX

PART I                                                                     3

  ITEM 1.   DESCRIPTION OF BUSINESS                                        3

  ITEM 2.   DESCRIPTION OF PROPERTY                                       24

  ITEM 3.   LEGAL PROCEEDINGS                                             25

  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS           25

PART II                                                                   26

  ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTER                                            26

  ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS                           26

  ITEM 7    FINANCIAL STATEMENTS                                          39

  ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE                           67

PART III                                                                  68

  ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
            PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT    68

  ITEM 10.  EXECUTIVE COMPENSATION                                        68

  ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT                                                    68

  ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                68

  ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                              68

SIGNATURES                                                                70


<PAGE>  2


PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

General

      Massachusetts Fincorp, Inc. (the "Company") was incorporated under
Delaware law on July 10, 1998. On December 21, 1998, the Company acquired
The Massachusetts Co-operative Bank (the "Bank") as a part of the Bank's
conversion from a mutual to a stock Massachusetts-chartered co-operative
bank (the "Conversion"). The Company is a savings and loan holding company
and is subject to regulation by the Office of Thrift Supervision (the
"OTS"). Currently, the Company does not transact any material business
other than through the Bank. Prior to December 21, 1998, the Company had no
operations. The Company retained 50% of the net conversion proceeds
amounting to $4.9 million, which it used for general business activities.
During 2001, the Company has used $716,000 to repurchase 46,200 shares of
its common stock. The company has also issued an additional 51,823 shares
in the form of a stock dividend. At December 31, 2001, a total of 523,884
have been issued and are outstanding. In the normal course of business, the
Company formed and capitalized the Employee Stock Ownership Plan ("ESOP")
Loan Subsidiary (MCB Funding), which loaned funds to the ESOP to purchase
8% of the stock issued in the Conversion. At December 31, 2001, the Company
had total assets of $120.7 million and stockholders' equity of $9.8
million.

      The Bank is a community-oriented co-operative bank, which was
organized in 1908 as The Massachusetts Co-operative Bank, a Massachusetts-
chartered mutual co-operative bank. The Bank's principal business consists
of the acceptance of retail deposits from the public in the areas
surrounding its three full-service banking offices. The Bank invests those
deposits, together with funds generated from operations and borrowings,
primarily in mortgage loans secured by one-to-four family residences,
multi-family residences and commercial real estate, and construction loans.
To a lesser extent, the Bank invests in home equity lines of credit and
consumer loans. The Bank operates through its three full-service banking
offices located in the greater Boston metropolitan area. The Bank
originates loans for investment and loans for sale in the secondary market,
generally releasing the servicing rights to all loans sold. The Bank also
invests in mortgage-backed securities, securities issued by the U.S.
Government and other investments permitted by applicable laws and
regulations. The Bank's revenues are derived principally from the
generation of interest and fees on loans originated and, to a lesser
extent, interest and dividends on investment securities. The Bank's primary
sources of funds are retail savings deposits, advances from the Federal
Home Loan Bank of Boston ("FHLB") and, to a lesser extent, principal and
interest payments on loans and investment securities, and proceeds from the
sale of loans.

      The following discussion refers to the Bank's operations as it makes
up the vast majority of the Company's assets.

Market Area and Competition

      The Bank moved its administrative headquarters and executive offices
to Quincy, Massachusetts in December 1999. The Bank's primary deposit
gathering area is concentrated in the communities surrounding its three
full service offices located in Dorchester, Milton and Quincy. All of the
Bank's banking offices are located within 30 miles of Boston. Although the
Bank originates loans throughout Massachusetts and New Hampshire, the
Bank's primary lending area is the greater Boston metropolitan area.

      Quincy and the Dorchester section of Boston, Massachusetts are fully
developed and densely populated urban areas located south of downtown
Boston. The major traffic roadways running through Quincy and Dorchester,
including U.S. Interstate Highway 93, are heavily traveled and lined with
commercial and retail business operations. The greater Boston metropolitan
area benefits from the presence of numerous institutions of higher
education, medical care and research facilities and the corporate
headquarters of several significant investment and technology companies
employing individuals with specialized skills. These firms and businesses,
along with tourism, form the backbone of the economy of the greater Boston
metropolitan area.

      The Bank faces significant competition both in generating loans and
in attracting deposits. The Bank's primary market area is highly
competitive and the Bank faces direct competition from a significant number
of financial institutions, many with a statewide or regional presence and,
in some cases, a national presence. Many of these financial institutions
are significantly larger and have greater financial resources than the
Bank. The Bank's


<PAGE>  3


competition for loans comes principally from commercial banks, savings
banks, co-operative banks, credit unions, mortgage brokers, mortgage
banking companies and insurance companies. Its most direct competition for
deposits has historically come from savings, co-operative and commercial
banks and credit unions. In addition, the Bank faces significant
competition for deposits from non-bank institutions such as brokerage firms
and insurance companies in such instruments as short-term money market
funds, corporate and government securities funds, mutual funds and
annuities. Competition has increased because restrictions on the interstate
operations of financial institutions have been lifted. The Bank has also
experienced significant competition from credit unions, which have a
competitive advantage, as they do not pay state or federal income taxes.
Such competitive advantage has placed increased pressure on the Bank with
respect to its loan and deposit pricing.

Lending Activities

      Loan Portfolio Composition. The types of loans that the Bank may
originate are subject to federal and state laws and regulations. Interest
rates charged by the Bank on loans are affected principally by the demand
for such loans, the supply of money available for lending purposes and the
rates offered by its competitors. These factors are affected by general and
economic conditions, monetary policies of the federal government, including
the Federal Reserve Board ("FRB"), legislative tax policies and
governmental budgetary matters.

      The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percentages of the respective portfolios
at the dates indicated.

<TABLE>
<CAPTION>

                                                                 At December 31,
                                        -----------------------------------------------------------------
                                               2001                   2000                   1999
                                        -------------------    -------------------    -------------------
                                                   Percent                Percent                Percent
                                        Amount     of Total    Amount     of Total    Amount     of Total
                                        -------    --------    -------    --------    -------    --------
                                                                  (In Thousands)


                                     <c>        <c>         <c>        <c>         <c>        <c>
Mortgage loans:
  One- to four-family                   $45,102     60.76%     $59,913     70.53%     $54,130     72.67%
  Multi-family                            9,940     13.39%       7,787     10.24%       7,715     10.24%
  Commercial real estate                  7,887     10.63%       5,755      6.78%       4,283      5.75%
  Construction, net of due mortgagor      7,918     10.67%       7,122      8.38%       7,829     10.51%
  Home equity lines                         994      1.34%         919      1.08%         260      0.35%
                                        ----------------------------------------------------------------
      Total mortgage loans               71,841     96.78%      81,496     95.94%      74,217     99.63%
                                        ----------------------------------------------------------------

Consumer loans:
  Auto loans                                244      0.33%         407      0.48%         208      0.28%
  Loans on savings accounts                  41      0.06%          45      0.05%          41      0.06%
                                        ----------------------------------------------------------------
      Total consumer loans                  285      0.38%         452      0.53%         249      0.33%
                                        ----------------------------------------------------------------
Other loans                               2,103      2.83%       2,993      3.52%          24      0.03%
                                        ----------------------------------------------------------------
Total loans                              74,229    100.00%      84,941    100.00%      74,490    100.00%
                                                   ======                 ======                 ======

Less:
  Deferred loan fees                       (312)                   181                     35
  Allowance for loan losses                (697)                  (764)                  (596)
                                        -------                -------                -------
Loans, net                              $73,220                $84,358                $73,929
                                        =======                =======                =======

</TABLE>

      Origination, Sale and Servicing of Loans. The Bank's mortgage lending
activities are conducted primarily by its commissioned loan personnel
operating at its three full-service banking offices. All loans originated
by the Bank are underwritten by the Bank in accordance with its policies
and procedures. The Bank originates both adjustable-rate and fixed-rate
mortgage loans depending upon the relative customer demand for such loans,
which is affected by the current and expected future level of interest
rates and general economic conditions.

      Generally, all adjustable-rate mortgage loans originated by the Bank
are originated for investment. While it has historically originated all
fixed-rate, one-to-four family mortgage loans for sale in the secondary
market, since the early part of 2000, the Bank has adopted a strategy of
retaining certain one-to-four family fixed-rate loans for its portfolio.
The decision to retain is based on various factors, including its
asset/liability position and market interest


<PAGE>  4


rates. Mortgage loan products currently originated for sale include loans
that conform to the underwriting standards specified by Fannie Mae
("conforming loans") and, to a lesser extent, loans which do not conform to
Fannie Mae standards due to loan amounts ("jumbo loans"). Some one-to-four
family mortgage loans sold by the Bank are sold pursuant to master
commitments negotiated with Fannie Mae and other investors to purchase
loans meeting such investor's defined criteria. Although the Bank has
entered into such master commitment contracts, such contracts generally do
not require the purchasers to buy or the Bank to deliver a specific amount
of mortgage loans. All conforming loans currently sold by the Bank are sold
to Fannie Mae and private investors and all non-conforming loans, which are
sold, are generally sold to private investors. Sales of loans are currently
made without recourse to the Bank in the event of default by the borrower.
The Bank generally retains the servicing rights on the mortgage loans sold
to Fannie Mae and generally releases the servicing rights on the mortgage
loans sold to private investors.

      At December 31, 2001, the Bank was servicing $3.1 million of loans
for others, primarily consisting of conforming fixed-rate mortgage loans
sold by the Bank. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, contacting delinquent
mortgagors, supervising foreclosures and property dispositions in the event
of unremedied defaults, making certain insurance and tax payments on behalf
of the borrowers and generally administering the loans.

      During the years ended December 31, 2001 and December 31, 2000, the
Bank originated $91.5 million and $32.1 million of one-to-four family
loans, respectively, of which $10.2 million and $14.1 million,
respectively, were retained by the Bank. The Bank recognizes, at the time
of sale, the cash gain or loss on the sale of the loans based on the
difference between the net cash proceeds received and the carrying value of
the loans sold. In the three years ended December 31, 2001, the fair market
value of servicing rights under SFAS No. 140 were not material and were not
recognized in the financial statements for those periods.

      Loan Maturity. The following table shows the remaining contractual
maturity of the Bank's loan portfolio at December 31, 2001. The table does
not include prepayments or scheduled principal amortization. Prepayments
and scheduled principal amortization on mortgage loans totaled $27.1
million, $25.9 million and $26.6 million for the years ended December 31,
2001, 2000 and 1999, respectively.

<TABLE>
<CAPTION>

                                                                      At December 31, 2001
                             ------------------------------------------------------------------------------------------------------
                             One-to                                                                 Loans on               Total
                             Four-      Multi-    Commercial     Construction     Home     Auto     Savings                Loans
                             Family     Family    Real Estate      and Land      Equity    Loans    Accounts    Other    Receivable
                             ------     ------    -----------    ------------    ------    -----    --------    -----    ----------
                                                                          (In Thousands)


                          <c>        <c>          <c>            <c>          <c>       <c>         <c>      <c>       <c>
Amounts due:
  Within one year            $   745                 $   12         $6,880                 $ 18        $41                $ 7,696
                             ----------------------------------------------------------------------------------------------------

  After one year:
    More than one year
     to three years              143                                   106                  145                               394
    More than three years
     to five years               288                 $   34            698                   81                 $  381      1,482
    More than five years
     to 10 years               2,886    $9,057        6,376                      $184                              139     18,642
    More than 10 years
     to 20 years               6,769       616        1,465            234        810                            1,583     11,477
    More than 20 years(1)     34,271       267                                                                             34,538
                             ----------------------------------------------------------------------------------------------------

      Total due after
       December 31, 2002      44,357     9,940        7,875          1,038        994       226          -       2,103     66,533
                             ====================================================================================================
      Total amount due
       (gross)               $45,102    $9,940       $7,887         $7,918       $994      $244        $41      $2,103    $74,229

Less:
Deferred loan fees, net                                                                                                      (312)
Allowance for loan losses                                                                                                    (697)
                                                                                                                          -------
Total loans, net                                                                                                          $73,220
                                                                                                                          =======

</TABLE>


<PAGE>  5


      The following table sets forth at December 31, 2001, the dollar
amount of gross loans receivable contractually due after December 31, 2002,
and whether such loans have fixed interest rates or adjustable interest
rates.

<TABLE>
<CAPTION>

                                  Due After December 31, 2002
                               --------------------------------
                                Fixed     Adjustable     Total
                                -----     ----------     -----
                                        (In thousands)


                            <c>          <c>         <c>
Mortgage loans:
  One- to four-family          $18,949      $25,408     $44,357
  Multi-family                       -        9,940       9,940
  Commercial real estate           370        7,505       7,875
  Construction                     222          816       1,038
  Home equity lines                  -          994         994
                               --------------------------------
      Total mortgage loans      19,541       44,663      64,204
                               --------------------------------

Consumer loans:
  Auto loans                       226            -         226
  Loans on savings accounts          -            -           -
                               --------------------------------
      Total consumer loans         226            -         226
                               --------------------------------
Other loans                      2,103            -       2,103
                               --------------------------------
      Total loans              $21,870      $44,663     $66,533
                               ================================

</TABLE>

      One-to-Four Family Lending. The Bank currently offers both fixed-rate
and adjustable-rate mortgage ("ARM") loans with maturities of up to 30
years secured by one-to-four family residences substantially all of which
are located in the Bank's primary market area. At December 31, 2001, the
Bank's one-to-four family mortgage loans totaled $45.1 million or 60.8% of
total loans, compared with $59.9 million, or 70.5% of total loans
outstanding at December 31, 2000. Of the one-to-four family mortgage loans
outstanding at December 31, 2001, 42.0% were fixed-rate mortgage loans and
58.0% were ARM loans, compared to 33.6% fixed-rate loans and 66.4%
adjustable-rate loans at December 31, 2000.

      The Bank currently offers fixed-rate one-to-four family mortgage
loans with terms from 15 to 30 years. The Bank currently offers a number of
ARM loans with terms of up to 30 years and interest rates which adjust
every one or three years from the outset of the loan or which adjust
annually after a five year initial fixed period. The interest rates for the
Bank's ARM loans are generally indexed to the applicable Constant Maturity
Treasury ("CMT") Index, or other comparable indices. The Bank's ARM loans
generally provide for periodic (not more than 2%) and overall (not more
than 6%) caps on the increase or decrease in the interest rate at any
adjustment date and over the life of the loan.

      The origination of adjustable-rate residential mortgage loans and
short term fixed rate mortgage loans, as opposed to fixed-rate residential
mortgage loans, helps reduce the Bank's exposure to increases in interest
rates. However, adjustable-rate loans generally pose credit risks not
inherent in fixed-rate loans, primarily because as interest rates rise, the
underlying payments of the borrower rise, thereby increasing the potential
for default. Periodic and lifetime caps on interest rate increases help to
reduce the risks associated with adjustable-rate loans but also limit the
interest rate sensitivity of such loans.

      Generally, the Bank originates one-to-four family residential
mortgage loans in amounts of up to 95% of the appraised value or selling
price of the property securing the loan, whichever is lower. Certain loans
in the Bank's "First-Time Home Buyer" program allow for a 97% loan-to-value
("LTV") ratio. Private mortgage insurance ("PMI") may be required for loans
with a LTV ratio of greater than 80%. Mortgage loans originated by the Bank
generally include due-on-sale clauses, which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event
the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the yields
on the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses. The Bank requires fire, casualty,
title and, in certain cases, flood insurance on all properties securing
real estate loans made by the Bank.


<PAGE>  6


      In an effort to provide financing for moderate income and first-time
home buyers, the Bank offers Federal Housing Authority ("FHA") and Veterans
Administration ("VA") loans and has its own First-Time homebuyer loan
program. These programs offer residential mortgage loans to qualified
individuals. These loans are offered with adjustable- and fixed-rates of
interest and terms of up to 30 years. Such loans may be secured by a one-
to-four family residential property, in the case of FHA and VA loans, and
must be secured by a single-family owner-occupied unit in the case of
First-Time homebuyer loans. These loans are originated using modified
underwriting guidelines, in the case of FHA and VA loans, and the same
underwriting guidelines as the Bank's other one-to-four family mortgage
loans in the case of First-Time homebuyer loans. Such loans may be
originated in amounts of up to 97% of the lower of the property's appraised
value or the sale price. Private mortgage insurance is required on all such
loans with loan to values in excess of 80%.

      The Bank also originates "investor rehab loans" to local contractors
and investors for the improvement and remodeling of existing non-owner
occupied one-to-four family residential properties. Such first mortgage
loans are originated with a maximum LTV ratio of 80% of the purchase price
of the property plus up to 80% of the cost of the improvements, as
confirmed by an independent appraiser. Investor rehab loans are offered
with terms of one-year and fixed-rates of interest, generally 1-2% above
the prime rate of interest as reported in The Wall Street Journal and as a
10 year balloon payment. During the term of the loan, the borrower is
required to remit monthly payments of interest only. The principal balance
of such loan is due at the end of the one or ten year term. The Bank
primarily relies on the borrower's income statements and tax returns when
underwriting such loans. The Bank generally requires personal and/or
corporate guarantees on such loans. At December 31, 2001, investor rehab
loans totaled $2.7 million, or 5.0% of one-to-four family loans, and 3.2%
of the Bank's total loans.

      The Bank also has offered a limited documentation mortgage loan
product ("Low Doc" loans). Such loans are secured by owner-occupied one-to-
four family properties and are offered with both fixed and adjustable rates
of interest. The terms and interest rate caps of Low Doc loans are
generally the same as those of the Bank's other fixed and adjustable-rate
one-to-four family loan products; however, borrowers pay a premium in the
form of higher interest rates and loan fees and provide larger down
payments (75% maximum LTV ratio) in exchange for more expedient loan
processing by virtue of less income and asset information as compared to
loans underwritten in conformance with Fannie Mae standards. When
underwriting a Low Doc loan, the Bank requires executed income tax returns
and a satisfactory credit report but does not verify employment status. At
December 31, 2001, Low Doc loans totaled $ 8.2 million, or 15.1% of one-to-
four family loans, and 9.8% of the Bank's total loans, as compared to $7.4
million, or 12.1% of one-to-four family loans, and 8.6% of the Bank's total
loans at December 31, 2000.

      In conjunction with its 2002 strategic plan, Management has increased
its targets for origination of loans. This strategy allows the Bank to
service a larger customer base in the delivery of its residential mortgage
loan products. To meet these goals, the origination staff has been expanded
and the commission structure has been revised. The revised commission
structure is designed to give the origination staff a degree of flexibility
in the origination process.

      Multi-Family and Commercial Real Estate Lending. The Bank originates
multi-family and commercial real estate loans that are generally secured by
five or more unit apartment buildings and properties used for business
purposes such as small office buildings, restaurants or retail facilities
primarily located in the Bank's primary market area. The Bank's multi-
family and commercial real estate underwriting policies provide that such
real estate loans may be made in amounts of up to 80% of the appraised
value of the property, subject to the Bank's current loans-to-one-borrower
limit of $1.7 million at December 31, 2001. The Bank's multi-family and
commercial real estate loans may be made with terms of up to 10 years and
are offered with interest rates that adjust periodically. In reaching its
decision on whether to make a multi-family or commercial real estate loan,
the Bank considers the net operating income of the property, the borrower's
expertise, credit history and profitability and the value of the underlying
property. The Bank has generally required that the properties securing
these real estate loans have debt service coverage ratios (the ratio of
earnings before debt service) of at least 1.30 times. Environmental impact
surveys are generally required for all commercial real estate loans.
Generally, all multi-family and commercial real estate loans made to
corporations, partnerships and other business entities require personal
guarantees by the principals. The Bank may require a personal guarantee on
such loans depending on the creditworthiness of the borrower and the amount
of the down payment and other mitigating circumstances. The Bank's multi-
family real estate loan portfolio at December 31, 2001 was $9.9 million, or
13.4% of total loans, and the Bank's commercial real estate loan portfolio
at such date was $7.9 million, or 10.6% of total loans. At December 31,
2000, multi-family real estate loans totaled $7.8 million or 10.2% of total
loans and commercial real estate loans totaled $5.8 million or 6.8% of
total loans.


<PAGE>  7


      Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk
than one-to-four family residential mortgage loans. Because payments on
loans secured by multi-family and commercial real estate properties are
often dependent on successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real
estate market or the economy. The Bank seeks to minimize these risks
through its underwriting standards.

      In its 2002 strategic plan, Management has planned for an increased
level of multi-family and commercial loan origination. Management believes
that a greater level of these loans will bring enhanced yields, increased
rate sensitivity, and diversity to the loan portfolio.

      Construction Lending. The Bank originates fixed-rate construction
loans for the development of one-to-four family residential properties
primarily located in the Bank's primary market area. Although the Bank does
not generally make loans secured by raw land, the Bank's policies permit
the origination of such loans. Construction loans are generally offered to
experienced local developers operating in the Bank's primary market area
and, to a lesser extent, to individuals for the construction of their
primary residence. Construction loans are generally offered with terms of
up to 12 months and may be made in amounts of up to 70% of the appraised
value of the property, as improved. In the case of construction loans to
developers, loans may be made up to 70% of the appraisal value of the
property, as improved. In the case of construction loans to individuals for
the construction of their primary residence, loans up to 90% of the
appraisal value may be made. Loans of up to 80% of the appraised value of
the property may be made for land loans. Construction loan proceeds are
disbursed periodically in increments as construction progresses and as
inspections by the Bank's lending officers warrant. Generally, if the
borrower is a corporation, partnership or other business entity, personal
guarantees by the principals are required for all construction loans.

      At December 31, 2001, the Bank had $7.9 million of advanced
construction loans that amounted to 10.7% of the Bank's total loans,
compared to $7.1 million or 8.4% of total loans at December 31, 2000.

      Construction financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied
real estate. Risk of loss on a construction loan is dependent largely upon
the accuracy of the initial estimate of the property's value at completion
of construction compared to the estimated cost (including interest) of
construction and other assumptions, including the estimated time to sell
residential properties. If the estimate of value proves to be inaccurate,
the Bank may be confronted with a project, when completed, having a value
which is insufficient to assure full repayment.

