##### Table of Contents



FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

|                       |  |              
|---------------------- |  | -------------
|For Quarter Ended:     |  | June 30, 2002
|                       |  |              
|Commission File Number |  | 1-13936      
|                       |  |              

BOSTONFED BANCORP INC.

(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-1940834                          
|                                                              
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

|                                                         |  |            |  | 
|-------------------------------------------------------- |  | ---------- |  | 
|17 New England Executive Park, Burlington, Massachusetts |  | 01803      |  | 
|                                                        
|(Address of principal executive offices)                 |  | (Zip Code) |  | 

(781) 273-0300

(Registrants telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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.

|        |  |      
|------- |  | -----
|YesXBOX |  | NoBOX

Number of shares of common stock, par value $.01 per share,
outstanding as of July 31, 2002: 4,482,896.





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TABLE OF CONTENTS



|                             |                                                                                                                     |                                                            |  |  |  |  |  | 
|---------------------------- | ------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | Item 1. Financial Statements                                                                                       
|                             |                                                                                                                     | Consolidated Balance Sheets                               
|                             |                                                                                                                     | Consolidated Statements of Operations                     
|                             |                                                                                                                     | Consolidated Statements of Changes in Stockholders Equity
|                             |                                                                                                                     | Consolidated Statements of Cash Flows                     
|                             |                                                                                                                     | CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      
|                             |                                                                                                                     | Average Balances and Yields / Costs                       
|                             | Item 2. MANAGEMENTSS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                      AND RESULTS OF OPERATIONS
|                             | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                  
|PART II  OTHER INFORMATION 
|                             | Item 1. Legal Proceedings                                                                                          
|                             | Item 2. Changes in Securities and Use of Proceeds                                                                  
|                             | Item 3. Defaults Upon Senior Securities                                                                            
|                             | Item 4. Submission of Matters to a Vote of Security Holders                                                        
|                             | Item 5. Other Information                                                                                          
|                             | Item 6. Exhibits and Reports on Form 8-K                                                                           
|SIGNATURES                  



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##### Table of Contents



BOSTONFED BANCORP INC.
FORM 10-Q
INDEX

|                                                                                              |                                                                                                                        |  |         |         | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | 
|                                                                                              |                                                                                                                        |  | Page   
|                                                                                              |                                                                                                                        |  |        
|PART I-FINANCIAL INFORMATION                                                                  |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements:                                                                 |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated Balance Sheets as of
June 30, 2002 (unaudited) and December 31, 2001                                      |  |         | 2       | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated Statements of Operations for the Three and Six
Months ended June 30, 2002 and 2001 (unaudited)            |  |         | 3       | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated Statement of Changes in Stockholders
Equity for the Three and Six Months ended
June 30, 2002 (unaudited) |  |         | 4       | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2002 and 2001 (unaudited)                      |  |         | 5 - 6   | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Consolidated Financial Statements                                                                             |  |         | 7 - 9   | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Average Balances and Yield / Costs                                                                                     |  |         | 10 - 11 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                        |  | 12 - 18 |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures About
Market Risk                            |                                                                                                                        |  | 19      |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II-OTHER INFORMATION                                                                     |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                                                        |  | 20      |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                        |  | 20      |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Defaults Upon Senior Securities                                                       |                                                                                                                        |  | 20      |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                        |  | 20      |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 5. Other Information                                                                     |                                                                                                                        |  | 21      |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                        |  | 21      |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                        |  |         |        
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signature Page                                                                                |                                                                                                                        |  | 22      |        

1



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##### Table of Contents












BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)

|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |         |         |           | 
|---------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------- | --------- | ------------ | ------- | ------- | --------- | 
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         | June 30,    |           | December 31,
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         | 2002        |           | 2001        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |             
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         | (Unaudited) |           |              |         |        
|Assets                                                                                                                       |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Cash and cash equivalents                                                                                                    |                                                                                                                                                                                        | $                                                                                                                                  | 54,103                     |         |             | $         | 95,957       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Investment securities available for sale
(amortized cost of $79,421 at June 30,
2002 and $62,868 at December 31, 2001)       |                                                                                                                                                                                        |                                                                                                                                    | 79,792                     |         |             |           | 63,258       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Investment securities held to maturity (fair
value of $596 at June 30, 2002 and $598
at December 31, 2001)                   |                                                                                                                                                                                        |                                                                                                                                    | 554                        |         |             |           | 554          |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Mortgage-backed securities available for sale
(amortized cost of $135,370 at June 30, 2002
and $95,139 at December 31, 2001) |                                                                                                                                                                                        |                                                                                                                                    | 136,166                    |         |             |           | 94,922       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Mortgage-backed securities held to maturity (fair
value of $33,934 at June 30, 2002 and $41,547
at December 31, 2001)        |                                                                                                                                                                                        |                                                                                                                                    | 32,823                     |         |             |           | 40,822       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Loans held for sale                                                                                                          |                                                                                                                                                                                        |                                                                                                                                    | 14,392                     |         |             |           | 24,612       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Loans, net of allowance for loan losses of $13,041
and $12,328 at June 30, 2002 and December 31,
2001                        |                                                                                                                                                                                        |                                                                                                                                    | 1,102,096                  |         |             |           | 1,055,798    |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Accrued interest receivable                                                                                                  |                                                                                                                                                                                        |                                                                                                                                    | 7,249                      |         |             |           | 6,317        |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Stock in FHLB of Boston and Federal Reserve Bank                                                                             |                                                                                                                                                                                        |                                                                                                                                    | 24,208                     |         |             |           | 24,208       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Premises and equipment                                                                                                       |                                                                                                                                                                                        |                                                                                                                                    | 10,605                     |         |             |           | 10,295       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Goodwill, net of amortization                                                                                                |                                                                                                                                                                                        |                                                                                                                                    | 17,776                     |         |             |           | 17,776       |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Other assets                                                                                                                 |                                                                                                                                                                                        |                                                                                                                                    | 39,677                     |         |             |           | 36,347       |        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    | Total assets               |         | $           | 1,519,441 |              |         | $       | 1,470,866 | 
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|Liabilities and Stockholders Equity                                                                                         |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Liabilities:                                                                                                                 |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Deposit accounts                                                                                                                                                                       |                                                                                                                                    | $                          | 915,573 |             |           | $            | 884,516 |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Federal Home Loan Bank advances and other
Borrowed Money                                                                                                                               |                                                                                                                                    |                            | 461,877 |             |           |              | 449,000 |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Corporation-obligated mandatorily redeemable
capital securities                                                                                                                        |                                                                                                                                    |                            | 32,000  |             |           |              | 32,000  |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Advance payments by borrowers for taxes
and insurance                                                                                                                                  |                                                                                                                                    |                            | 2,181   |             |           |              | 2,614   |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Other liabilities                                                                                                                                                                      |                                                                                                                                    |                            | 10,247  |             |           |              | 9,348   |        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    | Total liabilities          |         |             | 1,421,878 |              |         |         | 1,377,478 | 
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|Commitments and contingencies                                                                                                |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|Stockholders
equity;                                                                                                       
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued                                                                                                              |                                                                                                                                    |                            | -- --   |             |           |              | -- --   |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Common stock, $0.01 par value, 17,000,000 shares
authorized; 6,589,617 shares issued (4,482,096
and 4,450,653 shares outstanding at June 30,
2002 and December 31, 2001, respectively) |                                                                                                                                    |                            | 66      |             |           |              | 66      |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Additional paid-in capital                                                                                                                                                             |                                                                                                                                    |                            | 68,773  |             |           |              | 68,259  |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Retained earnings                                                                                                                                                                      |                                                                                                                                    |                            | 67,917  |             |           |              | 64,702  |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             | Accumulated other comprehensive income                                                                                                                                                 |                                                                                                                                    |                            | 712     |             |           |              | 105     |        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |                                                                                                                                                                                        | Less: Treasury stock, at cost (2,166,694 shares
and 2,138,964 shares at June 30, 2002
and December 31, 2001, respectively at cost) |                            |         | (39,345     | )         |              |         | (39,158 | )        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |                                                                                                                                                                                        | Less: Unallocated ESOP shares                                                                                                      |                            |         | (529        | )         |              |         | (529    | )        
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                            
|                                                                                                                             |                                                                                                                                                                                        | Less: Unearned Stock-Based Incentive Plan                                                                                          |                            |         | (31         | )         |              |         | (57     | )        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    | Total stockholders equity |         |             | 97,563    |              |         |         | 93,388    | 
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        
|Total liabilities and stockholders equity                                                                                   |                                                                                                                                                                                        | $                                                                                                                                  | 1,519,441                  |         |             | $         | 1,470,866    |        
|                                                                                                                             |                                                                                                                                                                                        |                                                                                                                                    |                            |         |             |           |              |        

See accompanying condensed notes to consolidated financial statements.

2



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##### Table of Contents






BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars In Thousands, except per share amount)

|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |        |        |        | 
|---------------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------- | ------------------------- | ------ | ------------------ | ------ | ---------------- | ------ | ------- | ------ | --------- | ------ | ------ | ------ | --------- | ------ | ------ | ------ | 
|                                                                 |                                                                               |                            |                           |        | Three Months Ended |        | Six Months Ended
|                                                                 |                                                                               |                            |                           |        |                    |        |                 
|                                                                 |                                                                               |                            |                           |        | 6/30/02            |        | 6/30/01          |        | 6/30/02 |        | 6/30/01  
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |          
|                                                                 |                                                                               |                            |                           |        | (Unaudited)        |        | (Unaudited)     
|Interest income:                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Loans                                                                         |                            | $                         | 18,673 |                    |        | $                | 20,570 |         |        | $         | 37,188 |        |        | $         | 41,460 |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Mortgage-backed securities                                                    |                            |                           | 2,181  |                    |        |                  | 1,754  |         |        |           | 4,067  |        |        |           | 3,040  |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Investment securities                                                         |                            |                           | 1,009  |                    |        |                  | 1,623  |         |        |           | 1,991  |        |        |           | 3,313  |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                 |                                                                               |                            | Total interest income     |        |                    | 21,863 |                  |        |         | 23,947 |           |        |        | 43,246 |           |        |        | 47,813 | 
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|Interest expense:                                                |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Deposit accounts                                                              |                            |                           | 5,411  |                    |        |                  | 7,883  |         |        |           | 11,228 |        |        |           | 16,107 |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Borrowed funds                                                                |                            |                           | 5,807  |                    |        |                  | 5,868  |         |        |           | 11,567 |        |        |           | 11,282 |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Corporation obligated mandatorily
redeemable capital securities
distributions |                            |                           | 881    |                    |        |                  | 881    |         |        |           | 1,761  |        |        |           | 1,761  |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                 |                                                                               |                            | Total interest expense    |        |                    | 12,099 |                  |        |         | 14,632 |           |        |        | 24,556 |           |        |        | 29,150 | 
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|Net interest income                                              |                                                                               |                            | 9,764                     |        |                    |        | 9,315            |        |         |        | 18,690    |        |        |        | 18,663    |       
|                                                                
|                                                                
|                                                                
|                                                                
|Provision for loan losses                                        |                                                                               |                            | 250                       |        |                    |        | 208              |        |         |        | 500       |        |        |        | 420       |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                 | Net interest
income after provision                                           |                            |                           | 9,514  |                    |        |                  | 9,107  |         |        |           | 18,190 |        |        |           | 18,243 |       
|                                                                
|                                                                
|                                                                
|                                                                
|Non-interest income:                                             |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Deposit service fees                                                          |                            |                           | 768    |                    |        |                  | 608    |         |        |           | 1,405  |        |        |           | 1,182  |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Loan processing and servicing
fees                                            |                            |                           | (198   | )                  |        |                  | (16    | )       |        |           | (509   | )      |        |           | 114    |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Gain on sale of loans                                                         |                            |                           | 2,731  |                    |        |                  | 3,112  |         |        |           | 5,599  |        |        |           | 4,731  |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Income from bank owned life
insurance                                         |                            |                           | 306    |                    |        |                  | 315    |         |        |           | 603    |        |        |           | 621    |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Gain on sale of investments                                                   |                            |                           | 60     |                    |        |                  | 0      |         |        |           | 300    |        |        |           | 215    |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Other                                                                         |                            |                           | 429    |                    |        |                  | 480    |         |        |           | 826    |        |        |           | 836    |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                 |                                                                               |                            | Total non-interest income |        |                    | 4,096  |                  |        |         | 4,499  |           |        |        | 8,224  |           |        |        | 7,699  | 
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|Non-interest expense:                                            |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Compensation and benefits                                                     |                            |                           | 5,836  |                    |        |                  | 5,200  |         |        |           | 11,625 |        |        |           | 10,652 |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Occupancy and equipment                                                       |                            |                           | 1,244  |                    |        |                  | 1,224  |         |        |           | 2,430  |        |        |           | 2,316  |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Data processing                                                               |                            |                           | 465    |                    |        |                  | 402    |         |        |           | 920    |        |        |           | 841    |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Advertising expense                                                           |                            |                           | 264    |                    |        |                  | 282    |         |        |           | 497    |        |        |           | 502    |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Federal deposit insurance
premiums                                            |                            |                           | 46     |                    |        |                  | 41     |         |        |           | 86     |        |        |           | 85     |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Real estate operations                                                        |                            |                           | 0      |                    |        |                  | 4      |         |        |           | 0      |        |        |           | 7      |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Amortization of goodwill                                                      |                            |                           | 0      |                    |        |                  | 355    |         |        |           | 0      |        |        |           | 709    |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Legal Settlement                                                              |                            |                           | 0      |                    |        |                  | 0      |         |        |           | 500    |        |        |           | 0      |       
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Other                                                                         |                            |                           | 1,832  |                    |        |                  | 2,112  |         |        |           | 3,360  |        |        |           | 3,734  |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|                                                                 |                                                                               | Total non-interest expense |                           |        | 9,687              |        |                  |        | 9,620   |        |           |        | 19,418 |        |           |        | 18,846 |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|Income before income taxes                                       |                                                                               |                            | 3,923                     |        |                    |        | 3,986            |        |         |        | 6,996     |        |        |        | 7,096     |       
|                                                                
|                                                                
|                                                                
|                                                                
|Income tax expense                                               |                                                                               |                            | 1,340                     |        |                    |        | 1,477            |        |         |        | 2,391     |        |        |        | 2,577     |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|Net income                                                       |                                                                               | $                          | 2,583                     |        |                    | $      | 2,509            |        |         | $      | 4,605     |        |        | $      | 4,519     |       
|                                                                 |                                                                               |                            |                           |        |                    |        |                  |        |         |        |           |        |        |        |           |       
|Basic earnings per share                                         |                                                                               | $                          | 0.58                      |        |                    | $      | 0.56             |        |         | $      | 1.04      |        |        | $      | 1.01      |       
|                                                                
|                                                                
|                                                                
|                                                                
|Diluted earnings
per share                                       |                                                                               | $                          | 0.55                      |        |                    | $      | 0.54             |        |         | $      | 0.98      |        |        | $      | 0.96      |       
|                                                                
|                                                                
|                                                                
|                                                                
|Basic weighted average shares
outstanding                        |                                                                               |                            | 4,420,057                 |        |                    |        | 4,423,879        |        |         |        | 4,409,091 |        |        |        | 4,460,856 |       
|                                                                
|                                                                
|                                                                
|                                                                
|Common stock equivalents
due to dilutive effect
of stock options |                                                                               |                            | 306,631                   |        |                    |        | 251,724          |        |         |        | 279,609   |        |        |        | 240,923   |       
|                                                                
|                                                                
|                                                                
|                                                                
|Diluted total weighted average
shares outstanding                |                                                                               |                            | 4,726,688                 |        |                    |        | 4,675,603        |        |         |        | 4,688,700 |        |        |        | 4,701,779 |       

