SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
   [X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2001

   [_]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
               For the transition period from____________to______

                         Commission File Number 0-23435

                              Medford Bancorp, Inc.
             (Exact name of registrant as specified in its charter)

Massachusetts                                                    04-3384928
(State or other jurisdiction of                                (I.R.S.Employer
incorporation or organization)                               Identification No.)

29 High Street
Medford, Massachusetts                                         02155
(Address of principal executive offices)                     (Zip code)

Registrant's telephone number, including area code:          (781) 395-7700

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [_]

The number of shares outstanding of Medford Bancorp, Inc.'s common stock, $0.50
par value per share, as of June 30, 2001 was 7,785,064.
<PAGE>

                                    TABLE OF CONTENTS

PART I          FINANCIAL INFORMATION

ITEM 1 -        FINANCIAL STATEMENTS                                        PAGE

                Consolidated Balance Sheets                                    1

                Consolidated Statements of Income                            2-5

                Consolidated Statements of Changes in Stockholders' Equity     6

                Consolidated Statements of Cash Flows                        7-8

                Notes to Consolidated Financial Statements                     9

ITEM 2 -        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS              10-24

ITEM 3  -       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                MARKET RISK                                                   25

PART  II        OTHER INFORMATION

ITEM  1  -      Legal Proceedings                                             25

ITEM  2  -      Changes in Securities and Use of Proceeds                     25

ITEM  3  -      Defaults Upon Senior Securities                               25

ITEM  4  -      Submission of Matters to a Vote of Security Holders           25

ITEM  5  -      Other Information                                             26

ITEM  6  -      Exhibits and Reports on Form 8-K                              26

                SIGNATURES                                                    27

                Exhibit Index                                                 28
<PAGE>

PART I FINANCIAL INFORMATION

ITEM 1 Financial Statements

                              MEDFORD BANCORP, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         June 30,         December 31,
                                                                                           2001               2000
                                                                                       -----------        -----------
                                                                                               (In thousands)
<S>                                                                                     <C>                <C>
ASSETS
Cash and due from banks                                                                 $   19,374         $   16,905
Interest-bearing deposits                                                                   32,816              5,353
                                                                                       -----------        -----------
               Cash and cash equivalents                                                    52,190             22,258

Securities available for sale                                                              536,360            528,690
Securities held to maturity                                                                 56,472             42,854
Federal Home Loan Bank stock, at cost                                                       11,920             11,420
Loans                                                                                      680,058            675,697
    Less allowance for loan losses                                                          (6,948)            (6,950)
                                                                                       -----------        -----------
              Loans, net                                                                   673,110            668,747
                                                                                       -----------        -----------

Banking premises and equipment, net                                                         11,462             10,884
Accrued interest receivable                                                                  9,973             10,211
Goodwill and deposit-based intangibles                                                       2,056              2,588
Other assets                                                                                12,438             12,038
                                                                                       -----------        -----------
              Total assets                                                              $1,365,981         $1,309,690
                                                                                       ===========        ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                                $1,036,534          $ 975,857
Short-term borrowings                                                                       17,466             20,443
Long-term debt                                                                             202,775            203,400
Accrued taxes and expenses                                                                   2,201              2,278
Other liabilities                                                                            2,388              2,747
                                                                                       -----------        -----------
               Total liabilities                                                         1,261,364          1,204,725
                                                                                       -----------        -----------
Stockholders' equity:
  Serial preferred stock, $.50 par value, 5,000,000 shares
    authorized; none issued                                                                     --                 --
  Common stock, 15,000,000 shares authorized; $.50 par value,
    9,122,596 shares issued                                                                  4,561              4,561
  Additional paid-in capital                                                                22,226             22,705
  Retained earnings                                                                         99,084             94,697
  Accumulated other comprehensive income                                                     2,463                424
  Treasury stock at cost (1,337,532 and 980,048 shares, respectively)                      (23,717)           (17,422)
                                                                                       -----------        -----------
              Total stockholders' equity                                                   104,617            104,965
                                                                                       -----------        -----------

              Total liabilities and stockholders' equity                                $1,365,981         $1,309,690
                                                                                       ===========        ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       1
<PAGE>

                              MEDFORD BANCORP, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                          June 30,
                                                                              ---------------------------------
                                                                                  2001                  2000
                                                                              ----------             ----------
                                                                        (Dollars in thousands, except per share data)

<S>                                                                            <C>                    <C>
Interest and dividend income:
    Interest and fees on loans                                                 $  12,570              $  12,374
    Interest on debt securities                                                    9,342                  8,503
    Dividends on equity securities                                                   198                    207
    Interest on short-term  investments                                              220                     95
                                                                              ----------             ----------
              Total interest and dividend income                                 22,330                 21,179
                                                                              ----------             ----------

Interest expense:
    Interest on deposits                                                           9,703                  8,890
    Interest on short-term borrowings                                                249                    598
    Interest on long-term debt                                                     3,148                  2,599
                                                                              ----------             ----------
               Total interest expense                                             13,100                 12,087
                                                                              ----------             ----------

Net interest income                                                                9,230                  9,092
Provision for loan losses                                                             --                     --
                                                                              ----------             ----------
Net interest income, after provision for loan losses                               9,230                  9,092
                                                                              ----------             ----------

Other income:
    Customer service fees                                                            571                    494
    Gain (loss) on sales of securities, net                                          155                     --
    Miscellaneous                                                                    246                    251
                                                                              ----------             ----------
               Total other income                                                    972                    745
                                                                              ----------             ----------

Operating expenses:
    Salaries and employee benefits                                                 2,961                  2,787
    Occupancy and equipment                                                          696                    631
    Data processing                                                                  447                    376
    Professional fees                                                                123                    113
    Amortization of intangibles                                                      264                    273
    Advertising and marketing                                                        157                    168
    Other general and administrative                                                 658                    610
                                                                              ----------             ----------
               Total operating expenses                                            5,306                  4,958
                                                                              ----------             ----------

Income before income taxes                                                         4,896                  4,879

Provision for income taxes                                                         1,743                  1,749
                                                                              ----------             ----------

Net income                                                                      $  3,153               $  3,130
                                                                              ==========             ==========
</TABLE>

                                   (continued)


                                       2
<PAGE>

                              MEDFORD BANCORP, INC.
                  CONSOLIDATED STATEMENTS OF INCOME (Continued)

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                              June 30,
                                                  --------------------------------
                                                     2001                 2000
                                                 ----------             ----------
                                           (Dollars in thousands, except per share data)
<S>                                              <C>                    <C>
Earnings per share:
    Basic                                        $     0.41             $     0.39
    Diluted                                      $     0.40             $     0.37

