FORM 10-Q

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


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



For Quarter Ended:              September 30, 1998
                            __________________________

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   (    )

Number of shares of common stock, par value $.01 per share,
outstanding as of October 31, 1998:  5,212,441.

<PAGE>

                        BOSTONFED BANCORP INC.
                              FORM 10-Q
                               INDEX



PART I - FINANCIAL INFORMATION                                     Page
______________________________                                     ____

 Item 1.    Financial Statements:

            Consolidated Balance Sheets as of 
            September 30, 1998 (unadudited) and December 31, 1997         2

            Consolidated Statements of Operations for the Three
            and Nine Months ended September 30, 1998 and 1997 (unaudited) 3

            Consolidated Statement of Changes in Stockholders'
            Equity for the Nine Months ended 
            September 30, 1998 (unaudited)                                4

            Consolidated Statements of Cash Flows for the
            Nine Months ended September 30, 1998 and 1997 (unaudited)     5 - 6

            Notes to Consolidated Financial Statements                    7 - 8

            Average Balances and Yield / Costs                            9 - 10
 
 Item 2.    Management's Discussion and Analysis of Financial

            Condition and Results of Operations                          11 - 17
 

 Item 3.    Quantitative and Qualitative Disclosures About
            Market Risk                                                  18 - 19





PART II _ OTHER INFORMATION
___________________________

 Item 1.    Legal Proceedings                                           19

 Item 2.    Changes in Securities                                       19

 Item 3.    Defaults Upon Senior Securities                             19

 Item 4.    Submission of Matters to a Vote of Security Holders         19

 Item 5.    Other Information                                           20

 Item 6.    Exhibits and Reports on Form 8-K                            20

 Signature Page                                                         21


                                       1

<PAGE>
                    BOSTONFED BANCORP, INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                          ---------------------------
                  (Dollars in Thousands, Except Per Share Data)

                                                  September 30, December 31,
                                                      1998         1997
                                                  -----------  --------------
Assets                                            (Unaudited)
------------
Cash and cash equivalents                            $ 27,611   $  24,690
Investment securities available for sale
  (amortized cost of $51,595 and $31,554 at
  September 30, 1998 and December 31, 1997
  respectively)                                        52,267      31,768
Investment securities held to maturity (fair
  value of $ 9,396 and $20,630 at September 30,
  1998 and December 31, 1997, respectively)             9,301      20,630
Mortgage-backed securities available for sale
  (amortized cost of $20,275 and $19,007 at
  September 30, 1998 and December 31, 1997, 
  respectively)                                        20,476      19,125
Mortgage-backed securities held to maturity (fair
  value of $27,960 and $38,903 at September 30, 
  1998 and December 31, 1997, respectively)            27,421      38,350
Mortgage loans held for sale                           27,412       9,817
Loans, net of allowance for loan losses of $7,929
  and $6,600 at September 30, 1998 and December 31, 
  1997, respectively                                  891,098     791,728
Accrued interest receivable                             5,985       5,163
Stock in FHLB of Boston and Federal Reserve Bank       17,802      16,613
Premises and equipment                                  6,750       6,842
Real estate owned                                          58         195
Other assets                                           10,260       9,759
                                                     --------    --------
            Total assets                           $1,096,441    $974,680
                                                     ========    ========

Liabilities and Stockholders' Equity
---------------------------------------
Liabilities:
 Deposit accounts                                    $676,236    $619,821
 Federal Home Loan Bank advances                      323,468     256,500
 Securities sold under agreements to repurchase             0       7,140
 Advance payments by borrowers for taxes
  and insurance                                         3,504       3,133
 Other liabilities                                      9,043       6,475
                                                      -------     -------
            Total liabilities                       1,012,251     893,069
                                                      -------     -------
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 (5,368,341 and 
  5,520,437 shares outstanding, respectively)              66          66
 Additional paid-in capital                            66,268      65,282
 Retained earnings                                     42,789      38,645
 Accumulated other comprehensive income                   515         242
  Less Treasury Stock, (1,221,276 shares and 
   1,069,180 shares, respectively), at cost           (21,438)    (18,146)
  Less unallocated ESOP shares                         (3,174)     (3,174)
  Less unearned Stock-Based Incentive Plan               (836)     (1,304)
                                                      --------    -------- 
            Total stockholders' equity                 84,190      81,611
                                                      --------    --------
Total liabilities and stockholders' equity         $1,096,441    $974,680
                                                      ========    ========

See accompanying condensed notes to consolidated financial statements.
                                      2 
<PAGE>

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

                                 Three Months Ended        Nine Months Ended
                                 ------------------       ------------------
                                 9/30/98    9/30/97       9/30/98    9/30/97
                                 ------------------       ------------------  
                              
                                                  (Unaudited)
                          
Interest income:
 Loans                          $ 16,876  $  15,111      $ 48,772  $  43,583
 Mortgage-backed securities          781      1,040         2,578      3,244
 Investment securities             1,397      1,391         4,198      3,782
                                 -------    -------       -------    -------
   Total interest income          19,054     17,542        55,548     50,609
                                 -------    -------       -------    -------
Interest expense:
 Deposit accounts                  6,170      4,970        17,786     13,904
 Borrowed funds                    4,887      4,630        13,670     13,735
                                 -------    -------       -------    -------
   Total interest expense         11,057      9,600        31,456     27,639
                                 -------    -------       -------    -------
Net interest income                7,997      7,942        24,092     22,970
Provision for loan losses            442        395         1,187      1,275
                                 -------    -------       -------    -------
 Net interest
   income after provision          7,555      7,547        22,905     21,695
Non-interest income:
 Loan processing and servicing 
   fees                              191        321           531        918
 Gain on sale of loans               704        341         2,130        723
 Deposit service fees                419        442         1,242      1,268
 Other                               192        199           593        570
                                 -------    -------       -------    -------
Total non-interest income          1,506      1,303         4,496      3,479
                                 -------    -------       -------    -------
Non-interest expense:
 Compensation and benefits         3,404      3,429        10,312     10,037
 Occupancy and equipment             808        769         2,392      2,311
 Federal deposit insurance
  premiums                            86         74           245        216
 Real estate operations              (2)       (76)          (40)    (1,186)
 Other                             1,566      1,441         5,026      4,220
                                 -------    -------       -------    -------
  Total non-interest expense       5,862      5,637        17,935     15,598
                                 -------    -------       -------    -------
Income before income taxes         3,199      3,213         9,466      9,576
Income tax expense                 1,281      1,512         3,856      4,256
                                 -------    -------       -------    -------
Net income                      $  1,918   $  1,701      $  5,610   $  5,320
                                 =======    =======       =======    =======    
                                                              
Basic earnings per share           $0.38      $0.31         $1.09      $0.95
Diluted earnings 
  per share                        $0.36      $0.30         $1.04      $0.91
Basic weighted average shares
  outstanding                  5,099,921  5,436,453     5,124,218  5,584,322
Common stock equivalents
  due to dilutive effect
  of stock options               227,953    258,641       272,122    258,641
Diluted total weighted average
  shares outstanding           5,327,874  5,695,094     5,396,340  5,842,963

See accompanying condensed notes to consolidated financial statements.
                                      3
<PAGE>
<TABLE>
                             BOSTONFED BANCORP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Changes in Stockholders' Equity
                                        (In Thousands)
                                Nine Months Ended September 30, 1998
                                          (Unaudited)
<CAPTION>
                                                                               