See accompanying condensed notes to consolidated financial statements.

3



---



##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Statements of Changes in Stockholders Equity
Six Months Ended June 30, 2002
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  |             |   |       |  |       |   |          |  |     |   |  |  |        |   | 
|-------------------------------------------------------------------------------------------------- |  | - | ------ |  | ------- |  | ---------- | - | -------- |  | ------ | - | ------ |  | --------- | - | ------------- |  | ----------- | - | ----- |  | ----- | - | -------- |  | --- | - |  |  | ------ | - | 
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  | Accumulated |   |       |  |       |   | Unearned |  |     |   | 
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  | other       |   |       |  |       |   | Stock-   |  |     |   | 
|                                                                                                   |  |   |        |  |         |  | Additional |   |          |  |        |   |        |  |           |   | Comprehensive |  | Unallocated |   | Based |  | Total
|                                                                                                   |  |   | Common |  | paid-in |  | Retained   |   | Treasury |  | income |   | ESOP   |  | Incentive |   | stockholders'
|                                                                                                   |  |   | stock  |  | capital |  | earnings   |   | Stock    |  | (loss) |   | shares |  | Plan      |   | equity       
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |              
|Balance at December 31, 2001                                                                       |  | $ | 66     |  |         |  | 68,259     |   |          |  | 64,702 |   |        |  | (39,158   | ) |               |  | 105         |   |       |  | (529  | ) |          |  | (57 | ) |  |  | 93,388 |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Net income                                                                                         |  |   | - -    |  |         |  | - -        |   |          |  | 2,022  |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 2,022  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Change in net unrealized
gain/(loss) on investments
available for sale
net of tax benefit of $284) |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | - -       |   |               |  | (445        | ) |       |  | - -   |   |          |  | - - |   |  |  | (445   | )
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  |             |   |       |  |       |   |          |  |     |   |  |  |        |  
|Total comprehensive income                                                                         |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 1,577  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Cash dividends declared and
paid ($0.15 per share)                                                 |  |   | - -    |  |         |  | - -        |   |          |  | (672   | ) |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | (672   | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Common Stock repurchased
(25,750 shares at an average
price of $24.32 per share)                   |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | (626      | ) |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | (626   | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Stock options exercised                                                                            |  |   | - -    |  |         |  | 456        |   |          |  | - -    |   |        |  | 430       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 886    |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Allocation relating to earned
portion of Stock-Based
Incentive Plan                                |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | 14  |   |  |  | 14     |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Appreciation in fair value of
shares charged to expense for
compensation plans                     |  |   | - -    |  |         |  | 199        |   |          |  | - -    |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 199    |  
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  |             |   |       |  |       |   |          |  |     |   |  |  |        |  
|Balance at March 31, 2002                                                                          |  | $ | 66     |  |         |  | 68,914     |   |          |  | 66,052 |   |        |  | (39,354   | ) |               |  | (340        | ) |       |  | (529  | ) |          |  | (43 | ) |  |  | 94,766 |  
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  |             |   |       |  |       |   |          |  |     |   |  |  |        |  
|Net income                                                                                         |  |   | - -    |  |         |  | - -        |   |          |  | 2,583  |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 2,583  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Change in net unrealized
gain/(loss) on investments
available for sale
(net of tax of $672)        |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | - -       |   |               |  | 1,052       |   |       |  | - -   |   |          |  | - - |   |  |  | 1,052  |  
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  |             |   |       |  |       |   |          |  |     |   |  |  |        |  
|Total comprehensive income                                                                         |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 3,635  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Cash dividends declared and
paid ($0.16 per share)                                                 |  |   | - -    |  |         |  | - -        |   |          |  | (718   | ) |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | (718   | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Common Stock repurchased
(60,080 shares at an average
price of $28.63 per share)                   |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | (1,711    | ) |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | (1,711 | )
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Stock options exercised                                                                            |  |   | - -    |  |         |  | (396       | ) |          |  | - -    |   |        |  | 1,720     |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 1,324  |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Allocation relating to earned
portion of Stock-Based Incentive Plan                                |  |   | - -    |  |         |  | - -        |   |          |  | - -    |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | 12  |   |  |  | 12     |  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Appreciation in fair value of
shares charged to expense
for compensation plans                     |  |   | - -    |  |         |  | 255        |   |          |  | - -    |   |        |  | - -       |   |               |  | - -         |   |       |  | - -   |   |          |  | - - |   |  |  | 255    |  
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  |             |   |       |  |       |   |          |  |     |   |  |  |        |  
|Balance at June 30, 2002                                                                           |  | $ | 66     |  |         |  | 68,773     |   |          |  | 67,917 |   |        |  | (39,345   | ) |               |  | 712         |   |       |  | (529  | ) |          |  | (31 | ) |  |  | 97,563 |  
|                                                                                                   |  |   |        |  |         |  |            |   |          |  |        |   |        |  |           |   |               |  |             |   |       |  |       |   |          |  |     |   |  |  |        |  

See accompanying condensed notes to consolidated financial statements.

4



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##### Table of Contents






BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)

|                                          |                                                                                             |                                                     |   |                          |         |      |   |          |         |  
|----------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------- | - | ------------------------ | ------- | ---- | - | -------- | ------- | -
|                                          |                                                                                             |                                                     |   | For the Six Months Ended
|                                          |                                                                                             |                                                     |   | June 30,                
|                                          |                                                                                             |                                                     |   |                         
|                                          |                                                                                             |                                                     |   | 2002                     |         | 2001
|                                          |                                                                                             |                                                     |   |                          |         |     
|                                          |                                                                                             |                                                     |   | (Unaudited)             
|Net cash flows from operating activities: |                                                                                             |                                                     |   |                          |         |      |   |         
|                                         
|                                         
|                                         
|                                         
|                                          | Net income                                                                                  |                                                     | $ | 4,605                    |         |      | $ | 4,519    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Adjustments to reconcile net income to
net cash provided by (used in) operating
activities: |                                                     |   |                          |         |      |   |          |        
|                                         
|                                         
|                                         
|                                         
|                                          | Depreciation, amortization and
accretion, net                                               |                                                     |   | 932                      |         |      |   | 1,259    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Earned SIP shares                                                                           |                                                     |   | 26                       |         |      |   | 54       |        
|                                         
|                                         
|                                         
|                                         
|                                          | Appreciation in fair value of shares
charged to expense for compensation plans              |                                                     |   | 454                      |         |      |   | 327      |        
|                                         
|                                         
|                                         
|                                         
|                                          | Income from bank owned life insurance                                                       |                                                     |   | (603                     | )       |      |   | (621     | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Provision for loan losses                                                                   |                                                     |   | 500                      |         |      |   | 420      |        
|                                         
|                                         
|                                         
|                                         
|                                          | Loans originated for sale                                                                   |                                                     |   | (286,972                 | )       |      |   | (246,923 | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from sale of loans                                                                 |                                                     |   | 302,791                  |         |      |   | 233,306  |        
|                                         
|                                         
|                                         
|                                         
|                                          | Gain on sale of loans                                                                       |                                                     |   | (5,599                   | )       |      |   | (4,731   | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Gain on sale of investment securities                                                       |                                                     |   | (300                     | )       |      |   | (215     | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Gain on sale of premises                                                                    |                                                     |   |                         |         |      |   | (217     | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Increase in accrued interest receivable                                                     |                                                     |   | (932                     | )       |      |   | (22      | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Increase in prepaid expenses
and other assets, net                                          |                                                     |   | (2,727                   | )       |      |   | (1,056   | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Increase (decrease)in accrued expenses
and other liabilities, net                           |                                                     |   | 511                      |         |      |   | (803     | )      
|                                          |                                                                                             |                                                     |   |                          |         |      |   |         
|                                          |                                                                                             | Net cash provided by (used in)
operating activities |   |                          | 12,686  |      |   |          | (14,703 | )
|                                          |                                                                                             |                                                     |   |                          |         |      |   |         
|Cash flows from investing activities:     |                                                                                             |                                                     |   |                          |         |      |   |         
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from sale of investment
securities available for sale                              |                                                     |   | 1,036                    |         |      |   | 3,113    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from maturities of investment
securities held to maturity                          |                                                     |   |                         |         |      |   | 1,500    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from maturities of investment
securities available for sale                        |                                                     |   | 2,003                    |         |      |   | 24,400   |        
|                                         
|                                         
|                                         
|                                         
|                                          | Purchase of investment securities
available for sale                                        |                                                     |   | (20,223                  | )       |      |   | (25,981  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Purchase of mortgage-backed securities
available for sale                                   |                                                     |   | (76,898                  | )       |      |   | (77,453  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Purchase of FHLB and Federal Reserve Stock                                                  |                                                     |   |                         |         |      |   | (1,707   | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Principal payments on mortgage-backed
securities available for sale                         |                                                     |   | 36,569                   |         |      |   | 4,883    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Principal payments on mortgage-backed securities held to maturity                           |                                                     |   | 7,990                    |         |      |   | 6,099    |        
|                                         
|                                         
|                                         
|                                         
|                                          | Principal payments on investment
securities available for sale                              |                                                     |   | 894                      |         |      |   | 339      |        
|                                         
|                                         
|                                         
|                                         
|                                          | Increase in loans, net                                                                      |                                                     |   | (46,798                  | )       |      |   | (28,344  | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Purchases of premises and equipment                                                         |                                                     |   | (1,097                   | )       |      |   | (931     | )      
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from sale of real estate owned                                                     |                                                     |   |                         |         |      |   | 147      |        
|                                         
|                                         
|                                         
|                                         
|                                          | Proceeds from sale of premises                                                              |                                                     |   |                         |         |      |   | 790      |        
|                                         
|                                         
|                                         
|                                         
|                                          | Additional investment in real estate owned                                                  |                                                     |   |                         |         |      |   | (2       | )      
|                                          |                                                                                             |                                                     |   |                          |         |      |   |         
|                                          |                                                                                             | Net cash used in
investing activities               |   |                          | (96,524 | )    |   |          | (93,147 | )
|                                          |                                                                                             |                                                     |   |                          |         |      |   |         