Cash dividends declared per share                $     0.13             $     0.12

Weighted averages shares outstanding:
    Basic                                         7,785,150              8,122,241
    Diluted                                       7,976,723              8,404,267
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                              MEDFORD BANCORP, INC.
                  CONSOLIDATED STATEMENTS OF INCOME (Continued)

<TABLE>
<CAPTION>
                                                                                       Six Months Ended
                                                                                           June 30,
                                                                               --------------------------------
                                                                                  2001                   2000
                                                                               ---------              ---------
                                                                         (Dollars in thousands, except per share data)
<S>                                                                            <C>                    <C>
Interest and dividend income:
    Interest and fees on loans                                                 $  25,343              $  24,354
    Interest on debt securities                                                   18,510                 16,751
    Dividends on equity securities                                                   425                    400
    Interest on short-term  investments                                              441                    190
                                                                               ---------              ---------
               Total interest and dividend income                                 44,719                 41,695
                                                                               ---------              ---------

Interest expense:
    Interest on deposits                                                          19,242                 17,308
    Interest on short-term borrowings                                                639                  1,382
    Interest on long-term debt                                                     6,398                  4,943
                                                                               ---------              ---------
               Total interest expense                                             26,279                 23,633
                                                                               ---------              ---------

Net interest income                                                               18,440                 18,062
Provision for loan losses                                                             --                     75
                                                                               ---------              ---------
Net interest income, after provision for loan losses                              18,440                 17,987
                                                                               ---------              ---------

Other income:
    Customer service fees                                                          1,109                    957
    Gain (loss) on sales of securities, net                                          371                    (74)
    Pension plan curtailment gain                                                     --                  1,195
    Miscellaneous                                                                    574                    553
                                                                               ---------              ---------
               Total other income                                                  2,054                  2,631
                                                                               ---------              ---------

Operating expenses:
    Salaries and employee benefits                                                 5,865                  5,513
    Occupancy and equipment                                                        1,457                  1,300
    Data processing                                                                  870                    747
    Professional fees                                                                228                    220
    Amortization of intangibles                                                      532                    550
    Advertising and marketing                                                        305                    318
    Other general and administrative                                               1,258                  1,210
                                                                               ---------              ---------
               Total operating expenses                                           10,515                  9,858
                                                                               ---------              ---------

Income before income taxes                                                         9,979                 10,760

Provision for income taxes                                                         3,567                  3,923
                                                                               ---------              ---------

Net income                                                                      $  6,412               $  6,837
                                                                               =========              =========
</TABLE>

                                   (continued)


                                       4
<PAGE>

                              MEDFORD BANCORP, INC.
                  CONSOLIDATED STATEMENTS OF INCOME (Concluded)

<TABLE>
<CAPTION>
                                                         Six Months Ended
                                                             June 30,
                                                ------------------------------------
                                                    2001                   2000
                                                 ----------             ----------
                                           (Dollars in thousands, except per share data)
<S>                                              <C>                    <C>
Earnings per share:
    Basic                                        $     0.82             $     0.83
    Diluted                                      $     0.80             $     0.81

Cash dividends declared per share                $     0.26             $     0.24

Weighted averages shares outstanding:
    Basic                                         7,848,441              8,192,440
    Diluted                                       8,042,781              8,483,334
</TABLE>

See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                              MEDFORD BANCORP, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     Six Months Ended June 30, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                                            Accumulated
                                          Common Stock     Additional                  Treasury Stock          Other
                                      -------------------   Paid-In     Retained   ----------------------  Comprehensive
                                        Shares    Dollars   Capital     Earnings     Shares      Dollars    Income (Loss)    Total
                                      ----------  -------  ----------   --------   ----------  ----------  --------------  --------
                                                                            (In thousands)

<S>                                   <C>         <C>       <C>        <C>        <C>          <C>            <C>          <C>
Balance at December 31, 2000          9,122,596   $ 4,561   $ 22,705   $ 94,697     (980,048)  $ (17,422)     $    424     $104,965
                                                                                                                           --------
Comprehensive income:
    Net income                               --        --         --      6,412           --          --            --        6,412
    Change in net unrealized
      gain (loss) on securities
        available for sale, net
        of reclassification
        adjustment and tax effects           --        --         --         --           --          --         2,039        2,039
                                                                                                                           --------
          Total comprehensive income                                                                                          8,451
                                                                                                                           --------
Cash dividends declared
  ($.26 per share)                           --        --         --     (2,025)          --          --            --       (2,025)
Repurchase of treasury stock                 --        --         --         --     (401,048)     (7,066)           --       (7,066)
Issuance of common stock under
  stock option plan                          --        --       (479)        --       43,564         771            --          292
                                      ---------   -------   --------   --------   ----------   ---------      --------     --------

Balance at June 30, 2001              9,122,596   $ 4,561   $ 22,226   $ 99,084   (1,337,532)  $ (23,717)     $  2,463     $104,617
                                      =========   =======   ========   ========   ==========   =========      ========     ========

Balance at December 31, 1999          9,122,596   $ 4,561   $ 24,839   $ 85,153     (739,344)  $ (14,278)     $ (9,405)    $ 90,870
                                                                                                                           --------

Comprehensive income:
    Net income                               --        --         --      6,837           --          --            --        6,837
    Change in net unrealized gain
        (loss) on securities
        available for sale, net of
        reclassification
        adjustment and tax effects           --        --         --         --           --          --           (46)         (46)
                                                                                                                           --------
          Total comprehensive income                                                                                          6,791
                                                                                                                           --------
Cash dividends declared
  ($.24 per share)                           --        --         --     (1,958)          --          --            --       (1,958)
Repurchase of treasury stock                 --        --         --         --     (358,000)     (5,419)           --       (5,419)
Issuance of common stock
  under stock option plan                    --        --       (798)        --       51,176         951            --          153
                                      ---------   -------   --------   --------   ----------   ---------      --------    ---------

Balance at June 30, 2000              9,122,596   $ 4,561   $ 24,041   $ 90,032   (1,046,168)  $ (18,746)     $ (9,451)    $ 90,437
                                      =========   =======   ========   ========   ==========   =========      ========     ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                              MEDFORD BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                               June 30,
                                                                       ---------------------
                                                                         2001         2000
                                                                       ---------    --------
                                                                           (In thousands)

