##### Table of Contents



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 the quarterly period ended: June 30, 2003

Commission File Number 1-13936

BOSTONFED BANCORP INC.

(Exact name of registrant as specified in its charter)


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

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

(781) 273-0300

(Registrants telephone number, including area code)


Not Applicable

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


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.



| |                      
| | ---------------------
| | Yes (X)       No (  )

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



| |                      
| | ---------------------
| | Yes (X)       No (  )

Number of shares of common stock, par value $.01 per share, outstanding as
of July 31, 2003: 4,452,396.





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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                                                      
|SIGNATURES                               
|EX-10.0 Purchase and Assumption Agreement
|Ex-31.1 Section 302 Certification of CEO 
|Ex-31.2 Section 302 Certification of CFO 
|Ex-32.1 Section 906 Certification of CEO 
|Ex-32.2 Section 906 Certification of 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 June 30, 2003
and December 31, 2002 (unaudited)                                       |  |         | 2      | 
|                               |                                                                                               | Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2003 and 2002 (unaudited)             |  |         | 3      | 
|                               |                                                                                               | Consolidated Statements of Changes in Stockholders
Equity for the Three and Six Months Ended
June 30, 2003 (unaudited) |  |         | 4      | 
|                               |                                                                                               | Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002                                   |  |         | 5  6  | 
|                               |                                                                                               | Notes
to Unaudited Consolidated Financial Statements                                                                    |  |         | 7  10 | 
|                               | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                         |  | 11  20 |       
|                               | Item 3. Quantitative and Qualitative Disclosures About
Market Risk                            |                                                                                                                         |  | 21      |       
|                               | Item 4. Controls and Procedures                                                               |                                                                                                                         |  | 22      |       
|Part II - OTHER INFORMATION    |                                                                                               |                                                                                                                         |  |        
|                               | Item 1. Legal Proceedings                                                                     |                                                                                                                         |  | 22      |       
|                               | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                         |  | 22      |       
|                               | Item 3. Defaults Upon Senior Securities                                                       |                                                                                                                         |  | 22      |       
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                         |  | 23      |       
|                               | Item 5. Other Information                                                                     |                                                                                                                         |  | 23      |       
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                         |  | 23  24 |       
|                               |                                                                                               | Signature Page                                                                                                          |  |         | 25     | 





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##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Balance Sheets


(In thousands except share data)


Unaudited


|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |         |         |  
|----------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | --------- | -------- | ------- | ------------ | --------- | ------- | ------- | -
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           | June 30, |         | December 31,
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           | 2003     |         | 2002        
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |             
|Assets                                                                                                                        |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|Cash and cash equivalents                                                                                                     |                                                                                                                                                                                        | $                                                                                                                           | 43,533    |          |         | $            | 74,672    |        
|Investment securities available for sale
(amortized cost of $107,657 at June 30,
2003 and $112,056 at December 31, 2002)      |                                                                                                                                                                                        |                                                                                                                             | 109,092   |          |         |              | 112,888   |        
|Investment securities held to maturity (fair
value of $2,601 at June 30, 2003 and $2,576
at December 31, 2002)                |                                                                                                                                                                                        |                                                                                                                             | 2,525     |          |         |              | 2,524     |        
|Mortgage-backed securities available for sale
(amortized cost of $115,946 at June 30,
2003 and $113,550 at December 31, 2002) |                                                                                                                                                                                        |                                                                                                                             | 116,176   |          |         |              | 114,515   |        
|Mortgage-backed securities held to maturity (fair
value of $42,107 at June 30, 2003 and $26,598
at December 31, 2002)         |                                                                                                                                                                                        |                                                                                                                             | 41,005    |          |         |              | 25,429    |        
|Loans held for sale                                                                                                           |                                                                                                                                                                                        |                                                                                                                             | 16,024    |          |         |              | 31,614    |        
|Loans, net of allowance for loan losses of $13,474
and $12,656 at June 30, 2003 and December 31, 2002                         |                                                                                                                                                                                        |                                                                                                                             | 1,120,007 |          |         |              | 1,071,356 |        
|Accrued interest receivable                                                                                                   |                                                                                                                                                                                        |                                                                                                                             | 6,178     |          |         |              | 6,470     |        
|Stock in FHLB of Boston and Federal Reserve Bank                                                                              |                                                                                                                                                                                        |                                                                                                                             | 24,552    |          |         |              | 24,552    |        
|Bank-owned life insurance                                                                                                     |                                                                                                                                                                                        |                                                                                                                             | 24,943    |          |         |              | 24,316    |        
|Premises and equipment, net                                                                                                   |                                                                                                                                                                                        |                                                                                                                             | 10,098    |          |         |              | 10,133    |        
|Goodwill                                                                                                                      |                                                                                                                                                                                        |                                                                                                                             | 10,776    |          |         |              | 10,776    |        
|Other assets                                                                                                                  |                                                                                                                                                                                        |                                                                                                                             | 14,544    |          |         |              | 16,367    |        
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|Total assets                                                                                                                  |                                                                                                                                                                                        | $                                                                                                                           | 1,539,453 |          |         | $            | 1,525,612 |        
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|Liabilities and Stockholders Equity                                                                                          |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|Liabilities:                                                                                                                  |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|                                                                                                                              | Deposit accounts                                                                                                                                                                       |                                                                                                                             | $         | 975,273  |         |              | $         | 960,278 |        
|                                                                                                                              | Federal Home Loan Bank advances and other
Borrowings                                                                                                                                   |                                                                                                                             |           | 431,828  |         |              |           | 426,560 |        
|                                                                                                                              | Corporation-obligated mandatorily redeemable
capital securities                                                                                                                        |                                                                                                                             |           | 32,000   |         |              |           | 32,000  |        
|                                                                                                                              | Advance payments by borrowers for taxes
and insurance                                                                                                                                  |                                                                                                                             |           | 2,284    |         |              |           | 2,317   |        
|                                                                                                                              | Other liabilities                                                                                                                                                                      |                                                                                                                             |           | 6,544    |         |              |           | 11,484  |        
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|Total liabilities                                                                                                             |                                                                                                                                                                                        |                                                                                                                             | 1,447,929 |          |         |              | 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 (4,425,208 and
4,425,348 shares outstanding at June 30, 2003 and
December 31, 2002, respectively) |                                                                                                                             |           | 66       |         |              |           | 66      |        
|                                                                                                                              | Additional paid-in capital                                                                                                                                                             |                                                                                                                             |           | 69,596   |         |              |           | 69,281  |        
|                                                                                                                              | Retained earnings                                                                                                                                                                      |                                                                                                                             |           | 62,767   |         |              |           | 64,242  |        
|                                                                                                                              | Accumulated other comprehensive income                                                                                                                                                 |                                                                                                                             |           | 1,016    |         |              |           | 1,096   |        
|                                                                                                                              |                                                                                                                                                                                        | Less: Treasury stock, at cost ( 2,164,409 shares
and 2,164,269 shares at June 30, 2003 and
December 31, 2002, respectively) |           |          | (41,919 | )            |           |         | (41,698 | )
|                                                                                                                              |                                                                                                                                                                                        | Less: Unearned Stock-Based Incentive Plan                                                                                   |           |          | (2      | )            |           |         | (14     | )
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|Total stockholders equity                                                                                                    |                                                                                                                                                                                        |                                                                                                                             | 91,524    |          |         |              | 92,973    |        
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        
|Total liabilities and stockholders equity                                                                                    |                                                                                                                                                                                        | $                                                                                                                           | 1,539,453 |          |         | $            | 1,525,612 |        
|                                                                                                                              |                                                                                                                                                                                        |                                                                                                                             |           |          |         |              |           |        