- Continued on next page -

5



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##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)

|                                                  |                                                                   |                                 |          |                                           |   |                          |         |          |   |        |         |  
|------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------- | -------- | ----------------------------------------- | - | ------------------------ | ------- | -------- | - | ------ | ------- | -
|                                                  |                                                                   |                                 |          |                                           |   | For the Six Months Ended
|                                                  |                                                                   |                                 |          |                                           |   | June 30,                
|                                                  |                                                                   |                                 |          |                                           |   |                         
|                                                  |                                                                   |                                 |          |                                           |   | 2002                     |         | 2001    
|                                                  |                                                                   |                                 |          |                                           |   |                          |         |         
|                                                  |                                                                   |                                 |          |                                           |   | (Unaudited)             
|Cash flows from financing activities:             |                                                                   |                                 |          |                                           |   |                          |         |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Increase in deposit accounts                                      |                                 |          | 31,057                                    |   |                          |         | 16,149   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Repayments of Federal Home Loan
Bank advances                     |                                 |          | (205,552                                  | ) |                          |         | (259,977 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Proceeds from Federal Home Loan
Bank advances                     |                                 |          | 218,429                                   |   |                          |         | 343,048  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash dividends paid                                               |                                 |          | (1,390                                    | ) |                          |         | (1,288   | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Common stock repurchased                                          |                                 |          | (2,337                                    | ) |                          |         | (4,188   | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Options exercised, net of taxes                                   |                                 |          | 2,210                                     |   |                          |         | 364      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Decrease in advance payments
by borrowers for taxes and insurance |                                 |          | (433                                      | ) |                          |         | (274     | )
|                                                  |                                                                   |                                 |          |                                           |   |                          |         |         
|                                                  |                                                                   |                                 |          | Net cash provided by
financing activities |   |                          | 41,984  |          |   |        | 93,834  |  
|                                                  |                                                                   |                                 |          |                                           |   |                          |         |         
|                                                  |                                                                   |                                 |          | Decrease
in cash and cash equivalents     |   |                          | (41,854 | )        |   |        | (14,016 | )
|                                                 
|                                                 
|                                                 
|                                                 
|Cash and cash equivalents at beginning of period  |                                                                   |                                 | 95,957   |                                           |   |                          | 50,675  |         
|                                                  |                                                                   |                                 |          |                                           |   |                          |         |         
|Cash and cash equivalents at end of period        |                                                                   | $                               | 54,103   |                                           |   | $                        | 36,659  |         
|                                                  |                                                                   |                                 |          |                                           |   |                          |         |         
|Supplemental disclosure of cash flow
information: |                                                                   |                                 |          |                                           |   |                          |         |         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                   | Payments during
the period for: |          |                                           |   |                          |         |          |   |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                   |                                 | Interest |                                           | $ | 24,735                   |         |          | $ | 28,987 |        
|                                                  |                                                                   |                                 |          |                                           |   |                          |         |         
|                                                  |                                                                   |                                 | Taxes    |                                           | $ | 2,332                    |         |          | $ | 2,376  |        
|                                                  |                                                                   |                                 |          |                                           |   |                          |         |         

See accompanying condensed notes to consolidated financial statements.

6



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##### Table of Contents






BOSTONFED BANCORP INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

The unaudited consolidated financial statements as of June 30, 2002 and for
the three- and six-month periods ended June 30, 2002 and 2001 of BostonFed
Bancorp, Inc., (BostonFed or the Company) and its wholly-owned subsidiaries,
Boston Federal Savings Bank (BFS), Broadway National Bank (BNB), BF Funding
Corp., BFD Preferred Capital Trust I and BFD Preferred Capital Trust II
presented herein, should be read in conjunction with the audited consolidated
financial statements of the Company as of and for the year ended December 31,
2001.

The unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all necessary adjustments, consisting only of normal
recurring accruals necessary for a fair presentation, have been included. The
results of operations for the three- and six-month periods ended June 30, 2002
and 2001 are not necessarily indicative of the results that may be expected for
the entire fiscal year.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
The Company adopted the provisions of SFAS No. 142 effective January 1, 2002. In
connection with SFAS No. 142s transitional goodwill impairment evaluation, the
Statement required the Company to perform an assessment of whether there was an
indication that goodwill was impaired as of the date of adoption. As of January
1, 2002, the Company performed the required transition impairment test of
goodwill and determined that no impairment adjustment was required as of the
date of adoption. Goodwill of a reporting unit shall be tested for impairment at
least on an annual basis and between annual tests if considered necessary. The
impairment evaluation requires the Company to identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets. To the
extent the carrying amount of a reporting unit exceeds the fair value of the
reporting unit, an indication exists that the reporting unit goodwill may be
impaired and the Company must perform the second step of the impairment test. In
the second step, the Company must compare the implied fair value of the
reporting unit goodwill with the carrying amount of the reporting unit goodwill.
The implied fair value of goodwill is determined by allocating the fair value of
the reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase price
allocation, in accordance with SFAS No. 141, Business Combinations. The residual
fair value after this allocation is the implied fair value of the reporting unit
goodwill. The difference between the implied fair value and the carrying value
of the goodwill is the amount of the impairment. At June 30, 2002, the Company
had $17.8 million of goodwill on its balance sheet and recorded no amortization
of goodwill during the quarter. The adoption of this Statement increased basic
and diluted earnings per share by approximately $.05 and $.10 for the three- and
six-months ended June 30, 2002, respectively.

The Company also maintains an additional intangible asset, Originated
Mortgage Servicing Rights (OMSR), which represent the present value of future
loan servicing fees, net of expected costs to service, based on certain
assumptions. During the quarter ended June 30, 2002, the Company added $1.5
million, with an expected weighted average life of 5.77 years, to the OMSR. The
balance of OMSR at June 30, 2002 was $8.0 million with an expected weighted
average life of 5.07 years.

NOTE 2: COMMITMENTS, CONTINGENCIES AND CONTRACTS

At June 30, 2002, the Company had commitments of $119.1 million to
originate mortgage loans and $3.0 million to purchase loans from correspondent
lenders. Of these $122.1 million commitments, $106 million were adjustable
rate mortgage loans with interest rates ranging from 4.63% to 9.00% and $16.1
million were fixed rate mortgage loans with interest rates ranging from 5.75% to
9.00%. The Company also had commitments to sell $40.9 million of mortgage loans.

At June 30, 2002, the Company was servicing first mortgage loans of
approximately $1.03 billion, which are either partially or wholly-owned by
others.

7



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##### Table of Contents



The Commonwealth of Massachusetts Department of Revenue (DOR) sent
Notices of Intent to Assess (notices) additional taxes and interest to each of
the Companys two Banks for the tax years ended December 31, 1999 and 2000. The
notices stipulate that the additional taxes in the amounts of $1.5 million and
interest of $242,000, relate to the denied claim of dividends received deduction
pertaining to the Banks Real Estate Investment Trusts (REITS). The REITS paid
an annual dividend to the Banks. The Company understands that many other banks
operating in the Commonwealth of Massachusetts with similar REIT subsidiaries
have also received similar notices from the DOR. Pursuant to the Commonwealth of
Massachusetts Tax Code, as it relates to the dividends received deduction, the
Banks excluded 95% of the dividends that they received from the REITS when the
tax returns were prepared. The DOR has challenged this deduction, arguing that
such distributions are not considered dividends for purposes of th e Internal
Revenue Code and, as such, cannot be deducted for state tax purposes. The Banks
believe that their tax treatment of the dividends is valid under Massachusettss
law. The Banks intend to file a dispute of the DOR findings and appeal the DORs
proposed assessments. Accordingly, the Banks intend to continue their current
accounting practice of estimating their tax provision under the assumption that
their dividend deductions for prior periods are valid, and they anticipate
claiming the dividends received deduction when they file their December 31, 2001
excise tax return. Adhering to the DORs contention, the Company could
potentially be assessed an additional $2.2 million of state taxes through June
30, 2002, not including interest or federal tax benefits.

NOTE 3: LEGAL SETTLEMENT

During the quarter ended March 31, 2002, the Company settled a lawsuit,
which had been filed against its subsidiary, Broadway National Bank. The Company
incurred a cost of $500,000 during the first quarter to settle the lawsuit,
resulting in a reduction in earnings per share of approximately $.07 during the
first quarter. Excluding the impact of this settlement, diluted earnings per
share for the six-months ended June 30, 2002 would have been $1.05 per share.

NOTE 4: BUSINESS SEGMENTS

The Companys wholly-owned bank subsidiaries, BFS and BNB (collectively
the Banks), have been identified as reportable operating segments in
accordance with the provisions of SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. BF Funding Corp., BFD Preferred Capital
Trust I and BFD Preferred Capital Trust II, wholly-owned subsidiaries of the
Company, and various subsidiaries of the Banks did not meet the quantitative
thresholds for determining reportable segments. The Banks provide general
banking services to their customers, including deposit accounts, residential,
commercial, consumer and business loans. Each Bank also invests in
mortgage-backed securities and other financial instruments. In addition to its
own operations, the Company provides managerial expertise and other professional
services to its various subsidiaries. The results of the Company, BF Funding
Corp., BFD Preferred Capital Trust I and BFD Preferred Capital Trust II comprise
the other category.

The Company evaluates performance and allocates resources based on the
Banks net income, net interest margin, return on average assets and return on
average equity. The Banks follow generally accepted accounting principles as
described in the summary of significant accounting policies. The Company and
Banks have inter-company expense and tax allocation agreements. These
inter-company expenditures are allocated at cost. Asset sales between the Banks
were accounted for at current market prices at the time of sale and
approximated cost.

Each Bank is managed separately. BNB is managed by a President and CEO, who
reports directly to the Companys CEO and BNBs Board of Directors. BFS is
managed by a CEO, who is also the Companys CEO, and reports directly to BFS
and the Companys Board of Directors.

8



---



##### Table of Contents



The following table sets forth certain information about and the
reconciliation of reported net income for each of the reportable segments.