<S>                                                                    <C>          <C>
Cash flows from operating activities:
   Net income                                                          $   6,412    $  6,837
   Adjustments to reconcile net income to net cash
     provided by operating activities:
        Provision for loan losses                                             --          75
        Depreciation and amortization, net                                   786       1,307
        Loss (gain) on sales of securities,  net                            (371)         74
        Increase in accrued interest receivable and other assets          (1,171)       (910)
        Decrease in accrued taxes and expenses and other liabilities        (148)       (663)
                                                                       ---------    --------
          Net cash provided by operating activities                        5,508       6,720
                                                                       ---------    --------

Cash flows from investing activities:
    Activity in securities available for sale:
        Maturities                                                        42,293      44,324
        Sales                                                             46,667       5,964
        Purchases                                                       (115,638)    (80,971)
        Principal amortization of mortgage-backed securities              29,568      14,172
    Activity in securities held to maturity:
        Maturities                                                            --       4,997
        Purchases                                                        (21,067)    (15,119)
    Loans originated and purchased, net of amortization
        and payoffs                                                       (4,192)    (24,629)
    Additions to banking premises and equipment, net                      (1,191)       (128)
                                                                       ---------    --------
          Net cash used in investing activities                          (23,560)    (51,390)
                                                                       ---------    --------
</TABLE>

                                   (continued)


                                       7
<PAGE>

                              MEDFORD BANCORP, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)

<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                               June 30,
                                                                       ---------------------
                                                                         2001         2000
                                                                       ---------    --------
                                                                           (In thousands)

<S>                                                                    <C>          <C>
Cash flows from financing activities:
    Net increase in deposits                                              60,677      59,790
    Decrease in borrowings with maturities of
        three months or less                                              (2,977)    (26,745)
    Repayment of/ proceeds from long-term debt                              (625)     23,464
    Issuance of common stock                                                 292         153
    Payments to acquire treasury stock                                    (7,066)     (5,419)
    Cash dividends paid                                                   (2,317)     (2,496)
                                                                       ---------    --------
        Net cash provided by financing activities                         47,984      48,747
                                                                       ---------    --------

Net change in cash and cash equivalents                                   29,932       4,077

Cash and cash equivalents at beginning of period                          22,258      20,910
                                                                       ---------    --------

Cash and cash equivalents at end of period                             $  52,190    $ 24,987
                                                                       =========    ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       8
<PAGE>

                              MEDFORD BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000

Note 1. Basis of Presentation

The consolidated interim financial statements of Medford Bancorp, Inc. (the
"Company") and its wholly-owned subsidiary, Medford Savings Bank (the "Bank")
presented herein are intended to be read in conjunction with the consolidated
financial statements presented in the Company's annual report for the year ended
December 31, 2000

The consolidated financial information for the three and six months ended June
30, 2001 is unaudited. In the opinion of management, however, the consolidated
financial information reflects all adjustments (consisting solely of normal
recurring accruals) necessary for a fair presentation in accordance with
accounting principles generally accepted in the United States of America.
Interim results are not necessarily indicative of results to be expected for the
entire year.

Note 2. Commitments

At June 30, 2001, the Company had outstanding commitments to originate new
residential and commercial real estate mortgage loans totaling approximately
$19.4 million, which are not reflected on the consolidated balance sheet.
Unadvanced funds on equity lines were $23.0 million, unadvanced construction
loan funds were $12.7 million, and unadvanced funds on commercial lines of
credit were $14.0 million at June 30, 2001.


Note 3. Earnings per Share

Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed conversion.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options, and are determined using the treasury stock method.
The assumed conversion of outstanding dilutive stock options would increase the
shares outstanding but would not require an adjustment to income as a result of
the conversion.


                                       9
<PAGE>



ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
       of Operation

GENERAL

The discussions set forth below and elsewhere herein contain certain statements
that may be considered forward-looking statements under the Private Securities
Litigation Reform Act of 1995. The company may make written or oral
forward-looking statements in other documents we file with the SEC, in our
annual reports to stockholders, in press releases and other written materials,
and in oral statements made by our officers, directors or employees. You can
identify forward-looking statements by the use of the words "believe," "expect,"
"anticipate," "intend," "estimate," "assume," "will," "should," and other
expression which predict or indicate future events or trends and which do not
relate to historical matters. You should not rely on forward-looking statements,
because they involve known and unknown risks, uncertainties and other factors,
some of which are beyond the control of the Company. These risks, uncertainties
and other factors may cause the actual results, performance or achievements of
the Company to be materially different from the anticipated future results,
performance or achievements expressed or implied by the forward-looking
statements.

Some of the factors that might cause these differences include the following:
changes in general, national or regional economic conditions; changes in loan
default and charge-off rates; reductions in deposit levels necessitating
increased borrowing to fund loans and investments; changes in interest rates;
changes in laws and regulations; changes in size and nature of the Company's
competition; and changes in the assumptions used in making such forward-looking
statements. You should carefully review all of these factors, and you should be
aware that there may be other factors that could cause these differences,
including, among others, the factors listed under "Risk Factors and Factors
Affecting Forward Looking Statements," as found in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000. Readers should
carefully review the factors described under "Risk Factors and Factors Affecting
Forward Looking Statements" and should not place undue reliance on our
forward-looking statements.

These forward-looking statements were based on information, plans and estimates
at the date of this report, and we do not promise to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes.

Consolidated net income was $3,153,000, or basic earnings per share of $0.41
($0.40 diluted basis), for the three months ended June 30, 2001, compared to
$3,130,000, or basic earnings per share of $0.39 ($0.37 diluted basis), for the
comparable prior year period.

Net interest income was $9,230,000 for the quarter ended June 30, 2001, up
$138,000 or 1.5% from the comparable 2000 period, and represented a net interest
margin of 2.86%, which compared to 2.97% for the comparable 2000 period. Net
gain on sale of assets was $155,000 for the 2001 second quarter compared to zero
for the same quarter in 2000.

Total operating expenses were $5,306,000 for the quarter ended June 30, 2001, up
$348,000 or 7.0% from $4,958,000 during the comparable period in 2000. There was
no provision for loan losses recorded for the three-month periods ended June 30,
2001 and 2000.

For the second quarter of 2001, the annualized return on assets was 0.95% and
the annualized return on equity was 12.16%, compared to 1.01% and 14.40%,
respectively, for the comparable period in 2000.