See accompanying condensed notes to
unaudited consolidated financial statements.

2



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##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Statements of Operations


(In thousands, except share data)


Unaudited


|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |        | 
|---------------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------- | --------- | ------------------ | ------ | ---------------- | --------- | --------- | ------ | --------- | --------- | ------ | ------- | - | --------- | ------ | ------ | 
|                                                                 |                                                                               |                            |           | Three Months Ended |        | Six Months Ended
|                                                                 |                                                                               |                            |           |                    |        |                 
|                                                                 |                                                                               |                            |           | 6/30/2003          |        | 6/30/2002        |           | 6/30/2003 |        | 6/30/2002
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |          
|Interest income:                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |       
|                                                                 | Loans                                                                         |                            | $         | 15,855             |        |                  | $         | 18,673    |        |           | $         | 32,434 |         |   | $         | 37,188 |       
|                                                                 | Mortgage-backed securities                                                    |                            |           | 1,597              |        |                  |           | 2,181     |        |           |           | 3,134  |         |   |           | 4,067  |       
|                                                                 | Investment securities                                                         |                            |           | 1,100              |        |                  |           | 1,009     |        |           |           | 2,238  |         |   |           | 1,991  |       
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|                                                                 |                                                                               | Total interest income      |           |                    | 18,552 |                  |           |           | 21,863 |           |           |        | 37,806  |   |           |        | 43,246 | 
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|Interest expense:                                                |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |       
|                                                                 | Deposit accounts                                                              |                            |           | 4,811              |        |                  |           | 5,411     |        |           |           | 9,890  |         |   |           | 11,228 |       
|                                                                 | Borrowed funds                                                                |                            |           | 4,264              |        |                  |           | 5,807     |        |           |           | 8,706  |         |   |           | 11,567 |       
|                                                                 | Corporation-obligated mandatorily redeemable
capital securities distributions |                            |           | 880                |        |                  |           | 881       |        |           |           | 1,761  |         |   |           | 1,761  |       
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|                                                                 |                                                                               | Total interest expense     |           |                    | 9,955  |                  |           |           | 12,099 |           |           |        | 20,357  |   |           |        | 24,556 | 
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|Net interest income                                              |                                                                               |                            | 8,597     |                    |        |                  | 9,764     |           |        |           | 17,449    |        |         |   | 18,690    |       
|Provision for loan losses                                        |                                                                               |                            | 2,000     |                    |        |                  | 250       |           |        |           | 2,450     |        |         |   | 500       |       
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|Net interest income after provision for loan losses              |                                                                               |                            | 6,597     |                    |        |                  | 9,514     |           |        |           | 14,999    |        |         |   | 18,190    |       
|Non-interest income:                                             |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |       
|                                                                 | Deposit service fees                                                          |                            |           | 900                |        |                  |           | 768       |        |           |           | 1,756  |         |   |           | 1,405  |       
|                                                                 | Loan processing and servicing fees                                            |                            |           | (1,670             | )      |                  |           | (198      | )      |           |           | (2,528 | )       |   |           | (509   | )     
|                                                                 | Gain on sale of loans                                                         |                            |           | 2,651              |        |                  |           | 2,731     |        |           |           | 5,821  |         |   |           | 5,599  |       
|                                                                 | Income from bank-owned life insurance                                         |                            |           | 308                |        |                  |           | 306       |        |           |           | 627    |         |   |           | 603    |       
|                                                                 | Gain on sale of investments                                                   |                            |           | 7                  |        |                  |           | 60        |        |           |           | 7      |         |   |           | 300    |       
|                                                                 | Other                                                                         |                            |           | 433                |        |                  |           | 429       |        |           |           | 803    |         |   |           | 826    |       
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|                                                                 |                                                                               | Total non-interest income  |           |                    | 2,629  |                  |           |           | 4,096  |           |           |        | 6,486   |   |           |        | 8,224  | 
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|Non-interest expense:                                            |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |       
|                                                                 | Compensation and benefits                                                     |                            |           | 5,696              |        |                  |           | 5,836     |        |           |           | 11,829 |         |   |           | 11,625 |       
|                                                                 | Occupancy and equipment                                                       |                            |           | 1,198              |        |                  |           | 1,244     |        |           |           | 2,456  |         |   |           | 2,430  |       
|                                                                 | Data processing                                                               |                            |           | 445                |        |                  |           | 465       |        |           |           | 905    |         |   |           | 920    |       
|                                                                 | Advertising expense                                                           |                            |           | 360                |        |                  |           | 264       |        |           |           | 659    |         |   |           | 497    |       
|                                                                 | Federal deposit insurance premiums                                            |                            |           | 40                 |        |                  |           | 46        |        |           |           | 88     |         |   |           | 86     |       
|                                                                 | Legal settlements                                                             |                            |           | 0                  |        |                  |           | 0         |        |           |           | 0      |         |   |           | 500    |       
|                                                                 | Other                                                                         |                            |           | 1,916              |        |                  |           | 1,832     |        |           |           | 3,649  |         |   |           | 3,360  |       
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|                                                                 |                                                                               | Total non-interest expense |           |                    | 9,655  |                  |           |           | 9,687  |           |           |        | 19,586  |   |           |        | 19,418 | 
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|(Loss) Income before income taxes                                |                                                                               |                            | (429      | )                  |        |                  | 3,923     |           |        |           | 1,899     |        |         |   | 6,996     |       
|Income tax (benefit) expense                                     |                                                                               |                            | (1,961    | )                  |        |                  | 1,340     |           |        |           | 1,965     |        |         |   | 2,391     |       
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|Net income (loss)                                                |                                                                               | $                          | 1,532     |                    |        | $                | 2,583     |           |        | $         | (66       | )      |         | $ | 4,605     |       
|                                                                 |                                                                               |                            |           |                    |        |                  |           |           |        |           |           |        |         |   |           |        |       
|Basic earnings (loss) per share                                  |                                                                               | $                          | 0.35      |                    |        | $                | 0.58      |           |        | $         | (0.02     | )      |         | $ | 1.04      |       
|Diluted earnings (loss)
per share                                |                                                                               | $                          | 0.33      |                    |        | $                | 0.55      |           |        | $         | (0.02     | )      |         | $ | 0.98      |       
|Basic weighted average shares
Outstanding                        |                                                                               |                            | 4,396,223 |                    |        |                  | 4,420,057 |           |        |           | 4,395,488 |        |         |   | 4,409,091 |       
|Common stock equivalents
due to dilutive effect
of stock options |                                                                               |                            | 212,835   |                    |        |                  | 306,631   |           |        | NA*       |           |        | 279,609 |  
|Diluted total weighted average
shares outstanding                |                                                                               |                            | 4,609,058 |                    |        |                  | 4,726,688 |           |        |           | 4,395,488 |        |         |   | 4,688,700 |       