|                                                |                           |  |       |           |     |  |                        |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |       |           | 
|----------------------------------------------- | ------------------------- |  | ----- | --------- | --- |  | ---------------------- | ------- | ----- |  | ------------ | --------- | ------ |  | ---- | ------- | - |  | ---- | -------- | ------------ |  | ----- | --------- | 
|                                                |                           |  |       |           |     |  | (Dollars In Thousands) |         |       |  |              |           |        |  |     
|                                                |                           |  |       |           |     |  |                        |         |       |  | TOTAL        |           |        |  |      |         |   |  |      |          |              |  |      
|                                                |                           |  |       |           |     |  |                        |         |       |  | REPORTABLE   |           |        |  |      |         |   |  |      |          | CONSOLIDATED
|                                                |                           |  | BFS   |           | BNB |  | SEGMENTS               |         | OTHER |  | ELIMINATIONS |           | TOTALS
|                                                |                           |  |       |           |     |  |                        |         |       |  |              |           |       
|At or for the three-months
ended June 30, 2002: |                           |  |       |           |     |  |                        |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |       |          
|                                               
|                                               
|                                               
|                                               
|                                                | Interest income           |  | $     | 19,780    |     |  |                        | 2,000   |       |  |              | 21,780    |        |  |      | 1,068   |   |  |      | (985     | )            |  |       | 21,863    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Interest expense          |  |       | 10,843    |     |  |                        | 452     |       |  |              | 11,295    |        |  |      | 1,789   |   |  |      | (985     | )            |  |       | 12,099    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Provision for loan losses |  |       | 225       |     |  |                        | 25      |       |  |              | 250       |        |  |      |         |   |  |      |          |              |  |       | 250       | 
|                                               
|                                               
|                                               
|                                               
|                                                | Non-interest income       |  |       | 3,632     |     |  |                        | 403     |       |  |              | 4,035     |        |  |      | 61      |   |  |      |          |              |  |       | 4,096     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Non-interest expense      |  |       | 8,152     |     |  |                        | 1,248   |       |  |              | 9,400     |        |  |      | 287     |   |  |      |          |              |  |       | 9,687     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Income tax expense        |  |       | 1,429     |     |  |                        | 226     |       |  |              | 1,655     |        |  |      | (315    | ) |  |      |          |              |  |       | 1,340     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Net income                |  |       | 2,763     |     |  |                        | 452     |       |  |              | 3,215     |        |  |      | (632    | ) |  |      |          |              |  |       | 2,583     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Total assets              |  |       | 1,343,089 |     |  |                        | 173,795 |       |  |              | 1,516,884 |        |  |      | 165,893 |   |  |      | (163,336 | )            |  |       | 1,519,441 | 
|                                               
|                                               
|                                               
|                                               
|Net interest margin                             |                           |  | 2.98  | %         |     |  | 4.28                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.88  | %        
|                                               
|                                               
|                                               
|                                               
|Return on average assets                        |                           |  | .85   | %         |     |  | 1.07                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | .70   | %        
|                                               
|                                               
|                                               
|                                               
|Return on average equity                        |                           |  | 10.91 | %         |     |  | 14.01                  | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 10.50 | %        
|                                               
|                                               
|                                               
|                                               
|At or for the three-months
ended June 30, 2001: |                           |  |       |           |     |  |                        |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |       |          
|                                               
|                                               
|                                               
|                                               
|                                                | Interest income           |  | $     | 21,449    |     |  |                        | 2,417   |       |  |              | 23,866    |        |  |      | 1,218   |   |  |      | (1,137   | )            |  |       | 23,947    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Interest expense          |  |       | 13,293    |     |  |                        | 688     |       |  |              | 13,981    |        |  |      | 1,788   |   |  |      | (1,137   | )            |  |       | 14,632    | 
|                                               
|                                               
|                                               
|                                               
|                                                | Provision for loan losses |  |       | 170       |     |  |                        | 38      |       |  |              | 208       |        |  |      |         |   |  |      |          |              |  |       | 208       | 
|                                               
|                                               
|                                               
|                                               
|                                                | Non-interest income       |  |       | 4,156     |     |  |                        | 297     |       |  |              | 4,453     |        |  |      | 1       |   |  |      | 45       |              |  |       | 4,499     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Non-interest expense      |  |       | 8,056     |     |  |                        | 1,189   |       |  |              | 9,245     |        |  |      | 330     |   |  |      | 45       |              |  |       | 9,620     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Income tax expense        |  |       | 1,489     |     |  |                        | 284     |       |  |              | 1,773     |        |  |      | (296    | ) |  |      |          |              |  |       | 1,477     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Net income                |  |       | 2,597     |     |  |                        | 515     |       |  |              | 3,112     |        |  |      | (603    | ) |  |      |          |              |  |       | 2,509     | 
|                                               
|                                               
|                                               
|                                               
|                                                | Total assets              |  |       | 1,262,138 |     |  |                        | 156,491 |       |  |              | 1,418,629 |        |  |      | 158,909 |   |  |      | (151,771 | )            |  |       | 1,425,767 | 
|                                               
|                                               
|                                               
|                                               
|Net interest margin                             |                           |  | 2.86  | %         |     |  | 5.04                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.90  | %        
|                                               
|                                               
|                                               
|                                               
|Return on average assets                        |                           |  | .85   | %         |     |  | 1.32                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | .72   | %        
|                                               
|                                               
|                                               
|                                               
|Return on average equity                        |                           |  | 11.47 | %         |     |  | 16.19                  | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 10.88 | %        

n.m. = not meaningful

|                                              |                           |  |       |           |     |  |                        |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |      |           | 
|--------------------------------------------- | ------------------------- |  | ----- | --------- | --- |  | ---------------------- | ------- | ----- |  | ------------ | --------- | ------ |  | ---- | ------- | - |  | ---- | -------- | ------------ |  | ---- | --------- | 
|                                              |                           |  |       |           |     |  | (Dollars In Thousands) |         |       |  |              |           |        |  |     
|                                              |                           |  |       |           |     |  |                        |         |       |  | TOTAL        |           |        |  |      |         |   |  |      |          |              |  |     
|                                              |                           |  |       |           |     |  |                        |         |       |  | REPORTABLE   |           |        |  |      |         |   |  |      |          | CONSOLIDATED
|                                              |                           |  | BFS   |           | BNB |  | SEGMENTS               |         | OTHER |  | ELIMINATIONS |           | TOTALS
|                                              |                           |  |       |           |     |  |                        |         |       |  |              |           |       
|At or for the six-months
ended June 30, 2002: |                           |  |       |           |     |  |                        |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |      |          
|                                             
|                                             
|                                             
|                                             
|                                              | Interest income           |  | $     | 39,082    |     |  |                        | 4,001   |       |  |              | 43,083    |        |  |      | 2,150   |   |  |      | (1,987   | )            |  |      | 43,246    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Interest expense          |  |       | 22,015    |     |  |                        | 951     |       |  |              | 22,966    |        |  |      | 3,577   |   |  |      | (1,987   | )            |  |      | 24,556    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Provision for loan losses |  |       | 450       |     |  |                        | 50      |       |  |              | 500       |        |  |      |         |   |  |      |          |              |  |      | 500       | 
|                                             
|                                             
|                                             
|                                             
|                                              | Non-interest income       |  |       | 7,174     |     |  |                        | 749     |       |  |              | 7,923     |        |  |      | 301     |   |  |      |          |              |  |      | 8,224     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Non-interest expense      |  |       | 15,957    |     |  |                        | 2,970   |       |  |              | 18,927    |        |  |      | 491     |   |  |      |          |              |  |      | 19,418    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Income tax expense        |  |       | 2,674     |     |  |                        | 255     |       |  |              | 2,929     |        |  |      | (538    | ) |  |      |          |              |  |      | 2,391     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Net income                |  |       | 5,160     |     |  |                        | 524     |       |  |              | 5,684     |        |  |      | (1,079  | ) |  |      |          |              |  |      | 4,605     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Total assets              |  |       | 1,343,089 |     |  |                        | 173,795 |       |  |              | 1,516,884 |        |  |      | 165,893 |   |  |      | (163,336 | )            |  |      | 1,519,441 | 
|                                             
|                                             
|                                             
|                                             
|Net interest margin                           |                           |  | 2.86  | %         |     |  | 4.25                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.77 | %        
|                                             
|                                             
|                                             
|                                             
|Return on average assets                      |                           |  | .80   | %         |     |  | .63                    | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | .63  | %        
|                                             
|                                             
|                                             
|                                             
|Return on average equity                      |                           |  | 10.30 | %         |     |  | 8.17                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 9.45 | %        
|                                             
|                                             
|                                             
|                                             
|At or for the six-months
ended June 30, 2001: |                           |  |       |           |     |  |                        |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |      |          
|                                             
|                                             
|                                             
|                                             
|                                              | Interest income           |  | $     | 42,938    |     |  |                        | 4,779   |       |  |              | 47,717    |        |  |      | 2,457   |   |  |      | (2,361   | )            |  |      | 47,813    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Interest expense          |  |       | 26,589    |     |  |                        | 1,345   |       |  |              | 27,934    |        |  |      | 3,577   |   |  |      | (2,361   | )            |  |      | 29,150    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Provision for loan losses |  |       | 345       |     |  |                        | 75      |       |  |              | 420       |        |  |      |         |   |  |      |          |              |  |      | 420       | 
|                                             
|                                             
|                                             
|                                             
|                                              | Non-interest income       |  |       | 6,911     |     |  |                        | 573     |       |  |              | 7,484     |        |  |      | 215     |   |  |      |          |              |  |      | 7,699     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Non-interest expense      |  |       | 15,982    |     |  |                        | 2,355   |       |  |              | 18,337    |        |  |      | 509     |   |  |      |          |              |  |      | 18,846    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Income tax expense        |  |       | 2,494     |     |  |                        | 549     |       |  |              | 3,043     |        |  |      | (466    | ) |  |      |          |              |  |      | 2,577     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Net income                |  |       | 4,439     |     |  |                        | 1,028   |       |  |              | 5,467     |        |  |      | (948    | ) |  |      |          |              |  |      | 4,519     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Total assets              |  |       | 1,262,138 |     |  |                        | 156,491 |       |  |              | 1,418,629 |        |  |      | 158,909 |   |  |      | (151,771 | )            |  |      | 1,425,767 | 
|                                             
|                                             
|                                             
|                                             
|Net interest margin                           |                           |  | 2.92  | %         |     |  | 5.15                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.97 | %        
|                                             
|                                             
|                                             
|                                             
|Return on average assets                      |                           |  | .74   | %         |     |  | 1.34                   | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | .67  | %        
|                                             
|                                             
|                                             
|                                             
|Return on average equity                      |                           |  | 9.92  | %         |     |  | 16.07                  | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 9.79 | %        

n.m. = not meaningful

9



---



##### Table of Contents






BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Average Balances and Yields / Costs
(Unaudited)

|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |       |      |  
|---------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | ------ | --------- | --------- | -------- | - | ------ | ------ | ------- |  | ---------------------- | ---- | ---- | ------ | --------- | --------- | ------ | - | ------ | ------ | ------- |  | ----- | ---- | -
|For the quarter ended June 30:                                   |                                                                 | 2002                                       |        |           |           |          |   | 2001   |        |         |  |                       
|                                                                 |                                                                 |                                            |        |          
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  | Average                |      |      |        |           |           |        |   |        |        | Average
|                                                                 |                                                                 |                                            |        | Average   |           |          |   |        |        | Yield/  |  | Average                |      |      |        |           |           | Yield/
|                                                                 |                                                                 |                                            |        | Balance   |           | Interest |   | Cost   |        | Balance |  | Interest               |      | Cost
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  | (Dollars in thousands) |      |      |        |           |           |        |   |       
|Assets:                                                          |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|Interest-earning assets:                                         |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Investment securities (1)                                       |                                            | $      | 120,350   |           |          | $ | 1,009  |        |         |  | 3.35                   | %    |      | $      | 100,737   |           |        | $ | 1,623  |        |         |  | 6.44  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Loan, net and loans held for sale (2)                           |                                            |        | 1,084,355 |           |          |   | 18,673 |        |         |  | 6.89                   | %    |      |        | 1,075,850 |           |        |   | 20,570 |        |         |  | 7.65  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Mortgage-backed securities (3)                                  |                                            |        | 149,677   |           |          |   | 2,181  |        |         |  | 5.83                   | %    |      |        | 108,016   |           |        |   | 1,754  |        |         |  | 6.50  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total interest-earning assets              |        |           | 1,354,382 |          |   |        | 21,863 |         |  |                        | 6.46 | %    |        |           | 1,284,603 |        |   |        | 23,947 |         |  |       | 7.46 | %
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Non-interest-earning assets                                     |                                            |        | 111,277   |           |          |   |        |        |         |  |                        |      |      |        | 102,283   |           |        |   |        |        |         |  |       |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total assets                               |        | $         | 1,465,659 |          |   |        |        |         |  |                        |      |      |        | $         | 1,386,886 |        |   |        |        |         |  |       |      |  
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|Liabilities and Stockholders Equity:                            |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|Interest-bearing Liabilities:                                    |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Money market deposit accounts                                   |                                            | $      | 61,390    |           |          |   | 253    |        |         |  | 1.65                   | %    |      | $      | 54,159    |           |        |   | 372    |        |         |  | 2.75  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Savings accounts                                                |                                            |        | 192,173   |           |          |   | 696    |        |         |  | 1.45                   | %    |      |        | 171,712   |           |        |   | 1,005  |        |         |  | 2.34  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | NOW accounts                                                    |                                            |        | 140,769   |           |          |   | 115    |        |         |  | 0.33                   | %    |      |        | 128,441   |           |        |   | 199    |        |         |  | 0.62  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Certificate accounts                                            |                                            |        | 392,385   |           |          |   | 4,347  |        |         |  | 4.43                   | %    |      |        | 412,011   |           |        |   | 6,307  |        |         |  | 6.12  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total                                      |        |           | 786,717   |          |   |        | 5,411  |         |  |                        | 2.75 | %    |        |           | 766,323   |        |   |        | 7,883  |         |  |       | 4.11 | %
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Borrowed Funds (4)                                              |                                            |        | 445,590   |           |          |   | 5,807  |        |         |  | 5.21                   | %    |      |        | 403,950   |           |        |   | 5,868  |        |         |  | 5.81  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Corporation-obligated mandatorily
redeemable capital securities |                                            |        | 32,000    |           |          |   | 881    |        |         |  | 11.00                  | %    |      |        | 32,000    |           |        |   | 881    |        |         |  | 11.00 | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total interest-bearing liabilities         |        |           | 1,264,307 |          |   |        | 12,099 |         |  |                        | 3.83 | %    |        |           | 1,202,273 |        |   |        | 14,632 |         |  |       | 4.87 | %
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Non-interest-bearing liabilities                                |                                            |        | 102,933   |           |          |   |        |        |         |  |                        |      |      |        | 92,401    |           |        |   |        |        |         |  |       |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total liabilities                          |        |           | 1,367,240 |          |   |        |        |         |  |                        |      |      |        |           | 1,294,674 |        |   |        |        |         |  |       |      |  
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Stockholders equity                                            |                                            |        | 98,419    |           |          |   |        |        |         |  |                        |      |      |        | 92,212    |           |        |   |        |        |         |  |       |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total liabilities and
stockholders equity |        | $         | 1,465,659 |          |   |        |        |         |  |                        |      |      |        | $         | 1,386,886 |        |   |        |        |         |  |       |      |  
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Net interest rate spread (5)                                    |                                            |        |           |           |          | $ | 9,764  |        |         |  | 2.63                   | %    |      |        |           |           |        | $ | 9,315  |        |         |  | 2.59  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Net interest margin (6)                                         |                                            |        |           |           |          |   |        |        |         |  | 2.88                   | %    |      |        |           |           |        |   |        |        |         |  | 2.90  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|Ratio of interest-earning assets to
interest-bearing liabilities |                                                                 |                                            | 107.12 | %         |           |          |   |        |        |         |  |                        |      |      | 106.85 | %         |           |        |   |        |        |         |  |      
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      



|(1) |  | Includes investment securities available for sale and held to maturity,
short-term investments, stock in FHLB-Boston and daily federal funds sold.                                                                                                                                                                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amount is net of deferred loan origination costs, construction loans in
process, net unearned discount on loans purchased and allowance for loan
losses and includes non-performing loans.                                                                                                                                                                                         
|   
|(3) |  | Includes mortgage-backed securities available for sale and held to maturity.                                                                                                                                                                                                                                                                                                       
|   
|(4) |  | Interest paid on borrowed funds for the periods presented includes
interest expense on FNMA deposits held in escrow accounts with the
Company related to the Companys FNMA servicing, which, if such interest
expense was excluded, would result in an average cost of borrowed funds
of 5.18% and 5.80% for the three months ended June 30, 2002 and
June 30, 2001, respectively.
|   
|(5) |  | Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.                                                                                                                                                                                                    
|   
|(6) |  | Net interest margin represents net interest income as a percentage of
average interest-earning assets.                                                                                                                                                                                                                                                                             

