##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549


Form 10-Q

|  |  |                                                                                            
|- |  | -------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2003

OR

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from  to

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                                |  | (I.R.S. Employer   
|incorporation or organization)                                 |  | 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.

Yes x        No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes x        No o

Number of shares of common stock, par value $.01 per share, outstanding as
of October 31, 2003: 4,477,996.





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TABLE OF CONTENTS



|                                               |                                                                                                |                                                            |  |  |  |  |  | 
|---------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  |  |  |  |  | 
|                                               |                                                                                                | 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      
|                                               | Item 2. MANAGEMENTSS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                               | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             
|                                               | Item 4. CONTROLS AND PROCEDURES                                                               
|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                                                      
|EXHIBIT INDEX                                 
|SIGNATURES                                    
|Ex-31.1 Section 302 Certification of CEO      
|Ex-31.2 Section 302 Certification of CFO      
|Ex-32.0 Section 906 Certification of CEO & CFO



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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 September 30, 2003 and
December 31, 2002 (unaudited)                                        |  | 2    
|                               |  |            |  | Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2003 and 2002 (unaudited)             |  | 3    
|                               |  |            |  | Consolidated Statements of Changes in Stockholders Equity for the Three and
Nine Months Ended September 30, 2003 (unaudited) |  | 4-5  
|                               |  |            |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2003 and 2002 (unaudited)                       |  | 6-7  
|                               |  |            |  | Notes to Unaudited Consolidated Financial Statements                                                                          |  | 8-12 
|                               |  | Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                         |  | 12-24
|                               |  | Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 24-26
|                               |  | Item 4.    |  | Controls and Procedures                                                                                                       |  | 26   
|Part II - OTHER INFORMATION    |  |           
|                               |  | Item 1.    |  | Legal Proceedings                                                                                                             |  | 26   
|                               |  | Item 2.    |  | Changes in Securities and Use of Proceeds                                                                                     |  | 26   
|                               |  | Item 3.    |  | Defaults Upon Senior Securities                                                                                               |  | 26   
|                               |  | Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 26   
|                               |  | Item 5.    |  | Other Information                                                                                                             |  | 26   
|                               |  | Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                              |  | 26-27
|                               |  | Signatures |  | 28                                                                                                                           

In
addition to historical information, this Form 10-Q may contain certain
forward-looking statements, which are 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 applicable to the Companys operations, the allowance
for losses discussion, litigation, 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,
prices and litigation. 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.

Except as may be required by applicable law and regulation, 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.





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BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Balance Sheets
(In thousands except share data)
Unaudited


|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |              |           |         |           | 
|----------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------- | --------- | ------------ | --------- | ------- | --------- | 
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           | September 30, |           | December 31,
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           | 2003          |           | 2002        
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|Assets                                                                                                                        |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|Cash and cash equivalents                                                                                                     |                                                                 | $                                                                                                                                                                                       | 64,730                                                                                                                      |                                            |           | $             | 74,672    |             
|Investment
securities available for sale (amortized cost of $106,980 at Sept. 30, 2003 and $112,056 at December 31, 2002)     |                                                                 |                                                                                                                                                                                         | 108,179                                                                                                                     |                                            |           |               | 112,888   |             
|Investment
securities held to maturity (fair value of $2,656 at Sept. 30, 2003
and $2,576 at December 31, 2002)               |                                                                 |                                                                                                                                                                                         | 2,525                                                                                                                       |                                            |           |               | 2,524     |             
|Mortgage-backed
securities available for sale (amortized cost of $77,656 at
Sept. 30, 2003 and $113,550 at December 31, 2002) |                                                                 |                                                                                                                                                                                         | 77,379                                                                                                                      |                                            |           |               | 114,515   |             
|Mortgage-backed
securities held to maturity (fair value of $78,880 at Sept. 30,
2003 and $26,598 at December 31, 2002)        |                                                                 |                                                                                                                                                                                         | 78,444                                                                                                                      |                                            |           |               | 25,429    |             
|Loans held for sale                                                                                                           |                                                                 |                                                                                                                                                                                         | 15,234                                                                                                                      |                                            |           |               | 31,614    |             
|Loans, net of allowance for loan losses of $13,790 at Sept. 30,
2003 and $12,656 at December 31, 2002                         |                                                                 |                                                                                                                                                                                         | 1,189,233                                                                                                                   |                                            |           |               | 1,071,356 |             
|Accrued interest receivable                                                                                                   |                                                                 |                                                                                                                                                                                         | 6,067                                                                                                                       |                                            |           |               | 6,470     |             
|Stock in FHLB of Boston and Federal Reserve Bank                                                                              |                                                                 |                                                                                                                                                                                         | 27,485                                                                                                                      |                                            |           |               | 24,552    |             
|Bank-owned life insurance                                                                                                     |                                                                 |                                                                                                                                                                                         | 25,247                                                                                                                      |                                            |           |               | 24,316    |             
|Premises and equipment, net                                                                                                   |                                                                 |                                                                                                                                                                                         | 10,394                                                                                                                      |                                            |           |               | 10,133    |             
|Goodwill                                                                                                                      |                                                                 |                                                                                                                                                                                         | 10,776                                                                                                                      |                                            |           |               | 10,776    |             
|Real estate owned                                                                                                             |                                                                 |                                                                                                                                                                                         | 3,994                                                                                                                       |                                            |           |               | 0         |             
|Other assets                                                                                                                  |                                                                 |                                                                                                                                                                                         | 14,845                                                                                                                      |                                            |           |               | 16,367    |             
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             | Total assets                               |           | $             | 1,634,532 |              |           | $       | 1,525,612 | 
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|Liabilities and Stockholders Equity                                                                                          |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|Liabilities:                                                                                                                  |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|                                                                                                                              | Deposit accounts                                                |                                                                                                                                                                                         | $                                                                                                                           | 960,728                                    |           |               | $         | 960,278      |          
|                                                                                                                              | Federal Home Loan Bank advances and other Borrowings            |                                                                                                                                                                                         |                                                                                                                             | 535,894                                    |           |               |           | 426,560      |          
|                                                                                                                              | Corporation-obligated mandatorily redeemable capital securities |                                                                                                                                                                                         |                                                                                                                             | 32,000                                     |           |               |           | 32,000       |          
|                                                                                                                              | Advance payments by borrowers for taxes and insurance           |                                                                                                                                                                                         |                                                                                                                             | 2,842                                      |           |               |           | 2,317        |          
|                                                                                                                              | Other liabilities                                               |                                                                                                                                                                                         |                                                                                                                             | 10,324                                     |           |               |           | 11,484       |          
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|                                                                                                                              |                                                                 | Total liabilities                                                                                                                                                                       |                                                                                                                             |                                            | 1,541,788 |               |           |              | 1,432,639 |        
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|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 (4,461,396 and 4,425,348 shares outstanding at Sept. 30,
2003 and December 31, 2002, respectively) |                                                                                                                             |                                            | 66        |               |           |              | 66        |        
|                                                                                                                              |                                                                 | Additional paid-in capital                                                                                                                                                              |                                                                                                                             |                                            | 69,837    |               |           |              | 69,281    |        
|                                                                                                                              |                                                                 | Retained earnings                                                                                                                                                                       |                                                                                                                             |                                            | 63,496    |               |           |              | 64,242    |        
|                                                                                                                              |                                                                 | Accumulated other comprehensive income                                                                                                                                                  |                                                                                                                             |                                            | 562       |               |           |              | 1,096     |        
|                                                                                                                              |                                                                 |                                                                                                                                                                                         | Less: Treasury stock, at cost (2,128,221 shares and 2,164,269 shares at
Sept. 30, 2003 and December 31, 2002, respectively) |                                            |           | (41,217       | )         |              |           | (41,698 | )        
|                                                                                                                              |                                                                 |                                                                                                                                                                                         | Less: Unearned Stock-Based Incentive Plan                                                                                   |                                            |           | 0             |           |              |           | (14     | )        
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|                                                                                                                              |                                                                 | Total stockholders equity                                                                                                                                                              |                                                                                                                             |                                            | 92,744    |               |           |              | 92,973    |        
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             | Total liabilities and stockholders equity |           | $             | 1,634,532 |              |           | $       | 1,525,612 | 
|                                                                                                                              |                                                                 |                                                                                                                                                                                         |                                                                                                                             |                                            |           |               |           |             

See accompanying condensed notes to unaudited consolidated financial statements.

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BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Statements of Operations
(In thousands, except share data)
Unaudited


|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |        |        | 
|---------------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------- | --------- | ------------------ | ------ | ----------------- | --------- | --------- | ------ | --------- | --------- | ------ | ------ | - | --------- | ------ | ------ | 
|                                                                 |                                                                               |                            |           | Three Months Ended |        | Nine Months Ended
|                                                                 |                                                                               |                            |           |                    |        |                  
|                                                                 |                                                                               |                            |           | 9/30/2003          |        | 9/30/2002         |           | 9/30/2003 |        | 9/30/2002
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |          
|Interest income:                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 | Loans                                                                         |                            | $         | 15,995             |        |                   | $         | 18,541    |        |           | $         | 48,429 |        |   | $         | 55,729 |       
|                                                                 | Mortgage-backed securities                                                    |                            |           | 1,362              |        |                   |           | 2,234     |        |           |           | 4,496  |        |   |           | 6,301  |       
|                                                                 | Investment securities                                                         |                            |           | 997                |        |                   |           | 1,030     |        |           |           | 3,235  |        |   |           | 3,021  |       
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 |                                                                               | Total interest income      |           |                    | 18,354 |                   |           |           | 21,805 |           |           |        | 56,160 |   |           |        | 65,051 | 
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|Interest expense:                                                |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 | Deposit accounts                                                              |                            |           | 4,465              |        |                   |           | 5,709     |        |           |           | 14,355 |        |   |           | 16,937 |       
|                                                                 | Borrowed funds                                                                |                            |           | 4,244              |        |                   |           | 5,538     |        |           |           | 12,950 |        |   |           | 17,105 |       
|                                                                 | Corporation-obligated mandatorily redeemable
capital securities distributions |                            |           | 881                |        |                   |           | 881       |        |           |           | 2,642  |        |   |           | 2,642  |       
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 |                                                                               | Total interest expense     |           |                    | 9,590  |                   |           |           | 12,128 |           |           |        | 29,947 |   |           |        | 36,684 | 
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|Net interest income                                              |                                                                               |                            | 8,764     |                    |        |                   | 9,677     |           |        |           | 26,213    |        |        |   | 28,367    |       
|Provision for loan losses                                        |                                                                               |                            | 450       |                    |        |                   | 350       |           |        |           | 2,900     |        |        |   | 850       |       
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|Net interest income after provision for loan losses              |                                                                               |                            | 8,314     |                    |        |                   | 9,327     |           |        |           | 23,313    |        |        |   | 27,517    |       
|Non-interest income:                                             |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 | Deposit service fees                                                          |                            |           | 972                |        |                   |           | 789       |        |           |           | 2,728  |        |   |           | 2,194  |       
|                                                                 | Loan processing and servicing fees                                            |                            |           | (341               | )      |                   |           | (1,368    | )      |           |           | (2,869 | )      |   |           | (1,877 | )     
|                                                                 | Gain on sale of loans                                                         |                            |           | 2,958              |        |                   |           | 2,994     |        |           |           | 8,779  |        |   |           | 8,593  |       
|                                                                 | Income from bank-owned life insurance                                         |                            |           | 304                |        |                   |           | 313       |        |           |           | 931    |        |   |           | 916    |       
|                                                                 | Gain on sale of investments                                                   |                            |           | 0                  |        |                   |           | 61        |        |           |           | 7      |        |   |           | 361    |       
|                                                                 | Other                                                                         |                            |           | 440                |        |                   |           | 327       |        |           |           | 1,243  |        |   |           | 1,153  |       
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 |                                                                               | Total non-interest income  |           |                    | 4,333  |                   |           |           | 3,116  |           |           |        | 10,819 |   |           |        | 11,340 | 
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|Non-interest expense:                                            |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 | Compensation and benefits                                                     |                            |           | 6,106              |        |                   |           | 6,218     |        |           |           | 17,935 |        |   |           | 17,843 |       
|                                                                 | Occupancy and equipment                                                       |                            |           | 1,228              |        |                   |           | 1,222     |        |           |           | 3,684  |        |   |           | 3,652  |       
|                                                                 | Data processing                                                               |                            |           | 526                |        |                   |           | 478       |        |           |           | 1,520  |        |   |           | 1,476  |       
|                                                                 | Advertising expense                                                           |                            |           | 481                |        |                   |           | 365       |        |           |           | 1,140  |        |   |           | 862    |       
|                                                                 | Federal deposit insurance premiums                                            |                            |           | 40                 |        |                   |           | 39        |        |           |           | 128    |        |   |           | 125    |       
|                                                                 | Impairment of goodwill                                                        |                            |           | 0                  |        |                   |           | 7,000     |        |           |           | 0      |        |   |           | 7,000  |       
|                                                                 | Legal settlements                                                             |                            |           | 0                  |        |                   |           | 750       |        |           |           | 0      |        |   |           | 1,250  |       
|                                                                 | Other                                                                         |                            |           | 1,771              |        |                   |           | 1,717     |        |           |           | 5,331  |        |   |           | 4,999  |       
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|                                                                 |                                                                               | Total non-interest expense |           |                    | 10,152 |                   |           |           | 17,789 |           |           |        | 29,738 |   |           |        | 37,207 | 
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|Income (loss) before income taxes                                |                                                                               |                            | 2,495     |                    |        |                   | (5,346    | )         |        |           | 4,394     |        |        |   | 1,650     |       
|Income
tax expense (benefit)                                     |                                                                               |                            | 1,055     |                    |        |                   | (1,816    | )         |        |           | 3,020     |        |        |   | 575       |       
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |       
|Net income (loss)                                                |                                                                               | $                          | 1,440     |                    |        | $                 | (3,530    | )         |        | $         | 1,374     |        |        | $ | 1,075     |       
|                                                                 |                                                                               |                            |           |                    |        |                   |           |           |        |           |           |        |        |   |           |        |       
|Basic earnings (loss) per share                                  |                                                                               | $                          | 0.32      |                    |        | $                 | (0.80     | )         |        | $         | 0.31      |        |        | $ | 0.24      |       
|Diluted earnings (loss) per share                                |                                                                               | $                          | 0.31      |                    |        | $                 | (0.80     | )         |        | $         | 0.30      |        |        | $ | 0.23      |       
|Basic weighted average shares Outstanding                        |                                                                               |                            | 4,437,073 |                    |        |                   | 4,422,131 |           |        |           | 4,409,349 |        |        |   | 4,413,438 |       
|Common stock equivalents due to dilutive effect of
stock options |                                                                               |                            | 239,571   |                    |        |                   | 300,480   |           |        |           | 213,509   |        |        |   | 274,637   |       
|Diluted total weighted average shares outstanding                |                                                                               |                            | 4,676,644 |                    |        |                   | 4,722,611 |           |        |           | 4,622,858 |        |        |   | 4,688,075 |       