| |  | *There were 215,042 common stock equivalents that were not included
in the computation of diluted earnings per share because to do so would
have been antidilutive.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | See accompanying condensed notes
to unaudited consolidated financial statements.                                                                                   

3



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##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Statements of Changes in Stockholders Equity


Six Months Ended June 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.

4



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##### Table of Contents



BOSTONFED BANCORP, INC. AND SUBSIDIARIES




Consolidated Statements of Cash Flows


(In thousands)


|                                          |                   |                                                                                   |                                           |     |                          |         |      |       |          |         |  
|----------------------------------------- | ----------------- | --------------------------------------------------------------------------------- | ----------------------------------------- | --- | ------------------------ | ------- | ---- | ----- | -------- | ------- | -
|                                          |                   |                                                                                   |                                           |     | For the Six Months Ended
|                                          |                   |                                                                                   |                                           |     | June 30,                
|                                          |                   |                                                                                   |                                           |     | 2003                     |         | 2002
|                                          |                   |                                                                                   |                                           |     |                          |         |     
|Net cash flows from operating activities: |                   |                                                                                   |                                           |     |                          |         |      |      
|                                          | Net (loss) income |                                                                                   | $                                         | (66 | )                        |         | $    | 4,605 |         
|                                          |                   | Adjustments to reconcile net income to
net cash provided by operating activities: |                                           |     |                          |         |      |       |          |        
|                                          |                   | Depreciation, amortization and accretion, net                                     |                                           |     | 1,251                    |         |      |       | 932      |        
|                                          |                   | Earned SIP shares                                                                 |                                           |     | 12                       |         |      |       | 26       |        
|                                          |                   | Appreciation in fair value of shares
charged to expense for compensation plans    |                                           |     | 442                      |         |      |       | 454      |        
|                                          |                   | Income from bank-owned life insurance                                             |                                           |     | (627                     | )       |      |       | (603     | )      
|                                          |                   | Provision for loan losses                                                         |                                           |     | 2,450                    |         |      |       | 500      |        
|                                          |                   | Loans originated for sale                                                         |                                           |     | (552,276                 | )       |      |       | (286,972 | )      
|                                          |                   | Proceeds from sale of loans                                                       |                                           |     | 573,687                  |         |      |       | 302,791  |        
|                                          |                   | Gain on sale of loans                                                             |                                           |     | (5,821                   | )       |      |       | (5,599   | )      
|                                          |                   | Gain on sale of investment securities                                             |                                           |     | (7                       | )       |      |       | (300     | )      
|                                          |                   | Loss on sale of real estate owned                                                 |                                           |     | 76                       |         |      |       |         |        
|                                          |                   | Increase (decrease) in accrued interest receivable                                |                                           |     | 292                      |         |      |       | (932     | )      
|                                          |                   | Increase (decrease) in prepaid expenses and other assets, net                     |                                           |     | 1,208                    |         |      |       | (2,727   | )      
|                                          |                   | (Decrease) increase in accrued expenses
and other liabilities, net                |                                           |     | (4,940                   | )       |      |       | 511      |        
|                                          |                   |                                                                                   |                                           |     |                          |         |      |       |         
|                                          |                   |                                                                                   | Net cash provided by operating activities |     |                          | 15,681  |      |       |          | 12,686  |  
|                                          |                   |                                                                                   |                                           |     |                          |         |      |       |         
|Cash flows from investing activities:     |                   |                                                                                   |                                           |     |                          |         |      |      
|                                          |                   | Proceeds from sale of investment securities available for sale                    |                                           |     | 10,000                   |         |      |       | 1,036    |        
|                                          |                   | Proceeds from maturities of investment securities available for sale              |                                           |     | 2,000                    |         |      |       | 2,003    |        
|                                          |                   | Purchase of investment securities available for sale                              |                                           |     | (12,710                  | )       |      |       | (20,223  | )      
|                                          |                   | Purchase of mortgage-backed securities available for sale                         |                                           |     | (69,746                  | )       |      |       | (76,898  | )      
|                                          |                   | Purchase of mortgage-backed securities held to maturity                           |                                           |     | (23,393                  | )       |      |       |         |        
|                                          |                   | Principal payments on mortgage-backed securities available for sale               |                                           |     | 67,009                   |         |      |       | 36,569   |        
|                                          |                   | Principal payments on mortgage-backed securities held to maturity                 |                                           |     | 7,811                    |         |      |       | 7,990    |        
|                                          |                   | Principal payments on investment securities available for sale                    |                                           |     | 5,002                    |         |      |       | 894      |        
|                                          |                   | Increase in loans, net                                                            |                                           |     | (51,462                  | )       |      |       | (46,798  | )      
|                                          |                   | Purchases of premises and equipment                                               |                                           |     | (754                     | )       |      |       | (1,097   | )      
|                                          |                   | Proceeds from sale of real estate owned                                           |                                           |     | 1,003                    |         |      |       |         |        
|                                          |                   | Additional investment in real estate owned                                        |                                           |     | (53                      | )       |      |       |         |        
|                                          |                   |                                                                                   |                                           |     |                          |         |      |       |         
|                                          |                   |                                                                                   | Net cash used in investing activities     |     |                          | (65,293 | )    |       |          | (96,524 | )
|                                          |                   |                                                                                   |                                           |     |                          |         |      |       |         