                                       10
<PAGE>

Consolidated net income was $6,412,000, or basic earnings per share of $.82
($.80 diluted basis), for the six months ended June 30, 2001, compared to
$6,837,000, or basic earnings per share of $.83 ($.81 diluted basis), for the
comparable prior year period. Basic and diluted earnings per share have both
decreased 1.2% while consolidated net income decreased $425,000 or 6.2% for the
six months comparative period.

Net interest income was $18,440,000 for the six months ended June 30, 2001, up
$378,000 or 2.1% from the comparable 2000 period, and represented a net interest
margin of 2.86% compared to 2.97% for the six months ended June 30, 2000. The
net gain on sales of assets totaled $371,000 for the first six months of 2001
compared to a net loss of $74,000 for the same six-month period in 2000. During
the six months ended June 30, 2000 there was a $1.2 million pre-tax curtailment
gain from the termination of the Company's defined benefit pension plan.

Total operating expenses were $10,515,000 for the six months ended June 30,
2001, up $657,000 or 6.7% from $9,858,000 during the comparable period in 2000.
There was no provision for loan losses recorded for the six months ended June
30, 2001 compared to $75,000 for the same prior year period.

For the first six months of 2001, the annualized return on assets was 0.98% and
the annualized return on equity was 12.46%, compared to 1.11% and 15.66%,
respectively, for the comparable period in 2000.

Total non-performing assets were $2,100,000 or 0.15% of total assets at June 30,
2001, compared to $1,047,000 or 0.08%, respectively, at December 31, 2000. The
allowance for loan losses at June 30, 2001 was $6,948,000, representing 1.02% of
total loans. At December 31, 2000, the allowance for loan losses was $6,950,000,
representing 1.03% of total loans. The Company had no foreclosed real estate at
June 30, 2001 or December 31, 2000.

The Company had total assets of $1.37 billion and capital of $104.6 million at
June 30, 2001, representing a capital to assets ratio of 7.66%, exceeding all
regulatory requirements. When compared to December 31, 2000, securities
increased $21.8 million or 3.7% to $604.8 million, total gross loans increased
$4.4 million or 0.65% to $680.1 million, deposits increased $60.7 million or
6.2% to $1,037 million, and borrowings decreased $3.6 million or 1.61% to $220.2
million.

A more detailed discussion and analysis of the Company's financial condition and
results of operations follows.


                                       11
<PAGE>

SECURITIES

The amortized cost and fair value of investment securities, excluding restricted
equity securities, at June 30, 2001 and December 31, 2000 with gross unrealized
gains and losses, follows:

<TABLE>
<CAPTION>
                                                                   Gross        Gross
                                                     Amortized   Unrealized   Unrealized    Fair
                  June 30, 2001                         Cost       Gains        Losses      Value
-------------------------------------------------    ---------  -----------  -----------  --------
                                                                     (In thousands)
<S>                                                  <C>         <C>          <C>         <C>
Securities Available for Sale
-----------------------------
Debt securities:
    Corporate bonds                                  $296,028    $  5,906     $   (185)   $301,749
    Federal agency obligations                          5,000          --           --       5,000
    Mortgage-backed                                   230,142         845       (2,482)    228,505
                                                     --------    --------     --------    --------
         Total debt securities                        531,170       6,751       (2,667)    535,254
Marketable equity securities                            1,261          60         (215)      1,106
                                                     --------    --------     --------    --------

             Total securities available for sale     $532,431    $  6,811     $ (2,882)   $536,360
                                                     ========    ========     ========    ========

Securities Held to Maturity
---------------------------
Debt securities:
    Federal agency obligations                       $  4,847    $    252     $     --    $  5,099
    Mortgage-backed                                    51,625         899         (175)     52,349
                                                     --------    --------     --------    --------

             Total securities held to maturity       $ 56,472    $  1,151     $   (175)   $ 57,448
                                                     ========    ========     ========    ========

<CAPTION>
                                                                   Gross        Gross
                                                     Amortized   Unrealized   Unrealized    Fair
                 December 31, 2000                      Cost       Gains        Losses      Value
-------------------------------------------------    ---------  -----------  -----------  --------
                                                                     (In thousands)
<S>                                                  <C>         <C>          <C>         <C>
Securities Available for Sale
-----------------------------
Debt securities:
    Corporate bonds                                  $310,165    $  2,628     $   (478)   $312,315
    Federal agency obligations                          3,000          --           (3)      2,997
    Mortgage-backed                                   212,589         668       (1,850)    211,407
                                                     --------    --------     --------    --------
         Total debt securities                        525,754       3,296       (2,331)    526,719
Marketable equity securities                            2,285          81         (395)      1,971
                                                     --------    --------     --------    --------

             Total securities available for sale     $528,039    $  3,377     $ (2,726)   $528,690
                                                     ========    ========     ========    ========

Securities Held to Maturity
-----------------------------
Debt securities:
    Federal agency obligations                       $  4,809    $    210     $     --    $  5,019
    Mortgage-backed                                    38,045         871           --      38,916
                                                     --------    --------     --------    --------

             Total securities held to maturity       $ 42,854    $  1,081     $     --    $ 43,935
                                                     ========    ========     ========    ========
</TABLE>


                                       12
<PAGE>

The amortized cost and fair value of debt securities by contractual maturity at
June 30, 2001 are as follows:

                                 Available for Sale       Held to Maturity
                               ---------------------    --------------------
                               Amortized       Fair     Amortized      Fair
                                  Cost        Value       Cost        Value
                               ---------    --------    ---------   --------
                                               (In thousands)

Within 1 year                   $ 70,848    $ 71,568    $     --    $     --
After 1 year through 5 years     230,180     235,181       4,847       5,099
                                --------    --------    --------    --------
                                 301,028     306,749       4,847       5,099
Mortgage-backed securities       230,142     228,505      51,625      52,349
                                --------    --------    --------    --------

                                $531,170    $535,254    $ 56,472    $ 57,448
                                ========    ========    ========    ========

Securities increased $21.8 million from $583.0 million at December 31, 2000 to
$604.8 million at June 30, 2001. At June 30, 2001, the securities portfolio
classified as "available for sale" reflected a $3.9 million appreciation in
market value as a result of the ongoing changes in market interest rates as
compared to $651,000 at December 31, 2000. In accordance with the Company's
asset-liability strategies, purchases of mortgage-backed securities are
primarily in fifteen year mortgages with weighted-average lives of six years and
other securities are generally short-term with maturities of five years or less.

Sales of debt securities produced gains of $155,000 during the 2001 second
quarter and gains of $311,000 for the six months ended June 30, 2001 compared to
losses of $64,000 for the six months ended June 30, 2000. Sales of equities
produced gains of $60,000 during the six months ended June 30, 2001 compared to
losses of $10,000 for the six months ended June 30, 2000. There were no sales of
equities recorded in either of the quarterly periods ended June 30, 2001 and
2000.


