Contact:  William P. Morrissey
          Senior Vice President                         For Release: Immediately
          (617) 628-4000

                          CENTRAL BANCORP RESERVES FOR
                          POTENTIAL STATE TAX LIABILITY

     SOMERVILLE,  MASSACHUSETTS,  March 7, 2003-- Central Bancorp, Inc. (NASDAQ:
CEBK) today  reported  that it will record a provision in the fourth  quarter of
its fiscal year ending March 31, 2003 of approximately $850,000, representing an
estimate of the additional state tax liability,  including  interest (net of any
federal or state tax deduction associated with such taxes and interest) relating
to a newly enacted law  disallowing  the  deduction  for  dividends  received by
Central   Co-operative  Bank  from  its  real  estate  investment  trust  (REIT)
subsidiary for the 2000 through 2003 fiscal years, thereby reducing earnings for
the fourth quarter of fiscal 2003 by that amount.

     The provision  relates to  legislation  signed into law on March 5, 2003 by
the  Governor  of  Massachusetts  that  amends  Massachusetts  law to  expressly
disallow the  deduction  for  dividends  received  from a REIT.  This  amendment
applies  retroactively  to tax  years  ending  on or after  December  31,  1999.
Although  the  Company  questions  the   constitutionality  of  the  retroactive
provisions of this law, accounting  principles  generally accepted in the United
States  require that the total  estimated  assessment,  including  interest,  be
recognized at the time the law is enacted.  Accordingly, the Company will record
this  estimated  liability.  As a result of the new law,  the Company  will also
cease recording the tax benefits associated with the dividend received deduction
on dividends  received from its REIT  subsidiary.  This change will result in an
increase,  at least initially,  in the Company's  overall  effective tax rate of
approximately 3%.

     The Company  understands  that this new law  applies to numerous  financial
institutions  in  Massachusetts  and will likely be  challenged,  especially the
retroactive  provisions,  on  constitutional  and  other  grounds.  The  Company
supports  such a  challenge  and  otherwise  intends  to  vigorously  defend its
position.

     Central Bancorp, Inc., is the holding company for Central Bank, whose legal
name is Central Co-operative Bank, a  Massachusetts-chartered  co-operative bank
operating eight full-service banking offices and one limited-service high school
branch in suburban Boston.

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

This press release may contain  certain  forward-looking  statements,  which are
based on management's current expectations  regarding economic,  legislative and
regulatory  issues that may impact the  Company's  earnings  in future  periods.
Factors  that  could  cause  future  results  to vary  materially  from  current
management  expectations  include,  but are not  limited  to,  general  economic
conditions,  changes in interest  rates,  deposit flows,  real estate values and
competition;  changes in accounting principles,  policies or guidelines; changes
in legislation or regulation;  and other  economic,  competitive,  governmental,
regulatory  and  technological   factors  affecting  the  Company's  operations,
pricing, products and services.
- --------------------------------------------------------------------------------