      Home Equity Lines of Credit. Substantially all of the Bank's home
equity lines of credit are secured by second mortgages on owner-occupied
one-to-four family residences located in the Bank's primary market area. At
December 31, 2001, these loans totaled $994,000, or 1.3% of the Bank's
total loans, compared to $919,000 or 1.1% of total loans at December 31,
2000. Home equity lines of credit generally have adjustable-rates of
interest, which adjust on a monthly basis. The adjustable-rate of interest
charged on such loans is indexed to the prime rate as reported in The Wall
Street Journal. Home equity lines of credit generally have an 18% lifetime
limit on interest rates. Generally, the maximum combined LTV ratio on home
equity lines of credit is 80%. The underwriting standards employed by the
Bank for home equity lines of credit include a determination of the
applicant's credit history and an assessment of the applicant's ability to
meet existing obligations and payments on the proposed loan and the value
of the collateral securing the loan. The stability of the applicant's
monthly income may be determined by verification of gross monthly income
from primary employment and, additionally, from any verifiable secondary
income. Creditworthiness of the applicant is of primary consideration.

      Consumer Lending. Consumer loans at December 31, 2001 amounted to
$2.4 million, or 2.9% of the Bank's total loans, and consisted primarily of
indirectly originated loans on recreational vehicles. During 2000, the Bank
developed a indirect lending program geared specifically toward customers
purchasing recreational vehicles. Such loans are reported as "other loans."
Loans on new and used automobiles and passbook loans are also originated.
Automobile and recreational vehicle loans are generally originated in the
Bank's primary market area and are secured by the vehicle purchased. These
loans have a maximum borrowing limitation of 90% of the sale price of the
vehicle, or in the case of automobiles, the average value in the National
Automobile Dealer's Association price guide, whichever is lower. Loans on
savings accounts are generally secured by deposit accounts. At December 31,
2001, recreational vehicle loans totaled $2.1 million or 87.8% of consumer
loans and 2.5% of total loans; automobile loans totaled $244,000, or 10.2%
of consumer loans and 0.3% of the Bank's total loans; and loans on savings
accounts totaled $41,000, or 1.7% of consumer loans and 0.1% of the Bank's
total loans.


<PAGE>  8


      Loans secured by rapidly depreciable assets such as recreational
vehicles and automobiles entail greater risks than one-to-four family
residential mortgage loans. In such cases, repossessed collateral for a
defaulted loan may not provide an adequate source of repayment of the
outstanding loan balance, since there is a greater likelihood of damage,
loss or depreciation of the underlying collateral. Further, consumer loan
collections on these loans are dependent on the borrower's continuing
financial stability and, therefore, are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Finally, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered
on such loans in the event of a default.

      Loan Approval Procedures and Authority. The Board of Directors
establishes the lending policies and loan approval limits of the Bank. The
Board of Directors has established the Security Committee that considers
and approves all loans within its designated authority as established by
the Board. In addition, the Board of Directors has authorized certain
officers of the Bank to consider and approve all loans within their
designated authority as established by the Board.

Delinquent Loans, Classified Assets and Real Estate Owned

      Reports listing all delinquent accounts are generated and reviewed by
management on a monthly basis and the Board of Directors performs a monthly
review of all loans or lending relationships delinquent 60 days or more.
The procedures taken by the Bank with respect to delinquencies vary
depending on the nature of the loan, period and cause of delinquency and
whether the borrower is habitually delinquent. When a borrower fails to
make a required payment on a loan, the Bank takes a number of steps to have
the borrower cure the delinquency and restore the loan to current status.
The Bank generally sends the borrower a written notice of non-payment after
the loan is first past due. The Bank's guidelines provide that telephone
and written correspondence will be attempted to ascertain the reasons for
delinquency and the prospects of repayment. When contact is made with the
borrower at any time prior to foreclosure, the Bank will attempt to obtain
full payment, offer to work out a repayment schedule with the borrower to
avoid foreclosure or, in some instances, accept a deed in lieu of
foreclosure. In the event payment is not then received or the loan not
otherwise satisfied, additional letters and telephone calls generally are
made. If the loan is still not brought current or satisfied and it becomes
necessary for the Bank to take legal action, which typically occurs after a
loan is 90 days or more delinquent, the Bank will commence foreclosure
proceedings against any real property that secured the loan. If a
foreclosure action is instituted and the loan is not brought current, paid
in full, or refinanced before the foreclosure sale, the property securing
the loan generally is sold at foreclosure and, if purchased by the Bank,
becomes real estate owned, ("REO").

      Federal regulations and the Bank's internal policies require that the
Bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank currently
classifies problem and potential problem assets as "Substandard,"
"Doubtful" or "Loss". An asset is considered Substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. Substandard assets include
those characterized by the distinct possibility that the Bank will sustain
some loss if the deficiencies are not corrected. Assets classified as
Doubtful have all of the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of currently existing
facts, conditions and values, highly questionable and improbable. Assets
classified as Loss are those considered uncollectible and of such little
value that their continuance as assets, without the establishment of a
specific loss reserve, is not warranted. Assets which do not currently
expose the Bank to a sufficient degree of risk to warrant classification in
one of the aforementioned categories but possess weaknesses are required to
be designated "Special Mention."

      When the Bank classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for loan
losses in an amount deemed prudent by management unless the loss of
principal appears to be remote. When the Bank classifies one or more assets
or portions thereof, as Loss, it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so
classified or to charge off such amount.

      The Bank's determination as to the classification of its assets and
the amount of its valuation allowances is subject to review by the FDIC and
the Massachusetts Commissioner of Banks ("the Commissioner"), which can
order the establishment of additional general or specific loss allowances.
The FDIC, in conjunction with the other federal banking agencies, recently
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions
on both the responsibilities of management for the assessment and
establishment of adequate allowances and guidance for banking agency
examiners to use in


<PAGE>  9


determining the adequacy of general valuation guidelines. Generally, the
policy statement recommends that institutions have effective systems and
controls to identify, monitor and address asset quality problems; that
management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management
has established acceptable allowance evaluation processes that meet the
objectives set forth in the policy statement.  While the Bank believes that
it has established an adequate allowance for loan losses, there can be no
assurance that regulators, in reviewing the Bank's loan portfolio, will not
request the Bank to materially increase its allowance for loan losses,
thereby negatively affecting the Bank's financial condition and earnings at
that time. Although management believes that adequate specific and general
loan loss allowances have been established, future provisions are dependent
upon future events such as loan growth and portfolio diversification and,
as such, further additions to the level of specific and general loan loss
allowances may become necessary.

      In 2001, the Bank implemented a risk rating process whereby all
commercial loans previously and prospectively originated will be rated by
criteria established under a policy established by the Directors and
reviewed by the loan committee. A percentage of the loans will be reviewed
by individuals not involved in the underwriting process.

      Management of the Bank reviews and classifies its assets on a
quarterly basis, and the Board of Directors reviews the results of the
reports on a quarterly basis. The Bank classifies its assets in accordance
with the management guidelines described above. At December 31, 2001 and
2000 the Bank did not have any classified loans.

Non-performing Assets.

      The following table sets forth information regarding non-performing
loans and REO. At December 31, 2001, the Bank had no REO in its portfolio.
It is the general policy of the Bank to cease accruing interest on loans 90
days or more past due and to fully reserve for all previously accrued
interest unless the loan is well secured and in the process of collection.
If interest payments on all non-accrual loans for the years ended December
31, 2001 and 2000 had been made in accordance with original loan
agreements, interest income of $0 and $3,000, respectfully, would have been
recognized compared to no interest income recognized in 2000 and 1999.
There were no loans on non-accrual for the years ended December 31, 2001
and December 31, 2000.

<TABLE>
<CAPTION>

                                                             At December 31,
                                                         ----------------------
                                                         2001     2000     1999
                                                         ----     ----     ----
                                                         (Dollars in thousands)


                                                      <c>      <c>      <c>
Non-performing loans:
  One- to four-family                                    $  -     $  -     $ 92

Non-performing loans as a percent of loans (1)           0.00%    0.00%    0.11%
Non-performing loans as a percent of total assets (2)    0.00%    0.00%    0.10%

<FN>
<F1>  Loans include loans receivable held for investment, net, excluding
      the allowance for loan losses.
<F2>  Non-performing assets consist of non-performing loans and REO. The
      Bank had no REO at December 31, 2001, 2000, and 1999. Non-performing
      loans consist of non-accruing loans and all loans 90 days or more
      past due and other loans which have been identified by the Bank as
      presenting uncertainty with respect to the collectibility of interest
      or principal.
</FN>
</TABLE>

      Real Estate Owned. At December 31, 2001, the Bank had no REO in its
portfolio. When the Bank does acquire property through foreclosure or deed
in lieu of foreclosure, it is initially recorded at the lower of the
recorded investment in the corresponding loan or the fair value of the
related assets at the date of foreclosure, less costs to sell. Thereafter,
if there is a further deterioration in value, the Bank provides for a
specific valuation allowance and charges operations for the diminution in
value.


<PAGE>  10


Allowance for Loan Losses

      The allowance for loan losses is maintained through provisions for
loan losses based on management's on-going evaluation of the risks inherent
in its loan portfolio, consideration of the trends in its loan portfolio,
the national and regional economies and the real estate market in the
Bank's primary lending area. The allowance for loan losses is maintained at
an amount management considers adequate to cover estimated losses in its
loan portfolio which are deemed probable and estimable based on information
currently known to management. The Bank's loan loss allowance
determinations also incorporate factors and analyses which consider the
potential principal loss associated with the loan, costs of acquiring the
property, securing the loan through foreclosure or deed in lieu thereof,
the periods of time involved with the acquisition and sale of such
property, costs and expenses associated with maintaining and holding the
property until sale and the costs associated with the Bank's inability to
utilize funds for other income producing activities during the estimated
holding period of the property.

      Management periodically calculates a loan loss allowance sufficiency
analysis based upon the loan portfolio composition, asset classifications,
loan-to-value ratios, potential impairments in the loan portfolio and other
factors. The analysis is compared to actual losses, peer group comparisons
and economic conditions. The Bank will continue to monitor and modify its
allowance for loan losses as conditions dictate. Management believes that,
based on information available at December 31, 2001, the Bank's allowance
for loan losses was sufficient to cover losses inherent in its loan
portfolio at that time. However, no assurances can be given that the Bank's
level of allowance for loan losses will be sufficient to cover future loan
losses incurred by the Bank or that further future adjustments to the
allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions used
by management to determine the current level of the allowance for loan
losses. In addition, the FDIC and the Commissioner, as an integral part of
their examination processes, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to make additional
provisions for estimated loans losses based upon judgements different from
those of management.

      The following table sets forth activity in the Bank's allowance for
loan losses for each period set forth.

<TABLE>
<CAPTION>

                                            At or For the
                                      Years ended December 31,
                                     --------------------------
                                      2001      2000      1999
                                     ------    ------    ------
                                       (Dollars in thousands)


                                  <c>       <c>       <c>
Balance at beginning of year         $ 764     $ 596      $ 525
Provision for loan losses             (127)       58        (19)
Charge-offs:
  One- to four-family                    4        12          -
  Auto loans                             -         -          -
                                     --------------------------
      Total charge-offs                  4        12          -
Recoveries:
  One- to four-family                   65       106         90
  Auto loans                             -        16          -
                                     --------------------------
      Total recoveries                  65       122         90
                                     --------------------------
Net charge-offs (recoveries)           (61)     (110)       (90)
                                     --------------------------
Balance at end of year               $ 698     $ 764      $ 596
                                     ==========================

Allowance for loan losses as
 a percent of loans                   0.94%     0.88%      0.79%
Allowance for loan losses as
 a percent of nonperforming loans      N/A       N/A     647.83%

</TABLE>


<PAGE>  11


      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 December 31,
                                         -----------------------------------------------------------------------
                                                 2001                     2000                     1999
                                         ---------------------    ---------------------    ---------------------
                                                   Percent of               Percent of               Percent of
                                                    Loans in                 Loans in                 Loans in
                                                      Each                     Each                     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>
One- to four family                      $228         62.10%      $356         71.62%      $319         72.67%
Multi-family                              149         13.39%       116         10.24%       116         10.24%
Commercial real estate                    118         10.63%        86          6.78%        64          5.75%
Construction and land                      99         10.67%       107          8.38%        83         10.51%
Consumer Loans                             36          0.38%        60          0.53%         5          0.68%
Other                                       -          2.83%         -          3.52%         -          0.03%
Unallocated                                68          0.00%        39          0.00%         9          0.00%
                                         --------------------------------------------------------------------
      Total allowance for loan losses    $698        100.00%      $764        100.00%      $596        100.00%
                                         ====================================================================

</TABLE>

Investment Activities

      The Board of Directors sets the investment policy and procedures of
the Bank. This policy generally provides that investment decisions will be
made based on the safety of the investment, liquidity requirements of the
Bank and, to a lesser extent, potential return on the investments. In
pursuing these objectives, the Bank considers the ability of an investment
to provide earnings consistent with factors of quality, maturity,
marketability and risk diversification. The Bank generally invests in
securities as a method of utilizing funds not utilized for loan origination
activity and as a method of maintaining liquidity at levels deemed
appropriate by management. While the Board of Directors has final authority
and responsibility for the securities investment portfolio, the Board has
delegated day-to-day oversight of the Bank's investments to the Chief
Financial Officer of the Bank. On a monthly basis, the Board reviews and
evaluates all investment activities for safety and soundness, adherence to
the Bank's investment policy and assurance that authority levels are
maintained.

      A portion of the Company's investment portfolio is maintained in a
Massachusetts Securities Corporation, which affords favorable tax treatment
to the income earned within the Securities Corporation. The Company is
restricted from transferring the income or investments from the Securities
Corporation without adverse tax consequences. The Company has not made such
a transfer that would taint the Securities Corporation.

      As required by SFAS No. 115, the Bank has established an investment
portfolio of securities that are categorized as held-to-maturity,
available-for-sale or held for trading. The Bank does not currently
maintain a portfolio of securities categorized as held for trading. At
December 31, 2001, the available-for-sale securities portfolio totaled
$22.7 million, or 18.8% of assets and the held-to-maturity portfolio
totaled $502,000, or 0.4% of assets.

      The Bank currently does not participate in hedging programs, interest
rate swaps, or other activities involving the use of off-balance sheet
derivative financial instruments. Similarly, the Bank does not invest in
mortgage-related securities that are deemed to be "high risk" or purchase
bonds that are not investment grade.


<PAGE>  12


      Mortgage-Backed Securities. The Bank currently invests in mortgage-
backed securities insured or guaranteed by Fannie Mae, Freddie Mac and
Ginnie Mae. At December 31, 2001, mortgage-backed securities totaled $12.9
million, or 10.7%, of total assets and 11.2% of total interest earning
assets, all of which were classified as available-for-sale. At December 31,
2001, the mortgage-backed securities were backed by both adjustable-and
fixed rate loans. The mortgage-backed securities portfolio had stated rates
ranging from 4.9% to 6.71% at December 31, 2001.

      Investments in mortgage-backed securities involve a risk that actual
prepayments may differ from estimated prepayments over the life of the
security. Accordingly, adjustments to the amortization of any premium or
accretion of any discount relating to such instruments may be required,
thereby changing the net yield on such securities. There is also
reinvestment risk associated with the cash flows from such securities or in
the event such securities are redeemed by the issuer. In addition, the
market value of such securities may be adversely affected by changes in
interest rates.

      U.S. Government and Federal Agency Obligations. At December 31, 2001,
the Bank's portfolio of U.S. Government and federal agency obligations
totaled $3.5 million, all of which were classified as available-for-sale.
Such portfolio at December 31, 2001 primarily consisted of short- to
medium-term (maturities of one to ten years) securities issued by federal
agencies.

      Corporate Equity Securities and Debt Obligations. The Bank currently
invests in the equity securities and debt obligations of United States
corporations. At December 31, 2001, the Bank's marketable equity securities
portfolio totaled $1.1 million, or 0.9% of total assets, all of which were
classified as available-for-sale. Such portfolio consisted of $1.1 million
in preferred stock issued by corporate issuers. The Bank's current policies
generally provide that the maximum equity investment in any one corporation
shall not exceed 3% of the Bank's equity and reserves and the maximum
aggregate investment in any one industry shall not exceed 15% of the Bank's
equity and reserves. At December 31, 2001, the Bank had $5.7 million, or
4.7% of total assets, in corporate debt obligations, all of which were
investment grade.

      Investments in corporate equity securities and debt obligations
involve risk as they are not insured or guaranteed by the U.S. government
or any agency thereof. These investments are generally not secured by
collateral. They generally rely upon future income from the operations of
the issuer for repayment of principal and interest.

      The following table sets forth at the dates indicated certain
information regarding the amortized cost and market values of the Bank's
investment securities.

<TABLE>
<CAPTION>

                                                                         At December 31,
                                             -----------------------------------------------------------------------
                                                     2001                     2000                     1999
                                             --------------------     --------------------     ---------------------
                                             Amortized     Market     Amortized     Market     Amortized     Market
                                               Cost        Value        Cost        Value        Cost        Value
                                             ---------     ------     ---------     ------     ---------     ------
                                                                     (Dollars in thousands)

                                           <c>          <c>         <c>          <c>         <c>          <c>
Investment securities:
  Held to maturity:
    Corporate debt                            $   502      $   504     $   513      $   513     $   524      $   514
                                             -----------------------------------------------------------------------

      Total investment securities held
       to maturity                               502           504         513          513         524          514
                                             -----------------------------------------------------------------------

Available for sale:
  U.S. Government and federal agency           3,467         3,526       2,075        2,077         898          874
  Corporate debt                               5,350         5,223       5,198        5,107       4,573        4,486

  Mortgage-backed securities                  12,850        12,867       6,289        6,261       5,829        5,597
  Marketable equity securities                 1,059         1,049       1,632        1,594       1,312        1,111
                                             -----------------------------------------------------------------------
      Total securities available for sale     22,726        22,665      15,194       15,039      12,612       12,068
                                             -----------------------------------------------------------------------
      Total securities                       $23,228       $23,169     $15,707      $15,552     $13,136      $12,582
                                             =======================================================================

</TABLE>


<PAGE>  13


      The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
securities portfolio as of December 31, 2001.

<TABLE>
<CAPTION>

                                                                      At December 31, 2001
                             ------------------------------------------------------------------------------------------------------
                                                     More than One       More than Five          More than
                              One Year or Less    Year to Five Years   Years to Ten Years        Ten Years             Total
                             ------------------   ------------------   ------------------   ------------------   ------------------
                                  Weighted             Weighted             Weighted             Weighted             Weighted
                             Carrying   Average   Carrying   Average   Carrying   Average   Carrying   Average   Carrying   Average
                              Value      Yield     Value      Yield     Value      Yield     Value      Yield     Value      Yield
                             --------   -------   --------   -------   --------   -------   --------   -------   --------   -------
                                                                     (Dollars in thousands)


                           <c>        <c>       <c>        <c>       <c>        <c>       <c>        <c>       <c>        <c>
Held-to-maturity:
  Corporate debt              $  502     8.50%          -        -           -        -            -       -      $   502    8.50%

Available for sale:
  Mortgage-backed securities       -        -           -        -           -        -      $12,850    6.22%      12,850    6.22%
  U.S. Government and
   federal agency                  -        -      $  500     6.00%          -        -        2,967    5.39        3,467    5.48
  Corporate debt                 758     7.17%        728     6.64      $1,459     5.46%       2,405    4.37        5,350    5.37
  Marketable equity
   securities                     60     7.20         550     7.11         449     6.88            -       -        1,059    7.02
                              -----------------------------------------------------------------------------------------------------
    Total available-for-sale     818     7.17       1,778     6.61       1,908     5.79       18,222    5.84       22,726    6.00
                              -----------------------------------------------------------------------------------------------------
    Total securities          $1,320     7.68%     $1,778     6.61%     $1,908     5.79%     $18,222    5.84%     $23,228    6.00%
                              =====================================================================================================

</TABLE>

Sources of Funds

      General. Deposits, repayments and prepayments of loans, cash flows
generated from investments and operations and FHLB advances are the primary
sources of the Bank's funds for use in lending, investing and for other
general purposes.

      Deposits. The Bank offers a variety of deposit accounts with a range
of interest rates and terms. The Bank's deposit accounts consist of
savings, retail checking/interest bearing checking accounts, commercial
checking accounts, money market accounts, club accounts and certificate of
deposit accounts. The Bank offers certificate of deposit accounts with
balances in excess of $100,000 at preferential rates (jumbo certificates),
Individual Retirement Accounts ("IRAs") and other qualified plan accounts.

      At December 31, 2001, the Bank's deposits totaled $100.8 million, or
91.0%, of total liabilities. For the year ended December 31, 2001, the
average balance of core deposits (savings, interest bearing checking, money
market and noninterest-bearing checking accounts) totaled $56.7 million. At
December 31, 2001, the Bank had a total of $38.5 million in certificates of
deposit, of which $31.7 million had maturities of one year or less. For the
year ended December 31, 2001, the average balance of core deposits
represented approximately 55.4% of total deposits and certificate accounts
represented 44.6%. Management monitors activity on the Bank's core deposits
and, based on historical experience and the Bank's current pricing
strategy, believes it will continue to retain a large portion of such
accounts. The Bank is not limited with respect to the rates it may offer on
deposit products.

      The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Bank's deposits are obtained predominantly from the areas
in which its banking offices are located. The Bank relies primarily on
customer service and long-standing relationships with customers to attract
and retain deposits; however, market interest rates and rates offered by
competing financial institutions impact the Bank's ability to attract and
retain deposits. The Bank uses traditional means of advertising its deposit
products, including radio and print media and generally does not solicit
deposits from outside its market area. While certificate accounts in excess
of $100,000 are accepted by the Bank, and may be subject to preferential
rates, the Bank does not actively solicit such deposits as such deposits
are more difficult to retain than core deposits. Although the Bank's
policies do permit the use of brokered deposits, the Bank does not
currently accept brokered deposits.


<PAGE>  14


      Pursuant to its 2002 strategic plan, management is focused on the
development and growth of its "core" and term accounts based on a balancing
of customer demand, and a compatison of retail pricing to wholesale
pricing. This strategy will allow for deposit growth, while controlling the
Bank's cost of funds in 2002. In accordance with this plan, Management has
developed an enhanced menu of products designed to encourage multiple
account relationships. The strategic plan also calls for an enhanced menu
of products for the business customer.