                                       13
<PAGE>

LOANS

A summary of the Company's outstanding loan balances as of the dates indicated
as follows:

                                                      June 30,      December 31,
                                                        2001            2000
                                                     ---------      ------------
                                                             (In thousands)
Mortgage loans on real estate:
    Residential 1 - 4 family                         $ 484,840        $ 487,964
    Commercial                                         133,124          124,201
    Construction                                        19,237           19,913
    Second mortgages                                       633              699
    Equity lines of credit                              22,727           21,609
                                                     ---------        ---------
                                                       660,561          654,386

Other loans:
    Commercial                                          15,468           17,219
    Personal                                             2,864            2,925
                                                     ---------        ---------
                                                        18,332           20,144
                                                     ---------        ---------

Net deferred loan origination costs                      1,165            1,167
                                                     ---------        ---------
        Total loans                                    680,058          675,697
Less allowance for loan losses                          (6,948)          (6,950)
                                                     ---------        ---------

        Loans, net                                   $ 673,110        $ 668,747
                                                     =========        =========

Total gross loans outstanding at June 30, 2001 increased $4.4 million to $680.1
million when compared to the December 31, 2000 level. As residential mortgage
rates decreased during the first six months of 2001, refinancing activity
increased contributing to the decline in residential 1-4 family real estate
mortgage loans of $3.1 million. Construction real estate and commercial and
industrial loans also declined by $0.7 million and $1.8 million, respectively
from December 31, 2000 levels. Offsetting these decreases, the Company's
commitment to rebuild its commercial real estate portfolio continues to make
gains as they grew $8.9 million during the six months ended June 30, 2001.

NON-PERFORMING ASSETS

Total non-performing assets were $2.1 million and $1.0 million at June 30, 2001
and December 31, 2000, respectively. There were no foreclosed assets at June 30,
2001 or December 31, 2000. As a percentage of total assets, nonperforming assets
equaled 0.15% and 0.08% at June 30, 2001 and December 31, 2000, respectively.
Fluctuations in total non-performing assets occur from quarter to quarter but
remain at historically low levels. It is the Company's general policy to place
loans on a non-accrual status when such loans become 90 days contractually
delinquent or when the collectibility of principal or interest payments becomes
doubtful. When a loan is placed on non-accrual status, its interest income
accrual ceases and all income previously accrued but unpaid is reversed.

In accordance with SFAS No. 114, a loan is considered impaired when, based on
current information and events, it is probable that the borrower will be unable
to meet principal or interest payments as agreed in the original loan contract.
The principal balance of impaired loans at June 30, 2001 was $2.1 million all of
which were included in the $2.1 million non-performing assets referenced in the
preceding paragraph.


                                       14
<PAGE>

ALLOWANCE FOR LOAN LOSSES

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

                                                            Six Months Ended
                                                                June 30,
                                                       ------------------------
                                                         2001              2000
                                                       -------          -------
                                                             (In thousands)

Balance at beginning of period                         $ 6,950          $ 6,779
Provision for loan losses                                   --               75
Recoveries                                                  46               12
Loans charged-off                                          (48)             (50)
                                                       -------          -------

Balance at end of period                               $ 6,948          $ 6,816
                                                       -------          -------

The allowance for loan losses is established through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the collectibility of the loan balance is unlikely.
Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, known inherent risks in the nature and volume of
the loan portfolio, levels of non-performing loans, adverse situations that may
affect the borrowers' ability to repay, trends in delinquencies and charge-offs,
estimated value of any underlying collateral, and prevailing economic
conditions. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision, as more information becomes
available. Ultimate losses may vary from current estimates and future additions
to the allowance may be necessary.

The allowance for loan losses of $6.9 million at June 30, 2001 represented a
reserve coverage of 1.02% of total loans. At December 31, 2000, the allowance
for loan losses was $6.8 million, representing 1.03% of total loans.

DEPOSITS

Total deposits increased $60.7 million from December 31, 2000 to $1,037 million
at June 30, 2001. Demand deposits increased $10.8 million from year-end levels.
During the first half of 2001, savings and money market accounts increased $71.2
million as retail depositors sought alternative banking relationships, in a
consolidating market, and municipalities shifted from certificates of deposits
to money market accounts for increased liquidity. The shift in municipal
deposits contributed to the $20 million decrease in term certificates from
$459.0 million at December 31, 2000 to $439.0 million at June 30, 2001.


                                       15
<PAGE>

                                                      June 30,      December 31,
                                                       2001            2000
                                                    ----------      ------------
                                                           (In thousands)

Demand                                              $   73,925       $   63,122
NOW                                                     63,703           65,106
Savings and money market accounts                      459,870          388,655
Term certificates                                      439,036          458,974
                                                    ----------       ----------

          Total deposits                            $1,036,534       $  975,857
                                                    ==========       ==========

BORROWED FUNDS

At June 30, 2001, the Company's long-term borrowings decreased by $625,000 to
$202.8 million from $203.4 million at December 31, 2000. Short-term borrowings
decreased by $2.9 million to $17.5 million from $20.4 million at year-end. At
June 30, 2001, borrowed funds totaled $220.2 million, decreasing $3.6 million
from the $223.8 million reported at December 31, 2000 as the Company experienced
strong deposit growth.

STOCKHOLDERS' EQUITY

The Company's capital to assets ratio was 7.66% and 8.01% at June 30, 2001 and
December 31, 2000, respectively.

The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and/or the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Holding companies, such as the Company, are not subject to prompt
corrective action provisions. 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 the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital (as defined) to average assets (as defined). Management
believes as of June 30, 2001 that the Company and the Bank met all capital
adequacy requirements to continue to be categorized as well capitalized.

The Company's book value at June 30, 2001 was $13.44 per share, compared with
$12.89 per share at December 31, 2000.