-Continued on next page-

5



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

|                                                  |                                                                   |                                 |                                           |          |                          |         |        |          |   |         |  
|------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------- | ----------------------------------------- | -------- | ------------------------ | ------- | ------ | -------- | - | ------- | -
|                                                  |                                                                   |                                 |                                           |          | For the Six Months Ended
|                                                  |                                                                   |                                 |                                           |          | June 30,                
|                                                  |                                                                   |                                 |                                           |          | 2003                     |         | 2002  
|                                                  |                                                                   |                                 |                                           |          |                          |         |       
|Cash flows from financing activities:             |                                                                   |                                 |                                           |          |                          |         |        |         
|                                                  | Increase in deposit accounts                                      |                                 |                                           | 14,995   |                          |         |        | 31,057   |  
|                                                  | Repayments of Federal Home Loan Bank advances                     |                                 |                                           | (165,858 | )                        |         |        | (205,552 | )
|                                                  | Proceeds from Federal Home Loan Bank advances                     |                                 |                                           | 171,126  |                          |         |        | 218,429  |  
|                                                  | Cash dividends paid                                               |                                 |                                           | (1,409   | )                        |         |        | (1,390   | )
|                                                  | Common stock repurchased                                          |                                 |                                           | (1,057   | )                        |         |        | (2,337   | )
|                                                  | Options exercised, net of taxes                                   |                                 |                                           | 709      |                          |         |        | 2,210    |  
|                                                  | Decrease in advance payments by borrowers for taxes and insurance |                                 |                                           | (33      | )                        |         |        | (433     | )
|                                                  |                                                                   |                                 |                                           |          |                          |         |        |          |  
|                                                  |                                                                   |                                 | Net cash provided by financing activities |          |                          | 18,473  |        |          |   | 41,984  |  
|                                                  |                                                                   |                                 |                                           |          |                          |         |        |          |  
|                                                  |                                                                   |                                 | Decrease in cash and cash equivalents     |          |                          | (31,139 | )      |          |   | (41,854 | )
|Cash and cash equivalents at beginning of period  |                                                                   |                                 | 74,672                                    |          |                          |         | 95,957 |         
|                                                  |                                                                   |                                 |                                           |          |                          |         |        |          |  
|Cash and cash equivalents at end of period        |                                                                   | $                               | 43,533                                    |          |                          | $       | 54,103 |         
|                                                  |                                                                   |                                 |                                           |          |                          |         |        |         
|Supplemental disclosure of cash flow information: |                                                                   |                                 |                                           |          |                          |         |        |         
|                                                  |                                                                   | Payments during the period for: |                                           |          |                          |         |        |          |   |        
|                                                  |                                                                   |                                 | Interest                                  |          | $                        | 20,205  |        |          | $ | 24,735  |  
|                                                  |                                                                   |                                 |                                           |          |                          |         |        |         
|                                                  |                                                                   |                                 | Taxes                                     |          | $                        | 3,715   |        |          | $ | 2,332   |  
|                                                  |                                                                   |                                 |                                           |          |                          |         |        |          |  

See accompanying condensed notes to
unaudited consolidated financial statements.

6



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##### Table of Contents



BOSTONFED BANCORP INC. AND SUBSIDIARIES




CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)




| |                              
| | -----------------------------
| | NOTE 1: BASIS OF PRESENTATION



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The unaudited consolidated financial statements as of June 30, 2003
and for the three- and six-month periods ended June 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), BF Funding Corp., BFD Preferred Capital Trust I and
BFD Preferred Capital Trust II presented herein, should be read in
conjunction with the audited consolidated financial statements of the
Company as of and for the year ended December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 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
June 30, 2003 and December 31, 2002, and amounts of revenues and expenses
in the consolidated statements of operations for the three and six months
ended June 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
six-month periods ended June 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 six-month periods ended June 30:                                                                                                                                                                                                                                               