10



---



##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Average Balances and Yields / Costs
(Unaudited)

|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |       |      |  
|---------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | ------ | --------- | --------- | -------- | - | ------ | ------ | ------- |  | ---------------------- | ---- | ---- | ------ | --------- | --------- | ------ | - | ------ | ------ | ------- |  | ----- | ---- | -
|For the six months ended June 30:                                |                                                                 |                                            |        |           |           | 2002     |   |        |        |         |  |                        |      |      |        | 2001      |           |        |   |       
|                                                                 |                                                                 |                                            |        |          
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  | Average                |      |      |        |           |           |        |   |        |        | Average
|                                                                 |                                                                 |                                            |        | Average   |           |          |   |        |        | Yield/  |  | Average                |      |      |        |           |           | Yield/
|                                                                 |                                                                 |                                            |        | Balance   |           | Interest |   | Cost   |        | Balance |  | Interest               |      | Cost
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  | (Dollars in thousands) |      |      |        |           |           |        |   |       
|Assets:                                                          |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|Interest-earning assets:                                         |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Investment securities (1)                                       |                                            | $      | 120,909   |           |          | $ | 1,991  |        |         |  | 3.29                   | %    |      | $      | 100,114   |           |        | $ | 3,313  |        |         |  | 6.62  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Loan, net and loans held for sale (2)                           |                                            |        | 1,085,765 |           |          |   | 37,188 |        |         |  | 6.85                   | %    |      |        | 1,063,634 |           |        |   | 41,460 |        |         |  | 7.80  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Mortgage-backed securities (3)                                  |                                            |        | 140,827   |           |          |   | 4,067  |        |         |  | 5.78                   | %    |      |        | 93,254    |           |        |   | 3,040  |        |         |  | 6.52  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total interest-earning assets              |        |           | 1,347,501 |          |   |        | 43,246 |         |  |                        | 6.42 | %    |        |           | 1,257,002 |        |   |        | 47,813 |         |  |       | 7.61 | %
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Non-interest-earning assets                                     |                                            |        | 111,470   |           |          |   |        |        |         |  |                        |      |      |        | 100,102   |           |        |   |        |        |         |  |       |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total assets                               |        | $         | 1,458,971 |          |   |        |        |         |  |                        |      |      |        | $         | 1,357,104 |        |   |        |        |         |  |       |      |  
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|Liabilities and Stockholders Equity:                            |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|Interest-bearing Liabilities:                                    |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Money market deposit accounts                                   |                                            | $      | 60,233    |           |          |   | 494    |        |         |  | 1.64                   | %    |      | $      | 54,554    |           |        |   | 760    |        |         |  | 2.79  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Savings accounts                                                |                                            |        | 187,940   |           |          |   | 1,365  |        |         |  | 1.45                   | %    |      |        | 170,321   |           |        |   | 2,278  |        |         |  | 2.67  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | NOW accounts                                                    |                                            |        | 137,735   |           |          |   | 224    |        |         |  | 0.33                   | %    |      |        | 126,302   |           |        |   | 434    |        |         |  | 0.69  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Certificate accounts                                            |                                            |        | 392,041   |           |          |   | 9,145  |        |         |  | 4.67                   | %    |      |        | 414,035   |           |        |   | 12,635 |        |         |  | 6.10  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total                                      |        |           | 777,949   |          |   |        | 11,228 |         |  |                        | 2.89 | %    |        |           | 765,211   |        |   |        | 16,107 |         |  |       | 4.21 | %
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Borrowed Funds (4)                                              |                                            |        | 442,564   |           |          |   | 11,567 |        |         |  | 5.23                   | %    |      |        | 380,067   |           |        |   | 11,282 |        |         |  | 5.94  | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Corporation-obligated mandatorily
redeemable capital securities |                                            |        | 32,000    |           |          |   | 1,761  |        |         |  | 11.00                  | %    |      |        | 32,000    |           |        |   | 1,761  |        |         |  | 11.00 | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total interest-bearing liabilities         |        |           | 1,252,513 |          |   |        | 24,556 |         |  |                        | 3.92 | %    |        |           | 1,177,278 |        |   |        | 29,150 |         |  |       | 4.95 | %
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Non-interest-bearing liabilities                                |                                            |        | 109,033   |           |          |   |        |        |         |  |                        |      |      |        | 87,501    |           |        |   |        |        |         |  |       |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total liabilities                          |        |           | 1,361,546 |          |   |        |        |         |  |                        |      |      |        |           | 1,264,779 |        |   |        |        |         |  |       |      |  
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Stockholders equity                                            |                                            |        | 97,425    |           |          |   |        |        |         |  |                        |      |      |        | 92,325    |           |        |   |        |        |         |  |       |     
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 |                                                                 | Total liabilities and
stockholders equity |        | $         | 1,458,971 |          |   |        |        |         |  |                        |      |      |        | $         | 1,357,104 |        |   |        |        |         |  |       |      |  
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Net interest rate spread (5)                                    |                                            |        |           |           |          | $ | 18,690 |        |         |  | 2.50                   | %    |      |        |           |           |        | $ | 18,663 |        |         |  | 2.66  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|                                                                 | Net interest margin (6)                                         |                                            |        |           |           |          |   |        |        |         |  | 2.77                   | %    |      |        |           |           |        |   |        |        |         |  | 2.97  | %   
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      
|Ratio of interest-earning assets to
interest-bearing liabilities |                                                                 |                                            | 107.58 | %         |           |          |   |        |        |         |  |                        |      |      | 106.77 | %         |           |        |   |        |        |         |  |      
|                                                                 |                                                                 |                                            |        |           |           |          |   |        |        |         |  |                        |      |      |        |           |           |        |   |        |        |         |  |      



|(1) |  | Includes investment securities available for sale and held to maturity,
short-term investments, stock in FHLB-Boston and daily federal funds sold.                                                                                                                                                                                                                               
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amount is net of deferred loan origination costs, construction loans in
process, net unearned discount on loans purchased and allowance for loan
losses and includes non-performing loans.                                                                                                                                                                                       
|   
|(3) |  | Includes mortgage-backed securities available for sale and held to maturity.                                                                                                                                                                                                                                                                                                     
|   
|(4) |  | Interest paid on borrowed funds for the periods presented includes
interest expense on FNMA deposits held in escrow accounts with the
Company related to the Companys FNMA servicing, which, if such interest
expense was excluded, would result in an average cost of borrowed funds
of 5.19% and 5.92% for the six months ended June 30, 2002 and
June 30, 2001, respectively.
|   
|(5) |  | Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.                                                                                                                                                                                                  
|   
|(6) |  | Net interest margin represents net interest income as a percentage of
average interest-earning assets.                                                                                                                                                                                                                                                                           

11



---



##### Table of Contents






Item 2. MANAGEMENTSS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A. GENERAL

In addition to historical information, this 10-Q includes certain
forward-looking statements based on current management expectations. Generally,
verbs in the future tense and the words, believe, expect, anticipate,
intends, opinion, potential, and similar expressions identify
forward-looking statements. Examples of this forward-looking information can be
found in, but are not limited to, the expected effects of accounting
pronouncements, the allowance for losses discussion, subsequent events and any
quantitative and qualitative disclosure about market risk. The Companys actual
results could differ materially from those management expectations. Factors that
could cause future results to vary from current management expectations include,
but are not limited to, general economic conditions, legislative and regulatory
changes, monetary and fiscal policies of the federal government, changes in tax
policies, rates and regulations of federal, state and local tax authorities,
changes in interest rates, deposit flows, the cost of funds, demand for loan
products, demand for financial services, competition, changes in the quality or
composition of the Companys loan and investment portfolios, changes in
accounting principles, policies or guidelines, and other economic, competitive,
governmental and technological factors and the effects of war or terrorist
activities affecting the Companys operations, markets, products, services and
prices. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Companys
financial results, is included in the Companys filings with the Securities and
Exchange Commission.

The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions, which may be made to any
forward-looking statements, to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

The Company, headquartered in Burlington, Massachusetts, was organized in
1995 under Delaware law as the holding company for BFS, in connection with the
conversion of BFS from a mutual to a stock form of ownership. The Company later
acquired BNB, a nationally-chartered commercial bank, as its wholly-owned
subsidiary in February 1997. In December 1999, the Company acquired Diversified
Ventures, Inc., d/b/a Forward Financial Company (Forward Financial) and
Ellsmere Insurance Agency, Inc. (Ellsmere). Forward Financial operates as a
subsidiary of BFS and Ellsmere has limited operations as a subsidiary of BNB.

The Companys business has been conducted primarily through its
wholly-owned subsidiaries of BFS and BNB (collectively, the Banks). BFS
operates its administrative/bank branch office located in Burlington,
Massachusetts and its eight other bank branch offices located in Arlington,
Bedford, Billerica, Boston, Lexington, Peabody, Wellesley and Woburn, all of
which are located in the greater Boston metropolitan area. BFS subsidiary,
Forward Financial, maintains its headquarters in Northborough, Massachusetts and
operates in approximately one-half the states of the nation. BNB operates two
banking offices in Chelsea and Revere, both of which are also in the greater
Boston metropolitan area. Through its subsidiaries, the Company attracts retail
deposits from the general public and invests those deposits and other borrowed
funds in loans, mortgage-backed securities, U.S. Government and federal agency
securities and other securities. The Company originates mortgage loans for its
investment portfolio and for sale and generally retains the servicing rights of
loans it sells. Additionally, the Company originates chattel mortgage loans,
substantially all of which are sold in the secondary market, servicing released.
Loan sales are made from loans held in the Companys portfolio designated as
being held for sale or originated for sale during the period. The Companys
revenues are derived principally from interest on its loans, and to a lesser
extent, interest and dividends on its investment and mortgage-backed securities,
gains on sale of loans and service fees. The Companys primary sources of funds
are deposits, principal and interest payments on loans and mortgage-backed
securities, interest, maturities or sales of investments, Federal Home Loan Bank
of Boston (FHLB) advances and proceeds from the sale of loans.

The Companys results of operations are primarily dependent on net interest
income, which is the difference between the income earned on its loan and
investment portfolios and its cost of funds, consisting of the interest paid on
deposits, borrowings and corporation obligated mandatorily redeemable capital
securities distributions. (trust preferred securities) expense. Results of
operations are also affected by the Companys provision for loan losses,
investment activities, gains or losses on sale of loans, fees and amortization
or adjustments to originated mortgage servicing rights. The Companys
non-interest expense principally consists of compensation and benefits,
occupancy and equipment expense, advertising, data processing expense, and other
expenses. Results of operations of the Company are also significantly affected
by general economic and competitive conditions, particularly changes in interest
rates, government policies and actions of regulatory authorities.

Each of the Banks is considered a business segment and accordingly, the
Company has complied with the segment reporting requirement in Note 3 of this
document and in discussion herein as appropriate. As a result of the acquisition
of BNB, the Company became a bank holding company subject to regulation by the
Federal Reserve Bank (FRB). BFS is regulated by the Office of Thrift
Supervision (OTS) and BNB is regulated by the Office of the Comptroller of the
Currency (OCC).