                                       16
<PAGE>

                              RESULTS OF OPERATIONS

QUARTER ENDED JUNE 30, 2001 VS QUARTER ENDED JUNE 30, 2000

NET INTEREST INCOME

Interest and dividend income from loans and investments increased $1.2 million
or 5.4% to $22.3 million for the 2001 second quarter when compared to the same
quarter in 2000. For the 2001 second quarter, average earning assets totaled
$1.292 billion, an increase of $69.0 million or 5.6% over the comparable average
for 2000, with $48.6 million of that increase attributed to short and long-term
securities and $20.4 million attributed to loans. The annualized yields on
earning assets were 6.91% and 6.93% for the second quarters in 2001 and 2000,
respectively. The yield on investment securities was 6.37% for the second
quarter 2001 as compared 6.17% for the second quarter 2000. Short and long-term
investments contributed $954,000 of additional interest and dividend income when
comparing the second quarter of 2001 to the second quarter of 2000, primarily as
a result of higher average balances and yield. The increase in the average
balance on loans and a decrease in the yield, from 7.58% to 7.47%, caused
interest income on loans to only increase $196,000 from its 2000 second quarter
level.

Total interest expense for the three months ended June 30, 2001 was $13.1
million, reflecting an increase of $1.01 million or 8.4% over the same period in
2000. At June 30, 2001 average interest-bearing liabilities were $1.16 billion,
an increase of $60.0 million or 5.4% over the comparable prior year period. This
period-to-period increase can be attributed to average deposit growth of $52.6
million and average borrowed funds increasing $7.4 million. Overall, interest
expense on deposits increased $814,000 to $9.7 million as a result of the
increase in average deposits and in rates paid from 4.02% to 4.13% for the
quarters ended June 30, 2001 and 2000, respectively. Interest expense on
borrowed funds increased $199,000 as the average balances increased and the
rates paid on borrowed funds increased 16 basis points to 6.09% in the second
quarter of 2001 compared to the second quarter in 2000. The overall cost of
interest bearing liabilities increased to 4.51% from 4.39% when comparing the
two quarters.

Net interest income increased 1.5% or $138,000 to $9.2 million when comparing
the second quarter in 2001 to the same quarter in 2000 even as the weighted
average rate spread decreased by 14 basis points to 2.40% while the net interest
margin decreased 11 basis points to 2.86%. The increase in net interest income
is primarily due to increased levels of earning assets while the basis point
declines in spread and margin reflect the changing mix of earning assets and
interest bearing liabilities. The yield on earning assets decreased 2 basis
points to 6.91% in the second quarter 2001 as compared to the same quarter in
2000, while the cost of interest-bearing liabilities increased by 12 basis
points to 4.51%. This resulted in an interest rate spread and a net interest
margin of 2.40% and 2.86%, respectively, for the three months ended June 30,
2001.


                                       17
<PAGE>

                              MEDFORD BANCORP, INC.
                              INTEREST RATE SPREAD

                                                              Three Months Ended
                                                                   June 30,
                                                              ------------------
                                                              2001         2000
                                                              ----         ----

Weighted average yield earned on:
    Short-term investments                                    4.27%        6.15%
    Securities                                                6.37         6.17
    Loans                                                     7.47         7.58
                                                              ----         ----

          All earning assets                                  6.91%        6.93%
                                                              ----         ----

Weighted average rate paid on:
    Deposits                                                  4.13%        4.02%
    Borrowed funds                                            6.09         5.93
                                                              ----         ----

          All interest-bearing liabilities                    4.51%        4.39%
                                                              ----         ----

Weighted average rate spread                                  2.40%        2.54%
                                                              ====         ====

Net interest margin                                           2.86%        2.97%
                                                              ====         ====


                                       18
<PAGE>

PROVISION FOR LOAN LOSSES

The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors, including the quality of specific
loans, risk characteristics of the loan portfolio generally, the level of non
performing loans, current economic conditions, trends in delinquency and
charge-offs, and value of the underlying collateral. Management considers the
allowance for loan losses to be adequate at June 30, 2001, although there can be
no assurance that the allowance is adequate or that additional provisions to the
allowance for loan losses will not be necessary.

The Company recorded no provision for loan losses for the second quarter of 2001
and 2000. The Company recorded net loan charge-offs of $13,000 and $11,000 for
the three months ended June 30, 2001 and June 30, 2000.

OTHER INCOME

Other income, including customer service fees and gains and losses on sales of
assets equaled $972,000 for the second quarter of 2001 as compared to $745,000
in the second quarter of 2000, representing a increase of $227,000 or 30.5%.
When comparing the second quarter of 2001 with the second quarter of 2000, the
increase in securities gains and customer service fees of $155,000 and $77,000,
respectively, principally account for the increase in other income. See related
discussions under "Securities" included in "Management's Discussion and
Analysis" in Item 2 of Part 1 of this report.

OPERATING EXPENSES

Operating expenses increased $348,000 or 7.0% to $5,306,000 for the three months
ended June 30, 2001 when compared to the same period in 2000. Salaries and
employee benefits increased $174,000, when comparing the second quarter of 2001
to the second quarter of 2000. Occupancy, equipment and data processing expenses
increased $65,000 and $71,000, respectively, when compared to the second quarter
of 2000 as a result of additional operating expenses associated with the opening
of our Somerville and Arlington Center branch sites. The Company's annualized
expense ratio, which is the ratio of non-interest expense to average assets, was
1.60% for the three months ended June 30, 2001, as compared to 1.59% for the
prior year comparable period.

PROVISION FOR INCOME TAXES

The Company's effective tax rate for three months ended June 30, 2001 was 35.6%
as compared to 35.8% for the period ended June 30, 2000.


                                       19
<PAGE>

SIX MONTHS ENDED JUNE 30, 2001 VS SIX MONTHS ENDED JUNE 30, 2000

NET INTEREST INCOME

Interest and dividend income from loans and investments increased $3.0 million
or 7.3% to $44.7 million for the first six months of 2001 when compared to 2000.
Over the first half of 2001 average earning assets totaled $1.3 billion, an
increase of $67.6 million or 5.6% over the comparable average for 2000, with
$41.0 million of that increase attributed to short and long-term investment
securities and $26.6 million attributed to loans. The annualized yields on
earning assets were 6.98% and 6.87% for the six months ended June 30, 2001 and
2000, respectively. The yield on investment securities was 6.42% for the first
half of 2001, an increase of 30 basis points from 6.12% for the same period in
2000. Short and long-term investments contributed $2,035,000 of additional
interest and dividend income when comparing the first six months of 2001 to the
first six months of 2000, primarily as a result of higher average balances and
yield. The increase in the average balance of loans and no change in yield
caused interest income on loans only to increase $989,000 from its 2000 six
month level.