                                                                                                    Unearned
                                                                         Accumulated                 Stock-       
                                        Additional                          other     Unallocated    Based      Total            
                                Common    paid-in   Retained  Treasury  Comprehensive   ESOP       Incentive  stockholders'
                                stock     capital   earnings    Stock       income     shares         Plan       equity
                                ------   --------  ---------   --------   ----------   -----------  ----------  ------------    
<S>                             <C>       <C>        <C>       <C>            <C>         <C>          <C>          <C>
Balance at December 31, 1997    $ 66      65,282     38,645    (18,146)       242         (3,174)      (1,304)      81,611
                                                                       
Net income                       - -         - -      1,889       - -          - -           - -        - -          1,889

Change in net unrealized gain/(loss)
 on investments available for sale
 (net of tax benefit of $89)     - -         - -        - -       - -         (204)          - -        - -           (204)   
                                                                                                                    --------
Total comprehensive income       - -         - -        - -       - -          - -           - -        - -          1,685
                               
Cash dividends declared and
 paid ($0.07 per share)          - -         - -       (387)      - -          - -           - -        - -           (387)
                                                                  
Common Stock repurchased         
 (98,200 shares at an average
  price of $21.27 per share)     - -         - -        - -     (2,089)        - -           - -        - -         (2,089)         
Allocation relating to earned
  portion of Stock-Based
  Incentive Plan                 - -         - -        - -       - -          - -           - -         197           197

Options exercised                - -          (2)       - -         7          - -           - -        - -              5

Appreciation in fair value of
  shares charged to expense for
  compensation plans             - -         217        - -       - -          - -           - -        - -            217
                               -------    -------   --------   ---------    ---------      --------   ---------    --------
                                                                  
Balance at March 31, 1998       $ 66      65,497     40,147    (20,228)         38         (3,174)     (1,107)      81,239
                               -------    -------   --------   ---------    ---------      --------   ---------    --------         

Net income                       - -         - -      1,803       - -          - -           - -        - -          1,803

Change in net unrealized gain/(loss)
 on investments available for sale
 (net of tax of $51)             - -         - -        - -       - -           36            - -        - -             36   
                                                                                                                    --------
Total comprehensive income       - -         - -        - -       - -          - -           - -        - -          1,839
                               
Cash dividends declared and
 paid ($0.10 per share)          - -         - -       (542)      - -          - -           - -        - -           (542)
                                                                  
Common Stock repurchased         
 (30,000 shares at an average
  price of $24.05 per share)     - -         - -        - -       (721)        - -           - -        - -           (721)         
Allocation relating to earned
  portion of Stock-Based
  Incentive Plan                 - -         - -        - -       - -          - -           - -        148            148

Options exercised                - -           1        - -         8          - -           - -        - -              9

Tax benefit of stock
  distributed relating to the
  stock-based incentive plan     - -         317        - -       - -          - -           - -        - -            317

Appreciation in fair value of
  shares charged to expense for
  compensation plans             - -         265        - -       - -          - -           - -        - -            265
                               -------    -------   --------   ---------    ---------      --------   ---------    --------
                                                                  
Balance at June 30, 1998        $ 66      66,080     41,408    (20,941)         74         (3,174)       (959)      82,554
                               -------    -------   --------   ---------    ---------      --------   ---------    --------         

Net income                       - -         - -      1,918       - -          - -           - -        - -          1,918

Change in net unrealized gain/(loss)
 on investments available for sale
 (net of tax of $361)            - -         - -        - -       - -          441           - -        - -            441   
                                                                                                                    --------
Total comprehensive income       - -         - -        - -       - -          - -           - -        - -          2,359
                               
Cash dividends declared and
 paid ($0.10 per share)          - -         - -       (537)      - -          - -           - -        - -           (537)
                                                                  
Common Stock repurchased         
 (24,796 shares at an average
  price of $20.00 per share)     - -         - -        - -       (497)        - -           - -        - -           (497)         
Allocation relating to earned
  portion of Stock-Based
  Incentive Plan                 - -         - -        - -       - -          - -           - -        123            123

Appreciation in fair value of
  shares charged to expense for
  compensation plans             - -         188        - -       - -          - -           - -        - -            188
                               -------    -------   --------   ---------    ---------      --------   ---------    --------
                                                                  
Balance at September 30, 1998   $ 66      66,268     42,789    (21,438)        515         (3,174)       (836)      84,190
                               -------    -------   --------   ---------    ---------      --------   ---------    --------         

                                     
</TABLE>
See accompanying condensed notes to consolidated financial statements.
                                      4
<PAGE>
           BOSTONFED BANCORP, INC. AND SUBSIDIARIES                           
            Consolidated Statements of Cash Flows                             
                        (In Thousands)                                         
                                                                           
                                                 For the Nine Months Ended
                                                       September 30,            
                                                    1998          1997
                                                   -------       -------
                                                      (Unaudited)
Net cash flows from operating activities:
    Net income                                  $    5,610    $    5,320
    Adjustments to reconcile net income to
     net cash provided by operating activities:
      Depreciation, amortization and                              
       accretion, net                                1,010           843
      Earned SIP shares                                468           806  
      Appreciation in fair value of shares      
       charged to expense for compensation plans       670           844
      Provision for loan losses                      1,187         1,275
      Loans originated for sale                   (258,979)      (88,431)
      Proceeds from sale of loans                  243,514        76,125
      Provision for valuation allowance 
       for real estate owned                             -            57
      Gain on sale of real estate held
       for development                                   -          (898) 
      Gain on sale of real estate          
       acquired through foreclosure                    (35)         (539)
      Gain on sale of investment securities              -            (7)
      Gain on sale of loans                         (2,130)         (723)
      Increase in accrued interest receivable         (822)         (325)
      Decrease(increase) in prepaid expenses 
       and other assets, net                          (343)         3,692
      Increase (Decrease) in accrued expenses and
       other liabilities, net                        2,299          (140)
                                                   --------       -------
          Net cash used in                      
           operating activities                     (7,551)       (2,101)
                                                   --------       -------
                                                              
Cash flows from investing activities:                         
  Net cash of acquired institution                       -        11,908
  Proceeds from sale of investment securities
   available for sale                                    -         9,008
  Proceeds from sale of mortgage-backed
   securities available for sale                         -         1,084  
  Proceeds from maturities of investment
   securities held to maturity                      12,350         5,850    
  Proceeds from maturities of investment              
   securities available for sale                     5,000         4,000
  Purchase of investment securities               
   available for sale                              (24,993)      (13,013)
  Purchase of investment securities       
   held to maturity                                 (1,000)       (4,900)
  Purchase of mortgage-backed securities
   available for sale                               (7,392)            -
  Principal payments on mortgage-backed             
   securities available for sale                     6,067         2,560
  Principal payments on mortgage-           
   backed securities held to maturity               10,906         3,478
  Increase in loans, net                          (100,557)      (21,669)
  Purchases of premises and equipment                 (748)         (676)
  Proceeds from sale of real estate owned              172         3,283
  Additional investment in real estate owned             -            (2)       
  Proceeds from sale of real estate held for                                    
   development                                           -         2,102 
  Purchase of FHLB and Federal Reserve Stock        (1,189)            -
                                                    -------       -------
       Net cash provided by (used in) 
         investing activities                     (101,384)        3,013
                                                    -------     ---------
                          -Continued on next page-  
                                      5
<PAGE>                          
           BOSTONFED BANCORP, INC. AND SUBSIDIARIES                           
            Consolidated Statements of Cash Flows                             
                        (In Thousands)                                         
                                                                           
                                                  For the Nine Months Ended
                                                        September 30,        
                                                    1998            1997
                                                   -------        -------
                                                      (Unaudited)