See accompanying condensed notes to unaudited consolidated financial statements.

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##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Statements of Changes in Stockholders Equity
Nine Months Ended September 30, 2003
(In thousands, except share data)
Unaudited


|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |     |   |  |  |        |  
|-------------------------------------------------------------------------------------------- |  | ------ | -- | ------- |  | ---------- | ------ | -------- |  | ------------- | ------ | --------- |  | ------------- | ------- | ----- |  | ----------- | ----- | ------ |  | -------- | --- | - |  |  | ------ | -
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  | Unearned |     |   |  | 
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  | Accumulated |       | Stock- |  |          |     |  
|                                                                                             |  |        |    |         |  | Additional |        |          |  |               |        |           |  |               |         | other |  | Based       |       | Total 
|                                                                                             |  | Common |    | paid-in |  | Retained   |        | Treasury |  | comprehensive |        | Incentive |  | stockholders
|                                                                                             |  | Stock  |    | capital |  | earnings   |        | stock    |  | income        |        | Plan      |  | equity       
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |              
|Balance at December 31, 2002                                                                 |  | $      | 66 |         |  |            | 69,281 |          |  |               | 64,242 |           |  |               | (41,698 | )     |  |             | 1,096 |        |  |          | (14 | ) |  |  | 92,973 |  
|Net loss                                                                                     |  |        |   |         |  |            |       |          |  |               | (1,598 | )         |  |               |        |       |  |             |      |        |  |          |    |   |  |  | (1,598 | )
|Change in net unrealized
loss on investments
available for sale (net of
tax benefit of $543) |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             | (850  | )      |  |          |    |   |  |  | (850   | )
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |     |   |  |  |        |  
|Total comprehensive income                                                                   |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          |    |   |  |  | (2,448 | )
|Cash dividends declared and
paid ($0.16 per share)                                           |  |        |   |         |  |            |       |          |  |               | (708   | )         |  |               |        |       |  |             |      |        |  |          |    |   |  |  | (708   | )
|Common stock repurchased
(28,480 shares at an
average price of $24.94 per
share)             |  |        |   |         |  |            |       |          |  |               |       |           |  |               | (610    | )     |  |             |      |        |  |          |    |   |  |  | (610   | )
|Stock options exercised,
net of taxes                                                        |  |        |   |         |  |            | (94    | )        |  |               |       |           |  |               | 361     |       |  |             |      |        |  |          |    |   |  |  | 267    |  
|Allocation relating to
earned portion of
Stock-Based Incentive Plan                          |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          | 6   |   |  |  | 6      |  
|Fair value of shares
charged to expense for
compensation plans                               |  |        |   |         |  |            | 138    |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          |    |   |  |  | 138    |  
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |     |   |  |  |        |  
|Balance at March 31, 2003                                                                    |  | $      | 66 |         |  |            | 69,325 |          |  |               | 61,936 |           |  |               | (41,947 | )     |  |             | 246   |        |  |          | (8  | ) |  |  | 89,618 |  
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |     |   |  |  |        |  
|Net income                                                                                   |  |        |   |         |  |            |       |          |  |               | 1,532  |           |  |               |        |       |  |             |      |        |  |          |    |   |  |  | 1,532  |  
|Change in net unrealized
gain on investments
available for sale (net of
tax $492)            |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             | 770   |        |  |          |    |   |  |  | 770    |  
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |     |   |  |  |        |  
|Total comprehensive income                                                                   |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          |    |   |  |  | 2,302  |  
|Cash dividends declared and
paid ($0.16 per share)                                           |  |        |   |         |  |            |       |          |  |               | (701   | )         |  |               |        |       |  |             |      |        |  |          |    |   |  |  | (701   | )
|Common stock repurchased
(15,000 shares at an
average price of $22.92 per
share)             |  |        |   |         |  |            |       |          |  |               |       |           |  |               | (447    | )     |  |             |      |        |  |          |    |   |  |  | (447   | )
|Stock options exercised,
net of taxes                                                        |  |        |   |         |  |            | (33    | )        |  |               |       |           |  |               | 475     |       |  |             |      |        |  |          |    |   |  |  | 442    |  
|Allocation relating to
earned portion of
Stock-Based Incentive Plan                          |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          | 6   |   |  |  | 6      |  
|Fair value of shares
charged to expense for
compensation plans                               |  |        |   |         |  |            | 304    |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          |    |   |  |  | 304    |  
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |     |   |  |  |        |  
|Balance at June 30, 2003                                                                     |  | $      | 66 |         |  |            | 69,596 |          |  |               | 62,767 |           |  |               | (41,919 | )     |  |             | 1,016 |        |  |          | (2  | ) |  |  | 91,524 |  
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |     |   |  |  |        |  

See accompanying condensed notes to unaudited consolidated financial statements.

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|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |    |   |  |  |        |  
|-------------------------------------------------------------------------------------------- |  | ------ | -- | ------- |  | ---------- | ------ | -------- |  | ------------- | ------ | --------- |  | ------------- | ------- | ----- |  | ----------- | ----- | ------ |  | -------- | -- | - |  |  | ------ | -
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  | Unearned |    |   |  | 
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  | Accumulated |       | Stock- |  |          |    |  
|                                                                                             |  |        |    |         |  | Additional |        |          |  |               |        |           |  |               |         | other |  | Based       |       | Total 
|                                                                                             |  | Common |    | paid-in |  | Retained   |        | Treasury |  | comprehensive |        | Incentive |  | stockholders
|                                                                                             |  | stock  |    | capital |  | earnings   |        | stock    |  | income        |        | Plan      |  | equity       
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |              
|Balance at June 30, 2003                                                                     |  | $      | 66 |         |  |            | 69,596 |          |  |               | 62,767 |           |  |               | (41,919 | )     |  |             | 1,016 |        |  |          | (2 | ) |  |  | 91,524 |  
|Net income                                                                                   |  |        |   |         |  |            |       |          |  |               | 1,440  |           |  |               |        |       |  |             |      |        |  |          |   |   |  |  | 1,440  |  
|Change in net unrealized
loss on investments
available for sale (net
of tax benefit of $290) |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             | (454  | )      |  |          |   |   |  |  | (454   | )
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |    |   |  |  |        |  
|Total comprehensive income                                                                   |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          |   |   |  |  | 986    |  
|Cash dividends declared
and paid ($0.16 per
share)                                           |  |        |   |         |  |            |       |          |  |               | (711   | )         |  |               |        |       |  |             |      |        |  |          |   |   |  |  | (711   | )
|Stock options exercised,
net of taxes                                                        |  |        |   |         |  |            | (19    | )        |  |               |       |           |  |               | 702     |       |  |             |      |        |  |          |   |   |  |  | 683    |  
|Allocation relating to
earned portion of
Stock-Based Incentive
Plan                          |  |        |   |         |  |            |       |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          | 2  |   |  |  | 2      |  
|Fair value of shares
charged to expense for
compensation plans                               |  |        |   |         |  |            | 260    |          |  |               |       |           |  |               |        |       |  |             |      |        |  |          |   |   |  |  | 260    |  
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |    |   |  |  |        |  
|Balance at Sept. 30, 2003                                                                    |  | $      | 66 |         |  |            | 69,837 |          |  |               | 63,496 |           |  |               | (41,217 | )     |  |             | 562   |        |  |          |   |   |  |  | 92,744 |  
|                                                                                             |  |        |    |         |  |            |        |          |  |               |        |           |  |               |         |       |  |             |       |        |  |          |    |   |  |  |        |  

See accompanying condensed notes to unaudited consolidated financial statements.