Total interest expense for the six months ended June 30, 2001 was $26.3 million,
reflecting an increase of $2.6 million or 11.2% over the same period in 2000. At
June 30, 2001 average interest-bearing liabilities were $1.151 billion, an
increase of $57.2 million or 5.2% over the comparable prior year period. This
period-to-period increase can be attributed to average deposit growth of $46.0
million and average borrowed funds increasing $11.2 million. Deposit growth
occurred as rates paid increased from 3.96% to 4.20% for the six months ended
June 30, 2001 and 2000, respectively. Overall, interest expense on deposits
increased $1.9 million to $19.2 million due to increases in both average
deposits and rates paid. Interest expense on borrowed funds increased $712,000
as the average balances increased and the rates paid on borrowed funds increased
37 basis points to 6.18% in the first six months of 2001 compared to the first
six months of 2000. The overall cost of interest bearing liabilities increased
to 4.59% from 4.32% when comparing the two periods.

Net interest income increased 2.1% or $378,000 to $18.4 million when comparing
the six months in 2001 to the same period in 2000 even as the weighted average
rate spread decreased by 16 basis points to 2.39% while net interest margin
decreased 11 basis points to 2.86%. The increase in net interest income is
primarily due to increased levels of earning assets while the basis point
declines in spread and margin reflect the changing mix of earning assets and
interest bearing liabilities. The yield on earning assets increased 11 basis
points to 6.98% in the first six months of 2001 as compared to the first six
months of 2000, while the cost of interest bearing liabilities increased by 27
basis points to 4.59%. This resulted in an interest rate spread and a net
interest margin of 2.39% and 2.86%, respectively, for the six months ended June
30, 2001.


                                       20
<PAGE>

                              MEDFORD BANCORP, INC.
                              INTEREST RATE SPREAD

                                                               Six Months Ended
                                                                   June 30,
                                                              ------------------
                                                              2001         2000
                                                              ----         ----

Weighted average yield earned on:
    Short-term investments                                    4.77%        5.82%
    Securities                                                6.42         6.12
    Loans                                                     7.54         7.54
                                                              ----         ----

          All earning assets                                  6.98%        6.87%
                                                              ----         ----

Weighted average rate paid on:
    Deposits                                                  4.20%        3.96%
    Borrowed funds                                            6.18         5.81
                                                              ----         ----

          All interest-bearing liabilities                    4.59%        4.32%
                                                              ----         ----

Weighted average rate spread                                  2.39%        2.55%
                                                              ====         ====

Net interest margin                                           2.86%        2.97%
                                                              ====         ====


                                       21
<PAGE>

PROVISION FOR LOAN LOSSES

The provision for loan losses represents a charge against current earnings and
an addition to the allowance for loan losses. The provision is determined by
management on the basis of many factors, including the quality of specific
loans, risk characteristics of the loan portfolio generally, the level of non
performing loans, current economic conditions, trends in delinquency and
charge-offs, and value of the underlying collateral. Management considers the
allowance for loan losses to be adequate at June 30, 2001, although there can be
no assurance that the allowance is adequate or that additional provisions to the
allowance for loan losses will not be necessary.

The Company recorded no provision for loan losses for the first six months of
2001 as compared to $75,000 for the same period in 2000. The Company recorded
net loan charge-offs of $2,000 for the first half of 2001 compared to net
charge-offs of $38,000 for the six months ended June 30, 2000.

OTHER INCOME

Other income, including customer service fees and gains and losses on sales of
assets equaled $2.1 million in the first six months of 2001 as compared to $2.6
million in the first six months of 2000, representing a decrease of $577,000 or
21.9%. When comparing the first quarter 2001 with 2000, this decrease is
primarily due to the pre-tax gain of $1.195 million from the curtailment of the
Company's defined benefit pension plan recorded in the first quarter of 2000
partially offset by the net change in securities gains and losses of $445,000.
See related discussions under "Securities" included in "Management's Discussion
and Analysis" in Item 2 of Part 1 of this report.

OPERATING EXPENSES

Operating expenses increased $657,000 or 6.7% to $10,515,000 for the six months
ended June 30, 2001 when compared to the same period in 2000. Salaries and
employee benefits increased $352,000, when comparing the first six months of
2001 to the first six months of 2000. Occupancy, equipment and data processing
expenses increased $157,000 and $123,000, respectively, when compared to the
first half of 2000 as a result of additional operating expenses associated with
the opening of our Somerville and Arlington Center branch sites. The Company's
annualized expense ratio, which is the ratio of non-interest expense to average
assets, was 1.60% for the six months ended June 30, 2000 and 2001.

PROVISION FOR INCOME TAXES

The Company's effective tax rate for the six months ended June 30, 2001 was
35.7% as compared to 36.5% for the six months ended June 30, 2000.


                                       22
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are customer deposits, amortization and
payoff of existing loan principal and sales or maturities of various securities.
The Company is a voluntary member of the Federal Home Loan Bank of Boston
("FHLBB"), and as such may take advantage of the FHLBB's borrowing programs to
enhance liquidity and leverage its favorable capital position. The Company also
may draw on lines of credit at the FHLBB and a large commercial bank, and it may
pledge U.S. Government securities to borrow from certain investment firms and
the Mutual Savings Central Fund of Massachusetts. These various sources of
liquidity are used to fund withdrawals, new loans, and investments.

Management seeks to promote deposit growth while controlling the Company's cost
of funds. Sales oriented programs to attract new depositors and the
cross-selling of various products to its existing customer base are currently in
place. Management reviews, on an ongoing basis, possible new products, with
particular attention to products and services that will assist retention of the
Company's base of lower-costing deposits.

Maturities and sales of investment securities provide significant liquidity to
the Company. The Company's policy of purchasing shorter-term debt securities
reduces market risk in the bond portfolio while providing significant cash flow.
For the six months ended June 30, 2001, cash flow from maturities and sales of
securities was $89.0 million compared to $55.3 million for the six months ended
June 30, 2000. Principal payments received on mortgage-backed securities during
the six months ended June 30, 2001 and 2000 totaled $29.6 million and $14.2
million, respectively. During periods of high interest rates, maturities in the
bond portfolio could provide significant liquidity at a lower cost than
borrowings.

Amortization and payoffs of the loan portfolio also contribute significant
liquidity to the Company. Traditionally, the amortization and payoffs have been
reinvested into loans. When payoff rates exceed origination rates, excess
liquidity from loan payoffs is shifted into the investment portfolio.

The Company also uses borrowed funds as a source of liquidity. These borrowings
generally contribute toward funding over-all loan growth as well as purchases of
mortgage-backed securities. At June 30, 2001, the Company's outstanding
borrowings from the FHLBB were $217.7 million and $223.4 million at December 31,
2000. The Company also utilizes repurchase agreements as a source of funding
when management deems market conditions to be conducive to such activities.