12



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B. FINANCIAL CONDITION

Total assets at June 30, 2002 were $1.519 billion, compared to $1.471
billion at December 31, 2001, an increase of $48.6 million. Increased balances
in investment securities available for sale, mortgage-backed securities
available for sale and loans, net, more than offset decreases in cash and cash
equivalents, mortgage-backed securities held to maturity and loans held for
sale. Cash and cash equivalents declined to $54.1 million at June 30, 2002, from
a balance of $96.0 million at December 31, 2001 as some of the liquidity was
used to fund purchases of investment securities available for sale, which
increased by $16.5 million to a balance of $79.8 million at June 30, 2002. A
portion of the cash and cash equivalents was also used to fund increases in
mortgage-backed securities available for sale, which increased to a balance of
$136.2 million at June 30, 2002, compared to $94.9 million at December 31, 2001.
The increase in investment securities available for sale was primarily due to
net purchases of $9.2 million in corporate bonds and a $5.3 million increase in
a mutual fund, which invests in short duration securities. Mortgage-backed
securities available for sale increased primarily due to the Companys purchase
of collateralized mortgage obligations (CMOs). Loans, net increased by $46.3
million, to a balance of $1.102 billion at June 30, 2002, compared to a balance
of $1.056 billion at December 31, 2001 as the Company retained a greater portion
of the loans originated during the current quarter.

The Companys loan portfolio was comprised of the following at:

|                                         |                             |                    |           |             |           |          |         |         |           | 
|---------------------------------------- | --------------------------- | ------------------ | --------- | ----------- | --------- | -------- | ------- | ------- | --------- | 
|                                         |                             |                    |           | 6/30/02     |           | 12/31/01
|                                         |                             |                    |           |             |           |         
|                                         |                             |                    |           | (Unaudited) |           |          |         |        
|Mortgage Loans:                          |                             |                    |           |             |           |          |         |        
|                                        
|                                        
|                                        
|                                        
|                                         | Residential 1-4 family      |                    | $         | 748,187     |           |          | $       | 763,599 |          
|                                        
|                                        
|                                        
|                                        
|                                         | Multi-family                |                    |           | 21,552      |           |          |         | 25,904  |          
|                                        
|                                        
|                                        
|                                        
|                                         | Construction and Land       |                    |           | 125,858     |           |          |         | 99,337  |          
|                                        
|                                        
|                                        
|                                        
|                                         | Commercial Real Estate      |                    |           | 115,862     |           |          |         | 107,767 |          
|                                         |                             |                    |           |             |           |          |         |        
|                                         |                             |                    | 1,011,459 |             |           |          | 996,607 |        
|                                         |                             |                    |           |             |           |          |         |        
|Consumer and other loans:                |                             |                    |           |             |           |          |         |        
|                                        
|                                        
|                                        
|                                        
|                                         | Home equity and improvement |                    |           | 85,028      |           |          |         | 66,539  |          
|                                        
|                                        
|                                        
|                                        
|                                         | Secured by deposits         |                    |           | 515         |           |          |         | 678     |          
|                                        
|                                        
|                                        
|                                        
|                                         | Consumer                    |                    |           | 1,944       |           |          |         | 3,439   |          
|                                        
|                                        
|                                        
|                                        
|                                         | Business                    |                    |           | 39,713      |           |          |         | 28,103  |          
|                                         |                             |                    |           |             |           |          |         |        
|                                         |                             |                    | 127,200   |             |           |          | 98,759  |        
|                                         |                             |                    |           |             |           |          |         |        
|                                         |                             | Total loans, gross |           |             | 1,138,659 |          |         |         | 1,095,366 | 
|                                         |                             |                    |           |             |           |          |         |        
|Allowance for loan losses                |                             |                    | (13,041   | )           |           |          | (12,328 | )      
|                                        
|                                        
|                                        
|                                        
|Construction loans in process            |                             |                    | (27,038   | )           |           |          | (30,264 | )      
|                                        
|                                        
|                                        
|                                        
|Net unearned discount on loans purchased |                             |                    | 42        |             |           |          | 48      |        
|                                        
|                                        
|                                        
|                                        
|Deferred loan origination costs          |                             |                    | 3,474     |             |           |          | 2,976   |        
|                                         |                             |                    |           |             |           |          |         |        
|                                         |                             | Loans, net         |           |             | 1,102,096 |          |         |         | 1,055,798 | 
|                                         |                             |                    |           |             |           |          |         |        

As noted in the above table, the allowance for loan losses amounted to
$13.0 million at June 30, 2002. Management believes the allowance is adequate to
absorb probable loan losses. The allowance for loan losses
increased from $12.3 million at December 31, 2001 to $13.0 million at June 30,
2002 due to the year-to-date provision, net of charge-offs/recoveries. The
Company believes that the allowance for loan losses is at a reasonable level
based on its current evaluation. The Company maintains an allowance for losses
that are inherent in the Companys loan portfolio. The allowance for loan losses
is established through a provision for loan losses charged to operations. Loan
losses are charged against the allowance when management determines that the
collectibility of the loan principal is unlikely. Recoveries on loans previously
charged off are credited to the allowance. The following is a summary of
activity in the allowance for loan losses during the six-months ended June 30,
2002:

|                             |                |   |        |     |  
|---------------------------- | -------------- | - | ------ | --- | -
|Balance at December 31, 2001 |                | $ | 12,328 |    
|                            
|                            
|                            
|                            
|                             | Loss provision |   |        | 500 |  
|                            
|                            
|                            
|                            
|                             | Recoveries     |   |        | 235 |  
|                            
|                            
|                            
|                            
|                             | Charge-offs    |   |        | (22 | )
|                            
|                            
|                            
|                            
|Balance at June 30, 2002     |                | $ | 13,041 |    

Managements methodology to estimate loss exposure
inherent in the portfolio includes an analysis of individual loans deemed to be
impaired, reserve allocations for various loan types based on payment status or
loss experience and an unallocated allowance that is maintained based on
managements assessment of many factors including trends in loan delinquencies
and charge-offs, current economic conditions and their effect on borrowers
ability to pay, underwriting standards by loan type, mix and balance of the
portfolio, and the performance of individual loans in relation to contract
terms. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Companys allowance based on their
judgments about information available to them at the time of their examination.

While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. Accordingly, the ultimate collectibility of a substantial portion of
the Companys loan portfolio is affected by changes in market conditions.

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##### Table of Contents



As part of the Companys determination of the adequacy of the allowance for
loan losses, the Company monitors its loan portfolio through its Asset
Classification Committee. The Committee classifies loans depending on risk of
loss characteristics. The most severe classification before a charge-off is
required is sub-standard. At June 30, 2002, the Company classified $8.9
million of loans ($8.1 million at BFS and $832,000 at BNB) as sub-standard
compared to $2.7 million ($1.8 million of BFS and $911,000 of BNB) at December
31, 2001. The vast majority of the increase in sub-standard loans was due to the
transfer of three loans, which in the aggregate amounted to $4.0 million in one
borrower relationship, from special mention to sub-standard. Non-performing
assets at June 30, 2002, which include the three loans from the one borrower
relationship classified as sub-standard above, amounted to $5.7 million or .38%
of total assets, compared to $1.2 million, or .08% of total assets, at December
31, 2001. The Asset Classification Committee, which meets quarterly, determines
the adequacy of the allowance for loan losses through ongoing analysis of
historical loss experience, the composition of the loan portfolios, delinquency
levels, underlying collateral values, cash flow values and state of the real
estate economy. Utilizing these procedures, management believes that the
allowance for loan losses at June 30, 2002 was sufficient to provide for
anticipated losses inherent in the loan portfolio.

The Companys allowance for loan losses at June 30, 2002 was $13.0
million, which represented 228% of non-performing loans or 1.15% of total loans,
compared to $12.3 million at December 31, 2001, or 1,065% of non-performing
loans and 1.13% of total loans. Management believes this coverage ratio is
prudent due to the balance increase in the combined total of construction and
land, commercial real estate, multi-family, home equity and improvement,
consumer and business loans. These combined total balances increased from
approximately $331.1 million at December 31, 2001 to approximately $390.1
million at June 30, 2002.

The amount of interest income on non-performing loans that would have been
recorded had these loans been current in accordance with their original terms,
was $282,000 and $45,000 for the six-month periods ended June 30, 2002 and 2001,
respectively. The amount of interest income that was recorded on these loans was
$386,000 and $22,000 for the six-month periods ended June 30, 2002 and 2001,
respectively.

At June 30, 2002, there were 4 loans characterized as impaired. During the
six-months ended June 30, 2002, the average recorded value of impaired loans was
$1.86 million, $365,000 interest income was recognized and $221,000 of interest
income would have been recognized under the loans original terms during the
six-months ended June 30, 2002.

At June 30, 2002 and at December 31, 2001, the Company had $0 and $31,000
in other repossessed assets, respectively.

Deposit accounts increased by $31.1 million, from $884.5 million at
December 31, 2001 to $915.6 million at June 30, 2002 as deposit flows improved
during the second quarter and more than offset the first quarters decline. Of
the $31.1 million increase in deposits, $21.4 million was in wholesale-brokered
deposits.

The following is a summary of deposit balances by type at:

|                                           |                                   |                                |                            |         |             |         |          |         |         |         | 
|------------------------------------------ | --------------------------------- | ------------------------------ | -------------------------- | ------- | ----------- | ------- | -------- | ------- | ------- | ------- | 
|                                           |                                   |                                |                            |         | 6/30/02     |         | 12/31/01
|                                           |                                   |                                |                            |         |             |         |         
|                                           |                                   |                                |                            |         | (Unaudited) |         |          |         |        
|                                           | NOW                               |                                | $                          | 145,819 |             |         | $        | 138,528 |        
|                                          
|                                          
|                                          
|                                          
|                                           | Regular & Statement Savings       |                                |                            | 196,706 |             |         |          | 180,966 |        
|                                          
|                                          
|                                          
|                                          
|                                           | Money Market                      |                                |                            | 60,600  |             |         |          | 58,133  |        
|                                          
|                                          
|                                          
|                                          
|                                           | Demand Deposits & Official Checks |                                |                            | 108,942 |             |         |          | 110,776 |        
|                                           |                                   |                                |                            |         |             |         |          |        
|                                           |                                   | Total Non-certificate Accounts |                            |         | 512,067     |         |          |         | 488,403 |        
|                                           |                                   |                                |                            |         |             |         |          |        
|Certificate Accounts:                      |                                   |                                |                            |         |             |         |          |        
|                                          
|                                          
|                                          
|                                          
|                                           | 3 to 6 months                     |                                |                            | 59,524  |             |         |          | 65,507  |        
|                                          
|                                          
|                                          
|                                          
|                                           | 1 to 3 years                      |                                |                            | 222,134 |             |         |          | 233,275 |        
|                                          
|                                          
|                                          
|                                          
|                                           | Greater than 3 years              |                                |                            | 75,210  |             |         |          | 53,701  |        
|                                          
|                                          
|                                          
|                                          
|                                           | IRA/KEOGH                         |                                |                            | 46,638  |             |         |          | 43,630  |        
|                                           |                                   |                                |                            |         |             |         |          |        
|                                           |                                   |                                | Total Certificate Accounts |         |             | 403,506 |          |         |         | 396,113 | 
|                                           |                                   |                                |                            |         |             |         |          |        
|                                           |                                   |                                | 915,573                    |         |             |         | 884,516  |        
|                                           |                                   |                                |                            |         |             |         |          |        
|Expected maturity of certificate accounts: |                                   |                                |                            |         |             |         |          |        
|                                          
|                                          
|                                          
|                                          
|                                           | Within one year                   |                                |                            | 203,137 |             |         |          | 247,745 |        
|                                          
|                                          
|                                          
|                                          
|                                           | One to two years                  |                                |                            | 105,716 |             |         |          | 79,236  |        
|                                          
|                                          
|                                          
|                                          
|                                           | Two to three years                |                                |                            | 60,836  |             |         |          | 38,611  |        
|                                          
|                                          
|                                          
|                                          
|                                           | Over three years                  |                                |                            | 33,817  |             |         |          | 30,521  |        
|                                           |                                   |                                |                            |         |             |         |          |        
|                                           |                                   |                                | 403,506                    |         |             |         | 396,113  |        
|                                           |                                   |                                |                            |         |             |         |          |        

Federal Home Loan Bank advances and other borrowings increased by $12.9
million, to a balance of $461.9 million at June 30, 2002 from a balance of
$449.0 million at December 31, 2002 in order to support asset growth.