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BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Statements of Cash Flows
(In thousands)


|                                                     |                                                                                   |                                                                    |       |          |                           |   |       |          |         |   | 
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----- | -------- | ------------------------- | - | ----- | -------- | ------- | - | 
|                                                     |                                                                                   |                                                                    |       |          | For the
Nine Months Ended
|                                                     |                                                                                   |                                                                    |       |          | September 30,            
|                                                     |                                                                                   |                                                                    |       |          | 2003                      |   | 2002 
|                                                     |                                                                                   |                                                                    |       |          |                           |   |      
|Net
cash flows from operating activities: net income |                                                                                   | $                                                                  | 1,374 |          |                           | $ | 1,075 |         
|                                                     | Adjustments to reconcile net income to net cash provided by operating
activities: |                                                                    |       |          |                           |   |       |          |        
|                                                     | Depreciation, amortization and accretion, net                                     |                                                                    |       | 2,192    |                           |   |       | 8,406    |        
|                                                     | Earned SIP shares                                                                 |                                                                    |       | 14       |                           |   |       | 36       |        
|                                                     | Appreciation in fair value of shares charged to expense for compensation plans    |                                                                    |       | 702      |                           |   |       | 730      |        
|                                                     | Income from bank-owned life insurance                                             |                                                                    |       | (931     | )                         |   |       | (916     | )      
|                                                     | Provision for loan losses                                                         |                                                                    |       | 2,900    |                           |   |       | 850      |        
|                                                     | Loans originated for sale                                                         |                                                                    |       | (572,759 | )                         |   |       | (484,226 | )      
|                                                     | Proceeds from sale of loans                                                       |                                                                    |       | 597,918  |                           |   |       | 489,391  |        
|                                                     | Gain on sale of loans                                                             |                                                                    |       | (8,779   | )                         |   |       | (8,593   | )      
|                                                     | Gain on sale of investment securities                                             |                                                                    |       | (7       | )                         |   |       | (361     | )      
|                                                     | Loss on sale of real estate owned                                                 |                                                                    |       | 65       |                           |   |       |         |        
|                                                     | Decrease
(increase) in accrued interest receivable                                |                                                                    |       | 403      |                           |   |       | (532     | )      
|                                                     | Decrease
(increase) in prepaid expenses and other assets, net                     |                                                                    |       | 837      |                           |   |       | (3,897   | )      
|                                                     |                                                                                   | (Decrease) increase in accrued expenses and other liabilities, net |       |          | (1,160                    | ) |       |          | 293     |  
|                                                     |                                                                                   |                                                                    |       |          |                           |   |       |         
|                                                     |                                                                                   | Net cash provided by operating activities                          |       |          | 22,769                    |   |       |          | 2,256   |  
|                                                     |                                                                                   |                                                                    |       |          |                           |   |       |         
|Cash flows from investing activities:                |                                                                                   |                                                                    |       |          |                           |   |       |         
|                                                     | Proceeds from sale of investment securities available for sale                    |                                                                    |       | 10,000   |                           |   |       | 12,521   |        
|                                                     | Proceeds
from maturities of investments securities held to maturity               |                                                                    |       |         |                           |   |       | 25       |        
|                                                     | Proceeds from maturities of investment securities available for sale              |                                                                    |       | 5,000    |                           |   |       | 2,003    |        
|                                                     | Purchase of investment securities available for sale                              |                                                                    |       | (12,710  | )                         |   |       | (56,246  | )      
|                                                     | Purchase of mortgage-backed securities available for sale                         |                                                                    |       | (81,977  | )                         |   |       | (81,264  | )      
|                                                     | Purchase of mortgage-backed securities held to maturity                           |                                                                    |       | (65,730  | )                         |   |       |         |        
|                                                     | Purchase
of FHLB and Federal Reserve stock                                        |                                                                    |       | (2,933   | )                         |   |       | (344)    |        
|                                                     | Principal payments on mortgage-backed securities available for sale               |                                                                    |       | 117,093  |                           |   |       | 67,335   |        
|                                                     | Principal payments on mortgage-backed securities held to maturity                 |                                                                    |       | 12,706   |                           |   |       | 11,376   |        
|                                                     | Principal payments on investment securities available for sale                    |                                                                    |       | 2,609    |                           |   |       | 1,135    |        
|                                                     | Increase in loans, net                                                            |                                                                    |       | (125,062 | )                         |   |       | (48,856  | )      
|                                                     | Purchases of premises and equipment                                               |                                                                    |       | (1,483   | )                         |   |       | (1,251   | )      
|                                                     | Proceeds from sale of real estate owned                                           |                                                                    |       | 1,375    |                           |   |       |         |        
|                                                     | Additional investment in real estate owned                                        |                                                                    |       | (123     | )                         |   |       |         |        
|                                                     |                                                                                   |                                                                    |       |          |                           |   |       |         
|                                                     |                                                                                   | Net cash used in investing activities                              |       |          | (141,235                  | ) |       |          | (93,566 | )
|                                                     |                                                                                   |                                                                    |       |          |                           |   |       |         

-Continued on next page-

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BOSTONFED BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(In thousands)


|                                                  |                                                                   |                                           |        |                           |         |      |        |          |         |  
|------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------- | ------ | ------------------------- | ------- | ---- | ------ | -------- | ------- | -
|                                                  |                                                                   |                                           |        | For the
Nine Months Ended
|                                                  |                                                                   |                                           |        | September 30,            
|                                                  |                                                                   |                                           |        | 2003                      |         | 2002
|                                                  |                                                                   |                                           |        |                           |         |     
|Cash flows from financing activities:             |                                                                   |                                           |        |                           |         |      |        |         
|                                                  | Increase in deposit accounts                                      |                                           |        | 450                       |         |      |        | 81,100   |        
|                                                  | Repayments of Federal Home Loan Bank advances                     |                                           |        | (471,875                  | )       |      |        | (335,681 | )      
|                                                  | Proceeds from Federal Home Loan Bank advances                     |                                           |        | 581,209                   |         |      |        | 335,356  |        
|                                                  | Cash dividends paid                                               |                                           |        | (2,120                    | )       |      |        | (2,109   | )      
|                                                  | Common stock repurchased                                          |                                           |        | (1,057                    | )       |      |        | (4,149   | )      
|                                                  | Options exercised, net of taxes                                   |                                           |        | 1,392                     |         |      |        | 3,243    |        
|                                                  | Increase in advance payments by borrowers for taxes and insurance |                                           |        | 525                       |         |      |        | 187      |        
|                                                  |                                                                   |                                           |        |                           |         |      |        |         
|                                                  |                                                                   | Net cash provided by financing activities |        |                           | 108,524 |      |        |          | 77,947  |  
|                                                  |                                                                   |                                           |        |                           |         |      |        |         
|                                                  |                                                                   | Decrease in cash and cash equivalents     |        |                           | (9,942  | )    |        |          | (13,363 | )
|Cash and cash equivalents at beginning of period  |                                                                   |                                           | 74,672 |                           |         |      | 95,927 |         
|                                                  |                                                                   |                                           |        |                           |         |      |        |         
|Cash and cash equivalents at end of period        |                                                                   | $                                         | 64,730 |                           |         | $    | 82,594 |         
|                                                  |                                                                   |                                           |        |                           |         |      |        |          |        
|Supplemental disclosure of cash flow information: |                                                                   |                                           |        |                           |         |      |        |         
|Payments during the period for:                   |                                                                   |                                           |        |                           |         |      |        |         
|                                                  |                                                                   | Interest                                  |        | $                         | 30,455  |      |        | $        | 36,804  |  
|                                                  |                                                                   |                                           |        |                           |         |      |        |          |        
|                                                  |                                                                   | Taxes                                     |        | $                         | 3,494   |      |        | $        | 3,336   |  
|                                                  |                                                                   |                                           |        |                           |         |      |        |          |        

See accompanying condensed notes to unaudited consolidated financial statements.

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

NOTE 1: BASIS OF PRESENTATION

The unaudited consolidated financial statements as of September 30, 2003
and for the three- and nine-month periods ended September 30, 2003 and 2002 of
BostonFed Bancorp, Inc., (BostonFed or the Company) and its wholly-owned
subsidiaries, Boston Federal Savings Bank (BFS), Broadway National Bank
(BNB), 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,
2002. BF Funding Corp., a former subsidiary of the Company, was dissolved
during the third quarter of 2003.

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. In
preparing the consolidated financial statements, the Company was required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities for the unaudited consolidated statements of financial condition as
of September 30, 2003 and December 31, 2002, and amounts of revenues and
expenses in the consolidated statements of operations for the three and nine
months ended September 30, 2003 and 2002. All significant inter-company
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior period amounts to conform to the
current period presentation. The results of operations for the three- and
nine-month periods ended September 30, 2003 and 2002 are not necessarily
indicative of the results that may be expected for the entire fiscal year.

NOTE 2: EMPLOYEE STOCK OPTION BENEFITS

The Company measures compensation cost for stock-based compensation plans
using the intrinsic value based method of accounting. Intrinsic value is
measured as the difference between the exercise price of options granted and
the fair market value of the Companys stock at the grant date. No stock-based
employee compensation cost is reflected in net income (loss), as all options
granted under those plans had an exercise price equal to the market value of
the underlying common stock on the date of grant.

Had the Company determined compensation expense consistent with the fair
value approach, the Companys net income (loss) and earnings (loss) per share
would have been reduced to the pro forma amounts indicated below for the three-
and nine-month periods ended September 30:

|                                                                                                                                           |  |                    |       |                   |  |      |        |      |  |  |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | ----------------- |  | ---- | ------ | ---- |  |  | ----- | - |  |  | ----- | -
|                                                                                                                                           |  | Three months ended |       | Nine months ended
|                                                                                                                                           |  | September 30,      |       | September 30,    
|                                                                                                                                           |  |                    |       |                  
|                                                                                                                                           |  | 2003               |       | 2002              |  | 2003 |        | 2002
|                                                                                                                                           |  |                    |       |                   |  |      |        |     
|Net income (loss) as reported                                                                                                              |  | $                  | 1,440 |                   |  |      | (3,530 | )    |  |  | 1,374 |   |  |  | 1,075 |  
|Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effect |  |                    | (24   | )                 |  |      | (27    | )    |  |  | (71   | ) |  |  | (119  | )
|                                                                                                                                           |  |                    |       |                   |  |      |        |      |  |  |       |   |  |  |       |  
|Pro forma net income (loss)                                                                                                                |  |                    | 1,416 |                   |  |      | (3,557 | )    |  |  | 1,303 |   |  |  | 956   |  
|                                                                                                                                           |  |                    |       |                   |  |      |        |      |  |  |       |   |  |  |       |  
|Basic earnings (loss) per share as reported                                                                                                |  |                    | 0.32  |                   |  |      | (0.80  | )    |  |  | 0.31  |   |  |  | 0.24  |  
|Diluted earnings (loss) per share as reported                                                                                              |  |                    | 0.31  |                   |  |      | (0.80  | )    |  |  | 0.30  |   |  |  | 0.23  |  
|Pro forma basic earnings (loss) per share                                                                                                  |  |                    | 0.32  |                   |  |      | (0.80  | )    |  |  | 0.30  |   |  |  | 0.22  |  
|Pro forma diluted earnings (loss) per share                                                                                                |  |                    | 0.30  |                   |  |      | (0.80  | )    |  |  | 0.28  |   |  |  | 0.20  |  

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The Company uses the Black-Scholes option pricing model to determine the
per share weighted average fair value of stock options granted. There were no
stock options granted during the three- or nine-month periods ended September
30, 2003 and 2002.

NOTE 3: COMMITMENTS, CONTINGENCIES AND CONTRACTS

At September 30, 2003, the Company had commitments of $100.4 million to
originate mortgage loans and $2.6 million to purchase loans from correspondent
lenders. Of these $103 million commitments, $86.1 million were adjustable rate
mortgage loans with interest rates ranging from 3.38% to 7.38% and $13.9
million were fixed rate mortgage loans with interest rates ranging from 4.00%
to 8.75%. The Company also had commitments to sell $22.6 million of mortgage
loans.

At September 30, 2003, the Company was servicing first mortgage loans of
approximately $958.8 million, which are either partially or wholly-owned by
others.

NOTE 4: LEGAL SETTLEMENTS

During the nine months ended September 30, 2002, the Company settled two
lawsuits, which had been filed against two of its subsidiaries. The Company
incurred a cost of approximately $1.3 million to settle the
lawsuits during 2002.

NOTE 5: BUSINESS SEGMENTS

The Companys wholly-owned bank subsidiaries, BFS and BNB (collectively
the Banks), have been identified as reportable operating 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. BF Funding Corp.,
which was dissolved in the third quarter of 2003, 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 results of the Company, BF Funding
Corp., through the date of dissolution, BFD Preferred Capital Trust I and BFD
Preferred Capital Trust II comprise the other category.

The Company evaluates performance 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.