Commitments to originate residential and commercial real estate mortgage loans
at June 30, 2001, excluding unadvanced construction funds of $12.7 million, were
$19.4 million. Management believes that adequate liquidity is available to fund
loan commitments utilizing deposits, loan amortization, maturities of
securities, or borrowings.

Purchases of securities during the six months ended June 30, 2001 totaled $136.7
million, consisting of debt instruments generally maturing in less than five
years. This compares with purchases of $96.1 million for the six months ended
June 30, 2000.

Residential and commercial real estate mortgage loan originations for the six
months ended June 30, 2001 totaled $66.3 million, compared with $77.9 million
for the six months ended June 30, 2000.

The Company's capital position (total stockholders' equity) was $104.6 million
or 7.66% of total assets at June 30, 2001 compared with $105.0 million or 8.01%
of total assets at December 31, 2000. During the six months ended June 30, 2001,
the Company completed its stock repurchase program acquiring 401,048 shares of
its common stock. The Company's capital position exceeds all regulatory
requirements.


                                       23
<PAGE>

                           ASSET-LIABILITY MANAGEMENT

Through the Company's Asset-Liability Management Committee ("ALCO"), which is
comprised of certain senior and middle management personnel, the Company
monitors the level and general mix of interest rate-sensitive assets and
liabilities. The primary objective of the Company's ALCO program is to manage
the assets and liabilities of the Company to provide for optimum profitability
and capital at prudent levels of liquidity and interest rate, credit, and market
risk.

It is ALCO's general policy to closely match the maturity or rate sensitivity of
its assets and liabilities. In accordance with this policy, certain strategies
have been implemented to improve the match between interest rate sensitive
assets and liabilities. These strategies include, but are not limited to: daily
monitoring of the Company's changing cash requirements, with particular
concentration on investment in short term securities; originating adjustable and
fixed rate mortgage loans for the Company's own portfolio; managing the cost and
structure of deposits; and generally using matched borrowings to fund specific
purchases of loan packages and large loan origination. Occasionally, management
may choose to deviate from specific matching of maturities of assets and
liabilities, if an attractive opportunity to enhance yields becomes available.

The Company actively manages its liability portfolio in order to effectively
plan and manage growth and maturities of deposits. Management recognizes the
need for strict attention to all deposits. Accordingly, plans for growth of all
deposit types are reviewed regularly. Programs are in place which are designed
to build multiple relationships with customers and to enhance the Company's
ability to retain deposits at controlled rates of interest, and management has
adopted a policy of reviewing interest rates on an ongoing basis on all deposit
accounts in order to control deposit growth and interest costs.

In addition to attracting deposits, the Company has selectively borrowed funds
using advances from the FHLBB and, upon occasion, reverse repurchase agreements.
These funds have generally been used to fund loans typically having a matched
repricing date as well as purchases of mortgage-backed securities.

                               IMPACT OF INFLATION

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

                          NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. These Statements change the
accounting for business combinations and goodwill and intangible assets. SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interests
method is prohibited. SFAS No. 142, which is effective January 1, 2002, changes
the accounting for goodwill from an amortization method to an impairment-only
approach. In addition, this Statement requires that acquired intangible assets,
as defined, be amortized over their useful lives. Management is currently
evaluating the impact of adopting this Statement on consolidated financial
statements.


                                       24
<PAGE>

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

For a discussion of the Company's management of market risk exposure, see
"Asset-Liability Management" in Item 2 of Part I of this report and Item 7A of
Part II of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the "2000 Annual Report").

For quantitative information about market risk, see Item 7A of Part II of the
Company's 2000 Annual Report.

There have been no material changes in the quantitative and qualitative
disclosures about market risk as of June 30, 2001 from those presented in the
Company's 2000 Annual Report.

PART II - OTHER INFORMATION

ITEM 1 -    Legal Proceedings

            There are no material legal proceedings to which the Company is a
            party or to which any of its property is subject, although the
            Company is a party to ordinary routine litigation incidental to its
            business.

ITEM 2 -    Changes in Securities and Use of Proceeds

            Not applicable.

ITEM 3 -    Defaults Upon Senior Securities

            Not applicable.

ITEM 4 -    Submission of Matters to a Vote of Security Holders

            The Company's annual meeting of stockholders was held on April 24,
            2001 (the "Annual Meeting"). The presence, in person or by proxy, of
            a least a majority of the total number of issued and outstanding
            shares of the Company's common stock. $.50 par value per share (the
            "Common Stock") was necessary to constitute a quorum for the
            transaction of business at the Annual Meeting. There were
            7,856,770.682 shares of Common Stock issued, outstanding and
            eligible to vote as of March 5, 2001. A total of 6,554,778.850
            shares of Common Stock were present in person or by proxy at the
            Annual Meeting, constituting a quorum.

            At the Annual Meeting, the stockholders elected the following three
            individuals as Directors of the Company to serve until the 2004
            annual meting of stockholders, with the following votes cast:

            Nominee                 For                Withheld

            Paul J. Crowley         6,489,036.119      65,742.731
            Edward J. Gaffey        6,496,251.913      58,526.937
            Andrew D. Guthrie, Jr.  6,489,839.210      64,939.640

            The following additional Directors of the Company continued as
            Directors after the Annual Meeting: Edward D. Brickley, David L.
            Burke, Deborah Burke-Santoro, Mary Lou Doherty, Robert A. Havern
            III, Arthur H. Meehan, Francis D. Pizzella and Eugene R. Murray.


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<PAGE>

ITEM 5 -    Other Information

            None.

ITEM 6 -    Exhibits and Reports on Form 8-K

            (a)  Exhibit     Description

                 Exhibit index

            (b)  Reports on Form 8-K

                 No reports on Form 8-K were filed by the Company during the
                 three-month period ended June 30, 2001.


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<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              MEDFORD BANCORP, INC.

Date:  August 14, 2001


       /s/ Arthur H. Meehan
       ---------------------------------------------------------------
       Arthur H. Meehan
       Chairman, President and Chief Executive Officer



Date:  August 14, 2001


       /s/ Phillip W. Wong
       ---------------------------------------------------------------
       Phillip W. Wong
       Executive Vice President, Treasurer and Chief Financial Officer


                                       27
<PAGE>

                              EXHIBITS TO FORM 10-Q
                              MEDFORD BANCORP, INC.

                                  EXHIBIT INDEX

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

10.14             Special Termination Agreement with William L. Marshall


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