|                                                                                                                                           |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | ----- | -
|                                                                                                                                           |  | Three months ended |       | Six months ended
|                                                                                                                                           |  | June 30,           |       | June 30,        
|                                                                                                                                           |  |                    |       |                 
|                                                                                                                                           |  | 2003               |       | 2002             |  | 2003 |       | 2002
|                                                                                                                                           |  |                    |       |                  |  |      |       |     
|Net income (loss) as reported                                                                                                              |  | $                  | 1,532 |                  |  |      | 2,583 |      |  |  | (66   | ) |  |  | 4,605 |  
|Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effect |  |                    | (24   | )                |  |      | (46   | )    |  |  | (47   | ) |  |  | (92   | )
|                                                                                                                                           |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Pro forma net income (loss)                                                                                                                |  |                    | 1,508 |                  |  |      | 2,537 |      |  |  | (113  | ) |  |  | 4,513 |  
|                                                                                                                                           |  |                    |       |                  |  |      |       |      |  |  |       |   |  |  |       |  
|Basic earnings (loss) per share as
reported                                                                                                |  |                    | 0.35  |                  |  |      | 0.58  |      |  |  | (0.02 | ) |  |  | 1.04  |  
|Diluted earnings (loss) per share as
reported                                                                                              |  |                    | 0.33  |                  |  |      | 0.55  |      |  |  | (0.02 | ) |  |  | 0.98  |  
|Pro forma basic earnings (loss) per
share                                                                                                  |  |                    | 0.34  |                  |  |      | 0.57  |      |  |  | (0.03 | ) |  |  | 1.02  |  
|Pro forma diluted earnings (loss) per
share                                                                                                |  |                    | 0.33  |                  |  |      | 0.54  |      |  |  | (0.03 | ) |  |  | 0.96  |  

7



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##### Table of Contents





| |                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 six-month periods ended
June 30, 2003 and 2002.



| |                                                 
| | ------------------------------------------------
| | NOTE 3: COMMITMENTS, CONTINGENCIES AND CONTRACTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At June 30, 2003, the Company had commitments of $201.6 million to
originate mortgage loans and $2.1 million to purchase loans from
correspondent lenders. Of these $203.7 million commitments, $132.3
million were adjustable rate mortgage loans with interest rates ranging
from 3.63% to 9.38% and $71.4 million were fixed rate mortgage loans with
interest rates ranging from 4.00% to 8.63%. The Company also had
commitments to sell $78.8 million of mortgage loans.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | At June 30, 2003, the Company was servicing first mortgage loans of
approximately $1.02 billion, which are either partially or wholly-owned by
others.



| |                          
| | -------------------------
| | NOTE 4: LEGAL SETTLEMENTS



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the six months ended June 30, 2002, the Company settled a
lawsuit, which had been filed against its subsidiary, Broadway National
Bank. The Company incurred a cost of approximately $325,000, net of tax,
to settle the lawsuit, resulting in a reduction in earnings per share of
approximately $0.07.



| |                          
| | -------------------------
| | 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., 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., 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.