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

9



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##### Table of Contents



|                                                 |                              |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |        |           |  
|------------------------------------------------ | ---------------------------- |  | ---------------------- | --------- | --- |  | -------- | ------- | ----- |  | ------------ | --------- | ------ |  | ---- | ------- | - |  | ---- | -------- | ------------ |  | ------ | --------- | -
|                                                 |                              |  | (Dollars in thousands)
|                                                 |                              |  |                        |           |     |  |          |         |       |  | Total        |           |        |  |      |         |   |  |      |          |              |  |       
|                                                 |                              |  |                        |           |     |  |          |         |       |  | Reportable   |           |        |  |      |         |   |  |      |          | Consolidated
|                                                 |                              |  | BFS                    |           | BNB |  | Segments |         | Other |  | Eliminations |           | Totals
|                                                 |                              |  |                        |           |     |  |          |         |       |  |              |           |       
|At or for the three months ended Sept. 30, 2003: |                              |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |        |          
|                                                 | Interest income              |  | $                      | 16,926    |     |  |          | 1,349   |       |  |              | 18,275    |        |  |      | 1,008   |   |  |      | (929     | )            |  |        | 18,354    |  
|                                                 | Interest expense             |  |                        | 8,421     |     |  |          | 310     |       |  |              | 8,731     |        |  |      | 1,788   |   |  |      | (929     | )            |  |        | 9,590     |  
|                                                 | Provision for loan losses    |  |                        | 450       |     |  |          | 0       |       |  |              | 450       |        |  |      |         |   |  |      |          |              |  |        | 450       |  
|                                                 | Non-interest income          |  |                        | 3,927     |     |  |          | 406     |       |  |              | 4,333     |        |  |      |         |   |  |      |          |              |  |        | 4,333     |  
|                                                 | Non-interest expense         |  |                        | 8,910     |     |  |          | 1,032   |       |  |              | 9,942     |        |  |      | 210     |   |  |      |          |              |  |        | 10,152    |  
|                                                 | Income tax expense (benefit) |  |                        | 1,243     |     |  |          | 148     |       |  |              | 1,391     |        |  |      | (336    | ) |  |      |          |              |  |        | 1,055     |  
|                                                 | Net income (loss)            |  |                        | 1,829     |     |  |          | 265     |       |  |              | 2,094     |        |  |      | (654    | ) |  |      |          |              |  |        | 1,440     |  
|                                                 | Total assets                 |  |                        | 1,459,721 |     |  |          | 167,524 |       |  |              | 1,627,245 |        |  |      | 157,903 |   |  |      | (150,616 | )            |  |        | 1,634,532 |  
|Net interest margin                              |                              |  | 2.57                   | %         |     |  | 3.11     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.39   | %        
|Return on average assets                         |                              |  | 0.52                   | %         |     |  | 0.63     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 0.37   | %        
|Return on average equity                         |                              |  | 7.26                   | %         |     |  | 8.14     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 6.18   | %        
|                                                 |                              |  |                        |          
|At or for the three months ended Sept. 30, 2002: |                              |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |        |          
|                                                 | Interest income              |  | $                      | 19,707    |     |  |          | 2,016   |       |  |              | 21,723    |        |  |      | 1,051   |   |  |      | (969     | )            |  |        | 21,805    |  
|                                                 | Interest expense             |  |                        | 10,851    |     |  |          | 458     |       |  |              | 11,309    |        |  |      | 1,788   |   |  |      | (969     | )            |  |        | 12,128    |  
|                                                 | Provision for loan losses    |  |                        | 325       |     |  |          | 25      |       |  |              | 350       |        |  |      |         |   |  |      |          |              |  |        | 350       |  
|                                                 | Non-interest income          |  |                        | 2,659     |     |  |          | 400     |       |  |              | 3,059     |        |  |      | 57      |   |  |      |          |              |  |        | 3,116     |  
|                                                 | Non-interest expense         |  |                        | 16,347    |     |  |          | 1,229   |       |  |              | 17,576    |        |  |      | 213     |   |  |      |          |              |  |        | 17,789    |  
|                                                 | Income tax (benefit) expense |  |                        | (1,745    | )   |  |          | 234     |       |  |              | (1,511    | )      |  |      | (305    | ) |  |      |          |              |  |        | (1,816    | )
|                                                 | Net (loss) income            |  |                        | (3,412    | )   |  |          | 470     |       |  |              | (2,942    | )      |  |      | (588    | ) |  |      |          |              |  |        | (3,530    | )
|                                                 | Total assets                 |  |                        | 1,377,724 |     |  |          | 174,298 |       |  |              | 1,552,022 |        |  |      | 162,079 |   |  |      | (161,608 | )            |  |        | 1,552,493 |  
|Net interest margin                              |                              |  | 2.79                   | %         |     |  | 4.30     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.73   | %        
|Return on average assets                         |                              |  | (1.01                  | )%        |     |  | 1.10     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | (0.92  | )%       
|Return on average equity                         |                              |  | (13.16                 | )%        |     |  | 14.25    | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | (14.07 | )%       
|                                                 |                              |  |                        |          
|At or for the nine months ended Sept. 30, 2003:  |                              |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |        |          
|                                                 | Interest income              |  | $                      | 51,321    |     |  |          | 4,578   |       |  |              | 55,899    |        |  |      | 3,084   |   |  |      | (2,823   | )            |  |        | 56,160    |  
|                                                 | Interest expense             |  |                        | 26,386    |     |  |          | 1,019   |       |  |              | 27,405    |        |  |      | 5,365   |   |  |      | (2,823   | )            |  |        | 29,947    |  
|                                                 | Provision for loan losses    |  |                        | 2,900     |     |  |          | 0       |       |  |              | 2,900     |        |  |      |         |   |  |      |          |              |  |        | 2,900     |  
|                                                 | Non-interest income          |  |                        | 9,617     |     |  |          | 1,202   |       |  |              | 10,819    |        |  |      |         |   |  |      |          |              |  |        | 10,819    |  
|                                                 | Non-interest expense         |  |                        | 25,767    |     |  |          | 3,347   |       |  |              | 29,114    |        |  |      | 624     |   |  |      |          |              |  |        | 29,738    |  
|                                                 | Income tax expense (benefit) |  |                        | 3,361     |     |  |          | 638     |       |  |              | 3,999     |        |  |      | (979    | ) |  |      |          |              |  |        | 3,020     |  
|                                                 | Net income (loss)            |  |                        | 2,524     |     |  |          | 776     |       |  |              | 3,300     |        |  |      | (1,926  | ) |  |      |          |              |  |        | 1,374     |  
|                                                 | Total assets                 |  |                        | 1,459,721 |     |  |          | 167,524 |       |  |              | 1,627,245 |        |  |      | 157,903 |   |  |      | (150,616 | )            |  |        | 1,634,532 |  
|Net interest margin                              |                              |  | 2.62                   | %         |     |  | 3.53     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.47   | %        
|Return on average assets                         |                              |  | 0.25                   | %         |     |  | 0.62     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 0.12   | %        
|Return on average equity                         |                              |  | 3.35                   | %         |     |  | 7.92     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 1.96   | %        
|                                                 |                              |  |                        |          
|At or for the nine months ended Sept. 30, 2002:  |                              |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |        |          
|                                                 | Interest income              |  | $                      | 58,789    |     |  |          | 6,017   |       |  |              | 64,806    |        |  |      | 3,201   |   |  |      | (2,956   | )            |  |        | 65,051    |  
|                                                 | Interest expense             |  |                        | 32,866    |     |  |          | 1,409   |       |  |              | 34,275    |        |  |      | 5,365   |   |  |      | (2,956   | )            |  |        | 36,684    |  
|                                                 | Provision for loan losses    |  |                        | 775       |     |  |          | 75      |       |  |              | 850       |        |  |      |         |   |  |      |          |              |  |        | 850       |  
|                                                 | Non-interest income          |  |                        | 9,833     |     |  |          | 1,149   |       |  |              | 10,982    |        |  |      | 358     |   |  |      |          |              |  |        | 11,340    |  
|                                                 | Non-interest expense         |  |                        | 32,304    |     |  |          | 4,199   |       |  |              | 36,503    |        |  |      | 704     |   |  |      |          |              |  |        | 37,207    |  
|                                                 | Income tax expense (benefit) |  |                        | 929       |     |  |          | 489     |       |  |              | 1,418     |        |  |      | (843    | ) |  |      |          |              |  |        | 575       |  
|                                                 | Net income (loss)            |  |                        | 1,748     |     |  |          | 994     |       |  |              | 2,742     |        |  |      | (1,667  | ) |  |      |          |              |  |        | 1,075     |  
|                                                 | Total assets                 |  |                        | 1,377,724 |     |  |          | 174,298 |       |  |              | 1,552,022 |        |  |      | 162,079 |   |  |      | (161,608 | )            |  |        | 1,552,493 |  
|Net interest margin                              |                              |  | 2.83                   | %         |     |  | 4.27     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.76   | %        
|Return on average assets                         |                              |  | .18                    | %         |     |  | 0.79     | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 0.10   | %        
|Return on average equity                         |                              |  | 2.30                   | %         |     |  | 10.23    | %       |       |  | n.m.         |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 1.46   | %        

n.m. = not meaningful

10



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##### Table of Contents



NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board (FASB) issued
a Statement of Financial Accounting Standard, (SFAS) No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. Companies are permitted to
eliminate a ramp-up effect that the SFAS No. 123, transition rule creates in
the year of adoption. Companies can choose to elect a method that will provide
for comparability amongst years reported. In addition, this Statement amends
the disclosure requirement of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the fair value based method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. See Note 2  Employee Stock Option Benefits.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133,
Accounting for Derivative Instruments and Hedging Activities on Derivative
Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133, resulting in more consistent reporting of
contracts as either derivatives or hybrid instruments. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, and
should be applied prospectively. Implementation issues that have been effective
for fiscal quarters that began prior to June 15, 2003, should continue to be
applied in accordance with their respective effective dates. The implementation
of SFAS No. 149 did not have a material impact on the Companys financial
statements.

FASB
issued Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities  an
Interpretation of Accounting Research Bulletin No. 51. FIN 46
establishes accounting guidance for consolidation of variable interest
entities (VIE) that function to support the activities of
the primary beneficiary. The primary beneficiary of a VIE entity is
the entity that absorbs a majority of the VIEs expected losses,
receives a majority of the VIEs expected residual returns, or both, as a result of ownership,
controlling interest, contractual relationship or other business relationship with a VIE. Prior to the
implementation of FIN 46, VIEs were generally consolidated by an
enterprise when the enterprise had a controlling financial interest
through ownership of a majority of voting interest in the entity. The
Company adopted FIN No. 46 as of February 1, 2003 for all
arrangements entered into after January 31, 2003 and will adopt
as of December 31, 2003 for other arrangements entered into
prior to January 31, 2003 per FASB Staff Position No. FIN 46-6. The
Company does not believe the adoption of this interpretation will
have a material impact on the Company's financial position or results
of operations.

In its
current form, FIN 46 may require the Company to deconsolidate its
investment in Preferred Capital Trust I and II in future financial statements.
The potential de-consolidation of subsidiary trusts of bank holding
companies formed in connection with the issuance of trust preferred
securities appears to be an unintended consequence of FIN 46. It is
currently unknown if, or when, the Financial Accounting Standards
Board will address this issue. In July 2003, the Board of Governors
of the Federal Reserve issued a supervisory letter instructing bank
holding companies to continue to include the trust preferred
securities in their Tier I capital for regulatory capital purposes until notice is given
to the contrary. The Federal Reserve intends to review the regulatory implications of any
accounting treatment changes and, if necessary or warranted, provide
further appropriate guidance. There can be no assurance that the
Federal Reserve will continue to allow institutions to include trust
preferred securities in Tier I capital for regulatory capital
purposes.
[As of September 30, 2003, assuming the Company was not allowed to include the
allowable portion of the $32.0 million in trust preferred securities
issued by Preferred Capital Trust
I and II in Tier I capital, the Company would still
exceed the regulatory required minimums for capital adequacy
purposes.]
If the trust preferred securities were no longer allowed to be
included in Tier I capital, the Company would also be permitted to
redeem the capital securities, which bear interest at 11.295% and
10.875%, respectively, without penalty.