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##### Table of Contents



C. LIQUIDITY AND CAPITAL RESOURCES

The primary source of cash flow for the Company is dividend payments from
BFS and BNB, sales and maturities of investment securities and, to a lesser
extent, earnings on deposits held by the Company. Dividend payments have
primarily been used to fund stock repurchase programs, pay dividends to
stockholders, interest on trust preferred securities and other operating
expenses of the Company. The ability of BFS and BNB to pay dividends and other
capital distributions to the Company is generally limited by OTS and OCC
regulations, respectively. Additionally, the OTS and OCC may prohibit the
payment of dividends that are otherwise permissible by regulation for safety and
soundness reasons. As of June 30, 2002, BFS and BNB had $21.9 million of
dividends that could be paid to the Company without regulatory approval and the
Company had $6.3 million of securities available for sale and $9.1 million cash
or cash equivalents. Any dividend by BFS or BNB beyond its current year net
income combined with retained net income of the preceding two years would
require notification to or approval of the OTS or the OCC. To the extent BFS or
BNB were to apply for a dividend distribution to the Company in excess of the
regulatory permitted dividend amounts, no assurances can be made such
application would be approved by the regulatory authorities. The Banks primary
sources of funds are deposits, (including brokered deposits), principal and
interest payments on loans, sales of loans, sales or maturities of investments,
mortgage-backed and related securities and borrowing from the FHLB. While
maturities and scheduled amortization of loans are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. Management has maintained
adequate liquidity so that it may invest any excess liquidity in higher yielding
interest-earning assets or use such funds to repay higher cost FHLB advances.
Neither the OTS nor the OCC provide specific guidance for liquidity ratios for
BFS and BNB, respectively, but do require the Banks to maintain reasonable and
prudent liquidity levels. Management believes such levels are being maintained.

The Companys and Banks most liquid assets are cash, overnight federal
funds sold, and loans and investments available for sale. The levels of these
assets are dependent on the Companys operating, financing, lending and
investing activities during any given period.

Liquid assets for the periods indicated, consisted of the following:

|                                              |  |                |         |                   |  |   |         | 
|--------------------------------------------- |  | -------------- | ------- | ----------------- |  | - | ------- | 
|                                              |  | June 30, 2002  |         | December 31, 2001
|                                              |  |                |         |                  
|                                              |  | (In Thousands)
|Cash and cash equivalents                     |  | $              | 54,103  |                   |  |   | 95,957  | 
|                                             
|                                             
|                                             
|                                             
|Investment Securities
available for sale      |  |                | 79,792  |                   |  |   | 63,258  | 
|                                             
|                                             
|                                             
|                                             
|Mortgage-backed securities
available for sale |  |                | 136,166 |                   |  |   | 94,922  | 
|                                             
|                                             
|                                             
|                                             
|Loans held for sale                           |  |                | 14,392  |                   |  |   | 24,612  | 
|                                              |  |                |         |                   |  |   |         | 
|Total liquid assets                           |  | $              | 284,453 |                   |  | $ | 278,749 | 
|                                              |  |                |         |                   |  |   |         | 

These amounts represent 18.7% and 19.0% of the Companys total assets at
June 30, 2002 and December 31, 2001, respectively.

The Banks have other sources of liquidity if a need for additional funds
arises, including FHLB advances, wholesale-brokered deposits and repurchase
agreements (collateralized borrowings). At June 30, 2002, the Banks had $461.9
million in advances outstanding from the FHLB and had, with existing collateral,
an additional $101.0 million in overall borrowing capacity from the FHLB.
Borrowing capacity can also be further increased upon delivery of mortgage notes
on non-owner occupied 1-4 family loans, multi-family and commercial loans. The
Banks generally do not pay the highest deposit rates in their market and
accordingly utilize alternative sources of funds such as FHLB advances and
wholesale-brokered deposits to supplement cash flow needs.

At June 30, 2002, the Banks had commitments to originate loans and unused
outstanding lines of credit totaling $291.8 million. The Banks anticipate that
they will have sufficient funds available to meet their current loan origination
commitments. Certificate accounts which are scheduled to mature in less than one
year from June 30, 2002, totaled $203.1 million.

At June 30, 2002, the consolidated stockholders equity to total assets
ratio was 6.4%. As of June 30, 2002, the Company, BFS and BNB exceeded all of
their regulatory capital requirements. The Companys consolidated total
risk-based capital, tier 1 risk-based capital and tier 1 leverage capital ratios
were 12.6%, 11.3% and 7.7%, respectively. BFSs tier 1 (core) capital, total
risk-based, capital, tier 1 risk-based and tangible equity capital ratios were
6.4%, 10.8%, 9.6% and 6.4%, respectively. BNBs risk-based total capital,
risk-based tier 1 capital and leverage capital ratios were 12.7%, 11.5% and
5.8%, respectively.

15



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##### Table of Contents



D. COMPARISON OF THREE- AND SIX-MONTHS ENDED JUNE 30, 2002 AND 2001

GENERAL

Earnings for the quarter ended June 30, 2002 were $2.6 million, or $.58
basic and $.55 diluted on an earnings per share basis, compared to earnings of
$2.5 million, or $.56 basic and $.54 diluted earnings per share for the second
quarter of 2001. The annualized return on average assets was .70% and the
annualized return on average stockholders equity was 10.50% during the quarter
ended June 30, 2002, compared to .72% and 10.88%, respectively, for the prior
year quarter. Earnings for the six-months ended June 30, 2002 were $4.6 million,
or $1.04 basic and $.98 diluted earnings per share, compared to $4.5 million, or
$1.01 basic and $.96 diluted earnings per share for the six-months ended June
30, 2001. The Companys annualized return on average assets was .63% and the
annualized return on average stockholders equity was 9.45% during the
six-months ended June 30, 2002, compared to .67% and 9.79%, respectively, for
the six-months ended June 30, 2001 (annualized). Comments regarding the
components of net income are detailed in the following paragraphs.

Interest Income

Total interest income on interest-earning assets for the quarter ended June
30, 2002 declined by $2.1 million, or 8.8%, to $21.9 million, compared to the
quarter ended June 30, 2001. The decrease in interest income was due to a 100
basis point decline in the average yield on interest earning assets, partially
offset by the earnings on the $69.8 million increase in interest-earning assets.
The average yield on interest-earning assets declined to 6.46% for the
three-months ended June 30, 2002 from 7.46% for the three-months ended June 30,
2001. Total interest income for the six-months ended June 30, 2002 was $43.2
million, a decrease of $4.6 million, or 9.6%, compared to the $47.8 million
interest earned for the six-months ended June 30, 2001. The decline in interest
income in the current period was caused by the 119 basis point drop in the
average yield, partially offset by the $90.5 million increase in average
interest earning assets. The reduced yields are due in part to the repricing of
a portion of the Companys adjustable-rate portfolio, based on much lower
indexes resulting from the Federal Reserve induced decline in market interest
rates during 2001.

Interest income on loans, net, for the quarter ended June 30, 2002 declined
by $1.9 million, or 9.2%, to $18.7 million compared to $20.6 million for the
comparable quarter in 2001. For the six-months ended June 30, 2002, interest
income on loans, net, declined $4.3 million, or 10.4%, to $37.2 million,
compared to $41.5 million for the six-months ended June 30, 2001. The decrease
in interest income from loans, net, for the current six-month period was due to
the 95 basis point decline in the average yield, partially offset by a $22.1
million increase in the average balance of loans, net. The average yield on
loans, net for the six-months ended June 30, 2002 was 6.85%, compared to an
average yield of 7.80% for the six-months ended June 30, 2001. Many loans
continue to reprice lower as the major repricing indexes remain at historic
lows.

Interest on mortgage-backed securities for the quarter ended June 30, 2002
increased to $2.2 million, compared to $1.8 million for the quarter ended June
30, 2001. The increase was due to growth of $41.7 million in average balances,
partially offset by declines of 67 basis points in average yields. The average
balance of mortgage-backed securities increased from $108.0 million for the
quarter ended June 30, 2001 to an average of $149.7 million during the current
quarter. For the six-months ended June 30, 2002, the average balance of
mortgage-backed securities was $140.8 million, compared to an average balance of
$93.3 million for the six-months ended June 30, 2001. The increase in average
balances was primarily attributable to the acquisition of collateralized
mortgage obligations (CMOs). These investments were purchased as part of the
Companys effort to leverage the trust-preferred securities, which are
classified as capital for regulatory purposes. Average yields declined from
6.52% for the six-months ended June 30, 2001, to 5.78% for the current six-month
period.

Income from investment securities was $1.0 million for the three-months
ended June 30, 2002, compared to $1.6 million for the prior year quarter. The
average balance of investment securities increased to 120.4 million for the
three-months ended June 30, 2002, compared to $100.7 million for the prior year
quarter. The decline in income was caused by a reduction in the average yield,
which declined from 6.44% for the three-months ended June 30, 2001 to 3.35% for
the current quarter. The reduction in yields on investment securities is also
reflective of the declines in market interest rates, especially the historically
low rates being paid on federal funds and Federal Home Loan Bank overnight
deposits. Although the average balance of investment securities increased by
$20.8 million for the six-months ended June 30, 2002, compared to the six-months
ended June 30, 2001, interest income declined from $3.3 million for the prior
year period to $2.0 million for the current year period. Because the Companys
investment securities are generally of a shorter-term nature, the decline in
market interest rates has had a significant impact on the overall yield of
investment securities. The average yield of investment securities for the
six-months ended June 30, 2002 was 3.29%, compared to 6.62% for the six-months
ended June 30, 2001.

16



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##### Table of Contents



Interest Expense

Total interest expense on interest-bearing liabilities for the quarter
ended June 30, 2002 declined by $2.5 million, or 17.1%, to $12.1 million
compared to $14.6 million for the quarter ended June 30, 2001. The decrease in
interest expense for the quarter ended June 30, 2002 was primarily due to a 104
basis point reduction in the average cost of interest bearing liabilities,
offset somewhat by the interest cost applicable to a $62.0 million increase in
the average balance of interest-bearing liabilities, which averaged $1.264
billion during the current quarter, compared to an average balance of $1.202
billion during the quarter ended June 30, 2001. The average cost of
interest-bearing liabilities decreased to 3.83% during the quarter ended June
30, 2002, compared to 4.87% for last years comparable quarter. For the
six-months ended June 30, 2002, interest expense on interest-bearing liabilities
totaled $24.6 million, compared to $29.2 million for the six-months ended June
30, 2001, a decrease of $4.6 million, or 15.8%. The lower interest expense in
the current period is due to the 103 basis point decline in the average cost of
funds, which declined to 3.92% in the six-months ended June 30, 2002, compared
to 4.95% in the prior year period. The Companys cost of interest bearing
liabilities has declined slower than overall market interest rates as market
conditions, the already low interest rates being paid on deposits and call
features on a portion of the FHLB advances have precluded further substantial
declines in the interest paid on these accounts.

Interest expense on deposit accounts was $5.4 million for the quarter ended
June 30, 2002, a decrease of $2.5 million from the $7.9 million for the quarter
ended June 30, 2001. Interest expense on deposit accounts declined due to a 136
basis point decrease in the average cost of deposits. For the three-months ended
June 30, 2002, the average cost of deposits was 2.75%, compared to 4.11% for the
three-months ended June 30, 2001. Average balances of deposit accounts, at
$786.7 million, were $20.4 million higher during the quarter ended June 30,
2002, compared to average balances of $766.3 million for the prior year quarter.
For the six-months ended June 30, 2002, interest expense on deposit accounts was
$11.2 million, compared to $16.1 million for the prior year period, a decrease
of $4.9 million. The decrease is attributable to a 132 basis point decline in
the average cost of deposit accounts in the six-months ended June 30, 2002,
compared to the prior year period.

Interest expense on borrowed funds was $5.8 million and $11.6 million for
the three- and six-months ended June 30, 2002, compared to $5.9 million and
$11.3 million for the three-and six-months ended June 30, 2001. Borrowed funds
increased to an average of $445.6 million during the three-months ended June 30,
2002 from an average of $404.0 million for the prior year quarter. The added
expense of the higher average balance was essentially offset by a 60 basis point
decline in the average cost, which declined to 5.21% in the current quarter from
5.81% in the prior year quarter. The average balance of borrowed funds was
$442.6 million in the six-months ended June 30, 2002, an increase of $62.5
million compared to an average balance of $380.1 million for the six-months
ended June 30, 2001. The average cost of borrowed funds was 5.23% for the
six-months ended June 30, 2002, a decline of 71 basis points compared to the
5.94% cost of borrowed funds for the six-months ended June 30, 2001.