      At December 31, 2001, the Bank had outstanding $11.6 million in
certificate of deposits accounts in amounts of $100,000 or more, maturing
as follows:

<TABLE>
<CAPTION>

                                               Weighted
                                               Average
Maturity Period                     Amount      Rate
---------------                     ------     --------
                                 (Dollars in thousands)


                              <c>             <c>
Three months or less             $ 4,145         4.09%
Over three through six months      2,623         6.43
Over six through 12 months         3,431         5.88
Over 12 months                     1,410         6.25
                                 -------
Total                            $11,609         6.04%
                                 =======

</TABLE>

      The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average
interest rates on each category of deposits presented.

<TABLE>
<CAPTION>

                                                                         At December 31,
                                 -------------------------------------------------------------------------------------------------
                                             2001                             2000                              1999
                                 -----------------------------    -----------------------------    -------------------------------
                                           Percent    Weighted              Percent    Weighted               Percent     Weighted
                                 Average   of Total   Average     Average   of Total   Average     Average    of Total    Average
                                 Balance   Deposits    Rate       Balance   Deposits    Rate       Balance    Deposits     Rate
                                 -------   --------   --------    -------   --------   --------    -------    --------    --------
                                                                      (Dollars in thousands)


                              <c>        <c>         <c>       <c>        <c>         <c>       <c>         <c>          <c>
Money market deposits            $    63      0.07%     2.12%     $    97      0.12%     2.06%     $   266       0.45%      2.42%
Demand accounts                    7,860      8.65         -        4,781      6.06         -        5,156       8.70          -
Interest-bearing checking         22,619     24.88      3.64       20,629     26.17      4.12       13,971      23.56       3.41
Regular and other savings         19,837     21.82      1.81       11,057     14.03      2.03       10,032      16.92       1.96
Total certificates of deposit     40,535     44.59      5.60       42,268     53.62      5.67       29,869      50.37       5.11
                                 -----------------------------------------------------------------------------------------------
      Total                      $90,914    100.00%     4.16%     $78,832    100.00%     4.40%     $59,294     100.00%      3.76%
                                 ===============================================================================================

</TABLE>

      Borrowed Funds. As part of its operating strategy, the Bank utilizes
advances from the FHLB as a supplement to retail deposits to fund its
operations. By utilizing FHLB advances, which possess varying stated
maturities, the Bank can meet its liquidity needs without otherwise being
dependent upon retail deposits, which have no stated maturities (except for
certificates of deposit), which are interest rate sensitive and which are
subject to withdrawal from the Bank at any time. These FHLB advances are
collateralized primarily by the Bank's mortgage loans and mortgage-backed
securities and secondarily by the Bank's investment in capital stock of the
FHLB. FHLB advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities. The
maximum amount that the FHLB will advance to member institutions, including
the Bank, fluctuates from time-to-time in accordance with the policies of
the FHLB. The Bank's borrowing limit from the FHLB, based on qualified
collateral held, was $68.8 million at December 31, 2001.


<PAGE>  15


      The following table sets forth certain information regarding the
bank's borrowed funds at or for the periods ended on the dates indicated:

<TABLE>
<CAPTION>

                                              At or For the Years Ended
                                                    December 31,
                                           -------------------------------
                                            2001        2000        1999
                                           -------     -------     -------
                                                (Dollars in thousands)


                                        <c>         <c>         <c>
FHLB advances:
  Average balance outstanding              $13,885     $18,449     $14,542
  Maximum amount outstanding at any
   month-end during the year                16,926      21,903      22,617
  Balance outstanding at end of year         8,778      13,599      22,617
  Weighted average interest rate during
   the year                                   6.91%       6.16%       5.32%
  Weighted average interest rate at end
   of year                                    4.45%       6.74%       5.58%

</TABLE>

Subsidiary Activities

      Mass Securities Corporation ("MSC") was organized in March 1998 to
acquire and hold investment securities of a type that are permissible for
banks to hold under applicable law. MSC was qualified as a "securities
corporation" for Massachusetts tax purposes. Income earned by a qualifying
securities corporation is generally entitled to special tax treatment from
Massachusetts income tax. The Bank established a second subsidiary, Mass
SEC Corp II, in August 1998 for a similar purpose. In February 1999 the
Bank established a Delaware limited liability company, 70 Quincy Ave. LLC,
to acquire, hold and lease property in connection with the acquisition of
the building and land for the new office in Quincy, Massachusetts. The
results of operations of these subsidiaries are consolidated in the results
and operations of the Company.

Personnel

      As of December 31, 2001, the Bank had 54 full-time employees and one
part-time employee. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees
to be good.

REGULATION AND SUPERVISION

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 Bank Insurance Fund, the
Bank is subject to deposit insurance assessments by the FDIC. The FDIC has
examination and supervisory authority over the Bank, with a broad range of
enforcement powers and the FDIC regulates the Bank's activities and
operations. 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, customers and borrowers of the Bank, not bank
stockholders.

      The following discussion of the laws and regulations material to the
operations of the Company and Bank are brief summaries. The summaries do
not purport to be complete and are qualified in their entirety by reference
to the applicable laws and regulations. As a savings and loan holding
company, the Company is required to file certain reports with, and
otherwise comply with the rules and regulations, of the OTS, the
Commissioner and of the Securities and Exchange Commission ("SEC") under
the federal securities laws. Certain of the regulatory requirements
applicable to the Bank and to the Holding Company are referred to below or
elsewhere herein.


<PAGE>  16


Massachusetts Banking Laws and Supervision

      The powers of a Massachusetts co-operative bank are established by
Massachusetts law, as qualified by applicable federal law and regulation.
Massachusetts co-operative banks 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 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.

      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.

      A co-operative bank may only pay dividends on its capital stock if
such payment would not impair the bank's capital stock and surplus account.
No dividends may be paid to stockholders of a bank if such dividends would
reduce stockholders' equity of the bank below the amount of the liquidation
account required by Massachusetts's conversion regulations.

Federal Regulations

      Capital Requirements. Under FDIC regulations, federally insured
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 be in
general a strong banking organization, rated composite 1 under the Uniform
Financial Institutions Ranking System, 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%. Tier 1
capital is the sum of common stockholders' equity, noncumulative perpetual
preferred stock including any related surplus and minority investments in
certain subsidiaries, less intangible assets except for servicing rights
and credit card relationships.

      The FDIC has also adopted risk-based capital guidelines to which the
Bank is subject. The FDIC guidelines require state non-member banks to
maintain certain levels of regulatory capital in relation to regulatory
risk-weighted assets. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-
weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk.

      State non-member banks must maintain a minimum ratio of qualifying
capital to risk-weighted assets of at least 8%, of which at least one-half
must be Tier 1 capital. Qualifying total capital consists of Tier 1 capital
plus Tier 2 or supplementary capital items, must include allowances for
loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative
preferred stock, preferred stock with a maturity of over 20 years, and
certain other capital instruments.

      The following is a summary of the Bank's regulatory capital at
December 31, 2001:

<TABLE>

           
                                      <c>
           GAAP Capital to Total Assets              7.3%
           Total Capital to Risk-Weighted Assets    12.8%
           Tier I Leverage Ratio                     7.3%
           Tier I to Risk-Weighted Assets           11.8%

</TABLE>


<PAGE>  17


      The federal banking agencies have also adopted a regulation providing
that the agencies will take account of the exposure of a bank's capital and
economic value to changes in interest rate risk in assessing a bank's
capital adequacy.

      Standards for Safety and Soundness. The federal banking agencies have
adopted regulations and Interagency Guidelines Establishing Standards for
Safety and Soundness to implement safety and soundness standards. The
Guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to
submit to the agency an acceptable plan to achieve compliance with the
standard.

Investment Activities

      All state-chartered FDIC insured banks, including co-operative banks,
are generally limited to activities as principal and equity investments of
the type and in the amount authorized for national banks, notwithstanding
state law. Applicable regulations permit certain exceptions to these
limitations. For example, certain state chartered banks, such as the Bank,
may, with FDIC approval, continue to exercise state authority to invest in
common or preferred stocks listed on a national securities exchange or the
Nasdaq National Market and in the shares of an investment company
registered under the Investment Company Act of 1940, as amended. Such banks
may also continue to sell savings bank life insurance. In addition, the
FDIC is authorized to permit such institutions to engage in state
authorized activities or investments that do not meet this standard (other
than non-subsidiary equity investments) for institutions that meet all
applicable capital requirements if it is determined that such activities or
investments do not pose a significant risk to the Bank Insurance Fund. The
Bank received grandfathering authority from the FDIC in February, 1993 to
invest in listed stocks and/or registered shares subject to the maximum
permissible investment of 100% of Tier 1 capital, as specified by the
FDIC's regulations, or the maximum amount permitted by Massachusetts
Commonwealth Banking Law, whichever is less. Such grandfathering authority
is subject to termination upon the FDIC's determination that such
investments pose a safety and soundness risk to the Bank or in the event
the Bank converts its charter, other than a mutual to stock conversion, or
undergoes a change in control. As of December 31, 2001, the Bank had $1.0
million of securities which were subject to such grandfathering authority.

Prompt Corrective Regulatory Action

      Federal law requires, among other things, that federal bank
regulatory authorities take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. An institution is
deemed to be "undercapitalized" if it has a total risk-based capital ratio
of less than 8%, a Tier I risk-based capital ratio of less than 4%, or
generally a leverage ratio of less than 4%. An institution is deemed to be
"significantly undercapitalized" if it has a total risk-based capital ratio
of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%. As of
December 31, 2001, the Bank was a well-capitalized institution.

      "Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a
capital restoration plan. A bank's compliance with such plan is required to
be guaranteed by any company that controls the undercapitalized
institutions. If an "undercapitalized" bank fails to submit an acceptable
plan, it is treated as if it is "significantly undercapitalized."
"Significantly undercapitalized" banks are subject to one or more of a
number of additional restrictions, including but not limited to an order by
the FDIC to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and cease receipt of deposits from
correspondent banks or dismiss directors or officers, and restrictions on
interest rates paid on deposits, compensation of executive officers and
capital distributions by the parent holding company. Generally, subject to
a narrow exception, the appointment of a receiver or conservator is
required for a "critically undercapitalized" institution within 270 days
after it obtains such status.


<PAGE>  18


Transactions with Affiliates

      Transactions between depository institutions and their affiliates are
governed by federal law. An affiliate of an institution is any company that
controls, is controlled by, or is under common control with the
institution, other than a subsidiary. In a holding company context, at a
minimum, the parent holding company of an institution and any companies
which are controlled by such parent holding company are affiliates of the
institution. Generally, federal law limits the extent to which the
institution and 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 contains an aggregate limit on such transactions
with all affiliates of 20% of capital stock and surplus. The law also
establishes specific collateral requirements for loans or extensions of
credit to, or guarantees, acceptances on letters of credit issued on behalf
of an affiliate and requires that affiliate transactions generally be on
terms substantially the same, or no less favorable, to the institution or
its subsidiary as similar transactions with nonaffiliates.

      Further, federal law restricts an institution with respect to loans
to directors, executive officers, and principal stockholders. Loans to
directors, executive officers and stockholders who control, directly or
indirectly, 10% or more of voting securities of the institution, and
certain related interests of any of the foregoing, may not exceed, together
with all other outstanding loans to such persons and affiliated entities,
the institution's total capital and surplus. Further, loans to directors,
executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other
persons, except that such insiders may receive preferential loans made
pursuant to a benefit or compensation program that is widely available to
the Bank's employees and does not give preference to the insider over the
other employees. The law also establishes board of director approval
requirements for specified insider loans. Federal law places additional
limitations on loans to executive officers.

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 unsafe or unsound practices. The FDIC has
authority under Federal law to appoint a conservator or receiver for an
insured bank under certain circumstances.

Insurance of Deposit Accounts

      The FDIC has adopted a risk-based insurance assessment system. An
institution is assigned to one of three capital categories based on the
institution's capital position, and one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution
is assigned is based on an evaluation by the FDIC of information which 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 are determined by the FDIC semi-annually and
currently range from zero basis points for the healthiest institution to 27
basis points for the riskiest. In addition, Bank Insurance Fund
institutions are required to make certain payments toward bonds issued in
the late 1980s by the Financing Corporation to recapitalize the insurance
fund for savings and loan associations. The Bank paid $16,839 in deposit
insurance assessments for fiscal 2001. The FDIC is authorized to raise the
assessment rates in certain circumstances. The FDIC has exercised this
authority several times 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.

      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.
The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.


<PAGE>  19


Federal Reserve System

      Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts.
The regulations generally require that reserves be maintained against
aggregate transaction accounts as follows: for that portion of transaction
accounts aggregating $42.8 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts
greater than $42.8 million, the reserve requirement is $1.284 million plus
10% (subject to adjustment by the Federal Reserve Board between 8% and 14%)
against that portion of total transaction accounts in excess of $42.8
million The first $5.5 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Bank is in compliance with the foregoing requirements.

Federal Home Loan Bank System

      The Bank is a member of the Federal Home Loan Bank ("FHLB") System,
which consists of 12 regional FHLBs. The FHLB provides a central credit
facility primarily for member institutions. The Bank, as a member of the
FHLB, is required to acquire and hold shares of capital stock in the FHLB
in an amount at least equal to 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning
of each year, or 1/20 of its advances (borrowings) from the FHLB, whichever
is greater. The Bank was in compliance with this requirement with an
investment in FHLB stock at December 31, 2001 of $1.1 million.

Holding Company Regulation

      Federal law allows a state co-operative bank that qualifies as a
"qualified thrift to elect to be treated as a "savings association" for
purposes of the savings and loan holding company provisions of federal law.
Such election results in its holding company being regulated as a savings
and loan holding company by the OTS rather than as a bank holding company
by the Federal Reserve Board. The Bank has made such an election. The
Company is subject to OTS regulations, examinations, supervision and
reporting requirements. Among other things, this authority permits the OTS
to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings institution. Additionally, the Bank is required
to notify the OTS at least 30 days before declaring any dividend to the
Company.

      As a unitary savings and loan holding company, the Company is
generally not restricted as to the types of business activities in which it
may engage. Upon any non-supervisory acquisition by the Company of another
savings association as a separate subsidiary, the Company would become a
multiple savings and loan holding company subject to extensive limitations
on the types of business activities in which it could engage. Federal law
limits the activities of a multiple savings and loan holding company and
its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank
Holding Company Act, as amended, subject to the prior approval of the OTS,
and to other activities authorized by OTS regulation. Multiple savings and
loan holding companies are prohibited from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary company engaged in
activities other than those permitted by federal law.

      A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
association or savings and loan holding company or from acquiring such an
institution or company by merger, consolidation or purchase of its assets,
without prior written approval of the OTS. In evaluating applications by
holding companies to acquire savings associations, the OTS must consider
the financial and managerial resources and future prospects of the company
and institution involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community and competitive
factors.

      The OTS is prohibited from approving any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, except: (i) interstate supervisory
acquisitions by savings and loan holding companies; and (ii) the
acquisition of a savings institution in another state if the laws of the
state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions. In a savings and loan
holding company structure, the Bank is prohibited from extending credit to
affiliates not engaged exclusively in activities permissible for a bank
holding company and may not invest in the securities of an affiliate,
except a subsidiary.


<PAGE>  20


      In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the
Federal Reserve Board), the Bank must continue to be a qualified thrift
lender. This requires the Bank either to maintain compliance with the test
for a "domestic building and loan association," as defined in the Internal
Revenue Code, or with a qualified thrift lender test. Under the qualified
thrift lender test, a savings institution is required to maintain at least
65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed and related securities) in
at least 9 months out of each 12 month period. A holding company of a
savings institution that fails to qualify as a qualified thrift lender must
either convert to a bank holding company and thereby become subject to the
regulation and supervision of the Federal Reserve Board or operate under
certain restrictions. As of December 31, 2001, the Bank maintained in
excess of 65% of its portfolio assets in qualified thrift investments. The
Bank also met the qualified thrift lender test in each of the prior 12
months and, therefore, met the QTL test. Recent legislative amendments have
broadened the scope of "qualified thrift investments" that go toward
meeting the QTL test to fully include credit card loans, student loans and
small business loans.

      Massachusetts Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing
business in Massachusetts may be also subject to regulation under the
Massachusetts law. The term "bank holding company," for the purposes of
Massachusetts law, is defined generally to include any company which,
directly or indirectly, owns, controls or holds with power to vote more
than 25% of the voting stock of each of two or more banking institutions,
including commercial banks and state savings banks, co-operative banks and
savings and loan associations and national banks, federal savings banks and
federal savings and loan associations. In general, a holding company
controlling only one banking institution will not be deemed to be a bank
holding company for the purposes of Massachusetts law. Under Massachusetts
law, the prior approval of the Board of Bank Incorporation is required
before a company may become a bank holding company and before an existing
bank holding company may acquire additional institutions.

Thrift Rechartering

      Both the Bank and the Company are subject to extensive regulations
and supervision. Such regulation, which affects the Bank on a daily basis,
may be changed at any time, and the interpretation of the relevant law and
regulations is also subject to change by the authorities who examine the
Bank and interpret those laws and regulations. Any change in the regulatory
structure or the applicable statutes or regulations, whether by the
Commissioner, the OTS, the FDIC or the Congress, could have a material
impact on the Company, the Bank, and their operations.

      The Gramm-Leach-Bliley Act of 1999 expands the authority of bank
holding companies to affiliate with other financial services companies such
as insurance companies and investment banking companies. The Gramm-Leach-
Bliley Act, however, provided that savings and loan holding companies may
only engage in activities permitted to financial holding companies under
that Act and those authorized for multiple savings and loan holding
companies. Unitary savings and loan holding companies existing prior to May
4, 1999, such as the Company, were grandfathered as to the unrestricted
activities. Under the Act, however, even grandfathered savings and loan
holding companies may not be acquired by companies engaged in commercial
activities.

Federal Securities Laws

      Upon completion of the Conversion in December 1998, the Company's
Common Stock became registered with the SEC under the Exchange Act. The
Company then became subject to the information, proxy solicitation, insider
trading restrictions and other requirements under the Exchange Act.

      The registration under the Securities Act of shares of the Common
Stock issued in the Conversion did not cover the resale of such shares.
Shares of the Common Stock purchased by persons who are not affiliates of
the Company may be resold without registration. Shares purchased by an
affiliate of the Company will be subject to the resale restrictions of Rule
144 under the Securities Act. If the Company meets the current public
information requirements of Rule 144 under the Securities Act, each
affiliate of the Company who complies with the other


<PAGE>  21


conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell
in the public market, without registration, a number of shares not to
exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks. Provision may be made in
the future by the Company to permit affiliates to have their shares
registered for sale under the Securities Act under certain circumstances.

FEDERAL AND STATE TAXATION

Federal Taxation

      General. The Company and the Bank will report their income on a
consolidated basis, using a calendar year and the accrual method of
accounting and will be subject to federal income taxation in the same
manner as other corporations with some exceptions, including particularly
the Bank's treatment of its reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable
to the Bank or the Company. The IRS had last audited the Bank for the five-
year period ended 1984. The audit resulted in adjustments which were
immaterial to the Bank's financial statements.

      Bad Debt Reserves.  The Small Business Job Protection Act of 1996
(the "1996 Act"), which was enacted on August 20, 1996, made significant
changes to provisions of the Code relating to a savings institution's use
of bad debt reserves for federal income tax purposes and requires such
institutions to recapture (i.e. take into income) certain portions of their
accumulated bad debt reserves. The effect of the 1996 Act on the Bank is
discussed below. Prior to the enactment of the 1996 Act, the Bank was
permitted to establish tax reserves for bad debts and to make annual
additions thereto, which additions, within specified formula limits, were
deducted in arriving at the Bank's taxable income. The Bank's deduction
with respect to "qualifying loans," which are generally loans secured by
certain interests in real property, could be computed using an amount based
on a six-year moving average of the Bank's actual loss experience (the
"Experience Method"), or a percentage equal to 8% of the Bank's taxable
income (the "PTI Method"), computed without regard to this deduction and
with additional modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve. The Bank's deduction with respect
to non-qualifying loans was required to be computed under the Experience
Method.

      The 1996 Act. Under the 1996 Act, for its current and future taxable
years, as a "Small Bank" the Bank is permitted to make additions to its tax
bad debt reserves under the Experience Method based on total loans.
However, the Bank is required to recapture (i.e. take into income) over a
six year period the excess of the balance of its tax bad debt reserves as
of December 31, 1995 over the balance of such reserves as of the base year,
December 31, 1987, which approximated $152,000. The recapture was suspended
for 1996 and 1997 because the bank met certain residential loan
requirements; recapture period began in 1998. The Bank's base year reserve
will not be recaptured unless the reserve is used for purposes other than
for loan losses, such as in a distribution in liquidation or otherwise.
Accordingly, the Bank has not recorded a deferred tax liability of
approximately $495,000 relating to approximately $1,200,000 of cumulative
tax deductions generated prior to December 31, 1987.

      Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to
have been made from the Bank's unrecaptured tax bad debt reserves
(including the balance of its reserves as of December 31, 1987) to the
extent thereof, and an amount based on the amount distributed (but not in
excess of the amount of such reserves) will be included in the Bank's
income. The term "non-dividend distributions" is defined as distributions
in excess of the Bank's current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete liquidation. Dividends paid
out of the Bank's current or accumulated earnings and profits will not
cause this pre-1988 reserve to be included in the Bank's income.

      The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but
not in excess of the amount of such reserves) would be includable in income
for


<PAGE>  22


federal income tax purposes, assuming a 35% federal corporate income tax
rate. The Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserves.

      Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of
AMTI can be offset by net operating loss carryforwards. The adjustment to
AMTI based on book income will be an amount equal to 75% of the amount by
which a corporation's adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for
net operating losses). In addition, for taxable years beginning after
December 31, 1986 and before January 1, 1996, an environmental tax of .12%
of the excess of AMTI (with certain modifications) over $2 million, is
imposed on corporations, including the Bank, whether or not an Alternative
Minimum Tax ("AMT") is paid. The Bank does not expect to be subject to the
AMT.