SFAS No.
150. Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. In May 2003,
the FASB issued SFAS No. 150, which establishes standards for how
certain financial instruments with characteristics of both
liabilities and equity should be measured and classified. Certain
financial instruments with characteristics of both liabilities and
equity will be required to be classified as a liability. This
statement is effective for financial instruments entered into or
modified after May 31, 2003, and July 1, 2003 for all other
financial instruments with the exception of existing mandatorily
redeemable financial instruments issued by limited life entities which
have been excluded from the scope of the statement. On November 7,
2003, the FASB issued a FASB Staff Position (FSP) FAS 150-3,
Effective Date, Disclosures, and Transition for Mandatorily
Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities
and Equity. FSP FAS 150-3 indefinitely defers paragraph 9 of SFAS No. 150 for
limited life entities. Paragraph 9 provides guidance or the measurement requirements for
mandatorily redeemable financial instruments.<
/FONT>
11Table of ContentsNOTE 7: ACQUISITION OF BRANCHES AND MERGER OF BROADWAY NATIONAL BANKThe Companys subsidiary Boston Federal Savings Bank signed a Purchase and
Assumption Agreement on July 8, 2003, with Encore Bank to acquire Encore Banks
seven Boston area branches located in Belmont, Lexington, Needham, Newton,
Sudbury, Wellesley and Woburn, Massachusetts. Boston Federal Savings Bank filed
its Interagency Bank Merger Act Application for approval with the Office of
Thrift Supervision (OTS) on August 7, 2003. Regulatory approval was received
from the OTS on October 7, 2003, and the transaction was consummated on October
24, 2003.The Company assumed deposits of
approximately $321.6 million and paid a deposit premium of $4.2
million. The Company estimates that approximately $2.5 million will
also be required to establish a certificate yield adjustment account
for above market rate certificates of deposit (CDs). The certificate
yield adjustment account will be amortized over the remaining terms
of the CDs in order to effectively reduce the interest expense on
these CDs to market interest for similar terms at the time of
assumption. A core deposit intangible (CDI) of $5.0 million is the
estimated value assigned to the deposits. The CDI will be amortized
over the average remaining expected lives of the deposits acquired.
Initially, a seven-year life is estimated and the Company will
amortize the CDI using the sum-of-the-years method. Including the
costs of the transaction, which approximated $400,000, the resulting
goodwill is estimated to be approximately $2.1 million. Good will is
no longer amortized, but is subject to impairment testing, at least
on an annual basis.As part
of the transaction, the Company paid $6,875,000 for four locations
that were previously owned by Encore Bank. The remaining three
locations are leased properties.On September 8, 2003, the Company submitted an application to the OTS
requesting approval to merge its two subsidiary banks, with Boston Federal
Savings Bank being the resultant institution. The Company expects, subject to
regulatory approval, to complete the merger on or before the end of the year,
although the data processing conversion of customer accounts into Boston
Federal Savings Banks system may not be completed until early
2004. The merger will have no effect on the consolidated financial
statement of the Company.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSA. GENERALThe 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.
On October 24, 2003, the Company acquired seven (7) branch offices in the
Boston area from Encore Bank.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 14 other bank branch offices (including those acquired
from Encore Bank in October, 2003) located in Arlington, Bedford, Belmont,
Billerica, Boston, Lexington, Needham, Newton, Peabody, Sudbury, Wellesley (2)
and Woburn (2), all of which are located in the greater Boston metropolitan
area. BFS subsidiary, Forward Financial, moved its headquarters to
Westborough, Massachusetts on October 1, 2003, from its previous location 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.12Table of ContentsThe 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 5 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).Critical Accounting PoliciesThe Companys critical accounting policies were detailed in the Companys
Annual Report for the year ended December 31, 2002, in the Managements
Discussion and Analysis of Financial Condition and Results of Operations and in
Note 1 of the Consolidated Financial Statements. Various elements of the
Companys accounting policies, by their nature, are inherently subject to
estimation techniques, valuation assumptions and other subjective assessments.
The Companys policies with respect to the methodologies used to determine the
allowance for loan losses and asset impairment judgments, including the
valuation of Originated Mortgage Servicing Rights (OMSRs) and the value of
goodwill, are the Companys most critical accounting policies because they are
important to the presentation of the financial condition and results of
operations of the Company and they involve a higher degree of complexity and
require management to make difficult and subjective judgments, which often
require assumption or estimates about highly uncertain matters. The use of
different judgments, assumptions and estimates could result in material
differences in the results of operations or financial condition. The
appropriate, critical accounting policies and their application are reviewed
quarterly by the Audit and Compliance Committee of the Board of Directors.B. FINANCIAL CONDITIONAssetsTotal assets at September 30, 2003 were $1.6 billion, compared to $1.5
billion at December 31, 2002, an increase of $108.9 million. Loans, net of
allowance for loan losses increased by $117.9 million to $1.2 billion at
September 30, 2003 from $1.1 billion at December 31, 2002 as the Company
retained a larger portion of its loan production for portfolio purposes.
Additionally, the Company securitized and retained a portion of its loan
production in the form of mortgage-backed securities held to maturity, which
increased by $53.0 million from $25.4 million at December 31, 2002 to $78.4
million at September 30, 2003. Somewhat offsetting these increases were lower
balances in cash and cash equivalents, mortgage-backed securities available for
sale and loans held for sale. Cash and cash equivalents declined by $9.9
million from a balance of $74.7 million at December 31, 2002 to $64.7 million
at September 30, 2003 due primarily to a reduction in Federal Home Loan Bank
(FHLB) Overnight Deposits. Mortgage-backed securities declined $37.1 million
from a balance of $114.5 million at December 31, 2002, to a balance of $77.4
million at September 30, 2003, due to rapid prepayments of collateralized
mortgage obligations (CMOs). Additionally, loans held for sale declined by
$16.4 million from $31.6 million at December 31, 2002 to $15.2 million at
September 30, 2003 as a lesser portion of loan production was earmarked for
sale during the recent quarter.The Companys loan portfolio was comprised of the following at:13Table of Contents

|                                        |                             |                    |           |                         |           |          |         |         |           | 
|--------------------------------------- | --------------------------- | ------------------ | --------- | ----------------------- | --------- | -------- | ------- | ------- | --------- | 
|                                        |                             |                    |           | 9/30/03                 |           | 12/31/02
|                                        |                             |                    |           |                         |           |         
|                                        |                             |                    |           | In thousands(Unaudited)
|Mortgage loans:                         |                             |                    |           |                         |           |          |         |        
|                                        | Residential 1-4 family      |                    | $         | 814,185                 |           |          |         | 684,277 |          
|                                        | Multi-family                |                    |           | 23,042                  |           |          |         | 25,290  |          
|                                        | Construction and land       |                    |           | 119,083                 |           |          |         | 129,469 |          
|                                        | Commercial real estate      |                    |           | 131,632                 |           |          |         | 134,169 |          
|                                        |                             |                    |           |                         |           |          |         |        
|                                        |                             |                    | 1,087,942 |                         |           |          | 973,205 |        
|                                        |                             |                    |           |                         |           |          |         |        
|Consumer and other loans:               |                             |                    |           |                         |           |          |         |        
|                                        | Home equity and improvement |                    |           | 111,195                 |           |          |         | 94,855  |          
|                                        | Secured by deposits         |                    |           | 504                     |           |          |         | 466     |          
|                                        | Consumer                    |                    |           | 5,328                   |           |          |         | 3,768   |          
|                                        | Business                    |                    |           | 28,046                  |           |          |         | 32,792  |          
|                                        |                             |                    |           |                         |           |          |         |        
|                                        |                             |                    | 145,073   |                         |           |          | 131,881 |        
|                                        |                             |                    |           |                         |           |          |         |        
|                                        |                             | Total loans, gross |           |                         | 1,233,015 |          |         |         | 1,105,086 | 
|                                        |                             |                    |           |                         |           |          |         |        
|Allowance for loan losses               |                             |                    | (13,790   | )                       |           |          | (12,656 | )      
|Construction loans in process           |                             |                    | (35,605   | )                       |           |          | (24,832 | )      
|Net unearned premium on loans purchased |                             |                    | 28        |                         |           |          | 36      |        
|Deferred loan origination costs         |                             |                    | 5,585     |                         |           |          | 3,722   |        
|                                        |                             |                    |           |                         |           |          |         |        
|                                        |                             | Loans, net         |           | $                       | 1,189,233 |          |         |         | 1,071,356 | 
|                                        |                             |                    |           |                         |           |          |         |         |          

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As noted in the above table, the allowance for loan losses amounted to
$13.8 million at September 30, 2003. Management believes the allowance is
adequate to absorb probable loan losses. The allowance for loan losses
increased from $12.7 million at December 31, 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 evaluation of
information currently available. 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
nine months ended September 30, 2003:

|                              |                |   |              |        |  
|----------------------------- | -------------- | - | ------------ | ------ | -
|                              |                |   | In thousands
|Balance at December 31, 2002  |                | $ | 12,656       |       
|                              | Loss provision |   |              | 2,900  |  
|                              | Recoveries     |   |              | 87     |  
|                              | Charge-offs    |   |              | (1,853 | )
|                              |                |   |              |       
|Balance at September 30, 2003 |                | $ | 13,790       |       
|                              |                |   |              |       

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 information currently available to estimate inherent
losses on its loans, future additions to the allowance may be necessary based
on regulatory directives or future events, including changes in local, regional
and national economic conditions, changes in local, regional and national real
estate market and changes in market interest rates. Accordingly, the ultimate
collectibility of a substantial portion of the Companys loan portfolio is
affected by such changes.

As part of the Companys determination of the adequacy of the allowance
for loan losses, the Company monitors its loan portfolio through its management
Asset Classification Committee. The Committee classifies loans depending on
risk of loss characteristics. The most severe classification before a
charge-off or impairment is required is sub-standard. At September 30, 2003, the Company
classified $26.8 million of loans ($26.2 million at BFS and $0.6 million at
BNB) as sub-standard compared to $16.9 million ($16.0 million at BFS and $0.9
million at BNB) at December 31, 2002. The vast majority of the increase in
sub-standard loans, and in turn the quarterly provision, was due to three loans
(two land loans and one hotel loan) being downgraded to sub-standard from
special mention. Non-performing assets at September 30, 2003, totaled $9.8
million or 0.60% of total assets, compared to $6.5 million, or 0.43% of total
assets, at December 31, 2002. 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 September 30, 2003 was
sufficient to provide for anticipated losses inherent in the loan portfolio.

The Companys $13.8 million allowance for loan losses at September 30,
2003 represented 237% of non-performing loans or 1.13% of total loans, compared
to $12.7 million at December 31, 2002, or 230% of non-performing loans and
1.13% of total loans. Management believes these coverage ratios are at prudent
levels considering the levels of classified loans and the combined balance of
construction and land, commercial real estate, multi-family, home equity and
improvement, consumer and business loans. These combined total balances were
approximately $418.3 million at September 30, 2003, and $420.3 million at
December 31, 2002.

Non-performing loans were $5.8 million at September 30, 2003. 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

15



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was $384,000 and $701,000 for the nine-month periods ended September 30,
2003 and 2002, respectively. The amount of interest income that was recorded on
these loans was $239,000 and $568,000 for the nine-month periods ended
September 30, 2003 and 2002, respectively.

At September 30, 2003, there were seven loans with a net balance of $3.7
million, characterized as impaired. During the nine months ended September 30,
2003, the average recorded value of impaired loans was $7.59 million, $64,000
interest income was recognized and $180,000 of interest income would have been
recognized under the loans original terms during the nine-months ended
September 30, 2003. At December 31, 2002, there were eight loans characterized
as impaired with a total balance of $8.4 million. During the nine months ended September 30, 2002, the average
recorded value of impaired loans was $2.7 million, $367,000 interest income was
recognized and $327,000 of interest income would have been recognized under the
loans original terms.