Cash flows from financing activities:                         
    Increase in deposit accounts                    56,415        16,324
    Repayments of securities sold under
     agreement to repurchase                        (7,140)      (33,685)
    Proceeds from securities sold under 
     agreements to repurchase                            -        38,651 
    Repayments of Federal Home Loan            
     Bank advances                                (348,948)     (241,200)
    Proceeds from Federal Home Loan 
     Bank advances                                 415,916       236,200       
    Cash dividends paid                             (1,466)       (1,146) 
    Common stock repurchased                        (3,307)      (10,766)
    Options exercised                                   15             -
    Increase in advance payments by          
     borrowers for taxes and insurance                 371           807
                                                  --------       -------
                                                              
         Net cash provided by  
            financing activities                   111,856         5,185
                                                   -------       -------        
                        
         Net increase       
          in cash and cash equivalents               2,921         6,097
                                                              

Cash and cash equivalents at January 1              24,690        18,278
                                                   -------       ------- 
                                                              
Cash and cash equivalents at September 30       $   27,611    $   24,375
                                                   =======       =======
                                                              
Supplemental disclosure of cash flow                          
 information:
     Payments during 
      the Nine months ended September 30, for:

       Interest                                 $   30,204     $  27,144
                                                   =======       ======= 
                                                              
       Taxes                                    $    3,276     $   4,097 
                                                   =======       =======
                                                              
Supplemental schedule of non-cash                             
 investing activities:
       Transfers of mortgage       
        loans to real estate owned             $         -     $     401
                                                   =======       =======
See accompanying condensed notes to consolidated financial statements.
                                      6                            


<PAGE>
                         BOSTONFED BANCORP INC. AND SUBSIDIARIES
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     (UNAUDITED)


NOTE 1:  BASIS OF PRESENTATION

     The accompanying  unaudited  consolidated  financial statements include the
accounts of BostonFed  Bancorp,  Inc.,  ("BostonFed"  or the  "Company") and its
wholly-owned  subsidiaries,  Boston Federal  Savings Bank ("BFS") and BF Funding
Corporation  as of  September  30, 1998 and December 31, 1997 and for the three-
and  nine-month  periods ended  September 30, 1998 and 1997, and the accounts of
its wholly-owned  subsidiary,  Broadway National Bank ("BNB") effective at close
of business  February 7, 1997  through  September  30,  1998.  Broadway  Capital
Corporation,  the former holding  company of Broadway  National Bank, was merged
into BostonFed effective May 28, 1997.

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles 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 generally  accepted  accounting  principles  for complete
financial  statements.  In the opinion of management all necessary  adjustments,
consisting only of normal recurring  accruals necessary for a fair presentation,
have been  included.  The results of  operations  for the three- and  nine-month
periods ended September 30, 1998 and 1997 are not necessarily  indicative of the
results that may be expected for the entire fiscal year.

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities",  which sets  accounting  and
reporting  standards  for  derivative  instruments  and hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities  in the balance sheet and measure those  instruments  at fair value.
This Statement is effective for years  beginning  January 1, 2000. The impact of
adoption is not expected to be material to the Company.


NOTE 2:  COMMITMENTS,  CONTINGENCIES AND CONTRACTS 

     At September  30, 1998,  the Company had  commitments  of $81.5  million to
originate  mortgage loans and $5.1 million to purchase loans from  correspondent
lenders. Of these $86.6 million commitments,  $49.6 million were adjustable rate
mortgage  loans at rates  ranging  from 5.88% to 9.50% and $37 million  were
fixed rate mortgage loans with interest  rates ranging from 5.88% to 9.00%.  The
Company also had commitments to sell $54.6 million of mortgage loans.

     At September 30, 1998,  the Company was servicing  first  mortgage loans of
approximately  $621.9  million,  which are either  partially or  wholly-owned by
others.

                                      7
<PAGE>
NOTE 3:  LEGISLATIVE MATTERS

     The  proposed  legislation  regarding  elimination  of the  federal  thrift
charter and related  issues  remains  pending  before  Congress.  The Company is
unable to predict whether such legislation will be enacted, the  extent to which
the legislation  would restrict or disrupt its operations or whether the BIF and
SAIF  funds  will  eventually  merge.  See Form 10-K for the  fiscal  year ended
December 31, 1997 for a discussion of the proposed legislation.


NOTE 4:  ACQUISITIONS 

     On February 7, 1997 the Company  acquired  BNB,  headquartered  in Chelsea,
Massachusetts.  The purchase  price was $22 million and was  accounted for using
the purchase method of accounting.  The results of operations include the effect
of the purchase  beginning February 8, 1997. In connection with the acquisition,
the fair value of assets acquired and liabilities assumed were as follows:

                                                 February 7, 1997
                                                 ----------------
                                                  (in thousands)
Assets acquired:
      Cash and cash equivalents                    $   5,758      
      Fed Funds                                       28,150
      Investments available for sale                  35,352     
      Investment securities                            4,646
      Loans, net                                      66,093
      Premises and equipment                           1,972
      Other assets                                     4,192
                                                   ---------
        Total assets acquired                        146,163

Liabilities assumed:
      Deposits                                       125,022
      Borrowed funds                                       -
      Other liabilities                                2,318
                                                    --------
        Total liabilities assumed                    127,340
                                                    --------
        Assets in excess of liabilities               18,823

        Cash paid to Broadway shareholders            22,000
                                                    --------
        Goodwill                                    $  3,177
                                                    ========


The  following  condensed  consolidated  pro-forma  results of the Company  were
prepared as if the  acquisition  had taken place on January 1 of the  respective
year. The pro-forma results are not necessarily indicative of the actual results
of operations had the Company's  acquisition of BNB actually occurred on January
1 of the respective year.

                                              Nine Months Ended
                                                  9/30/97
                                             ------------------
                                    (In thousands except per share amounts)
Total interest and dividend 
 income and total 
 non-interest income                              $ 55,029
Net income                                        $  5,471
Net income per share                                $ 0.94





                                       8

<PAGE>

<TABLE>
                                                  BOSTONFED BANCORP, INC. AND SUBSIDIARIES
                                                     Average Balances and Yields / Costs
                                                                    (Unaudited)
<CAPTION>
For the quarter ended September 30:                             1998                                       1997        
                                               -------------------------------------       ------------------------------     
                                                                            Average                                  Average
                                                 Average                     Yield/         Average                   Yield/
                                                 Balance       Interest       Cost          Balance      Interest      Cost
                                               ----------     ----------   ---------       ---------    ----------  ---------
                                                                            (Dollars in thousands)
Assets:                                                             
<S>                                             <C>            <C>          <C>           <C>             <C>           <C>
Interest-earning assets:                                                             
 Investment securities (1)                      $  91,293      $ 1,397      6.12%         $  91,999       $ 1,391       6.05%
 Loan, net and mortgage loans held for sale (2)   894,643       16,876      7.55%           772,189        15,111       7.83%
 Mortgage-backed securities (3)                    47,100          781      6.63%            60,994         1,040       6.82%
                                               ----------    ---------     ---------       ---------    ----------  ---------
   Total interest-earning assets                1,033,036       19,054      7.38%           925,182        17,542       7.58%
                                                             ---------     ---------                    ----------  ---------
 Non-interest-earning assets                       41,524                                    39,850              
                                               ----------                                  ---------   
   Total assets                               $ 1,074,560                                 $ 965,032              
                                               ==========                                  =========   

Liabilities and Stockholders' Equity:

Interest-bearing Liabilities:
 Money market deposit accounts                  $  62,844          461      2.93%         $  63,264           462       2.92%
 Savings accounts                                 121,499          782      2.57%           119,765           728       2.43%
 NOW accounts                                     103,625          280      1.08%            99,678           268       1.08%
 Certificate accounts                             320,809        4,647      5.79%           243,138         3,512       5.78%
                                                ----------    ---------    ---------       ---------    ----------  ---------
   Total                                          608,777        6,170      4.05%           525,845         4,970       3.78%
 Borrowed Funds (4)                               318,976        4,887      6.13%           303,101         4,630       6.11%
                                                ----------    ---------    ---------       ---------    ----------  ---------
   Total interest-bearing liabilities             927,753       11,057      4.77%           828,946         9,600       4.63%
                                                              ---------    ---------                    ----------  ---------  
 Non-interest-bearing liabilities                  61,450                                    50,103           
                                                ----------                                 ---------      
   Total liabilities                              989,203                                   879,049               
                                                ----------                                 ---------  
 Stockholders' equity                              85,357                                    85,983               
                                                ----------                                 ---------
   Total liabilities and                        
    stockholders' equity                      $ 1,074,560                                 $ 965,032
                                                ==========                                 ========= 
 Net interest rate spread (5)                                  $ 7,997      2.61%                         $ 7,942       2.95%
                                                              =========    =========                    ==========  =========
 Net interest margin (6)                                                    3.10%                                       3.43%
                                                                           =========                                ========= 
Ratio of interest-earning assets to 
 interest-bearing liabilities                     111.35%                                   111.61%                
                                                 =========                                 =========        
<FN>
(1) Includes investment securities available for sale and held to maturity, 
    short-term investments, stock in FHLB-Boston and daily federal funds sold.
(2) Amount is net of deferred loan origination costs, construction loans in 
    process, net unearned discount on loans purchased and allowance for loan 
    losses and includes non-performing loans.
(3) Includes mortgage-backed securities available for sale and held to maturity.
(4) Interest paid on borrowed funds for the periods presented includes 
    interest expense on FNMA deposits held in escrow accounts with the 
    Company related to the Company's FNMA servicing, which, if such interest 
    expense was excluded, would result in an average cost of borrowed funds 
    of 6.01% and 6.08% for the three months ended September 30, 1998 and 
    September 30, 1997, 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.
</FN>
</TABLE>

                                       9
<PAGE>

<TABLE>
                                                  BOSTONFED BANCORP, INC. AND SUBSIDIARIES
                                                     Average Balances and Yields / Costs
                                                                    (Unaudited)
<CAPTION>
For the nine months ended September 30:                         1998                                       1997        
                                               -------------------------------------       ------------------------------     
                                                                            Average                                  Average
                                                 Average                     Yield/         Average                   Yield/
                                                 Balance       Interest       Cost          Balance      Interest      Cost
                                               ----------     ----------   ---------       ---------    ----------  ---------
                                                                            (Dollars in thousands)
Assets:                                                             
<S>                                             <C>            <C>          <C>           <C>             <C>           <C>
Interest-earning assets:                                                             
 Investment securities (1)                      $  90,626      $ 4,198      6.17%         $  84,068       $ 3,782       6.00%
 Loan, net and mortgage loans held for sale (2)   856,036       48,772      7.59%           750,769        43,583       7.74%
 Mortgage-backed securities (3)                    51,497        2,578      6.67%            63,426         3,244       6.82%
                                               ----------    ---------     ---------       ---------    ----------  ---------
   Total interest-earning assets                  998,159       55,548      7.42%           898,263        50,609       7.51%
                                                             ---------     ---------                    ----------  ---------
 Non-interest-earning assets                       41,628                                    39,733              
                                               ----------                                  ---------   
   Total assets                               $ 1,039,787                                 $ 937,996              
                                               ==========                                  =========   

Liabilities and Stockholders' Equity:

Interest-bearing Liabilities:
 Money market deposit accounts                  $  63,235        1,398      2.95%         $  61,422         1,354       2.94%
 Savings accounts                                 118,420        2,230      2.51%           116,078         2,142       2.46%
 NOW accounts                                     103,983          876      1.12%            94,933           786       1.10%
 Certificate accounts                             305,190       13,282      5.80%           227,561         9,622       5.64%
                                                ----------    ---------    ---------       ---------    ----------  ---------
   Total                                          590,828       17,786      4.01%           499,994        13,904       3.71%
 Borrowed Funds (4)                               303,122       13,670      6.01%           306,543        13,735       5.97%
                                                ----------    ---------    ---------       ---------    ----------  ---------
   Total interest-bearing liabilities             893,950       31,456      4.69%           806,537        27,639       4.57%
                                                              ---------    ---------                    ----------  ---------  
 Non-interest-bearing liabilities                  61,609                                    44,816           
                                                ----------                                 ---------      
   Total liabilities                              955,559                                   851,353               
                                                ----------                                 ---------  
 Stockholders' equity                              84,228                                    86,643               
                                                ----------                                 ---------
   Total liabilities and                        
    stockholders' equity                      $ 1,039,787                                 $ 937,996
                                                ==========                                 ========= 
 Net interest rate spread (5)                                  $24,092      2.73%                         $22,970       2.94%
                                                              =========    =========                    ==========  =========
 Net interest margin (6)                                                    3.22%                                       3.41%
                                                                           =========                                ========= 
Ratio of interest-earning assets to 
 interest-bearing liabilities                     111.66%                                   111.37%                
                                                 =========                                 =========        
<FN>
(1) Includes investment securities available for sale and held to maturity, 
    short-term investments, stock in FHLB-Boston and daily federal funds sold.
(2) Amount is net of deferred loan origination costs, construction loans in 
    process, net unearned discount on loans purchased and allowance for loan 
    losses and includes non-performing loans.
(3) Includes mortgage-backed securities available for sale and held to maturity.
(4) Interest paid on borrowed funds for the periods presented includes 
    interest expense on FNMA deposits held in escrow accounts with the 
    Company related to the Company's FNMA servicing, which, if such interest 
    expense was excluded, would result in an average cost of borrowed funds 
    of 5.96% and 5.96% for the nine months ended September 30, 1998 and 
    September 30, 1997, 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.
</FN>
</TABLE>





                                        10
<PAGE>

                       BOSTONFED BANCORP, INC. AND SUBSIDIARIES
                            MANAGEMENT'S DISCUSSION AND
                           ANALYSIS OF FINANCIAL POSITION
                              AND RESULTS OF OPERATIONS


A.  GENERAL

     The Company is the holding  company  for two banking  subsidiaries,  Boston
Federal Savings Bank, a federally  chartered community savings bank and Broadway
National Bank, a nationally  chartered commercial bank. On February 7, 1997, the
Company  acquired BNB and as a result of the  acquisition,  the Company became a
bank holding  company subject to regulation by the Federal Reserve Bank ("FRB").
Boston Federal Savings Bank is regulated by the Office of Thrift Supervision and
Broadway  National  Bank is  regulated by the Office of the  Comptroller  of the
Currency. Substantially all of the Company's business is coordinated through its
subsidiary  banks  and  references  herein  to  "Company"  include  the banks as
appropriate.  The  Company's  principal  business  has been and  continues to be
attracting  retail deposits from the general public in the areas surrounding its
branch offices and investing those deposits,  together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans.  To a lesser  extent,  the  Company  invests  in  multi-family  mortgage,
commercial real estate,  construction and land, consumer loans,  business loans,
and investment securities. The Company originates loans for investment and loans
for sale in the secondary market,  generally  retaining the servicing rights for
loans  sold.  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 mortgage loans,
and  to  a  lesser  extent,   interest  and  dividends  on  its  investment  and
mortgage-backed  securities,  fees,  gains on sale of loans  and loan  servicing
income.  The  Company's  primary  sources of funds are  deposits,  principal and
interest  payments  on loans  and  mortgage-backed  securities,  FHLB  advances,
repurchase agreements and proceeds from the sale of loans. Since the acquisition
of BNB was  consummated  at the close of  business  on  February  7,  1997,  the
financial  statements of the Company and the following  discussion regarding the
Company's  financial  condition at Sept 30, 1998 and December 31, 1997,  and the
results of operations  for the three- and nine- months ended  September 30, 1998
and 1997  includes  information  and data of BNB from  February 8, 1997  through
September 30, 1998.