8



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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 June 30, 2003: |                           |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |       |          
|                                                | Interest income           |  | $                      | 16,897    |     |  |          | 1,553   |       |  |              | 18,450    |        |  |      | 1,041   |   |  |      | (939     | )            |  |       | 18,552    |  
|                                                | Interest expense          |  |                        | 8,768     |     |  |          | 337     |       |  |              | 9,105     |        |  |      | 1,789   |   |  |      | (939     | )            |  |       | 9,955     |  
|                                                | Provision for loan losses |  |                        | 2,000     |     |  |          | 0       |       |  |              | 2,000     |        |  |      |         |   |  |      |          |              |  |       | 2,000     |  
|                                                | Non-interest income       |  |                        | 2,231     |     |  |          | 398     |       |  |              | 2,629     |        |  |      |         |   |  |      |          |              |  |       | 2,629     |  
|                                                | Non-interest expense      |  |                        | 8,308     |     |  |          | 1,150   |       |  |              | 9,458     |        |  |      | 197     |   |  |      |          |              |  |       | 9,655     |  
|                                                | Income tax expense        |  |                        | (1,573    | )   |  |          | (72     | )     |  |              | (1,645    | )      |  |      | (316    | ) |  |      |          |              |  |       | (1,961    | )
|                                                | Net income (loss)         |  |                        | 1,625     |     |  |          | 536     |       |  |              | 2,161     |        |  |      | (629    | ) |  |      |          |              |  |       | 1,532     |  
|                                                | Total assets              |  |                        | 1,376,637 |     |  |          | 168,967 |       |  |              | 1,545,604 |        |  |      | 158,460 |   |  |      | (164,611 | )            |  |       | 1,539,453 |  
|Net interest margin                             |                           |  | 2.59                   | %         |     |  | 3.59     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.45  | %        
|Return on average assets                        |                           |  | 0.48                   | %         |     |  | 1.27     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 0.41  | %        
|Return on average equity                        |                           |  | 6.50                   | %         |     |  | 16.63    | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 6.61  | %        
|At or for the three months
ended June 30, 2002: |                           |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |       |          
|                                                | Interest income           |  | $                      | 19,780    |     |  |          | 2,000   |       |  |              | 21,780    |        |  |      | 1,068   |   |  |      | (985     | )            |  |       | 21,863    |  
|                                                | Interest expense          |  |                        | 10,843    |     |  |          | 452     |       |  |              | 11,295    |        |  |      | 1,789   |   |  |      | (985     | )            |  |       | 12,099    |  
|                                                | Provision for loan losses |  |                        | 225       |     |  |          | 25      |       |  |              | 250       |        |  |      |         |   |  |      |          |              |  |       | 250       |  
|                                                | Non-interest income       |  |                        | 3,632     |     |  |          | 403     |       |  |              | 4,035     |        |  |      | 61      |   |  |      |          |              |  |       | 4,096     |  
|                                                | Non-interest expense      |  |                        | 8,152     |     |  |          | 1,248   |       |  |              | 9,400     |        |  |      | 287     |   |  |      |          |              |  |       | 9,687     |  
|                                                | Income tax expense        |  |                        | 1,429     |     |  |          | 226     |       |  |              | 1,655     |        |  |      | (315    | ) |  |      |          |              |  |       | 1,340     |  
|                                                | Net income (loss)         |  |                        | 2,763     |     |  |          | 452     |       |  |              | 3,215     |        |  |      | (632    | ) |  |      |          |              |  |       | 2,583     |  
|                                                | Total assets              |  |                        | 1,343,089 |     |  |          | 173,795 |       |  |              | 1,516,884 |        |  |      | 165,893 |   |  |      | (163,336 | )            |  |       | 1,519,441 |  
|Net interest margin                             |                           |  | 2.98                   | %         |     |  | 4.28     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.88  | %        
|Return on average assets                        |                           |  | .85                    | %         |     |  | 1.07     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 0.70  | %        
|Return on average equity                        |                           |  | 10.91                  | %         |     |  | 14.01    | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 10.50 | %        
|                                               
|At or for the six months
ended June 30, 2003:   |                           |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |       |          
|                                                | Interest income           |  | $                      | 34,395    |     |  |          | 3,229   |       |  |              | 37,624    |        |  |      | 2,076   |   |  |      | (1,894   | )            |  |       | 37,806    |  
|                                                | Interest expense          |  |                        | 17,965    |     |  |          | 709     |       |  |              | 18,674    |        |  |      | 3,577   |   |  |      | (1,894   | )            |  |       | 20,357    |  
|                                                | Provision for loan losses |  |                        | 2,450     |     |  |          | 0       |       |  |              | 2,450     |        |  |      |         |   |  |      |          |              |  |       | 2,450     |  
|                                                | Non-interest income       |  |                        | 5,690     |     |  |          | 796     |       |  |              | 6,486     |        |  |      |         |   |  |      |          |              |  |       | 6,486     |  
|                                                | Non-interest expense      |  |                        | 16,857    |     |  |          | 2,315   |       |  |              | 19,172    |        |  |      | 414     |   |  |      |          |              |  |       | 19,586    |  
|                                                | Income tax expense        |  |                        | 2,118     |     |  |          | 490     |       |  |              | 2,608     |        |  |      | (643    | ) |  |      |          |              |  |       | 1,965     |  
|                                                | Net income (loss)         |  |                        | 695       |     |  |          | 511     |       |  |              | 1,206     |        |  |      | (1,272  | ) |  |      |          |              |  |       | (66       | )
|                                                | Total assets              |  |                        | 1,376,637 |     |  |          | 168,967 |       |  |              | 1,545,604 |        |  |      | 158,460 |   |  |      | (164,611 | )            |  |       | 1,539,453 |  
|Net interest margin                             |                           |  | 2.64                   | %         |     |  | 3.74     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.51  | %        
|Return on average assets                        |                           |  | 0.10                   | %         |     |  | 0.61     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | (0.01 | )%       
|Return on average equity                        |                           |  | 1.39                   | %         |     |  | 7.82     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | (0.14 | )%       
|At or for the six months
ended June 30, 2002:   |                           |  |                        |           |     |  |          |         |       |  |              |           |        |  |      |         |   |  |      |          |              |  |       |          
|                                                | Interest income           |  | $                      | 39,082    |     |  |          | 4,001   |       |  |              | 43,083    |        |  |      | 2,150   |   |  |      | (1,987   | )            |  |       | 43,246    |  
|                                                | Interest expense          |  |                        | 22,015    |     |  |          | 951     |       |  |              | 22,966    |        |  |      | 3,577   |   |  |      | (1,987   | )            |  |       | 24,556    |  
|                                                | Provision for loan losses |  |                        | 450       |     |  |          | 50      |       |  |              | 500       |        |  |      |         |   |  |      |          |              |  |       | 500       |  
|                                                | Non-interest income       |  |                        | 7,174     |     |  |          | 749     |       |  |              | 7,923     |        |  |      | 301     |   |  |      |          |              |  |       | 8,224     |  
|                                                | Non-interest expense      |  |                        | 15,957    |     |  |          | 2,970   |       |  |              | 18,927    |        |  |      | 491     |   |  |      |          |              |  |       | 19,418    |  
|                                                | Income tax expense        |  |                        | 2,674     |     |  |          | 255     |       |  |              | 2,929     |        |  |      | (538    | ) |  |      |          |              |  |       | 2,391     |  
|                                                | Net income (loss)         |  |                        | 5,160     |     |  |          | 524     |       |  |              | 5,684     |        |  |      | (1,079  | ) |  |      |          |              |  |       | 4,605     |  
|                                                | Total assets              |  |                        | 1,343,089 |     |  |          | 173,795 |       |  |              | 1,516,450 |        |  |      | 165,611 |   |  |      | (163,336 | )            |  |       | 1,519,441 |  
|Net interest margin                             |                           |  | 2.86                   | %         |     |  | 4.25     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 2.77  | %        
|Return on average assets                        |                           |  | .80                    | %         |     |  | .63      | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 0.63  | %        
|Return on average equity                        |                           |  | 10.30                  | %         |     |  | 8.17     | %       |       |  | n.m          |           |        |  | n.m. |         |   |  | n.m. |          |              |  | 9.45  | %        