At
September 30, 2003, the Company had two properties in real
estate owned (REO), with a total balance of $4.0 million. The REO was
comprised of a land lot, acquired through foreclosure, in
Westborough, Massachusetts and a commercial real estate property,
acquired through a deed in lieu of foreclosure, in Woburn,
Massachusetts. The Company is currently marketing both properties for
sale. The Company had no REO at December 31, 2002.

Liabilities

Deposit accounts were $960.7 million on September 30, 2003, essentially
unchanged form the $960.3 million balance at December 31, 2002.
Wholesale-brokered certificates of deposit were $125.0 million at September 30,
2003, reflecting a decline of $7.7 million since December 31, 2002. The
Company has not been as aggressive as some of its competition for deposits due
to margin pressures and sufficient liquid assets.

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

|                                           |                      |                                |                            |         |         |                         |         |          |         |         |  | 
|------------------------------------------ | -------------------- | ------------------------------ | -------------------------- | ------- | ------- | ----------------------- | ------- | -------- | ------- | ------- |  | 
|                                           |                      |                                |                            |         |         | 09/30/03                |         | 12/31/02
|                                           |                      |                                |                            |         |         |                         |         |         
|                                           |                      |                                |                            |         |         | In thousands(Unaudited)
|NOW accounts                               |                      |                                | 151,352                    |         |         |                         | 150,342 |         
|Regular and statement savings              |                      |                                | 225,397                    |         |         |                         | 218,133 |         
|Money market                               |                      |                                | 65,507                     |         |         |                         | 62,530  |         
|Demand deposits and official checks        |                      |                                | 114,964                    |         |         |                         | 107,154 |         
|                                           |                      |                                |                            |         |         |                         |         |         
|                                           |                      | Total non-certificate accounts |                            |         | 557,220 |                         |         |          | 538,159 |        
|                                           |                      |                                |                            |         |         |                         |         |         
|Certificate accounts:                      |                      |                                |                            |         |         |                         |         |         
|                                           | 3 to 6 months        |                                |                            | 41,146  |         |                         |         | 52,164   |        
|                                           | 1 to 3 years         |                                |                            | 228,941 |         |                         |         | 246,636  |        
|                                           | Greater than 3 years |                                |                            | 84,450  |         |                         |         | 75,987   |        
|                                           | IRA/KEOGH            |                                |                            | 48,971  |         |                         |         | 47,332   |        
|                                           |                      |                                |                            |         |         |                         |         |         
|                                           |                      |                                | Total certificate accounts |         |         | 403,508                 |         |          |         | 422,119 | 
|                                           |                      |                                |                            |         |         |                         |         |         
|                                           |                      |                                | 960,728                    |         |         |                         | 960,278 |         
|                                           |                      |                                |                            |         |         |                         |         |         
|Expected maturity of certificate accounts: |                      |                                |                            |         |         |                         |         |         
|                                           | Within one year      |                                |                            | 199,415 |         |                         |         | 227,898  |        
|                                           | One to two years     |                                |                            | 124,493 |         |                         |         | 99,230   |        
|                                           | Two to three years   |                                |                            | 45,473  |         |                         |         | 53,250   |        
|                                           | Over three years     |                                |                            | 34,127  |         |                         |         | 41,741   |        
|                                           |                      |                                |                            |         |         |                         |         |         
|                                           |                      |                                | Total                      |         |         | 403,508                 |         |          |         | 422,119 | 
|                                           |                      |                                |                            |         |         |                         |         |         

Federal Home Loan Bank (FHLB) advances and other borrowings increased
$109.3 million, to a balance of $535.9 million at September 30, 2003, from
$426.6 million at December 31, 2002.

C.     COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

GENERAL

During the quarter ended September 30, 2003, the Company earned $1.4
million, or $0.32 basic and $0.31 diluted earnings per share, compared to a net
loss of $3.5 million or $0.80 basic and diluted loss per share for the third
quarter of 2002. The loss incurred in the third quarter of 2002, was primarily
the result of a $7.0 million

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goodwill impairment charge, a $1.7 million originated mortgage servicing
rights (OMSR) impairment charge and an expense of $750,000 to settle a
lawsuit. Significant items affecting earnings for the third quarter of 2003
included the reversal of approximately $1.2 million of the $3.1 million
valuation allowance for OMSRs.

For the nine months ended September 30, 2003, net income was $1.4 million,
or $0.31 basic and $0.30 diluted earnings per share, compared to $1.1 million
or $0.24 basic and $0.23 diluted earnings per share for the nine months ended
September 30, 2002. The current year-to-date earnings were negatively impacted
by the settlement with the Massachusetts Department of Revenue for $1.8 million
for additional state taxes and interest applicable to the real estate
investment trust (REIT), an incremental loan loss provision of $2.1 million,
an $800,000 increase in OMSR impairment charges and continued margin erosion.

Earnings for the nine months ended September 30 2002, were impacted by the
goodwill impairment charge, OMSR impairment charges and the settlement of two
legal disputes.

For the three months ended September 30, 2003 and 2002, the annualized
return on average stockholders equity was 6.18% and (14.07%), respectively.
Comments regarding the components of net income are detailed in the following
paragraphs.

Average Balances, Yields and Costs

The following table sets forth certain information relating to the Company
for the three and nine months ended September 30, 2003 and 2002. The average
yields and costs are derived by dividing income or expense by the average
balance of interest earning assets or interest bearing liabilities,
respectively, for the periods shown. The average balance data is derived from
daily balances. The yields and costs include fees, premiums and discounts,
which are considered adjustments to yields.

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##### Table of Contents



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


|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |      |      |  
|---------------------------------------------------------------- | -------------------------------------- | ------------------------------------------ | ------- | ---------------------- | --------- | -------- | ----- | ------ | ------ | ------- | ----- | -------- | ---- | ---- | ------- | --------- | --------- | ------ | ----- | ------ | ------ | ------- | ----- | ---- | ---- | -
|                                                                 |                                        |                                            |         | 2003                   |           | 2002    
|                                                                 |                                        |                                            |         |                        |           |         
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       | Average  |      |      |         |           |           |        |       |        |        | Average
|                                                                 |                                        |                                            |         | Average                |           |          |       |        |        | Yield/  |       | Average  |      |      |         |           |           | Yield/
|                                                                 |                                        |                                            |         | Balance                |           | Interest |       | Cost   |        | Balance |       | Interest |      | Cost
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |     
|                                                                 |                                        |                                            |         | (Dollars in thousands)
|For the quarter ended September 30:                              |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Assets:                                                          |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Interest-earning assets:                                         |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 | Investment securities (1)              |                                            | $       | 147,088                |           |          | $     | 997    |        |         |       | 2.71     | %    |      | $       | 123,125   |           |        | $     | 1,030  |        |         |       | 3.35 | %   
|                                                                 | Loans, net and loans held for sale (2) |                                            |         | 1,163,428              |           |          |       | 15,995 |        |         |       | 5.50     | %    |      |         | 1,139,154 |           |        |       | 18,541 |        |         |       | 6.51 | %   
|                                                                 | Mortgage-backed securities (3)         |                                            |         | 153,428                |           |          |       | 1,362  |        |         |       | 3.55     | %    |      |         | 156,490   |           |        |       | 2,234  |        |         |       | 5.71 | %   
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total interest-earning assets              |         |                        | 1,463,944 |          |       |        | 18,354 |         |       |          | 5.01 | %    |         |           | 1,418,769 |        |       |        | 21,805 |         |       |      | 6.15 | %
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Non interest-earning assets                                      |                                        |                                            | 102,081 |                        |           |          |       |        |        |         |       |          |      |      | 109,926 |           |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total assets                               |         |                        | 1,566,025 |          |       |        |        |         |       |          |      |      |         |           | 1,528,695 |        |       |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Liabilities and stockholders equity:                            |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Interest-bearing liabilities:                                    |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 | Money market deposit accounts          |                                            |         | 67,417                 |           |          |       | 191    |        |         |       | 1.13     | %    |      |         | 62,083    |           |        |       | 250    |        |         |       | 1.61 | %   
|                                                                 | Savings accounts                       |                                            |         | 222,647                |           |          |       | 516    |        |         |       | 0.93     | %    |      |         | 207,560   |           |        |       | 749    |        |         |       | 1.44 | %   
|                                                                 | Now accounts                           |                                            |         | 151,610                |           |          |       | 50     |        |         |       | 0.13     | %    |      |         | 140,887   |           |        |       | 113    |        |         |       | 0.32 | %   
|                                                                 | Certificate accounts                   |                                            |         | 410,195                |           |          |       | 3,708  |        |         |       | 3.62     | %    |      |         | 428,087   |           |        |       | 4,597  |        |         |       | 4.30 | %   
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total                                      |         |                        | 851,869   |          |       |        | 4,465  |         |       |          | 2.10 | %    |         |           | 838,617   |        |       |        | 5,709  |         |       |      | 2.72 | %
|Borrowed funds (4)                                               |                                        |                                            | 477,083 |                        |           |          | 4,244 |        |        |         | 3.56  | %        |      |      | 449,177 |           |           |        | 5,538 |        |        |         | 4.93  | %   
|Corporation-obligated mandatorily redeemable
capital securities  |                                        |                                            | 32,000  |                        |           |          | 881   |        |        |         | 11.01 | %        |      |      | 32,000  |           |           |        | 881   |        |        |         | 11.01 | %   
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total interest-bearing liabilities         |         |                        | 1,360,952 |          |       |        | 9,590  |         |       |          | 2.82 | %    |         |           | 1,319,794 |        |       |        | 12,128 |         |       |      | 3.68 | %
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Non interest-bearing liabilities                                 |                                        |                                            | 111,936 |                        |           |          |       |        |        |         |       |          |      |      | 108,524 |           |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total liabilities                          |         |                        | 1,472,888 |          |       |        |        |         |       |          |      |      |         |           | 1,428,318 |        |       |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Stockholders equity                                             |                                        |                                            | 93,137  |                        |           |          |       |        |        |         |       |          |      |      | 100,377 |           |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total liabilities and stockholders equity |         | $                      | 1,566,025 |          |       |        |        |         |       |          |      |      |         | $         | 1,528,695 |        |       |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Net interest rate spread (5)                                     |                                        |                                            |         |                        |           | $        | 8,764 |        |        |         | 2.19  | %        |      |      |         |           |           | $      | 9,677 |        |        |         | 2.47  | %   
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Net interest margin (6)                                          |                                        |                                            |         |                        |           |          |       |        |        |         | 2.39  | %        |      |      |         |           |           |        |       |        |        |         | 2.73  | %   
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     
|Ratio of interest-earning assets to
interest-bearing liabilities |                                        |                                            | 107.57  | %                      |           |          |       |        |        |         |       |          |      |      | 107.50  | %         |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |       |        |        |         |       |          |      |      |         |           |           |        |       |        |        |         |       |     

(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 loan investor deposits held in escrow accounts with the
Company related to the Companys loan servicing, which, if such interest
expense was excluded, would result in an average cost of borrowed funds of
3.50% and 4.92% for the three months ended September 30, 2003 and September 30,
2002, 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.