B. YEAR 2000 ISSUE

     Included  in other  non-interest  expenses  for the three-  and  nine-month
periods  ended  September  30, 1998 and 1997 are charges  incurred in connection
with the  modification  or  replacement of software or hardware in order for the
Company's  computer  and related  systems to  properly  recognize  dates  beyond
December 31, 1999.

     The impact of computer  systems  ability to process dates beyond 1999,  the
Year 2000 issue,  creates a significant  business challenge for the Company. The
Company is addressing this issue as it affects all of its software, hardware and
other  systems to insure the  Company is Year 2000  compliant.  The  Company has
developed a plan that is based upon the FFIEC  (Federal  Financial  Institutions
Examination  Council)  recommended phases and time frames for insuring Year 2000
compliance.  These phases include awareness, assessment,  renovation, validation
and  implementation.  

     The Company has completed the awareness phase through development of a Year
2000 committee and reporting structure.  The assessment phase has been completed
with a review of all  software,  hardware  and  business  systems  including  an
evaluation  of the  critical  nature  and year  2000  business  risk  that  each
application presents. The Company primarily utilizes third-party vendors for the
processing of its critical data processing applications.  The Company is working
closely with these critical vendors to monitor renovation and validation efforts
to insure that the time frames set out in the Company's plan are met. Based upon
information  currently  available,  the Company  estimates  that 72% of critical
applications   are  renovated  at  September  30,  1998.  It  is  expected  that
substantially  all  renovations  will be completed  by December  31,  1998.  The
Company has created an internal Year 2000 testing  environment and has developed
test scripts  incorporating  typical  transactions in order to test the modified
systems.  Testing  with  critical  application  vendors will begin in the fourth
quarter of 1998 and is expected to be  completed  by March 31, 1999.  The target
date for completion of the  implementation  phase is June 30, 1999, a date prior
to any anticipated impact on operating systems.

     In the event that the Company's  third-party vendors do not successfully or
timely achieve Year 2000 compliance, the Company's operations could be adversely
effected.  The Company is developing  contingency plans in the event that one or
all of these significant vendors fails to meet Year 2000 operating requirements.
Contingency plans for unexpected Year 2000 related business interruption will be
completed  after  testing  of  modified  systems,  but  prior to June 30,  1999.
Further,  the Company will seek  alternative  vendors should one of the critical
vendors  fail to achieve  satisfactory  Year 2000  compliance.  In the event the
Company's  current third party data processing  vendors were not to achieve Year
2000 compliance and the Company could not engage alternative vendors in a timely
manner, the Company's operations would be adversely impacted.

     The  total  cost of the Year 2000  project  is  estimated  at  $300,000  to
$500,000 which includes  estimated costs and time  associated  with  third-party
Year 2000 issues, based on information  currently  available.  Through September
30, 1998 the Company has expensed approximately $100,000 to date toward the Year
2000 remediation efforts. A significant portion of the costs associated with the
year 2000 project are not expected to be incremental to the Company,  but rather
represent a reprioritization of existing internal systems technology resources.

     The  costs  of the  project  and the  date on which  the  Company  plans to
complete the Year 2000 modifications are based upon management's best estimates,
which are derived utilizing numerous assumptions of future events, including the
continued availability of certain resources,  third-party modification plans and
other factors.  However,  there can be no guarantee that these estimates will be
achieved and actual  results  could differ  materially  from those  anticipated.
Specific  factors  that might cause such material differences  include,  but are
not limited to, the availability and cost of personnel trained in this area, the
ability  to  locate  and  correct  all  relevant  computer  codes,  and  similar
uncertainties.
                                       11

<PAGE>




C. FINANCIAL CONDITION


     Total assets at September  30, 1998 were $1.1  billion,  compared to $974.7
million at December 31, 1997, an increase of $121.8 million or 12.5%.  The major
components of asset growth included  investment  securities  available for sale,
mortgage  loans  held for sale and  loans,  net of  allowance  for loan  losses.
Investment securities available for sale increased to $52.3 million at September
30, 1998 from $31.8  million at December 31, 1997 due primarily to an investment
in two mutual  funds that invest  mainly in  government  agency  mortgage-backed
securities. Mortgage loans held for sale increased from $9.8 million at December
31, 1997 to $27.4 million at September 30, 1998 due to the increased activity in
the secondary market  resulting from heavy volume of fixed- and  adjustable-rate
loan originations for sale.  Loans, net of allowance for loan losses,  increased
by $99.4  million,  or 12.6%,  from a balance of $791.7  million at December 31,
1997 to $891.1  million at September 30, 1998,  primarily due to growth in BFS's
loan portfolio. These increases were partially offset by decreases in investment
securities held to maturity and  mortgage-backed  securities held to maturity of
$11.3  million and $10.9  million,  respectively,  compared  to the  balances at
December 31, 1997. Deposit accounts increased by $56.4 million from a balance of
$619.8  million at December 31, 1997 to a balance of $676.2 million at September
30, 1998. The increase is mainly  attributable  to the successful  roll-out of a
new 15-month retail certificate of deposit acquisition program initiated by BFS.
BNB's deposits also grew by $2.7 million during the nine-months  ended September
30, 1998.  Federal Home Loan Bank  advances  increased  by $67.0  million,  to a
balance of $323.5 million at September 30, 1998 from a balance of $256.5 million
at  December  31,  1997.  These  advances  were  used to fund  the  increase  in
investments  available for sale and mortgage loans held for sale and loans, net.
Other borrowed money (repurchase agreements),  which amounted to $7.1 million at
December 31, 1997, were repaid during the nine-months ended September 30, 1998.




                                      12
<PAGE>





D.  LIQUIDITY AND CAPITAL RESOURCES

     The Company's  primary sources of funds are deposits,  (including  brokered
deposits),    principal   and   interest   payments   on   loans,   investments,
mortgage-backed  and  related  securities  and loan  sales,  FHLB  advances  and
repurchase agreements.  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.  The
Company has maintained in excess of the required minimum levels of liquid assets
at BFS as defined by OTS regulations.  This requirement,  which may be varied at
the direction of the OTS depending  upon economic  conditions and deposit flows,
is based upon a  percentage  of the BFS's  deposits and  short-term  borrowings.
BFS's current required liquidity ratio is 4%. At September 30, 1998 and December
31, 1997 BFS's  liquidity ratio was 4.7% and 5.7%  respectively.  Management has
maintained  liquidity as close as possible to the minimum requirement so that it
may invest any excess  liquidity in higher yielding  interest-earning  assets or
use  such  funds to  repay  higher  cost  FHLB  advances.  The OCC does not have
specific  guidance  for  liquidity  ratios for BNB,  but does  require  banks to
maintain  reasonable  and prudent  liquidity  levels.  Management  believes such
levels have been maintained since the acquisition date.