Net Interest Income

Net interest income for the three-months ended June 30, 2002 and 2001 was
$9.8 million and $9.3 million, respectively. The Company was able to expand its
net interest income through leveraging, despite a two basis point decrease in
the net interest margin. The net interest margin for the quarter ended June 30,
2002 was 2.88%, compared to 2.90% for the prior years second quarter.
Approximately 11 basis points of the 2.88% net interest margin in the current
quarter was the result of collecting approximately $350,000 of current and
past-due interest for nine months on impaired loans of $4.0 million with one
borrower relationship. The net interest rate spread increased from 2.59% for the
quarter ended June 30, 2001, to 2.63% for the current quarter. For the
six-months ended June 30, 2002 and 2001, net interest income was $18.7 million.
The net interest margin in the current period averaged 2.77%, compared to 2.97%
for the six-months ended June 30, 2001. The Company has experienced net interest
margin pressure due to the effects of declining asset yields, which exceeded the
Companys ability to reduce liability costs during the historic reductions in
market interest rates. While market interest rates appear to have stabilized,
the Company cannot predict when interest rates will rise to more normal levels
and whether such increases will result in higher net interest margins.

Provision for Loan Losses

The Companys provision for loan losses was $250,000 for the quarter ended
June 30, 2002, compared to $208,000 for the comparable quarter last year. For
the six-months ended June 30, 2002 and 2001 the provision for loan losses
amounted to $500,000 and $420,000, respectively. See section B Financial
Condition for further discussion on the Companys methodology for providing for
loan losses.

17



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##### Table of Contents



Non-Interest Income

Total non-interest income declined to $4.1 million for the quarter ended
June 30, 2002, compared to $4.5 million for the quarter ended June 30, 2001 due
primarily to lower gain on sale of loans. Gain on sale of loans amounted to $2.7
million for the quarter ended June 30, 2002, compared to $3.1 million for the
quarter ended June 30, 2001. On a year-to-date basis, total non-interest income
increased to $8.2 million from $7.7 million for the six-months ended June 30,
2001. The current year-to-date increase is primarily due to higher gain on sale
of loans, which amounted to $5.6 million for the six-months ended June 30, 2002,
compared to $4.7 million for the six-months ended June 30, 2001. The increased
gain on sale of loans resulted from a continuation of high volumes of mortgage
loan sales, made possible by the volume of lending activity in the current low
interest rate environment. Included in the above gain on sale of loans were
gains on sale of manufactured housing loans, which amounted to $2.4 million for
the six-months ended June 30, 2002, compared to $2.9 million for the six-months
ended June 30, 2001. Deposit service fees increased from $608,000 in the quarter
ended June 30, 2001, to $768,000 in the current quarter. On a year-to-date
basis, deposit service fees amounted to $1.4 million, compared to $1.2 million
for the six-months ended June 30, 2001. The increase was primarily due to
increases in fees and higher levels of deposit account services activity. Loan
processing and servicing fees were a negative $198,000 for the quarter ended
June 30, 2002 compared to a negative $16,000 for the quarter ended June 30,
2001. For the six-months ended June 30, 2002, loan processing and servicing fees
were a negative $509,000, compared to income of $114,000 for the six-months
ended June 30, 2001. The declines were due to larger adjustments for the
impairment of originated mortgage servicing rights (OMSR) in the current
periods. The adjustments to the OMSR were necessary due to the higher than expected levels of prepayments during the current periods for loans previously sold,
with servicing retained by the Company.

Non-Interest Expense

Total non-interest expense was $9.7 million for the quarter ended June 30,
2002 compared $9.6 million for the quarter ended June 30, 2001 as increases in
compensation and benefits were offset by decreases in other expenses and the
elimination of amortization of goodwill. On a year-to-date basis, total
non-interest expense was $19.4 million, compared to $18.8 million for the
six-months ended June 30, 2001. Compensation and benefits increased by $973,000
for the six-months ended June 30, 2002 compared to the prior year period due
primarily to increased sales incentives as a result of near record mortgage loan
volume and normal annual increases in salaries. Other non-interest expense
declined to $3.4 million in the current six-month period, compared to $3.7
million for the six-months ended June 30, 2001 as the prior year period included
higher outside professional expenses. The current year-to-date period includes a
$500,000 legal settlement expense incurred as a result of the Companys
subsidiary BNB, agreeing with a mediators recommendation in settling a lawsuit.
There was no goodwill amortization during the current quarter and year-to-date
periods in accordance with Financial Accounting Standard No. 142. Amortization
of goodwill amounted to $355,000 and $709,000 during the quarter and six-months
ended June 30, 2001.

Income Tax Expense

Income tax expense for the six-months ended June 30, 2002 was $2.4 million,
for an effective tax rate of 34.2%. For the six-months ended June 30, 2001,
income tax expense amounted to $2.6 million, for an effective tax rate of 36.3%.
The lower effective tax rate in the current period is due to a lower state tax
provision.

18



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##### Table of Contents






Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

One of the principal market risks affecting the Company is interest rate
risk. The objective of the Companys interest rate risk management function is
to evaluate the interest rate risk included in certain balance sheet accounts,
determine the level of risk appropriate given the Companys business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board of Directors approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company
monitors its interest rate risk as such risk relates to its operating
strategies. The Companys Board of Directors has established a management
Asset/Liability Committee that is responsible for reviewing the Companys asset/
liability policies and interest rate risk position. The Committee reports trends
and interest rate risk position to the Board of Directors on a quarterly basis.
The extent of the movement of interest rates is an uncertainty that could have a
negative impact on the earnings of the Company.

In recent years, the Company has utilized the following strategies to
manage interest rate risk: (1) emphasizing the origination and retention of
adjustable-rate, one- to four-family mortgage loans; (2) generally selling in
the secondary market substantially all fixed-rate mortgage loans originated with
terms greater than 15 years while generally retaining the servicing rights
thereof; (3) primarily investing in investment securities or mortgage- backed
securities with adjustable interest rates; and (4) attempting to reduce the
overall interest rate sensitivity of liabilities by emphasizing longer-term
deposits and utilizing FHLB advances to replace rate sensitive retail deposits.
A portion of the FHLB advances may be called depending on the level of interest
rates relative to the interest rate being charged at the applicable call date.
Accordingly, if interest rates rise sufficient to trigger the call feature, the
Companys net interest margin may be negatively impacted if called advances are
replaced by new, higher cost advances.

The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are interest rate sensitive and by
monitoring the Companys interest rate sensitivity gap. An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. These differences are
a primary component of the risk to net interest income. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. Accordingly, during a period of rising interest rates, an
institution with a positive gap position would be in a better position to invest
in higher yielding assets which, consequently, may result in the yield on its
assets increasing at a pace more closely matching the increase in the cost of
its interest-bearing liabilities than if it had a negative gap. During a period
of falling interest rates, an institution with a positive gap would tend to have
its assets repricing at a faster rate than one with a negative gap which,
consequently, may tend to restrain the growth of its net interest income.

Certain shortcomings are inherent in gap analysis. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
adjustable-rate loans may decrease in the event of an interest rate increase.

At June 30, 2002, the Companys one year gap was a positive 7.4% of total
assets, compared to a positive 6.8% of total assets at December 31, 2001.

The Companys interest rate sensitivity is also monitored by management
through the use of a model which internally generates estimates of the change in
net portfolio value (NPV) over a range of interest rate change scenarios. NPV
is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario.

As in the case with the gap analysis, certain shortcomings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require the making of certain assumptions which may or may not
reflect the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model used assumes that the composition
of the Companys interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured and also
assumes that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. Accordingly, although the NPV measurements and net
interest income models provide an indication of the Companys interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on the Companys net interest income and will differ from actual
results. See the Companys Form 10-K for the year ended December 31, 2001 for a
detail of the GAP and NPV tables. There have been no material changes in the net
portfolio value since December 31, 2001.

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##### Table of Contents






PART II  OTHER INFORMATION




Item 1. Legal Proceedings

Except as described below, the Company is not involved in any pending legal
proceedings other than routine legal proceedings occurring in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated financial position, the annual results of operations, or liquidity
of the Company.

An action is pending against Forward Financial, in the United States
District Court for the Northern District of New York. It was filed by a bank, in
New York state court, served on December 1, 2000, and removed to federal court.
The bank alleges, among other things, that Forward Financial breached a written
agreement between the parties. Forward Financial denies the allegations and has
counterclaimed for monies due from the bank. Forward Financial has significant
defenses, which it is pursuing vigorously. The litigation is presently in the
discovery stage. Because of the numerous uncertainties that surround the
litigation, management and legal counsel are unable to estimate the amount of
loss, if any, that the Company may incur with respect to this litigation.
Consequently, no loss provision has been recorded. The parties are now actively
engaged in settlement negotiations.




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

(A)  The Annual Meeting of Stockholders of the Corporation
was held on April 30, 2002.

(B)  Directors elected at Annual Meeting and Continuing in Office:

(1)  Election of Directors to a three-year term

|                 |  |                 |           |                      |  |  |        | 
|---------------- |  | --------------- | --------- | -------------------- |  |  | ------ | 
|Nominee          |  | Total Votes For |           | Total Votes Withheld
|David P. Conley  |  |                 | 3,569,314 |                      |  |  | 42,061 | 
|                
|                
|                
|                
|Richard J. Fahey |  |                 | 3,567,606 |                      |  |  | 43,769 | 
|                
|                
|                
|                
|Kija Kim         |  |                 | 3,568,056 |                      |  |  | 43,319 | 

(2) Continuing Directors

|                        |  |                   |      | 
|----------------------- |  | ----------------- | ---- | 
|                        |  | Year Term Expires
|Patricia M. Flynn, Ph.D |  |                   | 2003 | 
|                       
|                       
|                       
|                       
|W. Russell Scott        |  |                   | 2003 | 
|                       
|                       
|                       
|                       
|Catherine Friend White  |  |                   | 2003 | 
|                       
|                       
|                       
|                       
|Gene J. DeFeudis        |  |                   | 2004 | 
|                       
|                       
|                       
|                       
|David F. Holland        |  |                   | 2004 | 
|                       
|                       
|                       
|                       
|Joanna T. Lau           |  |                   | 2004 | 

(C)  Other matters submitted to a vote of the Stockholders of the corporation:

Selection of Independent Auditors

|          |  |               |        |             |  |  |       | 
|--------- |  | ------------- | ------ | ----------- |  |  | ----- | 
|Votes For |  | Votes Against |        | Abstentions
|3,577,975 |  |               | 32,269 |             |  |  | 1,131 | 

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##### Table of Contents






Item 5. Other Information

None




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

| |  |  |      |  |  |                                                                                                                        
| |  |  | ---- |  |  | -----------------------------------------------------------------------------------------------------------------------
| |  |  | 3.1  |  |  | Restated Certificate of Incorporation*                                                                                 
|
|
|
|
| |  |  |      |  |  |                                                                                                                        
|
|
|
|
| |  |  | 3.2  |  |  | Amended and Restated Bylaws as of February 23, 2000**                                                                  
|
|
|
|
| |  |  |      |  |  |                                                                                                                        
|
|
|
|
| |  |  | 4.0  |  |  | Stock Certificate of BostonFed Bancorp, Inc.*                                                                          
|
|
|
|
| |  |  |      |  |  |                                                                                                                        
|
|
|
|
| |  |  | 99.1 |  |  | Certification
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

In connection with the Quarterly Report of BostonFed Bancorp, Inc. (the
Company) on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I David F.
Holland, Chief Executive Officer of the company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge and belief:



|1. |  | The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and                                                                              
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company as of and for the period covered by the
Report.

| |  |                                                            
| |  | -----------------------------------------------------------
| |  | S/ David F. Holland
Chief Executive Officer
August 14, 2002

|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

In connection with the Quarterly Report of BostonFed Bancorp, Inc. (the
Company) on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the Report), I, John A.
Simas, Chief Financial Officer of the company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge and belief:



|1. |  | The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and                                                                              
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company as of and for the period covered by the
Report.

| |  |                                                         
| |  | --------------------------------------------------------
| |  | S/ John A. Simas
Chief Financial Officer
August 14, 2002

     Incorporated herein by reference into this document from Exhibits 3.1 and
4.0 to the Form S-1, Registration Statement, and any amendments thereto,
originally filed on July 21, 1995, as amended and declared effective on
September 11, 1995. Registration No. 333-94860

     Incorporated herein by reference into this document from Exhibit 3.2 to
the Annual Report on Form 10-K filed on March 29, 2002.

(b)  Reports on Form 8-k

None

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##### Table of Contents






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.

|                      |  |                                                                                        
|--------------------- |  | ---------------------------------------------------------------------------------------
|                      |  | BOSTONFED BANCORP, INC.
(Registrant)                                                   
|                     
|                     
|                     
|                     
|                      |  |                                                                                        
|                     
|                     
|                     
|                     
|Date: August 14, 2002 |  | By: /s/ David F. Holland                                                               
|                      |  |                                                                                        
|                      |  | David F. Holland
President and
Chief Executive Officer                                 
|                     
|                     
|                     
|                     
|                      |  |                                                                                        
|                     
|                     
|                     
|                     
|Date: August 14, 2002 |  | By: /s/ John A. Simas                                                                  
|                      |  |                                                                                        
|                      |  | John A. Simas
Executive Vice President,
Chief Financial Officer
and Corporate Secretary

22