n.m. = not meaningful

9



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 able 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 Company does not expect
implementation of SFAS No. 149 to have a material impact on its financial
statements.                                                                                                                                                                                                                    
|
| | In May 2003, the
FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This Statement applies generally to freestanding
financial instruments that embody obligations of the issuing entity to
redeem the instrument or to settle the obligation by repurchasing its
equity shares through the transfer of assets or through issuance of
its own shares. Such freestanding instruments must be classified as
liabilities; or, in some cases, assets. SFAS No. 150
requires that financial instruments containing obligations to
repurchase the issuing entitys equity shares and, under certain
circumstances, obligations that are settled by delivery of the
issuers shares, be classified as liabilities. This statement is
effective for financial instruments entered into or modified after
May 31, 2003 and for contracts in existence at the start of the
first interim period beginning after June 15, 2003. The adoption
of this standard did not and is not expected to have a
material impact on our financial condition, results of operations,
earnings per share or cash flows.
|
| | FASB Issued Interpretation
(FIN) No. 46 Condition of Variable Interest
Entities  an Interpretation of Accounting Research bulletin
No. 51.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | In No. 46
Consolidation of Variable Interest Entities, an interpretation
of Accounting Research Bulletin No. 51, 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 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
provisions of FIN 46 were effective immediately for all
arrangements entered into after January 31, 2003, and are
otherwise effective at the beginning of the first interim period
beginning after June 15, 2003.                                                                                                                                                 
|
| | The Company
adopted FIN 46 on July 1, 2003. In its current form,
FIN 46 may require the Company to deconsolidate its investment
in Capital Trust I and II in future financial statements. The
potential de-consolidation of subsidiary trust of bank holding
companies formed in connecting 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 System issued a supervisory letter
instructing bank holding companies to continue to include the trust
preferred securities in their Tier 1 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 1 capital for regulatory capital
purposes.                
|
| | NOTE 7: ACQUISITION OF BRANCHES AND MERGER OF BROADWAY NATIONAL BANK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | The 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 on August 7, 2003. Subject to regulatory approval, the
Company expects to complete the transaction in the fourth quarter of
2003. A copy of the Purchase and Assumption Agreement is filed herewith
as Exhibit 10.0.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | The Company is currently in the process of preparing the application
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A. GENERAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | In addition to historical information, this 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | The Company, headquartered in Burlington, Massachusetts, was
organized in 1995 under Delaware law as the holding company for BFS, in
connection with the conversion of BFS from a mutual to a stock form of
ownership. The Company later acquired BNB, a nationally-chartered
commercial bank, as its wholly-owned subsidiary in February 1997. In
December 1999, the Company acquired Diversified Ventures, Inc., d/b/a
Forward Financial Company (Forward Financial) and Ellsmere Insurance
Agency, Inc., (Ellsmere). Forward Financial operates as a subsidiary of
BFS and Ellsmere has limited operations as a subsidiary of BNB.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | The Companys business has been conducted primarily through its
wholly-owned subsidiaries of BFS and BNB (collectively, the Banks). BFS
operates its administrative/bank branch office located in Burlington,
Massachusetts and its eight other bank branch offices located in
Arlington, Bedford, Billerica, Boston, Lexington, Peabody, Wellesley and
Woburn, all of which are located in the greater Boston metropolitan area.
BFS subsidiary, Forward Financial, maintains its headquarters in
Northborough, Massachusetts and operates in approximately one-half the
states of the nation. BNB operates two banking offices in Chelsea and
Revere, both of which are also in the greater Boston metropolitan area.
Through its subsidiaries, the Company attracts retail deposits from the
general public and invests those deposits and other borrowed funds in
loans, mortgage-backed securities, U.S. Government and federal agency
securities and other securities. The Company originates mortgage loans
for its investment portfolio and for sale and generally retains the
servicing rights of loans it sells. Additionally, the Company originates
chattel mortgage loans, substantially all of which are sold in the
secondary market, servicing released. Loan sales are made from loans held
in the Companys portfolio designated as being held for sale or originated
for sale during the period. The Companys revenues are derived
principally from interest on its loans, and to a lesser extent, interest
and dividends on its investment and mortgage-backed securities, gains on
sale of loans and service fees.                                                                                                                                                                                                                                                                                                                                                               

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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Each of the Banks is considered a business segment and accordingly,
the Company has complied with the segment reporting requirement in Note 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 Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | The 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 CONDITION



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Total assets at June 30, 2003 were $1.539 billion, compared to $1.526
billion at December 31, 2002, an increase of $13.8 million. Loans, net of
allowance for loan losses increased by $48.7 million to a new record level
of $1.120 billion at June 30, 2003 from $1.071 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 $15.6 million from $25.4 million at
December 31, 2002 to $41.0 million at June 30, 2003.
Somewhat offsetting these increases were lower balances in cash and cash
equivalents, which declined by $31.1 million from a balance of $74.7
million at December 31, 2002 to $43.5 million at June 30, 2003 due
primarily to a reduction in Federal Home Loan Bank (FHLB) Overnight
Deposits. Additionally, loans held for sale declined by $15.6 million
from $31.6 million at December 31, 2002 to $16.0 million at June 30, 2003
as a lesser portion of loan production was earmarked for sale during the
recent quarter.

12



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

|                                        |                             |                    |           |              |           |          |         |         |           | 
|--------------------------------------- | --------------------------- | ------------------ | --------- | ------------ | --------- | -------- | ------- | ------- | --------- | 
|                                        |                             |                    |           | In thousands
|                                        |                             |                    |           | 6/30/03      |           | 12/31/02
|                                        |                             |                    |           |              |           |         
|                                        |                             |                    |           | (Unaudited) 
|Mortgage loans:                         |                             |                    |           |              |           |          |         |        
|                                        | Residential 1-4 family      |                    | $         | 741,163      |           |          |         | 684,277 |          
|                                        | Multi-family                |                    |           | 24,252       |           |          |         | 25,290  |          
|                                        | Construction and land       |                    |           | 120,557      |           |          |         | 129,469 |          
|                                        | Commercial real estate      |                    |           | 141,466      |           |          |         | 134,169 |          
|                                        |                             |                    |           |              |           |          |         |         |          
|                                        |                             |                    | 1,027,438 |              |           |          | 973,205 |        
|                                        |                             |                    |           |              |           |          |         |         |          
|Consumer and other loans:               |                             |                    |           |              |           |          |         |        
|                                        | Home equity and improvement |                    |           | 107,806      |           |          |         | 94,855  |          
|                                        | Secured by deposits         |                    |           | 732          |           |          |         | 466     |          
|                                        | Consumer                    |                    |           | 3,252        |           |          |         | 3,768   |          
|                                        | Business                    |                    |           | 29,227       |           |          |         | 32,792  |          
|                                        |                             |                    |           |              |           |          |         |         |          
|                                        |                             |                    | 141,017   |              |           |          | 131,881 |        
|                                        |                             |                    |           |              |           |          |         |         |          
|                                        |                             | Total loans, gross |           |              | 1,168,455 |          |         |         | 1,105,086 | 
|                                        |                             |                    |           |              |           |          |         |         |          
|Allowance for loan losses               |                             |                    | (13,474   | )            |           |          | (12,656 | )      
|Construction loans in process           |                             |                    | (37,192   | )            |           |          | (24,832 | )      
|Net unearned premium on loans purchased |                             |                    | 31        |              |           |          | 36      |        
|Deferred loan origination costs         |                             |                    | 2,187     |              |           |          | 3,722   |        
|                                        |                             |                    |           |              |           |          |         |         |          
|                                        |                             | Loans, net         |           | $            | 1,120,007 |          |         |         | 1,071,356 | 
|                                        |                             |                    |           |              |           |          |         |         |          