     The Company's  most liquid assets are cash,  overnight  federal funds sold,
and loans and  investments  available  for sale.  The levels of these assets are
dependent  on  the  Company's  operating,   financing,   lending  and  investing
activities  during any given period. At September 30, 1998, BFS' cash, loans and
investments  available  for sale  totaled  $84.1  million or 8.8% of BFS's total
assets.  While not all of these  liquid  assets  qualify  for  BFS's  regulatory
liquidity  requirements,  other assets in the held to maturity  category qualify
for regulatory liquidity requirements.

     The Company has other sources of liquidity if a need for  additional  funds
arises,  including FHLB advances.  At September 30, 1998, BFS had $323.5 million
in advances  outstanding  from the FHLB. The Company  generally does not pay the
highest deposit rates in its market and accordingly utilizes alternative sources
of funds such as FHLB advances and repurchase agreements to supplement cash flow
needs.

     At September 30, 1998, the Company had  commitments to originate  loans and
unused  outstanding  lines  of  credit  totaling  $148.0  million.  The  Company
anticipates  that it will have  sufficient  funds  available to meet its current
loan origination commitments. Certificate accounts which are scheduled to mature
in less than one year from September 30, 1998, totaled $166.8 million.

     At  September  30, 1998,  the  consolidated  stockholders'  equity to total
assets ratio was 7.7%.  As of  September  30,  1998,  the  Company,  BFS and BNB
exceeded  all  of  their   regulatory   capital   requirements.   The  Company's
consolidated  Tier 1 capital,  total  capital  and Tier 1 leverage  ratios  were
13.7%,  14.9% and 7.5%,  respectively.  BFS's tier 1, total  risk-based,  tier 1
risk-based and tangible equity capital ratios were 5.2%,  10.4%,  9.2% and 5.2%,
respectively. BNB's respective capital ratios were 9.9%, 16.6%, 15.5%, and 7.6%.

                                       13

<PAGE>
E.  COMPARISON OF THREE- AND NINE-MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

   General

     Earnings for the quarter ended  September  30, 1998 were $1.9  million,  or
$.38 basic earnings per share,  $.36 per share on a diluted  basis,  compared to
earnings of $1.7 million,  or $.31 basic and $.30 diluted earnings per share for
the third quarter of 1997. Earnings for the nine-months ended September 30, 1998
were $5.6  million  or $1.09  basic  earnings  per  share,  $1.04 per share on a
diluted  basis,  compared to earnings of $5.3 million or $.95 basic earnings per
share,  $.91 per share on a diluted basis during the nine-months ended September
30, 1997. Earnings for the nine-months ended September 30, 1998 were enhanced by
gain on sale of loans of $2.1 million  (before  income  taxes)  compared to last
year's first nine months gain on sale of loans totaling  $723,000 (before income
tax).Earnings  for the first nine months of 1997 were also  enhanced by earnings
of $1.1  million  (before  income  taxes)  from real  estate  operations,  which
included  a gain of  $891,000  (before  income  taxes),  from the sale of a land
sub-division  owned by a subsidiary of BFS. The Company's  annualized  return on
average  assets  was .72% and the  annualized  return on  average  stockholders'
equity was 8.88% during the nine-months  ended  September 30, 1998,  compared to
 .76% and 8.18%,  respectively,  for the  nine-months  ended  September  30, 1997
(annualized).  Comments  regarding the  components of net income are detailed in
the following paragraphs.

   Interest Income

     Total  interest  income on  interest-earning  assets for the quarter  ended
September  30,  1998  increased  by $1.5  million,  or 8.6%,  to $19.1  million,
compared to the quarter  ended  September  30,  1997.  The  increase in interest
income  was  primarily  attributable  to a $107.9  million  increase  in average
interest-earning  assets,  offset by a 20 basis  point  decrease  in the average
yield. The average yield on  interest-earning  assets decreased to 7.38% for the
three  months  ended  September  30, 1998 from 7.58% for the three  months ended
September 30, 1997. For the first nine months of 1998, total interest income was
$55.5 million,  compared to $50.6 million for the same period in 1997. The major
reason  for  the  increase   was  also  the   increased   average   balances  of
interest-earning  assets which were $998.2 million during the nine-months  ended
September 30, 1998,  compared to $898.3 million during the comparable  period in
1997. The average yields during the  nine-months  ending  September 30, 1998 and
1997 were 7.42% and 7.51%, respectively.

     Interest  income on loans,  net, for the quarter  ended  September 30, 1998
increased by $1.8 million,  or 11.7%, to $16.9 million compared to $15.1 million
for the same quarter in 1997. On a year to date basis, interest income on loans.
net,  increased  $5.2  million to $48.8  million from the $43.6  million  earned
during the first nine  months of 1997.  The  increase  in  interest  income from
loans,  net, for the quarter and nine months ended September 30, 1998,  compared
to the same  periods  last year,  was  primarily  attributable  to  increases in
average  balances  of $122.5  million  and  $105.3  million,  respectively.  The
earnings  impact  of  higher  balances  of loans,  net was  partially  offset by
declines in the average yield on loans,  net which  decreased by 28 basis points
to 7.55% during the quarter ended  September 30, 1998,  compared to 7.83% during
the quarter  ended  September  30, 1997.  On a year to date basis,  the yield on
loans,  net,  decreased from 7.74% for the nine months ended September 30, 1997,
to 7.59% during the current year period. Interest on mortgage-backed  securities
for the quarter  ended  September  30, 1998  decreased  by $259,000 to $781,000,
compared to $1.0 million for the same quarter in 1997.  This  decrease in income
was due primarily to the $13.9 million lower average  balance during the quarter
ended  September  30, 1998,  compared to the quarter  ended  September 30, 1997.
Additionally,  the average  yield  declined by 19 basis  points to an average of
6.63% during the September  30, 1998 quarter,  compared to the same quarter last
year. On a year to date basis,  interest on mortgage-backed  securities was $2.6
million,  compared to last year's comparable period total of $3.2 million,  also
due to  declines  in  average  balances  and  yields.  The  average  balance  of
mortgage-backed  securities  declined by $11.9  million to $51.5 million for the
nine-months  ended  September 30, 1998 compared to the prior year period average
balance of $63.4  million.  Average  yields  were also lower by 15 basis  points
during the current period.

     Income from investment securities was $1.4 million for each of the quarters
ending  September  30,  1998 and  1997.  On a year to date  basis,  income  from
investment  securities was $4.2 million and $3.8 million,  respectively  for the
nine-months  ended  September 30, 1998 and 1997. The average yield on investment
securities  increased  by 7 and 17 basis  points,  respectively,  in the current
three- and nine-month periods, compared to last year's periods due to the higher
yields received by BFS on the two mutual funds it invested in January, 1998. The
average balance  decreased by $706,000 to an average of $91.3 million during the
quarter  ended  September  30,  1998,  compared  to an average  balance of $92.0
million for the quarter ended  September  30, 1997.  For the  nine-months  ended
September 30, 1998, the average investment securities balance was $90.6 million,
compared to $84.1 for the prior period. The increase in the average balance also
is primarily due to BFS's investment in the mutual funds previously mentioned.

                                      14
<PAGE>
   Interest Expense

     Total  interest  expense on  interest-bearing  liabilities  for the quarter
ended  September 30, 1998  increased by $1.5 million or 15.6%,  to $11.1 million
compared to the quarter  ended  September  30,  1997.  The  increase in interest
expense  for the  quarter  ended  September  30,  1998 was due  primarily  to an
increase of $98.8 million in the average balance of interest-bearing liabilities
which averaged $927.8 million during the current quarter, compared to an average
balance of $828.9  million  during the quarter  ended  September  30, 1997. A 14
basis point increase in the average cost of  interest-bearing  liabilities  also
contributed  to  the  increase  in  interest   expense.   The  average  cost  of
interest-bearing  liabilities  increased  to  4.77%  during  the  quarter  ended
September 30, 1998,  compared to 4.63% for last year's comparable  quarter. On a
year to date basis,  interest expense on  interest-bearing  liabilities  totaled
$31.5 million,  compared to last year's to date total of $27.6 million,  a 14.1%
increase.  The increase was caused by the combined  effects of an 12 basis point
increase  in the  average  cost of funds and an  increase  of $87.4  million  in
average  balances during the nine months ended  September 30, 1998,  compared to
the prior year period.