      Dividends Received Deduction and Other Matters. The Company may
exclude from its income 100% of dividends received from the Bank as a
member of the same affiliated group of corporations. The corporate
dividends received deduction is generally 70% in the case of dividends
received from unaffiliated corporations with which the Company and the Bank
will not file a consolidated tax return, except that if the Company and the
Bank own more than 20% of the stock of a corporation distributing a
dividend, then 80% of any dividends received may be excluded.

State Taxation

      Massachusetts Commonwealth Taxation. Prior to July, 1995, the Bank
was subject to an annual Massachusetts excise (income) tax equal to 12.54%
of its pre-tax income. In 1995, legislation was enacted to reduce the
Massachusetts bank excise (income) tax rate and to allow Massachusetts-
based financial institutions to apportion income earned in other states.
Further, this legislation expands the applicability of the tax to non-bank
entities and out-of-state financial institutions. The Massachusetts excise
tax rate for co-operative banks is currently 10.50% of federal taxable
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,
carry forwards and carrybacks of net operating losses are not allowed.

      A financial institution or business corporation is generally entitled
to special tax treatment as a "security corporation," provided that: (a)
its activities are limited to buying, selling, dealing in or holding
securities on its own behalf and not as a broker; and, (b) it has applied
for, and received, classification as a "security corporation" by the
Commissioner of the Massachusetts DOR. A security corporation that is also
a bank holding company under the Code is subject to a tax equal to 0.33% of
its gross income. A security corporation that is not a bank holding company
under the Code is subject to a tax equal to 1.32% of its gross income.

      The Bank's subsidiary, Massachusetts Securities Corporation ,
("MSC"), was established solely for the purpose of acquiring and holding
investments which are permissible for banks to hold under Massachusetts
law. MSC is classified with the Massachusetts DOR as a "security
corporation" under Massachusetts law, qualifying it to take advantage of
the 1.32% income tax rate on Massachusetts securities corporations.

      Delaware State Taxation. 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 pay an annual
franchise tax to the State of Delaware.


<PAGE>  23


Executive Officers of the Registrant Who Are Not Directors

      The following table sets forth certain information regarding the
current executive officers who are not also directors.

<TABLE>
<CAPTION>

Name                   Age (1)    Position(s) Held
----                   -------    ----------------


                      <c>      <c>
Anthony A. Paciulli      52       Vice President of the Company and
                                  Executive Vice President of the Bank

Timothy King             39       Treasurer and Chief Financial Officer of
                                  the Company and the Bank

<FN>
--------------------
<F1>  As of December 31, 2001.
</FN>
</TABLE>

      Anthony A. Paciulli has been Executive Vice President of the Bank
since March 2001. From 1994 to 2001, Mr Paciulli was Senior Vice President
of the Bank. From 1988 to 1994, Mr. Paciulli held several senior officer
positions (including vice president, loan officer, sales manager and
regional manager) with several different mortgage companies and financial
institutions, all of which were located in the greater Boston metropolitan
area.

      Timothy King has been Chief Financial Officer and Treasurer of the
Bank and the Company since November 2001. Mr. King has over 17 years of
working experience in the Financial Services Industry. Prior to joining
Massachusetts Fincorp, Mr. King was a Securities Trader with Fidelity
Investments in Merrimack, New Hampshire from 1999 to 2001. Mr. King also
worked as the Chief Financial Officer and Vice President of Patapsco
Bancorp, Inc. in Baltimore, Maryland from 1995 to 1999 and Chief Financial
Officer and Treasurer of Capital Bankshares in Baltimore, Maryland from
1988 to 1994.

ITEM 2.  DESCRIPTION OF PROPERTY.

      The Bank currently conducts its business through its main office
located in the Dorchester section of Boston, Massachusetts and two other
full-service banking offices, all of which are located in the greater
Boston metropolitan area. In December 1999, the Bank moved its
administrative and back office functions to a new office in Quincy,
Massachusetts. This building is currently held by the Bank's subsidiary
limited liability company which is leased to the Bank. The Company believes
that the Bank's facilities are adequate to meet the then present and
immediately foreseeable needs of the Bank and the Company. It is the
opinion of management that all the properties are adequately covered by
insurance.

<TABLE>
<CAPTION>

                                                                                 Net Book Value
                                                                                  of Property
                                                                                  or Leasehold
                          Leased or       Original Year      Date of Lease        Improvements
Location                    Owned      Leased or Acquired      Expiration     at December 31, 2001
--------                  ---------    ------------------    -------------    --------------------
                                                                                 (In thousands)


                         <c>               <c>                 <c>                <c>
Main Office:
1442 Dorchester Avenue
Boston, MA 02122             (2)               (2)                (2)                   163

Banking Offices:
70 Quincy Ave (1)
Quincy, MA 02169            Owned             1999                 -                  2,485

561 Adams Street
East Milton, MA 02186       Owned             1996                 -                    751
                                                                                     ------

      Total                                                                          $3,399
                                                                                     ======

<FN>
<F1>  The Bank moved into the property and began retail operations in
      December of 1999.


<PAGE>  24


<F2>  This property is comprised of two adjacent parcels of land. The Bank
      owns one of the parcels, which it obtained in 1908, and leases the
      other, which lease began in June 1986. With respect to the leased
      parcel, the Bank is currently in the second year of the second of
      three five-year renewal options. The current option period will
      expire in May 2003.
</FN>
</TABLE>

ITEM 3.  LEGAL PROCEEDINGS.

      The Bank 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 financial condition and results of
operations of the Bank.

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

      None


<PAGE>  25


PART II

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

      Massachusetts Fincorp, Inc.'s common stock is traded over-the-counter
through the National Daily Quotation Service "Pink Sheet" published by the
National Quotation Bureau, Inc. The stock began trading on December 23,
1998. The high and low bid for the common stock for 2001, 2000 and 1999 by
quarter are detailed in the following table. The quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. Massachusetts Fincorp, Inc. has
approximately 304 holders of record as of December 31, 2001.

<TABLE>
<CAPTION>

                                                          For the quarters ended
            ------------------------------------------------------------------------------------------------------------------
            12/31/2001   09/30/2001   06/30/2001   03/31/2001   12/31/2000   09/30/2000   06/30/2000   03/31/2000   12/31/1999
            ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------


          <c>          <c>          <c>          <c>          <c>          <c>          <c>          <c>          <c>
High bid     $15.500      $15.500      $15.000      $14.250      $14.250      $14.250      $12.688      $13.000      $12.750
Low bid      $14.750      $14.210      $13.750      $13.000      $13.125      $12.000      $11.375      $10.000      $ 9.125

</TABLE>

      To date, the Company has not issued any cash dividends. Any
declarations or payments of dividends are subject to a determination by the
Company's Board of Directors, which takes into account the Company's
financial condition, results of operations, tax considerations, capital
requirements, industry standards, economic conditions and other factors,
including the regulatory restrictions which affect the payment of dividends
by the Bank to the Company.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

      This Form 10-KSB contains forward-looking statements within the
meaning of the federal securities laws. These statements are not historical
facts, rather the statements are based on the Company's current
expectations regarding its business strategies and their intended results
and its future performance. Forward-looking statements are preceded by
terms such as "expects," "believes," "anticipates," "intends" and similar
expressions.

      Forward-looking statements are not guarantees of future performance.
Numerous risks and uncertainties could cause or contribute to the Company's
actual results, performance and achievements to be materially different
from those expressed or implied by the forward-looking statements. Factors
that may cause or contribute to these differences include, without
limitation, general economic conditions, including changes in market
interest rates and changes in monetary and fiscal policies of the federal
government; legislative and regulatory changes; and other factors disclosed
periodically in the Company's filings with the Securities and Exchange
Commission.

      Because of the risks and uncertainties inherent in forward-looking
statements, readers are cautioned not to place undue reliance on them,
whether included in this report or made elsewhere from time to time by the
Company or on its behalf. The Company assumes no obligation to update any
forward-looking statements.

General

      The Company became operational on December 21, 1998 and, accordingly,
had no significant operations during 1998. The Company's results of
operations primarily depend on its investment of net conversion proceeds in
securities, interests on deposits and dividends received from the Bank. The
Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on the
Bank's interest-earning assets, such as loans and investments, and the
interest expense on its interest-bearing liabilities, such as deposits and
borrowings. The Bank also generates non-interest income through service
charges, loan sales, and other fees. The Bank's non-interest expenses
primarily consist of employee compensation and benefits, depreciation and
repairs, data processing fees, office building expenses and other operating
expenses. The


<PAGE>  26


Bank's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory agencies. The
Bank exceeded all of its regulatory capital requirements at December 31,
2001.

Management Strategy

      The Bank's operating strategy has in the past consisted of
maintaining profitability and managing its interest rate risk mainly by
originating fixed-rate one-to-four family mortgage loans primarily for
sale, generally on a servicing released basis, and originating adjustable-
rate one-to-four family mortgage loans for investment. The Bank, however,
has begun to retain certain one-to-four family fixed-rate loans for its
portfolio, based on various factors, including its asset/liability position
and market interest rates. The Bank has also pursued a growth strategy to
broaden the Bank's lending and deposit base through the establishment of
two de novo branch offices in the Boston metropolitan area in 1996 and
1999. The Bank has used the opportunity of the additional space provided by
the new location in Quincy to consolidate operations.

Analysis of Net Interest Income

      Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on
them.


<PAGE>  27


      Average Balance Sheet The following table sets forth certain
information relating to the Bank for the years ended December 31, 2001,
2000 and 1999. The average yields and costs are derived by dividing income
or expense by the average balance of interest-earning assets or interest-
bearing liabilities, respectively, for the periods shown and reflect
annualized yields and costs. Average balances are derived from average
monthly balances. The yields and costs include fees which are considered
adjustments to yields. Loans on non-accrual status are included in the
average balances of loans shown in the table. Interest earned on loans is
net of reserves for uncollected interest.

<TABLE>
<CAPTION>

                                                                    For the Years Ended December 31,
                                      ------------------------------------------------------------------------------------------


                                               2001                           2000                            1999
                                      ----------------------------   ----------------------------   ----------------------------
                                                           Average                        Average                        Average
                                      Average              Yield/    Average              Yield/    Average              Yield/
                                      Balance   Interest    Cost     Balance   Interest    Cost     Balance   Interest    Cost
                                      -------   --------   -------   -------   --------   -------   -------   --------   -------
                                                                         (Dollars in thousands)


                                   <c>        <c>       <c>       <c>        <c>       <c>       <c>        <c>       <c>
Assets:
  Interest earning assets:
    Federal funds sold and
     short term investments           $  3,831   $  138      3.60%   $  2,863   $  172      6.01%   $ 1,911    $   76      3.98%
    Securities                          18,316   $1,152      6.29%     12,181      836      6.86%    10,420       643      6.17%
    Mortgage loans, net                 82,102   $6,539      7.96%     82,047    6,573      8.01%    64,622     5,185      8.02%
    Other loans                          4,030   $  359      8.91%      2,970      287      9.66%       548        50      9.12%
                                      -----------------              -----------------              -----------------
      Total interest earning asssets   108,279    8,188      7.56%    100,061    7,868      7.86%    77,501     5,954      7.68%
    Noninterest-earning assets           5,376                          5,723                         7,149
                                      --------                       --------                       -------
    Equity securities                    2,635   $  151      5.73%      2,497      166      6.65%     2,070       116      5.60%
                                      -----------------              -----------------              -----------------
      Total assets                    $116,290   $8,339              $108,281   $8,034              $86,720    $6,070
                                      ========   ------              ========   ------              =======    ------

Liabilities and Surplus:
  Interest bearing liabilities:
    Deposits:
      Savings accounts                $ 19,837   $  426      2.15%   $ 11,057   $  225      2.03%   $10,032    $  197      1.96%
      Money market accounts                 63   $    2      3.17%         97        2      2.06%       266         6      2.26%
      Now accounts                      22,618   $  743      3.28%     20,629      849      4.12%    13,971       477      3.41%
      Certificates of deposit           40,535   $2,119      5.23%     42,269    2,396      5.67%    29,868     1,528      5.12%
                                      -----------------              -----------------              -----------------
      Total deposits                    83,053    3,290      3.96%     74,052    3,472      4.69%    54,137     2,208      4.08%
    FHLB advances                       13,885   $  841      6.06%     18,449    1,186      6.43%    14,542       798      5.49%
                                      -----------------              -----------------              -----------------
      Total interest bearing
       liabilities                      96,938    4,131      4.26%     92,501    4,658      5.04%    68,679     3,006      4.38%
                                      -----------------              -----------------              -----------------

Noninterest -bearing demand
 checking accounts                       7,860                          4,781                         5,156
Noninterest-bearing liabilities          1,557                          1,279                         2,504
                                      --------                       --------                       -------
      Total liabilities                106,355                         98,561                        76,339
Total surplus                            9,935                          9,720                        10,381
                                      --------                       --------                       -------
      Total liabilities and surplus   $116,290                       $108,281                       $86,720
                                      ========                       ========                       =======

Net interest income                              $4,208                         $3,376                         $3,064
                                                 ======                         ======                         ======

Net interest income/interest
 rate spread                                                 3.30%                          2.83%                          3.31%
                                                           ======                         ======                         ======

Net interest margin as a percent
 of interest-earning assets                                  3.89%                          3.37%                          3.95%
                                                           ======                         ======                         ======

Ratio of interest-earning assets
 to interest-bearing liabilities                           111.70%                        108.17%                        112.85%
                                                           ======                         ======                         ======

</TABLE>


<PAGE>  28


      Rate/Volume Analysis The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Bank's interest
income and interest expense during the periods indicated. Information is
provided in each category with respect to: (i) changes attributable to
changes in volume (changes in volume multiplied by prior rate); (ii)
changes attributable to changes in rate (changes in rate multiplied by
prior volume); and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.

<TABLE>
<CAPTION>

                                                     Year Ended                      Year Ended
                                                  December 31, 2001               December 31, 2000
                                                     Compared to                     Compared to
                                                     Year Ended                      Year Ended
                                                  December 31, 2000               December 31, 1999
                                            ----------------------------    ----------------------------
                                            Increase(Decrease)              Increase(Decrease)
                                                  Due to                          Due to
                                            ------------------              ------------------
                                            Volume       Rate       Net     Volume       Rate       Net
                                            ------       ----       ---     ------       ----       ---
                                                                 (Dollars in thousands)


                                         <c>         <c>       <c>       <c>         <c>       <c>
Interest-earning assets:
  Federal funds sold and short-term
   investments                              $  47       $ (81)    $ (34)    $ (736)     $ 832     $   96
  Investment securities                       379         (63)      316        116         77        193
  Mortgage loans, net                          86        (120)      (34)     1,396         (8)     1,388
  Other loans                                   4          68        72        234          3        237
  Equity securities                           (78)         63       (15)        70        (20)        50
                                            ------------------------------------------------------------
      Total interest-earning assets           438        (133)      305      1,080        884      1,964
                                            ------------------------------------------------------------

Interest-bearing liabilities:
  Savings accounts                            190          13       203         21          7         28
  Money market accounts                        (1)          1         -         (4)         -         (4)
  NOW accounts                                 77        (183)     (106)       309         63        372
  Certificates of deposit                    (107)       (170)     (277)       727        141        868
  FHLB advances                              (270)        (78)     (348)       316         72        388
                                            ------------------------------------------------------------
      Total interest-bearing liabilities     (111)       (417)     (528)     1,369        283      1,652
                                            ------------------------------------------------------------
Net change in net interest income           $ 549       $ 284     $ 833     $ (289)     $ 601     $  312
                                            ============================================================

</TABLE>

Comparison of Financial Condition at December 31, 2001 and December 31, 2000

      Total assets increased from $113.2 million at December 31, 2000 to
$120.7 million at December 31, 2001, an increase of $7.5 million, or 6.2%.
The increase was primarily in securities, the balance of which was $22.7
million at December 31, 2001, an increase of $7.6 million, or 50.7% from
the December 31 2000 balance of $15.0 million. Management shifted it
strategy in 2001 from retaining loans for portfolio to selling those loans
in response to market conditions at the beginning of 2001. Loans available
for sale increased from $1.6 million at December 31, 2000 to $9.3 million
at December 31, 2001. The Bank positioned itself to increase its lending
activity significantly in 2001, including the hiring of new loan
originators, a sales manager and a dedicated commercial loan originator.
The Bank has also changed its pricing and commission structures in order to
be more competitive in the pricing of its loans. The increase in securities
during 2001 contributed to greater net interest income, which management
also believes will have a stabilizing effect on net income in future
periods.

      The increase in total assets was also the result of a $3.4 million
decrease in loans and an increase in federal funds sold totaling $3.3
million. Return on average assets was 0.7% for the year ended December 31,
2001, while return on average equity was 8.0%. For the year ended December
31, 2000, return on assets was 0.2% and return on equity was 2.5%


<PAGE>  29


      Total liabilities increased $7.3 million, or 7.1% from $103.5 million
at December 31, 2000 to $110.8 million at December 31, 2001. The increase
is the result of deposit growth both from the newly-established Quincy
location, and from the other locations and the decrease of borrowings.
Total deposits increased from $89.1 million at December 31, 2000 to $100.8
million at December 31, 2001, an increase of $11.7 million or 13.1%. The
deposit growth funded the increases in assets as well as the repayment of
$4.8 million of Federal Home Loan Bank borrowings.

      Equity increased $135,000 from $9.7 million at December 31, 2000 to
$9.8 million at December 31, 2001. The increase is the result of earnings
for the year 2001, which totaled $792,000, an increase in accumulated other
comprehensive income totaling $54,000, and the net effect of ESOP and stock
purchase plan transactions totaling $170,000. These increases were offset
by purchases of treasury stock totaling $906,000. The Company's ratio of
average equity to average assets was 8.5% at December 31, 2001, compared
with 9.0% for the year ended December 31, 2000. The decrease is the result
of both the growth in total assets and the effect of treasury stock
transactions on average stockholders' equity.

Comparison of Financial Condition at December 31, 2000 and December 31, 1999

      Total assets increased from $96.4 million at December 31, 1999 to
$113.2 million at December 31, 2000, an increase of $16.8 million, or
17.4%. The increase was primarily in loans, the balance of which is $84.4
million, an increase of $10.5 million, or 14.1% from the December 31 1999
balance of $73.9 million. Management retained a greater portion of loan
originations for portfolio during the first half of 2000, continuing the
1999 strategy and in response to market conditions at the beginning of
2000. Later in 2000, additional resources were used to increase
originations of loans available for sale, while continuing to grow
portfolio loans. Loans available for sale increased from $810,000 at
December 31, 1999 to $1.6 million at December 31, 2000. The Bank positioned
itself to increase its lending activity significantly, including the hiring
of new loan originators, a sales manager and a dedicated commercial loan
originator.  The Bank has also changed its pricing and commission
structures in order to be more competitive in the pricing of its loans. The
growth in portfolio loans during 2000 contributed to greater net interest
income, which management also believes will have a stabilizing effect on
net income in future periods.

      Non-performing loans decreased $92,000, or 100.0%, from $92,000 at
December 31, 1999 to zero at December 31, 2000.

      The increase in total assets was also the result of a $3.0 million
increase in securities available for sale and an increase in federal funds
sold totaling $2.3 million. Management chose to increase its liquidity
position given the anticipated increase in mortgage-banking activities.
Return on average assets was 0.2% for the year ended December 31, 2000,
while return on average equity was 2.5%. For the year ended December 31,
1999, return on assets was 0.5% and return on equity was 3.9%

      Total liabilities increased $16.7 million, or 19.3% from $86.8
million at December 31, 1999 to $103.5 million at December 31, 2000. The
increase is the result of deposit growth both from the newly-established
Quincy location, and from the other locations. Total deposits increased
from $63.3 million at December 31, 1999 to $89.1 million at December 31,
2000, an increase of $25.8 million or 40.8%. The Bank paid introductory
premium rates on certain deposit accounts in conjunction with the opening
of the Quincy Center Branch. The payment of these introductory rates, as
well as increases in market interest rates in 2000, accounts for the
increase in the average cost of deposits from 4.08% to 4.69%. The deposit
growth funded the increases in assets as well as the repayment of $9.0
million of Federal Home Loan Bank borrowings.

      Equity increased $59,000 from $9.6 million at December 31, 1999 to
$9.7 million at December 31, 2000. The increase is the result of earnings
for the year 2000, which totaled $238,000, an increase in accumulated other
comprehensive income totaling $225,000, and the net effect of ESOP and
stock purchase plan transactions totaling $105,000. These increases were
offset by purchases of treasury stock totaling $510,000. The Company's
ratio of average equity to average assets was 9.0% at December 31, 2000,
compared with 12.0% for the year ended December 31, 1999. The decrease is
the result of both the growth in total assets and the effect of treasury
stock transactions on average stockholders' equity.


<PAGE>  30


Comparison of Operating Results for the Years Ended December 31, 2001 and 2000

      General

      Net income for the year ended December 31, 2001 was $792,000, a
increase of $554,000 from the net income reported for the year ended
December 31, 2000, which was $238,000. The increase can be attributed to an
increase in gains on sales of loans, increase in interest on investments,
and the reduction of interest expense. Offsetting these increases are
increases in non-interest expenses.

      Interest income

      Interest income increased by $304,000 or 3.8%, from $8.0 million for
the year ended December 31, 2000 to $8.3 million for the year ended
December 31, 2001. Interest income from loans increased $37,000 or 0.6%,
was affected by the shift to loan sales from porfolio. Average balances of
loans increased by $55,000 or 0.1% during 2001. Interest on investments
increased by $317,000 or 37.4%, based on an increase in the average balance
of investment securities of $6.1 million or 50.4% and a decrease in the
yield on the portfolio from 6.86% to 6.29% over the twelve months ended
December 31, 2001. Income from federal funds sold and short-term
investments decreased by $35,000, from $160,000 for the year ended December
31, 2000 to $125,000 for the year ended December 31, 2001, the result of
increased average balances held throughout the year and decreased yields on
federal funds sold during 2001. Dividends on equity securities decreased by
$15,000, from $166,000 for the year ended December 31, 2000 to $151,000 for
the year ended December 31, 2001, the result of reduction in the equity
securities portfolio as well as decreased portfolio yield.