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##### Table of Contents



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

|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |      |      |  
|---------------------------------------------------------------- | -------------------------------------- | ------------------------------------------ | ------- | ---------------------- | --------- | -------- | ------ | ------ | ------ | ------- | ----- | -------- | ---- | ---- | ------- | --------- | --------- | ------ | ------ | ------ | ------ | ------- | ----- | ---- | ---- | -
|                                                                 |                                        |                                            |         | 2003                   |           | 2002    
|                                                                 |                                        |                                            |         |                        |           |         
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       | Average  |      |      |         |           |           |        |        |        |        | Average
|                                                                 |                                        |                                            |         | Average                |           |          |        |        |        | Yield/  |       | Average  |      |      |         |           |           | Yield/
|                                                                 |                                        |                                            |         | Balance                |           | Interest |        | Cost   |        | Balance |       | Interest |      | Cost
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |     
|                                                                 |                                        |                                            |         | (Dollars in thousands)
|For the nine months ended September 30:                          |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Assets:                                                          |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Interest-earning assets:                                         |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 | Investment securities (1)              |                                            | $       | 155,947                |           |          | $      | 3,235  |        |         |       | 2.77     | %    |      | $       | 121,648   |           |        | $      | 3,021  |        |         |       | 3.31 | %   
|                                                                 | Loans, net and loans held for sale (2) |                                            |         | 1,113,726              |           |          |        | 48,429 |        |         |       | 5.80     | %    |      |         | 1,103,561 |           |        |        | 55,729 |        |         |       | 6.73 | %   
|                                                                 | Mortgage-backed securities (3)         |                                            |         | 143,618                |           |          |        | 4,496  |        |         |       | 4.17     | %    |      |         | 146,048   |           |        |        | 6,301  |        |         |       | 5.75 | %   
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total interest-earning assets              |         |                        | 1,413,291 |          |        |        | 56,160 |         |       |          | 5.30 | %    |         |           | 1,371,257 |        |        |        | 65,051 |         |       |      | 6.32 | %
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Non interest-earning assets                                      |                                        |                                            | 105,000 |                        |           |          |        |        |        |         |       |          |      |      | 110,956 |           |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total assets                               |         |                        | 1,518,291 |          |        |        |        |         |       |          |      |      |         |           | 1,482,213 |        |        |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Liabilities and stockholders equity:                            |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Interest-bearing liabilities:                                    |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 | Money market deposit accounts          |                                            |         | 64,997                 |           |          |        | 575    |        |         |       | 1.18     | %    |      |         | 60,850    |           |        |        | 744    |        |         |       | 1.63 | %   
|                                                                 | Savings accounts                       |                                            |         | 217,735                |           |          |        | 1,724  |        |         |       | 1.06     | %    |      |         | 194,480   |           |        |        | 2,114  |        |         |       | 1.45 | %   
|                                                                 | Now accounts                           |                                            |         | 147,712                |           |          |        | 206    |        |         |       | 0.19     | %    |      |         | 138,786   |           |        |        | 337    |        |         |       | 0.32 | %   
|                                                                 | Certificate accounts                   |                                            |         | 415,462                |           |          |        | 11,850 |        |         |       | 3.80     | %    |      |         | 404,056   |           |        |        | 13,742 |        |         |       | 4.53 | %   
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total                                      |         |                        | 845,906   |          |        |        | 14,355 |         |       |          | 2.26 | %    |         |           | 798,172   |        |        |        | 16,937 |         |       |      | 2.83 | %
|Borrowed funds (4)                                               |                                        |                                            | 436,187 |                        |           |          | 12,950 |        |        |         | 3.96  | %        |      |      | 444,768 |           |           |        | 17,105 |        |        |         | 5.13  | %   
|Corporation-obligated mandatorily redeemable
capital securities  |                                        |                                            | 32,000  |                        |           |          | 2,642  |        |        |         | 11.01 | %        |      |      | 32,000  |           |           |        | 2,642  |        |        |         | 11.01 | %   
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total interest-bearing liabilities         |         |                        | 1,314,093 |          |        |        | 29,947 |         |       |          | 3.04 | %    |         |           | 1,274,940 |        |        |        | 36,684 |         |       |      | 3.83 | %
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Non interest-bearing liabilities                                 |                                        |                                            | 110,670 |                        |           |          |        |        |        |         |       |          |      |      | 108,864 |           |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total liabilities                          |         |                        | 1,424,763 |          |        |        |        |         |       |          |      |      |         |           | 1,383,804 |        |        |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Stockholders equity                                             |                                        |                                            | 93,528  |                        |           |          |        |        |        |         |       |          |      |      | 98,409  |           |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total liabilities and stockholders equity |         | $                      | 1,518,291 |          |        |        |        |         |       |          |      |      |         | $         | 1,482,213 |        |        |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Net interest rate spread (5)                                     |                                        |                                            |         |                        |           | $        | 26,213 |        |        |         | 2.26  | %        |      |      |         |           |           | $      | 28,367 |        |        |         | 2.49  | %   
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Net interest margin (6)                                          |                                        |                                            |         |                        |           |          |        |        |        |         | 2.47  | %        |      |      |         |           |           |        |        |        |        |         | 2.76  | %   
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     
|Ratio of interest-earning assets to
interest-bearing liabilities |                                        |                                            | 107.55  | %                      |           |          |        |        |        |         |       |          |      |      | 107.55  | %         |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |                        |           |          |        |        |        |         |       |          |      |      |         |           |           |        |        |        |        |         |       |     

(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 loan investor deposits held in escrow accounts with the
Company related to the Companys loan servicing, which, if such interest
expense was excluded, would result in an average cost of borrowed funds of
3.92% and 5.10% for the nine months ended September 30, 2003 and September 30,
2002, 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.

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Interest Income

Total interest income on interest-earning assets for the quarter ended
September 30, 2003 declined by $3.5 million, or 16.1%, to $18.4 million,
compared to the quarter ended September 30, 2002. The decrease in interest
income was due to a 114 basis point decline in the average yield on interest
earning assets, partially offset by the earnings on the $45.2 million increase
in average interest-earning assets. The average yield on interest-earning
assets declined to 5.01% for the three months ended September 30, 2003 from
6.15% for the three months ended September 30, 2002. For the nine months ended
September 30, 2003, total interest income declined by $8.9 million, or 13.7%,
to $56.2 million, compared to the $65.1 million interest income earned during
the nine months ended September 30, 2002. Similar to the current quarter, the
year-to-date interest income declined due to a 102 basis point decline in the
average yield on interest earning assets, partially offset by the interest
earned on higher average balances. 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 the past few years. Additionally, the proceeds received
from the record levels of loan prepayments and matured investment securities
have been re-invested at much lower interest rates due to the decline in market
interest rates.

Interest income on loans, net, for the quarter ended September 30, 2003
declined by $2.5 million, or 13.5%, to $16.0 million compared to $18.5 million
for the comparable quarter in 2002. The decrease in interest income from loans,
net, for the current three-month period was due to the 101 basis point decline
in the average yield, partially offset by an increase in the average balance of
loans, net. The average yield on loans, net for the three months ended
September 30, 2003 was 5.50%, compared to an average yield of 6.51% for the
three months ended September 30, 2002. For the nine months ended September 30,
2003, interest income on loans, net, was $48.4 million, $7.3 million lower than
the prior year comparable period. The yield on loans, net, declined by 93 basis
points in the current nine-month period. Many adjustable-rate loans continue to
reprice lower as the major repricing indexes remain at historic lows. The
Company has continued investing in interest sensitive loans such as equity
lines, commercial and construction, business and other short-term indexed loans
and selling most of its fixed-rate longer term loans into the secondary market
in order to better protect against the possibility of rising interest rates.

Interest on mortgage-backed securities for the quarter ended September 30,
2003 was $1.4 million, compared to $2.2 million for the quarter ended September
30, 2002. The decline was primarily due to a 216 basis point decline in the
average yield. The average yield declined from 5.71% for the three months ended
September 30, 2002, to 3.55% for the current three-month period. On a
year-to-date basis, interest income on mortgage-backed securities declined from
$6.3 million for the nine months ended September 30, 2002, to $4.5 million for
the comparable period this year also due primarily to a 158 basis point decline
in the average yield. The reduction in yield is a reflection of the low
interest rate environment, which results in the reinvestment of amortization
and prepayments into lower yielding similar investments.

Income from investment securities was $997,000 for the three months ended
September 30, 2003, compared to $1.0 million for the prior year quarter.
Although the income was essentially the same, the Company had substantially
higher average balance of investment securities in the current year quarter.
The average balance of investment securities increased to $147.1 million for
the three months ended September 30, 2003, from an average balance of $123.1
million for the prior year quarter. While the average balance was substantially
higher in the current quarter, the total yield earned on the average balance
was negatively affected by a reduction in the average yield, which declined
from 3.35% for the three months ended September 30, 2002, to 2.71% for the
current quarter.

Income from investment securities was $3.2 million for the nine months
ended September 30, 2003, which was a 6.7% increase compared to the $3.0
million for the nine months ended September 30, 2002. Similar to the current
quarter, the impact on income from much higher average balances was partially
offset by the 54 basis point decline in average yield in the current period,
compared to the nine months ended September 30, 2002. The reduction in yield on
investment securities is also reflective of the declines in market interest
rates; including the historically low rates being paid on federal funds and
Federal Home Loan Bank overnight deposits. 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.

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Interest Expense

Total interest expense on interest-bearing liabilities for the quarter
ended September 30, 2003 declined by $2.5 million, or 20.7%, to $9.6 million
compared to $12.1 million for the quarter ended September 30, 2002. The
decrease in interest expense for the current quarter was primarily due to a 86
basis point reduction in the average cost of interest bearing liabilities,
which was partially offset by the interest expense applicable to a $41.2
million increase in the average balance of interest-bearing liabilities, which
averaged $1.4 billion during the current quarter, compared to an average
balance of $1.3 billion during the quarter ended September 30, 2002. The
average cost of interest-bearing liabilities declined to 2.82% during the
quarter ended September 30, 2003, compared to 3.68% for last years comparable
quarter. For the nine months ended September 30, 2003, total interest expense
was $29.9 million, a decline of $6.8 million compared to the $36.7 million
interest expense for the nine months ended September 30, 2002. The cost of
funds declined from 3.83% for the nine months ended September 30, 2002 to 3.04%
for the current period. The Companys cost of interest bearing liabilities has
declined slower than overall market interest rates as competitive market
conditions, the already low interest rates being paid on deposits and longer
term FHLB advances have precluded more rapid declines in the interest paid on
these interest-bearing liabilities.

Interest expense on deposit accounts was $4.5 million for the quarter
ended September 30, 2003, a decrease of $1.2 million from the $5.7 million for
the quarter ended September 30, 2002. Interest expense on deposit accounts
declined due to a 62 basis point decrease in the average cost of deposits. For
the three months ended September 30, 2003, the average cost of deposits was
2.10%, compared to 2.72% for the three months ended September 30, 2002. Average
balances of deposit accounts of $851.9 million for the current quarter, were
$13.3 million higher than the average of $838.6 for the quarter ended September
30, 2002. For the nine months ended September 30, 2003, interest expense on
deposit accounts declined by $2.5 million to $14.4 million, compared to $16.9
million for the nine months ended September 30, 2002. The cost of deposits
declined by 57 basis points during the current nine months to 2.26%, compared
to 2.83% for the nine months ended September 30, 2002. A portion of the decline
in interest expense caused by the lower cost of deposits was offset by higher
average balances, which averaged $845.9 million during the nine months ended
September 30, 2003, compared to $798.2 million for the prior year period.

Interest expense on borrowed funds was $4.2 million for the three months
ended September 30, 2003, compared to $5.5 million for the three months ended
September 30, 2002. Borrowed funds increased to an average balance of $477.1
million during the current quarter from an average of $449.2 million for the
prior year quarter. The average cost of borrowed funds declined to 3.56% for
the three months ended September 30, 2003, a decline of 137 basis points,
compared to the 4.93% cost of borrowed funds for the three months ended
September 30, 2002. Similar results were attained on a year-to-date basis as
interest expense on borrowed funds declined to $13.0 million for the nine
months ended September 30, 2003 from $17.1 million for the prior year
comparable period. The cost of borrowed funds declined from 5.13% during the
nine months ended September 30, 2002 to 3.96% in the current year period, a
decline of 117 basis points. These declines were the result of a continuation
of the low interest rate environment allowing the Company to renew previous
higher rate, long-term FHLB advances at current lower rates.