     Interest expense on deposit accounts was $6.2 million for the quarter ended
September  30,  1998,  an increase of $1.2 million from the $5.0 million for the
quarter ended  September 30, 1997. The increase in the expense was due to higher
average deposit account  balances of $82.9 million and a 27 basis point increase
in the  average  cost of funds  during the quarter  ended  September  30,  1998,
compared to the quarter ended  September 30, 1997. A major reason for the higher
cost of funds is due to the Company's use of wholesale brokered  certificates of
deposit,  which at September 30, 1998 amounted to $82.7 million  compared to $35
million at September 30, 1997. The average balance of deposit accounts increased
from  $525.8  million for the quarter  ending  September  30, 1997 to an average
balance of $608.8 million for the quarter ending September 30, 1998,  mostly due
to the  successful  roll-out  of a new 15 month  retail  certificate  of deposit
acquisition  program  initiated by BFS during 1998.  For the  nine-months  ended
September  30, 1998,  interest  expense on deposit  accounts was $17.8  million,
compared $13.9 million for the prior year period, an increase of $3.9 million or
28.1%. The increase was caused by the combined effects of higher average deposit
account  balances that averaged  $590.8  million  during the  nine-months  ended
September  30,  1998,  compared  to $500.0  million  in the prior  year  period.
Additionally,  a 30 basis point increase in the average cost of deposit accounts
also  contributed  to the  increase in  interest  expense.  Interest  expense on
borrowed funds  increased from $4.6 million for the quarter ended  September 30,
1997 to $4.9 million for the current quarter. The average cost of borrowed funds
increased  from 6.11% during the quarter ended  September 30, 1997 to an average
of 6.13% during the current quarter.  The average balance  increased from $303.1
million during the third quarter of 1997 to an average balance of $319.0 million
during the third quarter of 1998. For the  nine-months  ended September 30, 1998
and 1997, interest expense on borrowed funds was $13.7 million. The average cost
of borrowed funds  increased by four basis points from 5.97% for the nine-months
ended  September  30, 1997 to 6.01% for the current nine  months.  The impact of
this increase was offset by a reduction in the average balance of borrowed money
from an average  balance  of $306.5  million  for the  nine-month  period  ended
September 30, 1997 to an average  balance of $303.1  million  during the current
period.

Net Interest Income

     Net  interest  income  during the third  quarter of 1998 was $8.0  million,
compared to $7.9 million for the third quarter of 1997 as  industry-wide  margin
shrinkage was offset by net interest income earned from asset growth.  On a year
to date basis, net interest income was $24.1 million,  compared to $23.0 million
for the prior year to date.  The net interest  margin,  at 3.10% for the quarter
ended  September 30, 1998 was 33 basis points lower than last year's  comparable
quarter.  On a year to date basis, the net interest margin of 3.22% was 19 basis
points lower than last year to date. The net interest  margin was compressed due
to the effects of a  continuation  of the  relatively  flat  interest rate yield
curve.

                                      15
<PAGE>

Provision for Loan Losses

     The  Company's  provision  for loan losses  amounted  to  $442,000  for the
quarter ended  September 30, 1998,  compared to the $395,000 loan loss provision
for the comparable  quarter last year. For the  nine-months  ended September 30,
1998 and 1997,  the provision  was $1.2 million and $1.3 million,  respectively.
The allowance for loan losses  increased  from $6.6 million at December 31, 1997
to $7.9 million at September 30, 1998 due to the year-to-date  provision and net
recoveries.

     The Company  establishes  provisions for loan losses,  which are charged to
operations,  in order to maintain the allowance for loan losses at a level which
is deemed to be  appropriate  based  upon  management's  assessment  of the risk
inherent in its loan portfolio in light of current economic  conditions,  actual
loss  experience,  industry  trends and other  factors which may affect the real
estate  values in the  Company's  market area.  In addition  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the Company's  allowance for loan losses.  Such agencies may require the Company
to make  additional  provisions for estimated loan losses based upon  judgements
different  from those of  management.  While  management  believes  the  current
allowance for loan losses is adequate,  actual losses are dependent  upon future
events, and as such, future provisions for loan losses may be necessary. As part
of the Company's determination of the adequacy of the allowance for loan losses,
the  Company  monitors  its loan  portfolio  through  its  Asset  Classification
Committee.   The  Committee   classifies   loans   depending  on  risk  of  loss
characteristics.  The most severe classification before a charge-off is required
is "sub-standard." At September 30, 1998, the Company classified $5.4 million of
loans ($4.5 million at BFS and $891,000 at BNB) as sub-standard compared to $5.8
million ($4.3 million of BFS and $1.5 million of BNB) at December 31, 1997.  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, 1998 was  sufficient  to provide for  anticipated
losses inherent in the loan portfolio.

     The  Company's  allowance  for loan losses at  September  30, 1998 was $7.9
million,  which  represented  779.7%  of  non-performing  loans or .86% of total
loans,   compared  to  $6.6  million  at  December   31,  1997,   or  469.8%  of
non-performing loans and .82% of total loans.

     Non-performing loans at September 30, 1998 amounted to $1.0 million or .11%
of total loans,  compared to $1.4 million,  or .17% of total loans,  at December
31, 1997.

     The amount of interest income on non-performing  loans that would have been
recorded had these loans been current in accordance  with their original  terms,
was $67,000 and $137,000 for the nine-month periods ended September 30, 1998 and
1997,  respectively.  The amount of interest  income that was  recorded on these
loans was $33,000 and $36,000 for the  nine-month  periods  ended  September 30,
1998 and 1997, respectively.

     At September 30, 1998, loans characterized as impaired,  (which include all
non-performing loans and some other sub-standard  assets),  pursuant to SFAS No.
114,  "Accounting by Creditors for Impairment of a Loan",  ("SFAS 114") and SFAS
No. 118,  "Accounting by Creditors for Impairment of a Loan--Income  Recognition
and  Disclosure",  ("SFAS 118") totaled $1.5 million.  All of the impaired loans
have been measured  using the fair value of the  collateral  method.  During the
nine-months  ended  September 30, 1998,  the average  recorded value of impaired
loans was $1.5 million,  $75,000  interest income was recognized and $110,000 of
interest income would have been recognized under the loans' original terms.

     At September 30, 1998 and at December 31, 1997, the Company had $58,000 and
$195,000 in real estate owned, respectively.  Further, at September 30, 1998 the
Company also had restructured  real estate loans amounting to $214,000 for which
interest is being recorded in accordance with the loans' restructured terms. The
amount of the interest income lost on these  restructured  loans is not material
to the Company's financial statements.