      Interest expense

      Interest expense decreased by $527,000, from $4.7 million for the
year ended December 31, 2000 to $4.1 million for the year ended December
31, 2001. The decrease was in both interest on deposits, which decreased by
$182,000, and interest on borrowings, which decreased by $345,000. Interest
on deposits decreased from $3.5 million for the year ended December 31,
2000 to $3.3 million for the year ended December 31, 2001. The decrease is
the result of the combined effects of an increased average balances,
arising from the opening of the Quincy Branch and a reduction in cost of
deposit funds from 4.69% to 3.99% as interest continued to fall in 2001.

      Net interest income

      Net interest income, after providing for loan loses, increased by
$1.0 million, from $3.3 million for the year ended December 31, 2000 to
$4.3 million for the year ended December 31, 2001, an increase of 30.6%.
The increase is reflective of the Bank's overall growth throughout the year
2001. The increase was partially attributed to the decrease in the loan
loss provision.

      Provision for Loan Losses

      The Bank's management assesses the adequacy of the allowance for loan
losses based on known and inherent risks in the loan portfolio and upon
management's continuing analysis of the quality of the loan portfolio. The
allowance calculation also considers factors and analyses which consider
the potential principal loss associated with certain loans, costs of
acquiring related properties, costs of securing the loan through
foreclosure, costs of maintaining and holding the property until sale, and
the Bank's inability to redeploy the funds for another income producing
activity. Management believes that, based on information currently
available, the Bank's allowance for loan losses is sufficient to cover
probable and estimable losses inherent in its loan portfolio at this time.
Management may increase its level of allowance for loan losses as a
percentage of total loans and nonperforming loans if the level of multi-
family, construction or consumer lending as a percentage of its total loan
portfolio increases. Future adjustments to the allowance for loan losses
will also become required if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses. These
agencies may require the Bank to provide additions to the allowance based
on judgments different from management's judgement.


<PAGE>  31


      The provision for loan losses for the year ended December 31, 2001
was a net recovery of $127,000, a decrease of $185,000 over the $58,000 for
loan losses for the year ended December 31, 2000.

      The allowance for loan losses at December 31, 2001 was $698,000,
which equates to 0.94% of portfolio loans or 0.85% of total loans. This
compares to an allowance of $764,000, which equates to 0.90% of portfolio
loans or 0.88% of total loans at December 31, 2000. The decrease is the
result of the provision for loan losses plus net recoveries of prior year
charge-offs totaling $60,000. There were no non-performing loans at
December 31, 2001.

      Non-interest income

      Non-interest income increased from $397,000 for the year ended
December 31, 2000 to $997,000 for the year ended December 31, 2001, an
increase of $600,000 or 150.9%. This increase can be primarily attributed
to the increase in gains on sale of loans. In response to consumer demand
affected by economic conditions at the time, management shifted their
concentration to the sale of loans rather than portfolio as was the
practice in 2000. Accordingly, gains on sales of loans increased from
$134,000 for the year ended December 31, 2000 to $663,000 for the year
ended December 31, 2001. Also contributing to the increase in other income
was an increase in customer service fees of $98,000.

      Offsetting this increase was a loss on the sale of securities. The
loss on sales of securities was taken in order to restructure the bond and
stock portfolios for enhanced future earnings.

      The continued success of the mortgage banking activity and the
corresponding continued levels of gains on sale of loans is dependant on
many factors including staffing, interest rates, origination volume,
refinancing activity as well as other general economic conditions.
Additionally, gains on sale of loans will also be affected by the
percentage of loans originated that management directs to the Bank's loan
portfolio. Therefore, there can be no assurances that the level of gains on
sale of loans will continue consistently in the future.

      Operating expenses

      Total operating expenses increased from $3.4 million for the year
ended December 31, 2000 to $4.2 million for the year ended December 31,
2001, an increase of $793,000 or 23.62%. Salaries and employee benefits
expenses increased by $504,000 primarily as a result of the addition of
staff and the payment to executives in exchange for certain concession with
employment contracts. Occupancy and equipment expenses increased from
$478,000 for the year ended December 31, 2000 to $543,000 for the year
ended December 31, 2001. Certain of these expenses are offset by the rental
income realized at this location. Other general and administrative expenses
increased from $809,000 for the year ended December 31, 2000 to $1.1
million for the year ended December 31, 2001, an increase of $193,000. This
increase is primarily the result of additional data processing fees
($30,000), professional fees ($79,000), advertising ($36,000), and
fradulent customer activities ($20,000).

      During the fourth quarter of 2001, the Board of Directors amended the
employment agreements of Paul C. Green, the President and CEO, and Anthony
A. Paciulli, the Executive Vice President. Both Mr. Green and Mr. Paciulli
agreed to amend their employment agreements with Massachusetts Fincorp Inc.
to limit their change in control benefits to the maximum amount that would
not trigger adverse tax consequences under the golden parachute rules of
the Internal Revenue Code. As consideration for agreeing to this reduction
in potential change in control benefits, each Executive received a cash
payment from the Holding Company, and the vesting of their stock options
and restricted stock awards were accelerated to fully vest. The total of
cash payments amounted to $165,000 and the total cost for the vesting of
stock awards amounted to $66,000.00 resulting in a fourth quarter 2001
expense of $156,000, net of taxes. The amendments to the employment
agreements should provide a tax benefit to an acquirer if a change in
control occurs after calendar year 2001 assuming that the employment
agreements were in effect at the time of the change in control. The Board
of Directors took these actions to help assure that the share price would
reflect full value of the Company.


<PAGE>  32


      Income tax expense

      Income tax expense for the year ended December 31, 2001 was $384,000,
corresponding to an effective tax rate of 32.7%. For the year ended
December 31, 2000, income tax expense was $115,000 at an effective tax rate
of 32.5%. The statutory tax rate is 34%.

Comparison of Operating Results for the Years Ended December 31, 2000 and 1999

      General

      Net income for the year ended December 31, 2000 was $238,000, a
decrease of $165,000 from the net income reported for the year ended
December 31, 1999, which was $403,000. The decrease can be attributed to a
decline in gains on sales of loans, the start-up costs associated with the
opening of the Quincy Center Branch, and the narrowing of the interest
margin based on the offering of higher introductory interest rates to
Quincy Center customers. Also contributing to the decline in net income
were the costs associated with the 2000 proxy contest. Although net
interest income increased when comparing the years ended December 31, 2000
and 1999, the payment of introductory premium interest rates to attract
customers to the new Quincy Branch, and the overall increase in market
interest rates led to a narrowing of the net interest margin from 3.95% for
the year ended December 31, 1999 to 3.37% for the year ended December 31,
2000. The payment of introductory premium interest rates on certificates of
deposit ceased in the fourth quarter of 2000. Introductory rates on other
accounts are scheduled to reprice during the first six months of 2001.

      Interest income

      Interest income increased by $1.9 million or 32.4%, from $6.1 million
for the year ended December 31, 1999 to $8.0 million for the year ended
December 31, 2000. Interest income from loans increased by $1.6 million or
31.1%, the result of the increase in the level of portfolio loans held
during 2000. Average balances of loans increased by $19.8 million or 30.5%
during 2000. Interest on the investments increased by $190,000 or 31.9%,
based on an increase in the average balance of investment securities of
$1.8 million or 16.9% and an increase in the yield on the portfolio from
6.17% to 6.86% over the twelve months ended December 31, 2000. Income from
federal funds sold and short-term investments increased by $100,000, from
$60,000 for the year ended December 31, 1999 to $160,000 for the year ended
December 31, 2000, the result of increased average balances held throughout
the year and increased yields on federal funds sold during 2000. Dividends
on equity securities increased by $50,000, from $116,000 for the year ended
December 31, 1999 to $166,000 for the year ended December 31, 2000, the
result of growth in the equity securities portfolio as well as increased
portfolio yield.

      Interest expense

      Interest expense increased by $1.7 million, from $3.0 million for the
year ended December 31, 1999 to $4.7 million for the year ended December
31, 2000. The increase was in both interest on deposits, which increased by
$1.3 million, and interest on borrowings, which increased by $388,000.
Interest on deposits increased from $2.2 million for the year ended
December 31, 1999 to $3.5 million for the year ended December 31, 2000. The
increase is the result of increased average balances, arising from the
opening of the Quincy Branch. The cost of deposit funds increased from
4.08% to 4.69% as certain deposit accounts were aggressively priced in
conjunction with the opening of the Quincy Branch.  The introductory
pricing on certificate accounts was ceased in late 2000, while introductory
pricing on the Quincy "Prestige" checking accounts are scheduled to reprice
downward during the first half of 2001.

      Net interest income

      Net interest income increased by $314,000, from $3.1 million for the
year ended December 31, 1999 to $3.4 million for the year ended December
31, 2000, an increase of 10.2%. The increase is reflective of the Bank's
overall growth throughout the year 2000. The increase was partially offset
by the effects of higher market interest rates and higher deposit interest
rates paid in conjunction with the opening of the Quincy Branch.


<PAGE>  33


      Provision for Loan Losses

      The Bank's management assesses the adequacy of the allowance for loan
losses based on known and inherent risks in the loan portfolio and upon
management's continuing analysis of the quality of the loan portfolio. The
allowance calculation also considers factors and analyses which consider
the potential principal loss associated with certain loans, costs of
acquiring related properties, costs of securing the loan through
foreclosure, costs of maintaining and holding the property until sale, and
the Bank's inability to redeploy the funds for another income producing
activity. Management believes that, based on information currently
available, the Bank's allowance for loan losses is sufficient to cover
probable and estimable losses inherent in its loan portfolio at this time.
Management may increase its level of allowance for loan losses as a
percentage of total loans and nonperforming loans if the level of multi-
family, construction or consumer lending as a percentage of its total loan
portfolio increases. Future adjustments to the allowance for loan losses
will also become required if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses. These
agencies may require the Bank to provide additions to the allowance based
on judgments different from management's judgement.

      The provision for loan losses for the year ended December 31, 2000
totaled $58,000, an increase of $77,000 over the $19,000 credit for loan
losses for the year ended December 31, 1999. The 2000 provision was taken
in order to respond to a changing mix of portfolio loans and Management's
view of economic conditions within the Bank's market area.

      The allowance for loan losses at December 31, 2000 was $764,000,
which equates to 0.90% of portfolio loans or 0.88% of total loans. This
compares to an allowance of $596,000, which equates to 0.80% of portfolio
loans or 0.79% of total loans at December 31, 1999. The increase is the
result of the provision for loan losses plus net recoveries of prior year
charge-offs totaling $110,000. There were no non-performing loans at
December 31, 2000. The allowance for loan losses at December 31, 1999
represented 647.8% of non-performing loans at that date.

      Non-interest income

      Non interest income decreased from $543,000 for the year ended
December 31, 1999 to $397,000 for the year ended December 31, 2000, a
decrease of $146,000 or 26.9%. This decrease can be attributed to reduced
levels of loan sales during early 2000. In response to consumer demand
affected by economic conditions at the time, Management continued to
concentrate on the origination of portfolio loans in early 2000, rather
than the mortgage-banking activities it had pursued in 1998 and early 1999.
Accordingly, gains on sales of loans decreased from $299,000 for the year
ended December 31, 1999 to $131,000 for the year ended December 31, 2000.
As economic conditions changed in late 2000, Management was able to again
emphasize the mortgage-banking business as well as continued portfolio
originations. Management believes that it has taken the steps necessary to
re-establish the mortgage-banking business. Also contributing to the
decrease in other income were losses on sales of securities available for
sale, totaling $8,000, and a loss on sale of other real estate owned
totaling $9,000. The loss on sales of securities was taken in order to
restructure the bond and stock portfolios for enhanced future earnings.

      These decreases were partially offset by the increased level of
miscellaneous income realized in 2000. Miscellaneous income increased from
$65,000 for the year ended December 31, 1999 to $131,000 for the year ended
December 31, 2000, an increase of $66,000. This increase is primarily the
result of the Bank leasing retail space in its Quincy location to unrelated
third parties. Rental income associated with the leases totaled $50,000 in
2000 compared with $2,000 in 1999.

      Operating expenses

Total operating expenses increased from $3.0 million for the year ended
December 31, 1999 to $3.4 million for the year ended December 31, 2000, an
increase of $365,000 or 12.2%. Salaries and employee benefits expenses
increased by $214,000 primarily as a result of the addition of staff for
the Quincy Branch. Occupancy and equipment expenses increased from $381,000
for the year ended December 31, 1999 to $478,000


<PAGE>  34


for the year ended December 31, 2000, the result of adding the Quincy
location. Certain of these expenses are offset by the rental income
realized at this location. Other general and administrative expenses
increased from $745,000 for the year ended December 31, 1999 to $809,000
for the year ended December 31, 2000, an increase of $64,000. This increase
is primarily the result of the 2000 proxy contest, for which legal,
professional and printing expenses totaling $67,000 were incurred.

      Income tax expense

      Income tax expense for the year ended December 31, 2000 was $115,000,
corresponding to an effective tax rate of 32.5%. For the year ended
December 31, 1999, income tax expense was $224,000 at an effective tax rate
of 35.7%. The statutory tax rate is 34%. The Bank's dividends received
deduction and use of a Massachusetts Security Corporation to hold its
investment portfolio help to reduce the effective tax rate to a level that
approximates the statutory rate.

Liquidity and Capital Resources

      The Bank's primary sources of funds are deposits, principal and
interest payments on loans and proceeds from maturing securities and
borrowings from the FHLB-Boston. While maturities and scheduled
amortization of loans and securities are predictable sources of funds,
deposit outflows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.

      The primary investing activities of the Bank are the origination of
residential one-to four-family mortgage loans, multi-family and commercial
real estate loans, and, to a lesser extent, construction loans, home equity
lines of credit and consumer loans and the investment in mortgage-backed
securities, U.S. Government and agency obligations and corporate equity
securities and debt obligations. These activities are funded primarily by
principal and interest payments on loans, maturing of investment
securities, deposit growth and the utilization of FHLB advances. During the
years ended December 31, 2001 and 2000, the Bank's loan originations
totaled $100.7 million and $53.8 million, respectively. For the years ended
December 31, 2001 and 2000, the Bank's investments in U.S. Government and
agency obligations and corporate equity securities and debt obligations
totaled $23.1 million and $15.6 million, respectively. The Bank experienced
a net increase in total deposits of $11.7 million and $25.8 million for the
years ended December 31, 2001 and 2000, respectively. Deposit flows are
affected by the overall level of interest rates, the interest rates and
products offered by the Bank and its local competitors and other factors.
The Bank closely monitors its liquidity position on a daily basis. In the
event the Bank should require funds beyond its ability to generate them
internally, additional sources of funds are available through FHLB
advances. At December 31, 2001, the Bank had $8.8 million of outstanding
FHLB borrowings and a borrowing capacity of $68.8 million.

      Certificates of deposit that are scheduled to mature in one year or
less from December 31, 2001 totaled $31.7 million. From December 31, 2000
to December 31, 2001, the Bank experienced a 74.4% retention rate of funds
maturing from certificates of deposit. It has been and will continue to be
a priority of management to retain time deposits. The Bank relies primarily
on competitive rates, customer service and long-standing relationships with
customers to retain deposits. From time to time, the Bank will also offer
competitive special products to its customers to increase retention. Based
upon the Bank's experience with deposit retention and current retention
strategies, management believes that, although it is not possible to
predict future terms and conditions upon renewal, a significant portion of
such deposits will remain with the Bank.

      At December 31, 2001, the Bank exceeded all of its regulatory risk-
based capital requirements. Its leverage (tier 1) capital level of $8.6
million, or 11.8% of risk-adjusted assets, is above the required level of
$2.9 million, or 4.0%, and total risk-based capital of $9.3 million, or
12.7% of risk-adjusted assets, is above the required level of $5.8 million,
or 8.0%. The Bank's tier one capital-to-assets ratio at December 31, 2001,
based on capital of $8.6 million, was 7.3%.

      The capital injection from the Conversion significantly increased
liquidity and capital resources. Over time, the initial level of liquidity
will be reduced as net proceeds are utilized for general corporate
purposes, including the funding of lending activities and the expansion of
facilities.


<PAGE>  35


Impact of Inflation and Changing Prices

      The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with GAAP, which generally require
the measurement of financial position and operating results in terms of
historical dollar amounts without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations.
Unlike industrial companies, nearly all of the assets and liabilities of
the Bank are monetary in nature. Therefore, interest rates have a greater
impact on the Bank's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or
to the same extent as the price of goods and services.

New Accounting Pronouncements

      In June 1998, the FASB issued SFAS No. 133 ("SFAS 133") "Accounting
for Derivative Instruments and Hedging Activities." as amended in June,
1999 by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," and
in June, 2000, by SFAS 138," Accounting for Certain Derivative Instruments
and Certain Hedging Activities," (collectively SFAS 133). SFAS 133 requires
that entities recognize all derivatives as either assets or liabilities in
the statement of financial condition and measure those instruments at fair
value. Under SFAS 133 an entity may designate a derivative as a hedge of
exposure to either changes in: (a) fair value of a recognized asset or
liability or firm commitment, (b) cash flows of a recognized or forecasted
transaction, or (c) foreign currencies of a net investment in foreign
operations, firm commitments, available-for-sale securities or a forecasted
transaction. Depending upon the effectiveness of the hedge and/or the
transaction being hedged, any changes in the fair value of the derivative
instrument is either recognized in earnings in the current year, deferred
to future periods, or recognized in other comprehensive income. Changes in
the fair value of all derivative instruments not recognized as hedge
accounting are recognized in current year earnings. SFAS 133 is required
for all fiscal quarters or fiscal years beginning after June 15, 2000.
Management does not expect this new standard to have a material impact upon
the Company's consolidated financial statements.

      In September 2000, the Financial Accounting Standards Board issued
SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," replacing SFAS No. 125. This new
statement revises the standard for accounting and reporting for transfers
and servicing of financial assets and extinguishments of liabilities. The
new standard is based on consistent application of a financial-components
approach that recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished. The
standard provides consistent guidelines for distinguishing transfers of
financial assets from transfers that are secured borrowings. SFAS 140 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. However, for
recognition and reclassification of collateral and for disclosures relating
to securitizations transactions and collateral this statement is effective
for fiscal years ending after December 15, 2000 with earlier application
not allowed and is to be applied prospectively. Management does not expect
this new standard to have a material impact upon the Company's consolidated
financial statements.

      On July 20, 2001, the FASB issued SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Intangible Assets". SFAS No.
141 is effective for all business combinations initiated after June 30,
2001. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001; however, certain provisions of this Statement apply to goodwill
and other intangible assets acquired between July 1, 2001 and the effective
date of SFAS No. 142. Major provisions of these Statements and their
effective dates for the Company are as follows:

      *  All business combinations initiated after June 30, 2001 must use
         the purchase method of accounting. The pooling of interests method
         of accounting is prohibited except for transactions initiated
         before July 1, 2001.

      *  Intangible assets acquired in a business combination must be
         recorded separately from goodwill if they arise from contractual
         or other legal rights or are separable from the acquired entity
         and can be sold, transferred, licensed, rented or exchanged,
         either individually or as part of a related contract, asset or
         liability.


<PAGE>  36


      *  Goodwill, as well as intangible assets with indefinite lives,
         acquired after June 30, 2001, will not be amortized. Effective
         January 1, 2002, all previously recognized goodwill and intangible
         assets with indefinite lives will no longer be subject to
         amortization.

      *  Effective January 1, 2002, goodwill and intangible assets with
         indefinite lives will be tested for impairment annually and
         whenever there is an impairment indicator.

      *  All acquired goodwill must be assigned to reporting units for
         purposes of impairment testing and segment reporting.

      Management does not expect this new standard to have a material
impact upon the Company's consolidated financial statements.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supercedes
SFAS No. 121. SFAS No. 144 establishes a single accounting model, based on
the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years, with
earlier application encouraged and its provisions are to be applied
prospectively. Management does not expect this new standard to have a
material impact upon the Company's consolidated financial statements.


<PAGE>  37


Form of accountant letterhead

             Report of Independent Certified Public Accountants
             --------------------------------------------------


Board of Directors
Massachusetts Fincorp, Inc. and Subsidiaries

      We have audited the consolidated balance sheets of Massachusetts
Fincorp, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income and comprehensive income, changes
in shareholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

      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
Massachusetts Fincorp, Inc. and Subsidiaries as of December 31, 2001 and
2000, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.