Net Interest Income

Net interest income for the three months ended September 30, 2003 was $8.8
million, compared to $9.7 million for the third quarter of 2002, despite
higher average interest-earning assets. The lowest interest rates in decades
have precipitated high levels of loan prepayments, which combined with
reinvestment in lower yielding loans and investment securities, as well as
diminishing opportunities to continue lowering core deposit interest rates,
have caused a decrease in the net interest margin. The net interest margin
declined from 2.73% for the quarter ended September 30, 2002 to 2.39% in the
current quarter. On a linked-quarter basis (June 30, 2003), the net interest
margin declined by six basis points. For the nine months ended September 30,
2003, the net interest income was $26.2 million, a decline of $2.2 million from
the $28.4 million for the nine months ended September 30, 2002. This decline
was caused by a 29 basis point decrease in the net interest margin, which
declined to 2.47% during the current period, compared to 2.76% for the prior
year nine-month period. The above-mentioned issues also affected

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the net interest margin for the nine months ended September 30, 2003.
Additionally, increases in non-performing loans have placed pressure on the net
interest margin.

Provision for Loan Losses

The provision for loan losses was $450,000 for the three months ended
September 30, 2003, compared to $350,000 for the comparable quarter last year.
For the nine months ended September 30, 2003, the provision for loan losses was
$2.9 million, compared to $850,000 for the comparable period last year. The
increase in the provision was necessary due to a charge-off of $1.6 million
during the
second quarter of 2003. Additionally, the Company has provided higher loan loss
provisions due to an increased level of non-performing loans and the higher
balances invested in commercial real estate loans, business loans and other
higher yielding/higher risk loans. At September 30, 2003, the Companys
non-performing assets totaled $9.8 million, or 0.60% of total assets, compared
to the December 31, 2002 balance of $6.5 million, or 0.43% of total assets. See
Item 2, Section B. FINANCIAL CONDITION for further discussion on the Companys
methodology for providing for loan losses.

Non-Interest Income

Total non-interest income increased to $4.3 million for the quarter ended
September 30, 2003, compared to $3.1 million for the quarter ended September
30, 2002, due primarily to improvement in the loan processing and servicing
fees. Loan processing and servicing fees were a negative $341,000 for the
quarter ended September 30, 2003, compared to a negative $1.4 million for the
comparable quarter in the prior year. Higher mortgage interest rates at
September 30, 2003, compared to June 30, 2003, caused estimated mortgage
pre-payment speeds to decline during the current quarter, thereby allowing the
Company to recover approximately $1.2 million of its $3.1 million valuation
allowance on its OMSRs. On a year to date basis, loan processing and servicing
fees were a negative $2.9 million, compared to a negative $1.9 million for last
year to date. The primary reason for the decrease was due to OMSR impairment
charges (net of adjustment to valuation allowance), totaling $3.6 million
during the nine months ended September 30, 2003, and $2.8 million for the prior
year comparable period. The OMSR valuation allowance was $1.9 million at
September 30, 2003. With the most recent adjustment, the OMSR balance of $6.0
million, net of valuation allowance, represents approximately 63 basis points
of the $958.8 million of loans serviced for others.

Gain on sale of loans amounted to $3.0 million for the quarters ended
September 30, 2003 and 2002. On a year to date basis, gain on sale of loans
was $8.8 million, compared to $8.6 million for the nine months ended September
30, 2002. The continued strong levels of gain on sale of loans resulted from
the high volumes of one- to four-family 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 $1.0 million for the quarters ended September
30, 2003 and 2002. On a year-to-date basis gain on sale of manufactured
housing loans was $2.9 million, compared to $3.3 million for the nine months
ended September 30, 2002. These volumes reflect the continuing recessionary
levels of activity in the manufactured housing market.

Deposit service fees increased to $972,000 in the current quarter,
compared to $789,000 in the quarter ended September 30, 2002. On a
year-to-date basis, deposit service fees were $2.7 million, compared to the
prior year-to-date total of $2.2 million. The increase was primarily due to
increases in fees and higher levels of deposit account services activity.

Non-Interest Expense

Total non-interest expense was $10.2 million for the quarter ended
September 30, 2003, compared to $17.8 million for the prior year comparable
quarter. Non-interest expenses were higher in the prior year quarter due
primarily to the $7.0 million goodwill impairment and $750,000 legal
settlement. For the nine months ended September 30, 2003, total non-interest
expense was $29.7 million, compared to $37.2 million for the prior year to date
due to primarily the same issues that impacted the third quarter of 2002. The
total non-interest expense for the

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nine months ended September 30, 2002 was also impacted by a $500,000 legal
settlement at the Companys BNB subsidiary during the first quarter of 2002.

Compensation and benefits were $112,000 lower in the current quarter than
the prior year third quarter as the Company is not accruing a portion of the
short-term incentive plan (STIP) due to the level of current earnings, which
would preclude the payout of a substantial portion of the plan. On a year to
date basis, compensation is $92,000 higher in the nine months ended September
30, 2003, despite the non-accrual of a portion of the STIP mentioned above,
primarily due to the expense incurred for the Companys defined benefits
pension plan (pension plan). The pension plan expense for the current year
to date period was $940,000, compared to $200,000 for the three and nine months
ended September 30, 2002. Prior to July 1, 2002, the pension plans sponsor
had been in an over-funded status. Advertising expense increased to $481,000
in the current quarter from $365,000 in the prior year comparable quarter due
to the rollout of a more focused branding program for the Companys subsidiary,
BFS. Year to date, advertising expense totaled $1.1 million, compared to
$862,000 for the nine months ended September 30, 2002. The increase was also
due to the recent expenditures for the branding program.

Income Tax Expense

Income tax expense for the quarter ended September 30, 2003, was $1.1
million, for an effective tax rate of 42.3%, compared to a tax benefit of $1.8
million, or an effective tax benefit of 34.0% for the quarter ending September
30, 2002. Income tax expense for the nine months ended September 30, 2003 was
$3.0 million, for an effective tax rate of 68.7% due primarily to the REIT
settlement for current and retroactive income taxes with the Mass. DOR in June
of this year. Excluding the effects of the REIT settlement, the effective tax
rate for the nine months ended September 30, 2003, was 41.4%. Income tax
expense was $575,000, for an effective tax rate of 34.8% for the nine months
ended September 30, 2002.

D. 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 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
September 30, 2003, BFS and BNB had $12.2 million of dividends that could be
paid to the Company without regulatory approval. 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.
Additionally, the Company had $7.3 million of securities available for sale and
$2.0 million cash or cash equivalents at September 30, 2003.

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.

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The Company and Banks 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:

|                                              |  |                |         |          |  |   |         | 
|--------------------------------------------- |  | -------------- | ------- | -------- |  | - | ------- | 
|                                              |  | 09/30/03       |         | 12/31/02
|                                              |  |                |         |         
|                                              |  | (In Thousands)
|Cash and cash equivalents                     |  | $              | 64,730  |          |  | $ | 74,672  | 
|Investment securities available for sale      |  |                | 108,179 |          |  |   | 112,888 | 
|Mortgage-backed securities available for sale |  |                | 77,379  |          |  |   | 114,515 | 
|Loans held for sale                           |  |                | 15,234  |          |  |   | 31,614  | 
|                                              |  |                |         |          |  |   |         | 
|Total liquid assets                           |  | $              | 265,522 |          |  | $ | 333,689 | 
|                                              |  |                |         |          |  |   |         | 

These amounts represent 16.2% and 21.9% of the Companys total assets at
September 30, 2003 and December 31, 2002, 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 September 30, 2003, the Banks had
$535.9 million in advances outstanding from the FHLB and had, with existing
collateral, an additional $108.5 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. A
portion of the FHLB advances at September 30, 2003, were of short duration as
the Company anticipated repaying these particular advances with a portion of
the proceeds received upon the assumption of the savings deposits from the
Encore Bank branch acquisition.

At September 30, 2003, the Banks had commitments to originate loans and
unused outstanding lines of credit totaling $302.9 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 September 30, 2003, totaled $199.4 million.

At September 30, 2003, the consolidated stockholders equity to total
assets ratio was 5.7%. As of September 30, 2003, 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 12.4%, 11.0% and 7.2%, respectively. BFSs tier 1
(core) capital, total risk-based, capital, tier 1 risk-based and tangible
equity capital ratios were 6.4%, 11.1%, 9.8% and 6.4%, respectively. BNBs
total risk-based capital, tier 1 risk-based capital and leverage capital ratios
were 14.0%, 12.8% and 5.9%, respectively.




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.

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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; or shorter-term collateralized mortgage obligations
(CMOs); and (4) attempting to reduce the overall interest rate sensitivity of
liabilities by emphasizing longer-term deposits and utilizing longer-term FHLB
advances to reduce reliance on 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 reprice loans and investing cash
flows from maturing assets 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 that 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
September 30, 2003, the Companys one-year gap was a
positive 4.3%
of total assets, compared to a positive 10.7% of total assets at December 31,
2002.

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

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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, 2002 for a detail of the
GAP and NPV tables. There have been no material changes in the net portfolio
value since December 31, 2002.




Item 4. CONTROLS AND PROCEDURES

The Companys management, including the Companys principal executive
officer and principal financial officer, have evaluated the effectiveness of
the Companys disclosure controls and procedures, as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, (the Exchange Act). Based upon their evaluation, the principal
executive officer and principal financial officer concluded that, as of the end
of the period covered by this report, the Companys disclosure controls and
procedures were effective for the purpose of ensuring that the information
required to be disclosed in the reports that the company files or submits under
the Exchange Act with the Securities and Exchange Commission (the SEC) (1) is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and (2) is accumulated and communicated to the
Companys management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure. In addition, based on that evaluation, no change in the Companys
internal control over financial reporting occurred during the quarter ended
September 30, 2003, that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.




PART II - OTHER INFORMATION




Item 1. Legal Proceedings

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.




Item 2. Changes in Securities and Use of Proceeds

None.




Item 3. Defaults Upon Senior Securities

None.




Item 4. Submission of Matters to a Vote of Security Holders

None.




Item 5. Other Information

None.




Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|    |  |                                       
|--- |  | --------------------------------------
|3.1 |  | Restated Certificate of Incorporation*

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|     |  |                                                                  
|---- |  | -----------------------------------------------------------------
|3.2  |  | Amended and Restated Bylaws as of February 23, 2000**            
|     |  |                                                                  
|4.0  |  | Stock Certificate of BostonFed Bancorp, Inc.*                    
|     |  |                                                                  
|31.1 |  | Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
|     |  |                                                                  
|31.2 |  | Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer
|     |  |                                                                  
|32.0 |  | Section 1350 Certifications                                      

*     
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,
filed with the Commission on July 21, 1995, as amended (Registration No.
333-94860).

**     Incorporated herein by reference into this document from Exhibit 3.2 to
the Annual Report on Form 10-K filed with the Commission on March 31, 2003
(File No. 001-13936).

(b)  Reports on Form 8-K filed with the Securities and Exchange Commission

On July 11,2003, the Company furnished a Form 8-K to file a press release
announcing that BFSB had signed a definitive agreement to purchase from Encore
Bank seven (7) branch offices located in Belmont, Lexington, Needham, Newton,
Sudbury, Wellesley and Woburn, Massachusetts.

On July 18, 2003, the Company furnished a Form 8-K to file a press release
announcing its financial results for the quarter ended June 30, 2003.

On July 28, 2003, the Company furnished a Form 8-K to file a press release
announcing that its June 30, 2003 Investor Presentation is available on its
website and that Messrs. Holland and Simas will be speaking at the 4th Annual
KBW Conference at 9:10 a.m. on July 30, 2003, being held in New York City.

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EXHIBIT INDEX

|       |  |                                                                   |  |     
|------ |  | ----------------------------------------------------------------- |  | ----
|(31.1) |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |  | Page
|       |  |                                                                   |  |     
|(31.2) |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |  | Page
|       |  |                                                                   |  |     
|(32.0) |  | Section 1350 Certifications                                       |  | Page

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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:
November 14, 2003 |  | By:          /s/                                | David F. Holland
|                        |  |                                                
|                        |  |                                                 | David F. Holland
|                        |  | President and Chief Executive Officer          
|                        |  |                                                 |                 
|Date:
November 14, 2003 |  | By:          /s/                                | John A. Simas   
|                        |  |                                                
|                        |  |                                                 | John A. Simas   
|                        |  | Executive Vice President,                      
|                        |  | Chief Financial Officer and Corporate Secretary

29