                                      16
<PAGE>

Non-Interest Income

     Total  non-interest  income  in the  third  quarter  of 1998  increased  by
$203,000, or 15.4%, to $1.5 million from $1.3 million for the three months ended
September 30, 1997.  The largest  component of  non-interest  income was gain on
sale of loans,  which  increased to $704,000  during the quarter ended September
30, 1998,  compared to $341,000 for the  comparable  quarter last year.  For the
nine-months  ended  September 30, 1998,  gain on sale of loans was $2.1 million,
compared to $723,000 for the comparable period in the prior year. The reason for
the increases were due to increased  volume of fixed-rate  loans  originated and
sold during the current quarter and year to date period.  Generally lower market
interest  rates and the position of the interest  rate yield curve have provided
many  borrowers an  opportunity  to  re-finance  their  mortgages to lower,  and
generally fixed interest  rates.  The Company sells the  majority of  fixed-rate
loans it  originates.  The  continuation  of a strong housing market and economy
also  contributed  to increased  volume for  financing of home  purchases.  Loan
processing  and servicing  fees were $191,000 and $531,000 for the third quarter
and year to date, respectively, compared to $321,000 and $918,000, respectively,
for the comparable  periods last year. The primary reasons for the declines were
due to decreasing  balances of loans  serviced that were sold before  originated
mortgage servicing rights ("omsr") were recorded, and adjustments to the omsr of
$24,000  and  $205,000,  respectively,  for the  three- and  nine-months  ending
September 30, 1998 due to more rapid loan prepayments than previously estimated.
These conditions are expected to continue in the foreseeable future.

Non-Interest Expense

     Total non-interest expense was $5.9 million for the quarter ended September
30, 1998 compared to $5.6 million for the comparable  quarter in 1997. On a year
to date basis, total non-interest  expense was $17.9 million for the nine-months
ended September 30, 1998 and $15.6 million for the prior year comparable period.
Compensation and benefits increased by $275,000, or 2.7%, from $10.0 million for
the  nine-months  ended  September 30, 1997 to $10.3 million for the nine-months
ended September 30, 1998 due to normal year over year increases.  Increased ESOP
expenses were offset by decreases in the cost of the stock-based incentive plan.
For the  nine-months  ended September 30, 1998,  real estate  operations  earned
$40,000 compared to earnings of $1.2 million for the nine-months ended September
30,  1997.  Approximately  $891,000 of the $1.2 million was due to the sale of a
land sub-division by a subsidiary of BFS during the first quarter of 1997. Other
non-interest  expenses  increased to $5.0 million during the  nine-months  ended
September 30, 1998 from $4.2 million  during the  comparable  quarter last year.
The major reasons for the increase were  consulting  and legal costs incurred to
assist  in  the  implementation  of  certain  tax  planning  strategies  and the
inclusion of a full nine months of BNB's expenses for the current period.

Income Tax Expense

     Income tax  expense  for the  quarter  ended  September  30,  1998 was $1.3
million,  compared to $1.5 million for the quarter ended September 30, 1997. The
effective  income tax rate was 40.0%  during the  current  quarter,  compared to
47.1% for the quarter ended September 30, 1997. On a year to date basis,  income
tax expense was $3.9 million,  for an effective rate of 40.7%,  compared to $4.3
million for an effective  rate of 44.4% for the nine months ended  September 30,
1997. As with the current quarter,  the reason for the decreased tax expense and
effective  tax  rates  during  the  current  nine-months  period  was due to the
implementation of tax saving strategies.

                                        17

<PAGE>
Item 3. MARKET RISK AND MANAGEMENT OF INTEREST RATE RISK

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

     In recent  years,  the Company has utilized  the  following  strategies  to
manage  interest rate risk: (1)  emphasizing  the  origination  and retention of
adjustable-rate,  one- to four-family  mortgage loans; (2) generally  selling in
the secondary market substantially all fixed-rate mortgage loans originated with
terms  greater than 15 years while  generally  retaining  the  servicing  rights
thereof;  (3) primarily  investing in investment  securities or mortgage- backed
securities  with  adjustable  interest  rates;  and (4) attempting to reduce the
overall  interest rate  sensitivity of  liabilities  by emphasizing  longer-term
deposits and utilizing  FHLB advances to replace rate  sensitive  deposits.  The
volatile and generally  rising rate  environment  of 1996 allowed the Company to
originate   record  loan  volume,   the  majority  of  loans   originated   were
adjustable-rate  loans, which were primarily retained for BFS's portfolio.  Many
of these loans,  however,  do not reprice until the third or fifth year of their
term. As interest  rates  generally fell during the second half of 1997 and have
continued to fall during 1998,  customer preference shifted to longer-term fixed
rate mortgages, many of which were sold in the secondary market.

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

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

     At September 30, 1998,  the Company's one year gap was a positive  13.2% of
total assets, compared to a positive 10.2% of total assets at December 31, 1997.

     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.

                                      18

<PAGE>
     As in the case with the gap analysis,  certain shortcomings are inherent in
the  methodology  used in the above  interest rate risk  measurements.  Modeling
changes in NPV  require the making of certain  assumptions  which may or may not
reflect the manner in which actual yields and costs respond to changes in market
interest rates. In this regard,  the NPV model used assumes that the composition
of the  Company's  interest  sensitive  assets and  liabilities  existing at the
beginning of a period  remains  constant over the period being measured and also
assumes that a particular change in interest rates is reflected uniformly across
the yield curve  regardless of the duration to maturity or repricing of specific
assets and  liabilities.  Accordingly,  although  the NPV  measurements  and net
interest income models provide an indication of the Company's interest rate risk
exposure at a particular  point in time, such  measurements  are not intended to
and do not  provide a  precise  forecast  of the  effect  of  changes  in market
interest rates on the Company's net interest  income and will differ from actual
results.  See the Company's Form 10-K for the year ended December 31, 1997 for a
detail of the GAP and NPV tables. There have been no material changes in the net
portfolio value since December 31, 1997.


     In  addition  to  historical   information,   this  10-Q  includes  certain
forward-looking statements based on current management expectations.  Generally,
verbs in the future  tense and the  words,  "believe",  "expect",  "anticipate",
"intends",   "opinion",    "potential",   and   similar   expressions   identify
forward-looking statements.  Examples of this forward-looking information can be
found in, but are not limited to, the allowance for losses discussion, Year 2000
issues and any quantitative  and qualitative  disclosur e 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'
loan and investment portfolios,  changes in accounting  principles,  policies or
guidelines,  and other economic,  competitive,  governmental  and  technological
factors  (including  Year 2000  problems)  affecting the  Company's  operations,
markets, products, services and prices.


                         PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     The Company is not involved in any pending material legal proceedings other
than routine  legal  proceedings  occurring in the ordinary  course of business.
Such routine legal proceedings,  in the aggregate, are believed by management to
be immaterial to the Company's financial condition or results of operations.

Item 2.  Changes in Securities


       Not applicable


Item 3.  Defaults Upon Senior Securities


       Not applicable


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

          None

                                  19



<PAGE>

Item 5.  Other Information

       Not applicable


Item 6.  Exhibits and Reports on Form 8-K
    
    (a) Exhibits
          3.1  Certificate of Incorporation*
          3.2  Bylaws*
          27   Financial Data Schedule


* Incorporated herein to the Company's Registration Statement on Form S-1,
as amended, (SEC No. 33-94860) originally filed on July 21, 1995
 

                                      20

<PAGE>

                                  SIGNATURES



     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the

registrant  has duly  caused  this  report  to be  signed  on its  behalf by the

undersigned thereunto duly authorized.


                                           BOSTONFED BANCORP, INC.
                                                  (Registrant)


Date:  November 16, 1998                         By:     /s/ David F. Holland
                                        __________________________________
                                                     David F. Holland
                                                     President and
                                                 Chief Executive Officer


Date:  November 16, 1998                         By:     /s/ John A. Simas
                                        __________________________________
                                                     John A. Simas
                                                  Executive Vice President,
                                                  Chief Financial Officer
                                                  and Corporate Secretary

                                      21