/s/ Grant Thornton LLP


Boston, Massachusetts
January 25, 2002


<PAGE>  38


ITEM 7  FINANCIAL STATEMENTS

                Massachusetts Fincorp, Inc. and Subsidiaries
                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                      December 31,
                                              ----------------------------
                                                  2001            2000
                                              ------------    ------------


                                           <c>             <c>
ASSETS
Cash and due from banks                       $  3,198,376    $  2,098,449
Federal funds sold                               5,643,827       3,420,685
                                              ----------------------------
      Total cash and cash equivalents            8,842,203       5,519,134

Securities available for sale                   22,663,212      15,039,257
Securities held to maturity, at cost               501,835         512,843
Federal Home Loan Bank stock, at cost            1,131,500       1,131,500
Mortgage loans held for sale                     9,270,553       1,585,330

Loans                                           73,918,321      85,122,944
Less: allowance for loan losses                   (697,757)       (764,479)
                                              ----------------------------
      Loans, net                                73,220,564      84,358,465

Banking premises and equipment, net              4,000,118       4,080,332
Accrued interest receivable                        625,139         602,738
Due from Co-operative Central Bank                 242,850         242,850
Other assets                                       160,379         129,629
                                              ----------------------------

                                              $120,658,353    $113,202,078
                                              ============================

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits                                      $100,828,144    $ 89,121,397
Federal Home Loan Bank borrowings                8,778,413      13,598,922
Mortgagors' escrow accounts                        297,815         381,111
Accrued expenses and other liabilities             938,643         420,100
                                              ----------------------------
      Total liabilities                        110,843,015     103,521,530
                                              ----------------------------

Commitments and contingencies                            -               -

Preferred stock, par value $.01 per share,
 500,000 shares authorized;
 no shares issued or outstanding                         -               -
Common stock, par value $.01 per share,
 2,500,000 shares authorized; 600,059 and
 545,481 shares issued and outstanding,
 respectively                                        6,001           5,455
Treasury stock at cost, 76,175 and
 29,975 shares, respectively                    (1,099,830)       (387,456)
Purchase of common stock for stock
 based incentive plan, 24,002 and
 9,790 shares, respectively                       (313,171)       (122,978)
Additional paid-in capital                       5,953,190       5,141,285
Unallocated ESOP shares                           (261,808)       (305,466)
Unearned stock awards                              (79,119)       (205,102)
Retained earnings                                5,645,499       5,644,812
Accumulated other comprehensive income             (35,424)        (90,002)
                                              ----------------------------
      Total Shareholders' equity                 9,815,338       9,680,548
                                              ----------------------------

                                              $120,658,353    $113,202,078
                                              ============================

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>  39


                Massachusetts Fincorp, Inc. and Subsidiaries
         CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                                        --------------------------------------
                                                           2001          2000          1999
                                                        ----------    ----------    ----------


                                                     <c>           <c>           <c>
Interest and dividend income:
  Interest and fees on loans                            $6,898,205    $6,860,438    $5,234,966
  Interest on investments                                1,164,936       848,173       658,117
  Dividends on investments                                 151,329       165,911       115,654
  Interest on Federal funds sold                           124,647       160,192        60,479
                                                        --------------------------------------
      Total interest and dividend income                 8,339,117     8,034,714     6,069,216
                                                        --------------------------------------

Interest expense:
  Interest on deposit accounts                           3,290,802     3,472,416     2,207,757
  Interest on borrowed funds                               840,572     1,185,603       798,357
                                                        --------------------------------------
  Total interest expense                                 4,131,374     4,658,019     3,006,114
                                                        --------------------------------------
Net interest income                                      4,207,743     3,376,695     3,063,102
Provision for loan losses                                 (126,519)       57,956       (18,810)
                                                        --------------------------------------

Net interest income, after provision for
 loan losses                                             4,334,262     3,318,739     3,081,912
                                                        --------------------------------------

Non-interest income:
  Customer service fees                                    246,948       148,720       145,529
  Loan fees and gain on sale of loans and
   loan servicing rights                                   663,275       134,182       299,237
  Net (loss) gain on sales of securities
   available for sale                                      (33,401)       (7,719)        8,616
  Net loss on sale of other real estate owned                    -        (9,228)            -
  Co-operative Central Bank Share Inurance
   Fund special dividend                                         -        24,643        24,600
  Miscellaneous                                            120,505       106,836        64,887
                                                        --------------------------------------
      Total non-interest income                            997,327       397,434       542,869
                                                        --------------------------------------

Non-interest expense:
  Salaries and employee benefits                         2,393,042     1,888,837     1,674,385
  Occupancy and equipment                                  542,918       478,346       380,803
  Data processing                                          213,633       183,759       189,977
  Contributions                                              3,999         2,700         7,653
  Other general and administrative                       1,001,916       808,995       744,966
                                                        --------------------------------------
      Total non-interest expense                         4,155,508     3,362,637     2,997,784
                                                        --------------------------------------
Income before income tax provision                       1,176,081       353,536       626,997
Income tax provision                                       384,013       115,070       223,996
                                                        --------------------------------------
Net income                                              $  792,068    $  238,466    $  403,001
                                                        ======================================

Other comprehensive income, net of tax:

  Unrealized holding gains (losses) on securities
   arising during the period                                21,177       217,239      (308,419)
Less: reclassification adjustment for losses (gains)
 Included in net income                                     33,401         7,719        (8,616)
                                                        --------------------------------------
Other comprehensive income (loss), net of tax               54,578       224,958      (317,035)
                                                        --------------------------------------
Comprehensive income                                    $  846,646    $  463,424    $   85,966
                                                        ======================================

Earnings Per Share:
  Basic                                                 $     1.56    $     0.43    $     0.72
  Diluted                                               $     1.51    $     0.43    $     0.72

Weighted Average Shares Outstanding:
  Basic                                                    507,642       550,033       559,228
  Diluted                                                  524,470       556,149       559,228

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>  40


                Massachusetts Fincorp, Inc. and Subsidiaries
         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>

                                                                                                           Accumulated
                                                Unvested    Additional             Unallocated  Unearned      Other
                          Common    Treasury     Stock       Paid-in    Retained       ESOP      Stock    Comprehensive
                          Stock      Stock       Awards      Capital    Earnings      Shares     Awards    Income(Loss)    Total
                          ------    --------    --------    ----------  --------   -----------  --------  -------------    -----

                       <c>     <c>           <c>         <c>         <c>         <c>         <c>         <c>         <c>
Balance at December 31,
 1998                     $5,455  $         -   $       -   $4,885,077  $5,003,345  $(392,742)  $       -   $   2,075   $9,503,210
Expenses incurred for
 initial public offering       -            -           -      (22,360)          -          -           -           -      (22,360)
Unearned stock awards
 (21,815 shares)               -            -           -      261,780           -          -    (261,780)          -   $        -
Stock awards amortization      -            -           -            -           -          -       6,544           -        6,544
Allocation of ESOP shares      -            -           -        4,975           -     43,638           -           -       48,613
Net income for the year
 ended December 31, 1999       -            -           -            -     403,001          -           -           -      403,001
Other comprehensive
 income, net of tax            -            -           -            -           -          -           -    (317,035)    (317,035)
                          --------------------------------------------------------------------------------------------------------
Balance at December 31,
 1999                      5,455            -           -    5,129,472   5,406,346   (349,104)   (255,236)   (314,960)   9,621,973
Stock awards amortization      -            -           -            -           -          -      50,134           -       50,134
Purchase of treasury stock     -     (387,456)   (122,978)           -           -          -           -           -     (510,434)
Allocation of ESOP shares      -            -           -       11,813           -     43,638           -           -       55,451
Net income for the year
 ended December 31, 2000       -            -           -            -     238,466          -           -           -      238,466
Other comprehensive
 income, net of tax            -            -           -            -           -          -           -     224,958      224,958
                          --------------------------------------------------------------------------------------------------------
Balance at December 31,
 2000                      5,455     (387,456)   (122,978)   5,141,285   5,644,812   (305,466)   (205,102)    (90,002)   9,680,548
Stock awards compensation
 expense                       -            -           -      (10,512)          -          -     125,983           -      115,471
Allocation of ESOP shares      -            -           -       24,897           -     43,658           -           -       68,555
Stock Dividend               546            -           -      790,835    (791,381)         -           -           -            -
ESOP shares compensation
 expense                       -            -           -       10,416           -          -           -           -       10,416
Stock Repurchase               -     (712,374)   (193,924)           -           -          -           -           -     (906,298)
Stock Options Exercised        -            -       3,731       (3,731)          -          -           -           -            -
Net Income for the Year        -            -           -            -     792,068          -           -           -      792,068
Other comprehensive
 income, net of tax            -            -           -            -           -          -           -      54,578       54,578
                          --------------------------------------------------------------------------------------------------------
Balance at December 31,
 2001                     $6,001  $(1,099,830)  $(313,171)  $5,953,190  $5,645,499  $(261,808)  $ (79,119)  $ (35,424)  $9,815,338
                          ========================================================================================================

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>  41


                Massachusetts Fincorp, Inc. and Subsidiaries
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                 Years Ended December 31,
                                                                      ----------------------------------------------
                                                                          2001             2000             1999
                                                                      ------------     ------------    -------------


                                                                   <c>              <c>              <c>
Cash flow activities:
  Net income                                                          $    792,068     $    238,466     $    403,001
  Adjustment to reconcile net income to net cash
   (used) provided by operating activities
    Provision (credit) for loan losses                                    (126,519)          57,956          (18,810)
    ESOP compensation expense                                               78,971           55,451           48,613
    Stock awards expense                                                   125,983           50,134            6,544
    Depreciation and amortization expense                                  255,685          257,548          173,690
    Net loss (gain) on sales of securities available for sale               33,401            7,719           (8,616)
    Net loss on sale of foreclosed real estate                                   -           (9,228)               -
    Loans originated for sale                                          (88,941,571)     (17,478,429)     (26,141,543)
    Principal balance on loans sold                                     81,249,735       16,706,197       31,664,110
    Amortization of deferred loan fees                                     (93,355)        (145,229)         (86,185)
    Amortization of investment securities,
     net of accretion                                                       (3,004)          21,326           36,821
    Increase in accrued interest receivable                                (22,401)        (142,716)        (109,968)
    (Increase) decrease in other assets                                    (30,750)          42,744           11,271
    Deferred tax (benefit) provision                                        (3,000)          45,000          124,000
    Increase ( decrease) in accrued expenses and other liabilities         518,543          (13,129)        (200,048)
                                                                      ----------------------------------------------

      Net cash (used) provided by operating activities                  (6,166,214)        (306,190)       5,902,880
                                                                      ----------------------------------------------

Cash flows from investing activities:
  Purchase of securities available for sale                            (14,626,887)      (4,999,404)      (7,256,972)
  Purchase of securities held to maturity                                        -                -                -
  Proceeds from maturities of securities available for sale                      -        1,180,693                -
  Proceeds from maturities of securities held to maturity                        -                -          770,000
  Proceeds from sales and calls of securities available
   for sale                                                              5,924,374          752,237        1,744,817
  Purchase of Federal Home Loan Bank stock                                       -          (35,000)        (333,700)
  Principal payments received on mortgage-backed and
   asset backed securities                                               1,153,270          466,055          286,614
  Loan principal payments/(originations), net                           11,313,621      (10,342,442)     (22,547,082)
  Purchase of banking premises and equipment                              (175,472)        (512,794)      (2,792,317)
                                                                      ----------------------------------------------

      Net cash provided (used) by investing
       activities                                                        3,588,906      (13,490,655)     (30,128,640)
                                                                      ----------------------------------------------

</TABLE>


<PAGE>  42


                 Massachusetts Fincorp, Inc and Subsidiaries
              CONSOLIDATED STATEMENTS OF CASH FLOWS - CONCLUDED

<TABLE>
<CAPTION>

                                                                                 Years Ended December 31,
                                                                      ----------------------------------------------
                                                                          2001             2000             1999
                                                                      ------------     ------------    -------------


                                                                   <c>              <c>              <c>
Cash flows from financing activities:
  Net increase in deposits                                              11,706,748       25,821,433        6,307,164
  Net (decrease) increase in Federal Home Loan Bank
   advances with maturities less than three months                               -         (687,000)          68,000
  Federal Home Loan Bank advances with
   maturities in excess of three months                                  8,000,000       19,700,000       51,027,563
  Repayment of Federal Home Loan Bank advances
   with maturities in excess of three months                           (12,820,509)     (28,030,913)     (32,689,617)
  Net (decrease) increase in mortgagor's escrow accounts                   (83,295)         (58,044)         146,211
  Acquisition of treasury stock                                           (902,567)        (510,434)               -
   IPO expenses                                                                  -                -          (22,360)
                                                                      ----------------------------------------------

      Net cash provided by financing activities                          5,900,377       16,235,042       24,836,961
                                                                      ----------------------------------------------

Net change in cash and cash equivalents                                  3,323,069        2,438,197          611,201

Cash and cash equivalents at beginning of year                           5,519,134        3,080,937        2,469,736
                                                                      ----------------------------------------------

Cash and cash equivalents at end of year                              $  8,842,203        5,519,134     $  3,080,937
                                                                      ==============================================

Supplementary Information
  Interest paid on deposit accounts                                   $  3,303,413     $  3,460,626     $  2,207,757
  Interest paid on borrowed funds                                          849,842        1,204,728          711,170
  Income tax payments (refunds), net                                       261,000           80,912          112,500

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>  43


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Conversion to Stock Form of Ownership
--------------------------------------------------

Massachusetts Fincorp, Inc. (the "Company") was incorporated under Delaware
law on July 10, 1998 for the purpose of acquiring the stock of
Massachusetts Co-operative Bank (the "Bank") upon the Bank's conversion
from a mutual co-operative bank to a stock Massachusetts-chartered co-
operative bank (the "Conversion") on December 21, 1998. Prior to that date
the company had minimal assets and liabilities. The Company also has an
ESOP funding subsidiary, MCB Funding.

The Bank is a community-oriented co-operative bank organized in 1908 as The
Massachusetts Co-operative Bank. The Bank's principal business consists of
accepting deposits from the general public in the areas surrounding its
three full-service banking offices and generating mortgage loans secured by
one-to-four family residences and multi-family and commercial real estate.
The bank also originates fixed rate residential mortgage loans for sale on
the secondary market. The Bank operates through three full-service banking
offices located in the greater Boston metropolitan area.

In connection with the conversion, the Company established a charitable
foundation ("Foundation") with a contribution of 5% of the common stock of
the company sold in the conversion. The Foundation will be dedicated to
charitable purposes within the community in which the Bank maintained a
banking office at the time of the conversion, including community
development activities.

Basis of Presentation and Consolidation
---------------------------------------

The consolidated financial statements include the accounts of Massachusetts
Fincorp, Inc., and its wholly owned subsidiaries, Massachusetts Co-
operative Bank, Massachusetts Securities Corporation, and MCB Funding. All
significant intercompany balances and transactions have been eliminated in
consolidation.

Use of Estimates
----------------

In preparing 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 and disclosures of contingent assets and liabilities
as of the date of the balance sheet 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, the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans and the deferred
tax asset valuation reserve.

Reclassifications
-----------------

Certain amounts in the prior consolidated financial statements have been
reclassified to conform to the current presentation.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents include amounts due from banks and Federal funds
sold.

Securities
----------

Securities that management has the positive intent and ability to hold to
maturity are classified as "held to maturity" and reflected at amortized
cost. Securities classified as "available for sale" are reflected at fair
value, with unrealized gains and losses excluded from earnings and reported
in determining comprehensive income and accumulated other comprehensive
income/(loss) as a component of stockholders equity, net of tax effects.


<PAGE>  44


Purchase premiums and discounts are recognized in interest income using a
method that approximates the interest method over the terms of the
investments. Declines in the value of held to maturity and available for
sale securities that are deemed to be other than temporary are reflected in
earnings when identified. Gains and losses on the sale of securities are
recorded on the trade date and determined using the specific identification
method.

Federal Home Loan Bank Stock
----------------------------

The Bank is a member of the Federal Home Loan Bank ("FHLB"). As such, it is
required to invest in $100 par value stock of the FHLB in an amount equal
to the greater of one percent of assets secured by residential housing or
five percent of outstanding advances. If the stock is redeemed the Company
would receive from the FHLB an amount equal to the par value of the stock.

Mortgage Loans Held for Sale
----------------------------

Mortgage loans originated for sale are carried at the lower of cost or
aggregate fair value. Changes in valuation are charged against gain or loss
on sale of mortgage loans. Gains or losses on sale of mortgage loans are
recognized at the time of sale.

Loans
-----

The loan portfolio consists of mortgage and other loans to the Company's
customers located primarily in eastern Massachusetts. The ability of the
Company's debtors to honor their contracts is dependent upon the economy in
general and the real estate and construction economic sectors.

Loans are reported at the amount of unpaid principal less net deferred loan
fees, unadvanced loan funds, and the allowance for loan losses.

Interest on loans is included in income as earned based on rates applied to
the principal amounts outstanding. Interest is not accrued on loans that
are ninety days or more past due unless the loan is well secured and in the
process of collection. Interest income previously accrued on such loans is
reversed against current period interest income. Interest income on all
non-accrual loans is recognized only to the extent of interest payments
received.

Loan origination and commitment fees and certain direct loan origination
costs, applicable to mortgage loans, are deferred and the net amount is
amortized to interest income over the contractual lives of the loans by the
interest method. Fees and costs applicable to other loans are not material
and are recognized in income as received or incurred.

Allowance for Loan Losses
-------------------------

The allowance for loan losses is established by a provision for loan losses
charged to earnings and is maintained at a level considered adequate by
management to provide for reasonably foreseeable loan losses. Loan losses
are charged against the allowance when management believes the
collectibility of the loan is unlikely. Subsequent recoveries, if any, are
credited to the allowance.

The allowance 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 known and inherent risks in the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant change. Ultimately, losses
may vary from current estimates and future additions to the allowance may
be necessary. Additionally, regulatory agencies review the allowance for
loan losses as part of their examination process. Such agencies may require
adjustments to the allowance based on judgements, which may be different
from those of management.


<PAGE>  45


A loan is considered impaired if 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. 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. 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 collateral.

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

Foreclosed Real Estate
----------------------

Foreclosed real estate includes both formally foreclosed property and
property which the Company has taken physical possession of without formal
foreclosure proceedings. Foreclosed real estate is initially recorded at
fair value at the date of acquisition. Costs relating to the development
and improvement of property are capitalized, whereas costs relating to
holding property are expensed.

Management periodically performs valuations, and an allowance for losses is
established through a charge to earnings if the carrying value of a
property exceeds its fair value less estimated costs to sell.

Banking Premises and Equipment
------------------------------

Land is carried at cost. Buildings, leasehold improvements and equipment
are stated at cost, less accumulated depreciation and amortization computed
on the straight-line method over the estimated useful lives of the assets
or the term of the lease if shorter. Estimated useful lives of bank
buildings are 10-40 years and equipment is 3-10 years.

It is general practice to charge the cost of maintenance and repairs to
earnings when incurred; major expenditures for betterments are capitalized
and depreciated.

Advertising Costs
-----------------

Advertising costs are expensed as incurred. Such costs were $218,000 and
$173,000 for the years ending December 31, 2001 and 2000, respectively.

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 in excess
of the tax reserve over the base is a temporary difference with allowable
recognition of a related deferred tax asset, if it is deemed realizable.


<PAGE>  46


Employee Benefit Plans
----------------------

The Company has a multi-employer defined benefit plan and a defined
contribution plan covering substantially all employees. It is the Company's
policy to fund pension plan costs in the year of accrual. The Company has
an Employee Stock Ownership Plan (ESOP), covering eligible employees as
defined by the ESOP. The Company records compensation expense in an amount
equal to the fair value of shares committed to be released from the ESOP to
employees. The Company sponsors a Supplemental Executive Retirement Plan
(SERP). The SERP is a nonqualified deferred compensation plan designed to
make up lost ESOP benefits to designated participants.

Stock-Based Compensation
------------------------

SFAS No. 123, "Accounting for Stock-Based Compensation", establishes a fair
value based method of accounting for stock-based compensation arrangements
with employees, rather than the intrinsic value based method that is
contained in Accounting Principles Board Opinion No. 25 ("Opinion 25").
However, SFAS No. 123 did not require an entity to adopt the new fair value
based method for purposes of preparing its basic financial statements.
Entities are allowed (1) to continue to use the intrinsic value based
method under Opinion 25 or (2) to adopt the SFAS No. 123 fair value based
method. SFAS No. 123 applies to all transactions in which an entity
acquires goods or services by issuing equity instruments or by incurring
liabilities where the payment amounts are based on the entity's common
stock price, except for employee stock ownership plans. For entities not
adopting the SFAS No. 123 fair value based method, SFAS No. 123 requires
the entity to display in the footnotes to the financial statements proforma
net earnings and earnings per share information as if the fair value based
method had been adopted.  The Company accounts for stock-based compensation
under the intrinsic value based method under Opinion 25, as allowed by SFAS
No. 123, and includes presentation of the required proforma disclosures in
the notes to the consolidated financial statements.

Transfers of Financial Assets
-----------------------------

Transfers of financial assets are accounted for as sales when control over
the assets has been surrendered. Control over financial assets is deemed to
be surrendered when (1) the assets have been isolated from the Company, (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 Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.

Earnings Per Share
------------------

Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. ESOP shares
committed to be released are considered outstanding while unallocated ESOP
shares are not considered outstanding (see Note J). Diluted earnings per
share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. During 2001, a 10% stock dividend was paid
to shareholders. Previously reported share and earnings per share amounts
have been restated.


<PAGE>  47


Earnings per common share have been computed based on the following:


<TABLE>
<CAPTION>

                                                                                       Years ended December 31,
                                                                                   -------------------------------
                                                                                    2001        2000        1999


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

      
                                                                          <c>         <c>         <c>
      Net income applicable to common stock                                        $792,068    $238,466    $403,001
                                                                                   ================================

      Weighted average number of common shares outstanding                          552,696     584,423     597,629
      Less: weighted average unallocated ESOP shares                                (31,201)    (35,401)    (38,401)
      Less: weighted average unvested shares held by Stock Based Incentive Plan     (13,853)      1,011           -
                                                                                   --------------------------------

      Average number of common shares outstanding used
       to calculate basic earings per share                                         507,642     550,033     559,228
                                                                                   --------------------------------

      Effect of dilutive options                                                     10,643       3,759           -
      Effect of dilutive unvested stock awards                                        6,185       2,357           -

      Average number of common shares outstanding used
       to calculate diluted earnings per share                                      524,470     556,149     559,228
                                                                                   ================================

      Earnings Per Share:
        Basic                                                                      $   1.56    $   0.43    $   0.72
        Diluted                                                                    $   1.51    $   0.43    $   0.72

</TABLE>

Comprehensive Income
--------------------

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 balance sheet, such items, along with net income, are
components of comprehensive income.

Recent Accounting Pronouncements
--------------------------------

In June 1998, the FASB issued SFAS No. 133 ("SFAS 133") "Accounting for
Derivative Instruments and Hedging Activities" as amended in June, 1999 by
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," and in June,
2000, by SFAS 138," Accounting for Certain Derivative Instruments and
Certain Hedging Activities," (collectively SFAS 133). SFAS 133 requires
that entities recognize all derivatives as either assets or liabilities in
the statement of financial condition and measure those instruments at fair
value. Under SFAS 133 an entity may designate a derivative as a hedge of
exposure to either changes in: (a) fair value of a recognized asset or
liability or firm commitment, (b) cash flows of a recognized or forecasted
transaction, or (c) foreign currencies of a net investment in foreign
operations, firm commitments, available-for-sale securities or a forecasted
transaction. Depending upon the effectiveness of the hedge and/or the
transaction being hedged, any changes in the fair value of the derivative
instrument is either recognized in earnings in the current year, deferred
to future periods, or recognized in other comprehensive income. Changes in
the fair value of all derivative instruments not recognized as hedge
accounting are recognized in current year earnings. SFAS 133 is required
for all fiscal quarters or fiscal years beginning after June 15, 2000.
Management does not expect this new standard to have a material impact upon
the Company's consolidated financial statements.

In September 2000, the Financial Accounting Standards Board issued SFAS No.
140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," replacing SFAS No. 125. This new statement
revises the standard for accounting and reporting for transfers and
servicing of financial assets and extinguishments of liabilities. The new
standard is based on consistent application of a financial-components
approach that recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control
has been surrendered and derecognizes liabilities when extinguished.


<PAGE>  48


The standard provides consistent guidelines for distinguishing transfers of
financial assets from transfers that are secured borrowings. SFAS 140 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. However, for
recognition and reclassification of collateral and for disclosures relating
to securitizations transactions and collateral this statement is effective
for fiscal years ending after December 15, 2000 with earlier application
not allowed and is to be applied prospectively. Management does not expect
this new standard to have a material impact upon the Company's consolidated
financial statements.

On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations",
and SFAS No. 142, "Goodwill and Intangible Assets". SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of
SFAS No. 142. Major provisions of these Statements and their effective
dates for the Company are as follows:

      *  All business combinations initiated after June 30, 2001 must use
         the purchase method of accounting. The pooling of interests method
         of accounting is prohibited except for transactions initiated
         before July 1, 2001.

      *  Intangible assets acquired in a business combination must be
         recorded separately from goodwill if they arise from contractual
         or other legal rights or are separable from the acquired entity
         and can be sold, transferred, licensed, rented or exchanged,
         either individually or as part of a related contract, asset or
         liability.

      *  Goodwill, as well as intangible assets with indefinite lives,
         acquired after June 30, 2001, will not be amortized. Effective
         January 1, 2002, all previously recognized goodwill and intangible
         assets with indefinite lives will no longer be subject to
         amortization.

      *  Effective January 1, 2002, goodwill and intangible assets with
         indefinite lives will be tested for impairment annually and
         whenever there is an impairment indicator.

      *  All acquired goodwill must be assigned to reporting units for
         purposes of impairment testing and segment reporting.

Management does not expect this new standard to have a material impact upon
the Company's consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supercedes
SFAS No. 121. SFAS No. 144 establishes a single accounting model, based on
the framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years, with
earlier application encouraged and its provisions are to be applied
prospectively. Management does not expect this new standard to have a
material impact upon the Company's consolidated financial statements.


<PAGE>  49


NOTE B - SECURITIES

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

<TABLE>
<CAPTION>

                                                                December 31, 2001
                                             ------------------------------------------------------
                                                              Gross         Gross
                                              Amortized     Unrealized    Unrealized
                                                 Cost         Gains         Losses      Fair Value
                                              ---------     ----------    ----------    ----------


                                          <c>              <c>         <c>           <c>
Securities Available for Sale
  Debt securities:
    U.S. Government and federal agency       $ 3,467,061      $ 58,559    $       -     $ 3,525,620
    Corporate                                  5,349,979        82,805     (210,426)      5,222,358
    Mortgage-backed                           12,849,648        63,631      (46,655)     12,866,624
                                             ------------------------------------------------------
    Total debt securitites                    21,666,688       204,995     (257,081)     21,614,602
    Marketable equity securities               1,059,325             -      (10,715)      1,048,610
                                             ------------------------------------------------------
      Total securities available for sale    $22,726,013      $204,995    $(267,796)    $22,663,212
                                             ======================================================

Securitites Held to Maturity
  Corporate bonds                            $   501,835      $  1,725    $       -     $   503,560
                                             ======================================================

<CAPTION>

                                                                December 31, 2000
                                             ------------------------------------------------------
                                                              Gross         Gross
                                              Amortized     Unrealized    Unrealized
                                                 Cost         Gains         Losses      Fair Value
                                              ---------     ----------    ----------    ----------


                                          <c>              <c>         <c>           <c>
Securities Available for Sale
  Debt securities:
    U.S. Government and federal agency       $ 2,075,000      $ 2,405     $       -     $ 2,077,405
    Corporate                                  5,197,863       13,803      (104,774)      5,106,892
    Mortgage-backed                            6,289,400        5,365       (34,283)      6,260,482
                                             ------------------------------------------------------
    Total debt securitites                    13,562,263       21,573      (139,057)     13,444,779
    Marketable equity securities               1,632,168       72,593      (110,283)      1,594,478
                                             ------------------------------------------------------
      Total securities available for sale    $15,194,431      $94,166     $(249,340)    $15,039,257
                                             ======================================================

Securitites Held to Maturity
  Corporate bonds                            $   512,843      $     -     $     (48)    $   512,795
                                             ------------------------------------------------------

</TABLE>


<PAGE>  50


The amortized cost and estimated fair value of debt securities by
contractual maturity are as follows:

<TABLE>
<CAPTION>

                                                   December 31, 2001
                                  ---------------------------------------------------
                                      Available for Sale           Held to Maturity
                                  --------------------------    ---------------------
                                   Amortized        Fair        Amortized      Fair
                                      Cost          Value          Cost        Value
                                   ---------        -----       ---------      -----

                               <c>            <c>            <c>          <c>
Within 1 Year                     $   758,269    $   770,877    $501,835     $503,560
Over 1 year through 5 years         1,227,831      1,246,554           -            -
After 5 years through 10 years      2,977,979      2,986,511           -            -
After 10 years                      3,852,961      3,744,036           -            -
                                  ---------------------------------------------------
                                    8,817,040      8,747,978     501,835      503,560

Mortgage-Backed Securities         12,849,648     12,866,624           -            -
                                  ---------------------------------------------------

Total Securities                  $21,666,688    $21,614,602    $501,835     $503,560
                                  ===================================================

</TABLE>

Sales of securities available for sale are summarized as follows:

<TABLE>
<CAPTION>

                                 Years ended December 31,
                           ------------------------------------
                              2001          2000        1999
                              ----          ----        ----


                        <c>
Proceeds from sales        $4,575,113    $252,237    $1,744,817
Gross gains from sales         48,290           -         8,616
Gross losses from sales        81,691       7,719             -

</TABLE>


<PAGE>  51


NOTE C - LOANS

A summary of the balances of loans by type follows:

<TABLE>
<CAPTION>

                                               December 31,
                                        ---------------------------
                                            2001            2000
                                        -----------     -----------


                                     <c>             <c>
Real estate mortgage loans:
  Adjustable rate                       $40,529,646     $52,678,509
  Fixed rate                             22,213,397      20,878,422
  Construction loans                      7,641,819      10,717,956
  Equity lines of credit                  1,050,111         919,501
                                        ---------------------------
                                         71,434,973      85,194,388

Less: Net deferred loan fees                 93,355         180,841
      Unadvanced loan funds                       -      (3,696,590)
                                        ---------------------------
      Net real estate mortgage loans     71,528,328      81,678,639
                                        ---------------------------

Other loans:
  Personal                                2,298,016       3,368,528
  Unsecured                                  43,821          31,065
  Collateral                                 48,156          44,712
                                        ---------------------------
      Total other loans                   2,389,993       3,444,305
                                        ---------------------------

      Toal loans                         73,918,321      85,122,944

Less: Allowance for loan losses            (697,757)       (764,479)

      Loans, net                        $73,220,564     $84,358,465
                                        ===========================

</TABLE>

Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal of mortgage loans
serviced for others was $3,102,000 and $2,200,000 at December 31, 2001 and
2000, respectively. All loans serviced for others were sold without
recourse provisions.

An analysis of the allowance for loan losses follows:

<TABLE>
<CAPTION>

                                           Years ended December 31,
                                      ----------------------------------
                                        2001         2000         1999
                                      --------     --------     --------


                                   <c>          <c>          <c>
Balance at beginning of year          $764,479     $595,676     $524,924
Provision (credit) for loan losses    (126,519)      57,956      (18,810)
Recoveries                              64,797      122,613       89,775
Loans charged-off                       (5,000)     (11,766)        (213)
                                      ----------------------------------

Balance at end of year                $697,757     $764,479     $595,676
                                      ==================================

</TABLE>

At December 31, 2001 and 2000, the recorded investment in impaired loans
totaled $0 and $0 respectively, for which there was no valuation allowance.

No additional funds were committed to be advanced in connection with
impaired loans.


<PAGE>  52


For the years ended December 31, 2001, 2000, and 1999 the average recorded
investment in impaired loans amounted to $0, $0, and $535,352,
respectively. Interest income recognized on impaired loans was $0, $0, and
$57,298 for the years ended December 31, 2001, 2000 and 1999, respectively.

There were no non-accrual loans at December 31, 2001 and 2000 and $91,729
at December 31, 1999. If interest payments on all non-accrual loans for the
years ended December 31, 2001, 2000, and 1999 had been made in accordance
with original loan agreements, interest income of $0, $0, and approxiately
$3,000 would have been recognized on loans compared to interest income
actually recognized of zero, for all three years, respectfully.

NOTE D - FORECLOSED REAL ESTATE

Foreclosed real estate expenses (income) include the following:


<TABLE>
<CAPTION>

                                                      Years ended December 31,
                                                      ------------------------
                                                      2001       2000     1999
                                                      ----       ----     ----


                                                   <c>       <c>       <c>
Loss on sale of foreclosed real estate, net           $  -      $9,228    $  -
Operating expenses, net of rental income                 -           -       -
                                                      ------------------------

Net expense (recovery) from foreclosed real estate    $  -      $9,228    $  -
                                                      ========================

</TABLE>

NOTE E - BANKING PREMISES AND EQUIPMENT

A summary of the cost and accumulated depreciation and amortization of
banking premises, leasehold improvements and equipment and their estimated
useful lives is as follows:

<TABLE>
<CAPTION>

                                         Years ended December 31,
                                         ------------------------         Estimated
                                             2001           2000        Useful Lives
                                             ----           ----        ------------


                                      <c>            <c>            <c>
Banking Premises:
  Land                                   $ 1,010,880    $ 1,010,880
  Building and leasehold improvements      2,836,228      2,708,083    10 - 40 years
  Equipment                                1,634,872      1,594,173     3 - 10 years
                                           5,481,980      5,313,136
                                         --------------------------

Less: accumulated depreciation
 and amortization                         (1,481,862)    (1,232,804)
                                         --------------------------
Net banking premises and equipment       $ 4,000,118    $ 4,080,332
                                         ==========================

</TABLE>

Total depreciation and amortization expense amounted to $255,685, $257,548
and $173,690 for the years ended December 31, 2001, 2000 and 1999,
respectively.


<PAGE>  53


NOTE F - DEPOSITS

A summary of deposit balances by type is as follows:

<TABLE>
<CAPTION>

                                                 December 31,
                                         ----------------------------
                                             2001            2000
                                             ----            ----


                                      <c>             <c>
Demand                                   $ 10,613,784    $  7,013,505
NOW                                        20,917,548      24,502,611
Money market accounts                          87,154          53,646
Regular and other savings                  30,730,208      12,094,492
                                         ----------------------------
      Total non-certificate accounts       62,348,694      43,664,254
                                         ----------------------------

Term certificates of $100,000 or more      11,609,095      14,109,970
Term certificates less than $100,000       26,870,355      31,347,173
                                         ----------------------------
      Total term certificates              38,479,450      45,457,143
                                         ----------------------------

      Total deposits                     $100,828,144    $ 89,121,397
                                         ============================

</TABLE>

Interest expense on deposit balances is summarized as follows.

<TABLE>
<CAPTION>

                                    Years ended December 31,
                             --------------------------------------
                                2001          2000          1999
                                ----          ----          ----


                          <c>           <c>           <c>
Regular and other savings    $  427,569    $  225,091    $  196,951
NOW                             742,530       849,076       476,758
Money market accounts             1,605         2,455         6,433
Term certificates             2,119,098     2,395,794     1,527,615
                             --------------------------------------

                             $3,290,802    $3,472,416    $2,207,757
                             ======================================

</TABLE>


<PAGE>  54


A summary of term certificates by maturity is as follows:

<TABLE>
<CAPTION>

                                               December 31,
                            --------------------------------------------------
                                     2001                       2000
                            -----------------------    -----------------------
                                           Weighted                   Weighted
                                           Average                    Average
                               Amount        Rate         Amount        Rate
                               ------      --------       ------      --------


                         <c>              <c>       <c>              <c>
Within 1 year               $31,715,060      4.1%      $42,643,505      6.0%
Over 1 year to 2 years        3,719,514      4.6%        2,148,253      6.2%
Over 2 years to 3 years       3,037,233      4.2%          658,089      5.8%
Over 3 years to 4 years           7,643      4.70                -        -
Over 4 years                          -         -            7,296      4.7%
                            -----------                -----------

Total Term Certificates     $38,479,450      4.1%      $45,457,143      6.0%
                            ===========                ===========

</TABLE>

The Federal Reserve Bank requires that the Bank maintain average reserve
balances. The average amount of these reserve balances for the year ended
December 31, 2001 was approximately $807,000.

NOTE G - FEDERAL HOME LOAN BANK BORROWINGS

A summary of borrowed funds consisting of advances from the Federal Home
Loan Bank of Boston, by maturity, is as follows:

<TABLE>
<CAPTION>

                                               December 31,
                            --------------------------------------------------
                                     2001                       2000
                            -----------------------    -----------------------
                                           Weighted                   Weighted
                                           Average                    Average
                               Amount        Rate         Amount        Rate
                               ------      --------       ------      --------


                         <c>              <c>       <c>              <c>
Within 1 year               $3,208,042       4.61%     $12,500,000      6.85%
Over 1 year to 3 years       3,500,000       4.75%       1,021,515      5.63%
Over 3 years to 5 years              -          -                -         -
Over 5 years                 2,070,371       4.36%          77,407      4.00%
                            ----------                 -----------

      Total borrowings      $8,778,413       4.45%     $13,598,922      6.74%
                            ==========                 ===========

</TABLE>

Advances from the FHLB consist of short and long-term borrowings that are
secured by a blanket lien on qualified collateral (as defined in the FHLB
credit policy) and FHLB stock held. Qualified collateral includes but is
not limited to first mortgage loans on residential property and U.S.
Government and federal agency securities. Based upon qualified collateral
held, the Bank has a total borrowing capacity of $68.8 million as of
December 31, 2001. Included in this borrowing capacity is a line of credit
amounting to $4,300,000 by which the Bank may overdraw its deposit accounts
at the FHLB. The Bank has an equity investment in the FHLB that cannot be
liquidated as long as any borrowings with the FHLB are outstanding.


<PAGE>  55


NOTE H - INCOME TAXES

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

<TABLE>
<CAPTION>

                                         Years ended December 31,
                                     --------------------------------
                                       2001        2000        1999
                                       ----        ----        ----


                                  <c>         <c>         <c>
Current tax provision:
  Federal                            $295,000    $ 55,000    $ 83,000
  State                                92,000      15,000      17,000
                                     --------------------------------
                                      387,000      70,000     100,000
                                     --------------------------------

Deferred tax provision (benefit):
  Federal                              47,000      46,000     121,000
  State                                49,000      (1,000)     13,000
  Change in valuation reserve         (99,000)          -     (10,000)
                                     --------------------------------
                                       (3,000)     45,000     124,000
                                     --------------------------------

                                     $384,000    $115,000    $224,000
                                     ================================

</TABLE>

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

<TABLE>
<CAPTION>

                                             Years ended December 31,
                                             ------------------------
                                              2001     2000      1999
                                              ----     ----      ----


                                          <c>      <c>       <c>
Tax provision at statutory rate              34.0%    34.0%     34.0%
Increase (decrease) resulting from:
  State taxes, net of federal tax benefit     6.8%     2.6%      2.9%
  Change in valuation reserve                -8.4%              -1.6%
  Dividend received deduction                -1.9%    -5.4%     -2.1%
  Other net                                   2.2%     1.2%      2.5%
                                             -----------------------
Effective tax rate                           32.7%    32.4%     35.7%
                                             =======================

</TABLE>


<PAGE>  56


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

<TABLE>
<CAPTION>

                                                                Years ended December 31,
                                                          -----------------------------------
                                                             2001         2000         1999
                                                             ----         ----         ----


                                                       <c>          <c>          <c>
Deferred Tax Asset:
  Allowance for loan losses                               $  22,000    $ 103,000    $  29,000
  Net unrealized loss on securities available for sale       26,000       65,000      223,000
  Excess of capital loss over capital gain                   19,000
  Restricted stock awards                                     6,000
  Other tax loss carryovers                                  54,000      101,000       99,000
                                                          -----------------------------------
                                                            127,000      269,000      351,000
  Valuation reserve                                               -      (99,000)     (99,000)
                                                          -----------------------------------
      Total deferred tax asset                              127,000      170,000      252,000

Deferred Tax Liability:
  Environmental expenditures                               (161,000)    (116,000)     (67,000)
  Net deferred loan costs                                   (38,000)     (87,000)     (27,000)
  Depreciation                                              (15,000)     (15,000)      (3,000)
  Other                                                      (2,000)      (7,000)      (7,000)
                                                          -----------------------------------
      Total deferred tax liability                         (216,000)    (225,000)    (104,000)

Net deferred tax (liability) asset                        $ (89,000)   $ (55,000)   $ 148,000
                                                          ===================================

</TABLE>

The valuation reserve decreased by $99,000 in fiscal year 2001. The
decrease was a result of the utilization of previously reserved tax
benefits that were used to offset current year's taxable income.

The Federal income tax reserve for loan losses at the Bank's base year
amounted to approximately $1,208,000. 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 it is
used. As the Company intends to use the reserve only to absorb loan losses,
a deferred income tax liability of approximately $495,000 has not been
provided.

NOTE I - MINIMUM REGULATORY CAPITAL REQUIREMENTS

The Company and 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 Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of its 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.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and Bank to maintain minimum amounts and ratios (set
forth in the following tables) of total and Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 2001
and 2000, that the Company met all capital adequacy requirements to which
they are subject.

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, it must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the following


<PAGE>  57


tables. There are no conditions or events since the notification that
management believes have changed the Bank's category. The Company and
Bank's actual capital amounts and ratios as of December 31, 2001 and 2000
are also presented in the tables.

<TABLE>
<CAPTION>

                                                                     Minimum To Be Well
                                                                     Capitalized Under
                                              Minumum for Capital    Prompt Corrective
                               Actual          Adequacy Purposes     Action Provisions
                          ----------------    -------------------    ------------------
                          Amount     Ratio    Amount        Ratio    Amount      Ratio
                          ------     -----    ------        -----    ------      -----
                                             (Dollars in Thousands)


                       <c>        <c>      <c>           <c>      <c>         <c>
December 31, 2001
Total Capital to Risk
  Weighted Assets
    Bank                  $ 9,284    12.8%    $5,823        >= 8%    $7,279      >= 10%
    Consolidated          $10,547    14.5%    $5,823        >= 8%        NA

Tier 1 Capital to Risk
  Weighted Assets
    Bank                  $ 8,586    11.8%    $2,911        >= 4%    $4,367      >=  6%
    Consolidated          $ 9,849    13.5%    $2,911        >= 4%        NA

Tier 1 Capital to
  Average Assets
    Bank                  $ 8,586     7.3%    $4,719        >= 4%    $5,899      >=  5%
    Consolidated          $ 9,849     8.5%    $4,652        >= 4%        NA

December 31, 2000
Total Capital to Risk
  Weighted Assets
    Bank                  $ 8,868    13.3%    $5,343        >= 8%    $6,679      >= 10%
    Consolidated          $10,536    15.8%    $5,343        >= 8%        NA

Tier 1 Capital to Risk
  Weighted Assets
    Bank                  $ 8,103    12.1%    $2,672        >= 4%    $4,007      >=  6%
    Consolidated          $ 9,771    14.6%    $2,672        >= 4%        NA

Tier 1 Capital to
  Average Assets
    Bank                  $ 8,103     7.2%    $4,496        >= 4%    $5,620      >=  5%
    Consolidated          $ 9,771     9.0%    $4,331        >= 4%        NA

</TABLE>


<PAGE>  58


Stock Repurchase Program
------------------------

On April 23, 2001, the company announced a stock repurchase program whereby
the company's Board of Directors authorized the repurchase of up to 5% (or
approximately 28,503 shares), of the Company's outstanding common shares
from time to time. On August 15, 2001, the company announced a stock
repurchase program whereby the company's Board of Directors authorized the
repurchase of up to 3.1% (or approximately 17,696 shares), of the Company's
outstanding common shares from time to time. On October 23 2001, the
company announced a stock repurchase program whereby the company's Board of
Directors authorized the repurchase of up to 5% (or approximately 26,194
shares), of the Company's outstanding common shares from time to time. This
repurchase agreement expires on April 26, 2002. Shares repurchased under
these programs may be held in treasury, retired, or used for general
corporate purposes. As of December 31, 2001, the Company had repurchased
46,200 shares of common stock, with 26,194 shares still available to be
purchased under these programs.

NOTE J - EMPLOYEE BENEFIT PLANS

Retirement Plans
----------------

The Company provides pension benefits for its eligible employees through
membership in the Co-operative Bank's Employees Retirement Association
defined benefit pension plan. Each full time employee reaching the age of
21 and having completed six months of service automatically becomes a
participant in the retirement plan. Part-time employees must complete 1,000
hours of service in one consecutive twelve-month period beginning with such
employee's date of employment to automatically become a participant in the
retirement plan. Participants become fully vested when credited with five
years of service measured from their date of participation.

The plan is a multiemployer plan whereby the contributions by each Company
are not restricted to provide benefits for employees of the contributing
Company. Total pension expense amounted to $141,816, $119,820 and $111,551
for the years ended December 31, 2001, 2000, and 1999, respectively.

In addition to the defined benefit plan, the Company adopted a Section
401(k) plan that provides for voluntary contributions by participating
employees ranging from one percent to twelve percent of their compensation,
subject to certain limitations. The Company matched the employee's
voluntary contribution up to five percent of their compensation during 1998
and made no contributions in 2001, 2000 or in 1999.

Employee Stock Ownership Plan
-----------------------------

On December 22, 1998, the Company's ESOP purchased 43,638 shares of common
stock for $436,380. These funds were obtained by the ESOP through a loan
from MCB Funding. Annual payments are approximately $59,803 including
interest at 7.5%. The Company's contributions are the primary source of
funds for repayment of the loan. Interest expense incurred on the ESOP debt
totaled $24,336, $26,955 and $29,249 for the years ended December 31, 2001,
2000 and 1999 respectively. Compensation expenses related to the ESOP
amounted to $78,971, $55,451 and $48,613 for 2001, 2000 and 1999
respectively. This included contributions in excess of amounts required to
service the ESOP debt of $24,897, $11,813 and $4,975 for 2001, 2000 and
1999 respectively. During 2001, there was a 10% stock dividend, which
increased total annual ESOP shares by 4,364. There were no dividend
payments on unallocated shares. The shares held by the ESOP are as follows:

<TABLE>
<CAPTION>

                              December 31,
                            ----------------
                             2001      2000
                             ----      ----


                         <c>       <c>
Allocated shares            19,200    13,091
Unallocated shares          28,802    30,547
                            ----------------
      Total ESOP Shares     48,002    43,638
                            ================

</TABLE>


<PAGE>  59


The fair value of unallocated shares at December 31, 2001, 2000 and 1999
was $424,820 $400,929 and $392,738 respectively.

Stock-Based Incentive Plans
---------------------------

On December 21, 1999 the Company established a Stock-Based Incentive Plan
which may grant Non-Statutory Stock Options, Incentive Stock Options, and
Stock Awards to eligible individuals. All employees and outside directors
are eligible under the Plan. The maximum number of shares reserved for
awards under the Plan is 84,003 of which 60,002 is reserved for the
exercise of options and 24,001 is reserved for stock awards. During 1999
the Company awarded 23,997 shares with an estimated market value of
$267,780 which will vest over a five-year period. During 2000, 3,774 shares
were forfeited by terminated employees and 3,779 shares were awarded to new
directors and employees. During 2001, 3,584 shares were forfeited. Also
occuring during 2001 was a 10% stock dividend. The preceding share numbers
have been adjusted for that dividend. The Company recorded compensation
expense in connection with the stock awards of $125,983 and $50,134 during
2001 and 2000 respectively. Stock options entitle the holder to purchase
one share of the Company's common stock at the exercise price which is the
fair value on the date of the grant. Options granted to certain employees
and directors of the Company have a five year vesting period and will
expire ten years from the date of grant. Occuring in 2001 was an exercise
of 1,500 shares and a stock dividend of 10%. The preceding shares numbers
have been adjusted for the dividend. Also occurring was the acceleration of
the vesting of two top executives to fully vested. Stock awards expense for
2001 increased as a result of this accelerated vesting.

During 2001, the company purchased 13,612 shares to fully fund the stock
based incentive plan.

On a proforma basis, had compensation expense for the Company's stock-based
compensation plan been determined based on the fair value at the grant date
for awards made under the plan, consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced as follows:

<TABLE>
<CAPTION>

                                               Years Ended
                                               December 31,
                                     --------------------------------
                                       2001        2000        1999
                                       ----        ----        ----


                   <c>            <c>         <c>         <c>
Net Income            As Reported    $792,068    $238,466    $403,001
                      Proforma       $710,745    $202,613    $389,299

Earnings per share    As Reported    $   1.56    $   0.43    $   0.72
                      Proforma       $   1.40    $   0.37    $   0.70

Earnings per share    As Reported    $   1.51    $   0.43    $   0.72
 assuming dilution    Proforma       $   1.36    $   0.36    $   0.70

</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>

                                       Years Ended
                                       December 31,
                             -------------------------------
                               2001        2000        1999
                               ----        ----        ----


                          <c>         <c>         <c>
Dividend yield                   N/A         N/A         N/A

Expected life                5 Years     6 Years     6 Years

Expected volatility            23.54%      28.80%      24.27%

Risk-free interest rate         3.97%       6.20%       5.97%

</TABLE>


<PAGE>  60


A summary of the status of the Company's stock option plan is presented
below:



<TABLE>
<CAPTION>

                                           December 31, 2001      December 31, 2000      December 31, 1999
                                          -------------------    -------------------    -------------------
                                                     Weighted               Weighted               Weighted
                                                     Average                Average                Average
                                                     Exercise               Exercise               Exercise
                                          Options     Price      Options     Price      Options     Price
                                          -------    --------    -------    --------    -------    --------


                                       <c>         <c>        <c>         <c>        <c>         <c>
Outstanding at beginning of year           60,003     $12.08      56,691     $12.00           -     $    -
Granted                                     7,000      14.30      12,448      12.41      56,691      12.00
Exercised                                  (1,500)     12.00           -          -           -          -
Forfeited                                 (11,048)     11.72      (9,136)     12.00           -          -
                                          ----------------------------------------------------------------
Outstanding at end of year                 54,455     $11.93      60,003     $12.08      56,691     $12.00
                                          ================================================================

Options exerciable at year end             31,683     $11.56       8,647     $12.00           -     $    -

Weighted-average fair value of options
 granted during the year                  $  6.27                $  6.88                $  5.69

</TABLE>

As of December 31, 2001, the range of exercise prices for options outstanding
is $11.53 to $14.30 and the weighted average remaining contractual life is
8.22 years

Stock Dividend
--------------

On April 23, 2001, the Board of Directors declared a 10% stock dividend
payable on May 21, 2001 to shareholders of record on May 7, 2001.
Stockholders received one share of common stock for each ten shares they
held on the record date. The dividend resulted in a charge to retained
earnings in the amount of $791,381 as of June 30, 2001, which was based on
the fair value of the Company's common stock. In connection with the 10%
stock dividend, the Company increased the number of stock options under its
stock option plans by 10% and reduced the exercise prices accordingly such
that the intrinsic value did not change. Also, in connection with the 10%
stock dividend, the Company increased the number of shares awarded for the
ESOP and the stock award plan. Additional stock compensation expense was
recognized due to the increase in intrinsic value associated with vested
stock awards and shares allocated to the ESOP. All references to weighted
average shares outstanding, per share amounts, stock options and awards,
and exercise prices included in the financial statements and notes reflect
the 10% stock dividend and its retroactive effect.

NOTE K - COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are outstanding commitments and
contingencies that are not reflected in the financial statements.

Loan Commitments
----------------

The Company 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. Such commitments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance
sheets.

The Company's exposure to credit loss is represented by the contractual
amount of these commitments. The Company uses the same credit policies in
making commitments as it does for on-balance-sheet instruments.


<PAGE>  61


At December 31, 2001, 2000 and 1999, the following financial instruments
were outstanding whose contract amounts represent credit risk:

<TABLE>
<CAPTION>

                                                          At December 31,
                                              ---------------------------------------
                                                 2001           2000          1999
                                                 ----           ----          ----


                                           <c>            <c>           <c>
Commitments to grant loans                    $11,309,275    $2,769,237    $5,071,000
Unadvanced funds on equity lines of credit      1,015,710       632,549       347,000

</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 equity lines
of credit may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's credit worthiness on a case-by-case
basis. Funds disbursed under these financial instruments are collateralized
by real estate. Commitments to sell loans require the Company to make
delivery at a specific future date of a specified amount, at a specified
price or yield. At December 31, 2001 and 2000, the Company had commitments
to sell loans of $9,270,553 and $1,585,330, respectively. Failure to
fulfill delivery requirements of commitments may result in payment of
certain fees to the investors. Loans are sold without recourse and,
accordingly, risks arise principally from movements in interest rates.

Operating Lease Commitments
---------------------------

The Company's future minimum rent commitments pursuant to the terms of
noncancelable lease agreements in effect at December 31, 2001 are not
significant. Rent expense was $17,500, $27,060, and $52,269 for the years
ended December 31, 2001, 2000 and 1999, respectively.

Other Commitments and Contingencies
-----------------------------------

The Company has entered into employment agreements with two senior
executives. The agreements include provisions for minimum annual
compensation and certain lump-sum severance payments in the event of a
"change in control."

Effective January 1, 1998 the Company established a supplemental retirement
plan that provides certain key management employees with an additional
benefit if they retire prior to the final scheduled payment of the ESOP
loan as discussed in Note J.

Various legal claims also 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 financial position.


<PAGE>  62


NOTE L - RELATED PARTY TRANSACTIONS

The Company grants loans to principal officers and directors and their
affiliates, generally at the same prevailing terms as those of other
borrowers. A summary of related party activity follows:

<TABLE>
<CAPTION>

                                Years ended December 31,
                                ------------------------
                                    2001        2000
                                    ----        ----


                               <c>         <c>
Balance at beginning of year      $92,470     $119,008
Loans made/advanced                 8,544            -
Repayments                        (13,195)     (26,538)
                                  --------------------

Balance at end of year            $87,819     $ 92,470
                                  ====================

</TABLE>

All Related Party transactions are performing as agreed.

NOTE M - DIVIDEND PAYMENT AND RETAINED EARNINGS RESTRICTIONS

The Company and the Bank may not declare or pay dividends on and the
Company may not repurchase, any of its shares of common stock if the effect
thereof would cause shareholders' equity to be reduced below applicable
regulatory capital maintenance requirements or if such declaration, payment
or repurchase would otherwise violate regulatory requirements

The Company created a special "liquidation account" for the benefit of
account holders in an amount equal to the shareholder's equity of the Bank
as of the date of its latest balance sheet contained in the final
prospectus in connection with the conversion. Each account holder
continuing to maintain a deposit account at the Bank would be entitled, in
a complete liquidation of the Bank, to an interest in the liquidation
account prior to any payment to the shareholders of the Bank. As a result,
the Company's shareholder's equity is substantially restricted with respect
to payment of dividends to shareholders.


<PAGE>  63


NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS

The following is a summary of the carrying values and estimated fair values
of the Company's significant financial and non-financial instruments as of
the dates indicated:

<TABLE>
<CAPTION>

                                                December 31, 2001            December 31, 2000
                                           --------------------------    --------------------------
                                            Carrying       Estimated      Carrying       Estimated
                                             Value         Fair Value      Value         Fair Value
                                            --------       ----------     --------       ----------

                                        <c>            <c>            <c>            <c>
Financial Assets:
  Cash and due from banks                  $ 3,198,376    $ 3,198,376    $ 2,098,449    $ 2,098,449
  Federal funds sold                         5,643,827      5,643,827      3,420,685      3,420,685
  Securities                                23,227,848     23,166,772     15,707,274     15,552,100
  Federal Home Loan Bank Stock, at cost      1,131,500      1,131,500      1,131,500      1,131,500
  Loans and loans held for sale, net        82,491,117     84,388,117     85,943,795     86,153,624
  Accrued interest receivable                  625,139        625,139        602,738        602,738

Financial Liabilities:
  Demand, NOW, savings and money
   market deposit accounts                  62,348,694     62,348,694     43,664,254     43,664,254
  Term certificates of deposit              38,479,450     38,822,579     45,457,143     45,585,127
  Borrowed Funds                             8,778,413      8,833,832     13,598,922     13,738,719

</TABLE>

SFAS No. 107 requires disclosures about fair values of financial
instruments for which it is practicable to estimate fair value. Fair value
is defined in SFAS No. 107 as the amount that a financial instrument could
be exchanged in a current transaction between willing parties, other than
in a forced liquidation sale. Quoted market prices are used to estimate
fair values when those prices are available. However, active markets do not
exist for many types of financial instruments. Consequently, fair values
for these instruments must be estimated by management using techniques such
as discounted cash flow analysis and comparison to similar instruments.
These instruments are highly subjective and require judgments regarding
significant matters such as the amount and timing of future cash flows and
the selection of discount rates that may appropriately reflect market and
credit risks. Changes in these judgments often have a material impact on
the fair value estimates. In addition, since these estimates are as of a
specific point in time, they are susceptible to material near-term changes.
Fair values disclosed in accordance with SFAS No. 107 do not reflect any
premium or discount that could result from the sale of a large volume of a
particular financial instrument, nor do they reflect the possible tax
ramifications or estimated transaction costs.

The following is a description of the principal valuation methods used by
the Company to estimate the fair values of its financial instruments:

Securities
----------

The fair values of securities were based principally on market prices and
dealer quotes. Certain fair values were estimated using pricing models or
were based on comparisons to market prices of similar securities. The fair
value of stock in the FHLB equals its carrying amount since such stock is
only redeemable as its par value.


<PAGE>  64


Loans
-----

The fair value of performing loans is estimated by discounting the
contractual cash flows using interest rates currently being offered for
loans with similar terms to borrowers of similar quality. For non-
performing loans where the credit quality of the borrower has deteriorated
significantly, fair values are estimated based on recent appraised values.
In the event an appraisal is not available, values are estimated by
discounting cash flows at a rate commensurate with the risk associated with
those cash flows.

Deposit Liabilities
-------------------

In accordance with SFAS No. 107, the fair values of deposit liabilities
with no stated maturity (demand, NOW, savings and money market savings
accounts) are equal to the carrying amounts payable on demand. The fair
value of time deposits represents contractual cash flows discounted using
interest rates currently offered on deposits with similar characteristics
and remaining maturities. The fair value estimates for deposits do not
include the benefit that results from the low-cost funding provided by the
deposit liabilities compared to the cost of alternative forms of funding
("deposit based intangibles").

Borrowed Funds
--------------

The fair value of borrowings from the FHLB represent contractual repayments
discounted using interest rates currently available for borrowings with
similar characteristics and remaining maturities.

Other Financial Assets and Liabilities
--------------------------------------

Cash and due from banks, short-term investments and accrued interest
receivable have fair values which approximate the respective carrying
values because the instruments are payable on demand or have short-term
maturities and present relatively low credit risk and interest rate risk.

Off-Balance Sheet Financial Instruments
---------------------------------------

In the course of originating loans and extending credit, the Company will
charge fees in exchange for its commitment. While these commitment fees
have value, the Company has not estimated their value due to the short-term
nature of the underlying commitments and their immateriality.


<PAGE>  65


NOTE O - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS

Condensed parent company financial statements are as follows:

                         Massachusetts Fincorp, Inc.

                               BALANCE SHEETS

<TABLE>
<CAPTION>

                                                           December 31,
                                                    --------------------------
                                                       2001           2000
                                                       ----           ----


                                                 <c>            <c>
Assets:
  Cash and due from banks                           $    87,192    $   932,825
  Investment in subsidiaries, at equity               9,778,369      8,848,698
  Tax Receivable                                              -              -
  Deferred taxes                                              -              -
  Other assets                                          211,585        259,447
                                                    --------------------------
      Total assets                                   10,077,146     10,040,970
                                                    ==========================

Liabilities and stockholders' equity:
  Accounts payable                                            -         54,956
                                                    --------------------------
      Total liabilities                                       -         54,956
                                                    --------------------------
      Total shareholders' equity                     10,077,146      9,986,014
                                                    --------------------------
      Total liabilities and shareholders' equity    $10,077,146    $10,040,970
                                                    ==========================

</TABLE>

      The Company's consolidated shareholders' equity is less than amounts
Presented above because of the elimination effect of the ESOP shares.

                         Massachusetts Fincorp, Inc.

                            STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                                             Years Ended December 31,
                                                                             ------------------------
                                                                               2001           2000
                                                                               ----           ----


                                                                          <c>           <c>
Income:
  Dividends from Massachusetts Co-operative Bank                             $350,000      $       -
                                                                             -----------------------
      Total Income                                                            350,000              -
                                                                             -----------------------

Operating expenses:
  Directors fees                                                                7,500         26,550
  Salaries and benefits                                                       129,449         21,300
  Other general and administrative                                            163,979        206,425
  Miscellaneous expense                                                        15,326         33,680
                                                                             -----------------------
      Total operaing expenses                                                 316,254        287,955
                                                                             -----------------------
Income before income tax provision and equity in earnings of subsidiaries      33,746       (287,955)
Income tax expense (benefit)                                                      456        (95,335)
                                                                             -----------------------
                                                                               33,290       (192,620)

Equity in undistributed earnings of subsidiaries                              758,778        431,086
                                                                             -----------------------
Net Income                                                                   $792,068      $ 238,466
                                                                             =======================

</TABLE>


<PAGE>  66


                         Massachusetts Fincorp, Inc.

                           STATEMENTS OF CASHFLOW

<TABLE>
<CAPTION>

                                                            Years Ended December 31,
                                                            ------------------------
                                                               2001           2000
                                                               ----           ----


                                                         <c>           <c>
Cash flow from operating activities:
  Net income                                                $ 792,068     $  238,466
  Adjustments to reconcile net income to net
   cash provided (used) by operating activities:
    Deferred tax benefit                                      (95,148)             -
    Expense for increase in ESOP share value during year       10,416         11,813
    Stock awards expense                                      115,470         50,134
    Increase in other assets                                   47,862          2,174
    Decrease in other liabilities                             (54,956)       (85,457)
    Equity in undistributed earnings of subsidiaries         (758,778)      (431,086)
                                                            ------------------------

    Net cash provided (used) by operating activities           56,934       (213,956)
                                                            ------------------------

Cash flows from financing activities:
  Payments to acquire treasury stock                         (906,298)      (510,434)
  Stock options exercised                                       3,731
  Payments for IPO cost                                             -        (10,968)
                                                            ------------------------

Net cash used for investing activities                       (902,567)      (521,402)
                                                            ------------------------

Net decrease in cash equivalents                             (845,633)      (735,358)
                                                            ------------------------

Cash and cash equilivalents at beginning of year              932,825      1,668,183
                                                            ------------------------

Cash and cash equivalents at end of year                    $  87,192     $  932,825
                                                            ========================

</TABLE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

      None


<PAGE>  67


PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

      The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 29,
2002, on pages 4 through 8. Information concerning Executive Officers who
are not directors is contained in Part I of this report.

ITEM 10. EXECUTIVE COMPENSATION

      The information relating to director and executive compensation is
incorporated herein by reference to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders to be held on May 29, 2002 on pages 8
through 12.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 29, 2002, on pages 4 and 6 through 7.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The information relating to certain relationships and related
transactions is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 29,
2002, on page 13.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) 1.   Financial Statements

      The following consolidated financial statements of the Company and
its subsidiaries are filed as part of this document under Item 7:

      -    Independent Auditors' Reports
      -    Consolidated Balance Sheets as of December 31, 2001 and 2000
      -    Consolidated Statements of Income and Comprehensive Income for
           the Years Ended December 31, 2001, 2000 and 1999
      -    Consolidated Statements of Changes in Shareholders' Equity for
           the Years Ended December 31, 2001, 2000 and 1999
      -    Consolidated Statements of Cash Flows for the Years Ended
           December 31, 2001, 2000 and 1999
      -    Notes to Consolidated Financial Statements

(a) 2.   Financial Statement Schedules

      Financial Statement Schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated
Financial Statements or notes thereto.


<PAGE>  68


(b)   Reports on Form 8-K filed during the last quarter of 2002

      *  On October 23, 2001, the Company filed a Form 8-K announcing their
         intention to repurchase up to 5% of its outstanding shares in the
         open market over the next six months, commencing on or after
         October 23, 2001 and the enhancements of its strategic plan. The
         press release making this announcement was filed by exhibit.

(c)   Exhibits Required by Securities and Exchange Commission Regulation S-K

Exhibit
Number
-------

 2.1     Plan of Conversion of The Massachusetts Co-operative Bank (1)
 3.1     Certificate of Incorporation of Massachusetts Fincorp, Inc. (1)
 3.2     Bylaws of Massachusetts Fincorp, Inc. (2)
10.1     Employment Agreement between Massachusetts Fincorp, Inc. and
         Paul C. Green (3)
10.2     Employment Agreement between Massachusetts Fincorp, Inc. and
         Anthony A. Paciulli (3)
10.3     Form of The Massachusetts Co-operative Bank Employee Severance
         Compensation Plan (1)
10.4     Form of The Massachusetts Co-operative Bank Supplemental Executive
         Retirement Plan (1)
10.5     Form of The Mass Co-operative Bank Management Supplemental
         Executive Retirement Plan (1)
10.6     Massachusetts Fincorp, Inc. 1999 Stock - Based Incentive Plan (4)
11.0     Statement Re: Computation of Per Share Earnings
21.0     Subsidiaries Information Incorporated Herein By Reference to
         Part 1 - Subsidiary Activity
23.1     Consent of Independent Certified Public Accountant-Grant Thornton LLP

<FN>
--------------------
<F1>  Incorporated by reference into this document from the Exhibits filed
      with the Registration Statement on Form SB-2, and any amendments
      thereto, Registration No. 333-60237.
<F2>  Incorporated by reference into this document from the Form 8-K as
      filed on February 3, 2000.
<F3>  Incorporated by reference into this document from the Exhibits filed
      with the Annual Report on Form 10-K for the year ended December 31,
      1998, as filed on March 31, 1999.
<F4>  Incorporated by reference into this document from the Definitive
      Proxy Statement for the 1999 Annual Meeting of Stockholders dated
      June 16, 1999.
</FN>


<PAGE>  69


SIGNATURES

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

Massachusetts Fincorp, Inc.


By:  /s/ Paul C. Green
     ------------------------------------
     Paul C. Green
     Chairman, President, Chief Executive
     Officer and Director

      In accordance with the requirements of the Exchange Act, this Report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates stated.

<TABLE>
<CAPTION>

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


                              <c>                        <c>
/s/ Timothy King                 Chief Financial Officer    March 25, 2002
-----------------------------
Timothy King

/s/ Scott E. Buck                Director                   March 25, 2002
-----------------------------
Scott E. Buck

/s/ John E. Hurley, Jr.          Director                   March 25, 2002
-----------------------------
John E. Hurley, Jr.

/s/ Mark W. Jaindl               Director                   March 25, 2002
-----------------------------
Mark W. Jaindl

/s/ Robert E. McGovern           Director                   March 25, 2002
-----------------------------
Robert E. McGovern

/s/ John P. O'Hearn, Jr.         Director                   March 25, 2002
-----------------------------
John P. O'Hearn, Jr.

/s/ Robert H. Quinn              Director                   March 25, 2002
-----------------------------
Robert H. Quinn

/s/ William E. Schantz II        Director                   March 25, 2002
-----------------------------
William E. Schantz II

/s/ Joseph W. Sullivan           Director                   March 25, 2002
-----------------------------
Joseph W. Sullivan


/s/ Diane Valle                  Director                   March 25, 2002
-----------------------------
Diane Valle

</TABLE>


<PAGE>  70