As noted in the above table, the allowance for loan losses amounted to
$13.5 million at June 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 six months
ended June 30, 2003:

|                             |                |   |              |        |  
|---------------------------- | -------------- | - | ------------ | ------ | -
|                             |                |   | In thousands
|Balance at December 31, 2002 |                | $ | 12,656       |       
|                             | Loss provision |   |              | 2,450  |  
|                             | Recoveries     |   |              | 73     |  
|                             | Charge-offs    |   |              | (1,705 | )
|                             |                |   |              |       
|Balance at June 30, 2003     |                | $ | 13,474       |       
|                             |                |   |              |       

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 is required is sub-standard. At June
30, 2003, the Company classified $30.8 million of loans ($30.0 million at
BFS and $0.8 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 June 30, 2003, totaled
$8.1 million or 0.53% 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 June 30, 2003 was sufficient to provide for anticipated
losses inherent in the loan portfolio.
|
| | The Companys $13.5 million allowance for loan losses at June 30,
2003 represented 173% of non-performing loans or 1.17% 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 this coverage ratio
is prudent due to the increase in classified loans and the increase in the
combined balance of construction and land, commercial real estate,
multi-family, home equity and improvement, consumer and business loans.
These combined total balances increased from approximately $420.3 million
at December 31, 2002 to approximately $426.7 million at June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Non-performing loans were $7.8 million at June 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, was
$387,000 and $282,000 for the six-month periods ended June 30, 2003 and
2002, respectively. The amount of interest income that was recorded on
these loans was $105,000 and $386,000 for the six-month periods ended June
30, 2003 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | At June 30, 2003, there were seven loans with a total balance of
$10.8 million, characterized as impaired. During the six months ended
June 30, 2003, the average recorded value of impaired loans was $7.68
million, $57,000 interest income was recognized and $246,000 of interest
income would have been recognized under the loans original terms during
the six-months ended June 30, 2003. At June 30, 2002, there were
four loans characterized as impaired. During the six months ended
June 30, 2002, the average recorded value of impaired loans was
$1.86 million, $365,000 interest income was recognized and $221,000
of interest income would have been recognized under the loans
original terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

14



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Liabilities                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Deposit accounts increased by $15.0 million, to a new record level of
$975.3 million at June 30, 2003, compared to $960.3 million at December
31, 2002,which includes $5.6 million reduction in wholesale-brokered
certificates of deposit. The Company has not been as aggressive as some
of its competition for deposits due to margin pressures and excessive, low
yielding liquid assets.

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

|                                           |                      |                                |                            |         |              |         |          |         |         |         | 
|------------------------------------------ | -------------------- | ------------------------------ | -------------------------- | ------- | ------------ | ------- | -------- | ------- | ------- | ------- | 
|                                           |                      |                                |                            |         | In thousands
|                                           |                      |                                |                            |         |             
|                                           |                      |                                |                            |         | 06/30/03     |         | 12/31/02
|                                           |                      |                                |                            |         |              |         |         
|                                           |                      |                                |                            |         | (Unaudited) 
|NOW accounts                               |                      |                                | 151,308                    |         |              |         | 150,342  |        
|Regular and statement savings              |                      |                                | 221,453                    |         |              |         | 218,133  |        
|Money market                               |                      |                                | 64,959                     |         |              |         | 62,530   |        
|Demand deposits and official checks        |                      |                                | 118,875                    |         |              |         | 107,154  |        
|                                           |                      |                                |                            |         |              |         |          |        
|                                           |                      | Total non-certificate accounts |                            |         | 556,595      |         |          |         | 538,159 |        
|                                           |                      |                                |                            |         |              |         |          |        
|Certificate accounts:                      |                      |                                |                            |         |              |         |          |        
|                                           | 3 to 6 months        |                                |                            | 42,142  |              |         |          | 52,164  |        
|                                           | 1 to 3 years         |                                |                            | 240,752 |              |         |          | 246,636 |        
|                                           | Greater than 3 years |                                |                            | 86,120  |              |         |          | 75,987  |        
|                                           | IRA/KEOGH            |                                |                            | 49,664  |              |         |          | 47,332  |        
|                                           |                      |                                |                            |         |              |         |          |        
|                                           |                      |                                | Total certificate accounts |         |              | 418,678 |          |         |         | 422,119 | 
|                                           |                      |                                |                            |         |              |         |          |        
|                                           |                      |                                | 975,273                    |         |              |         | 960,278  |        
|                                           |                      |                                |                            |         |              |         |          |        
|Expected maturity of certificate accounts: |                      |                                |                            |         |              |         |          |        
|                                           | Within one year      |                                |                            | 230,928 |              |         |          | 227,898 |        
|                                           | One to two years     |                                |                            | 94,785  |              |         |          | 99,230  |        
|                                           | Two to three years   |                                |                            | 47,264  |              |         |          | 53,250  |        
|                                           | Over three years     |                                |                            | 45,701  |              |         |          | 41,741  |        
|                                           |                      |                                |                            |         |              |         |          |        
|                                           |                      |                                | 418,678                    |         |              |         | 422,119  |        
|                                           |                      |                                |                            |         |              |         |          |        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Federal Home Loan Bank (FHLB) advances and other borrowings
increased $5.3 million, to a balance of $431.8 million at June 30, 2003,
from $426.6 million at December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | C. COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | GENERAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | During the quarter ended June 30, 2003, the Company earned $1.5
million, or $0.35 basic and $0.33 diluted earnings per share, compared to
net income of $2.6 million or $0.58 basic and $0.55 diluted earnings per
share for the second quarter of 2002. Significant items affecting the
second quarter earnings included the reversal of approximately $2.8
million ($1.8 million net of tax) of the first quarter provision for
additional state taxes and interest applicable to the real estate
investment trust (REIT) due to the settlement with the Massachusetts
Department of Revenue (DOR), a loan loss provision of $2.0 million,
additional impairment of originated mortgage servicing rights (OMSRs) in
the amount of $1.9 million and continued margin erosion. As was
previously disclosed, the Company entered into a settlement by paying $1.9
million (approximately $1.2 million, net of taxes) to the DOR to resolve
the dispute involving the DORs disallowance of the deduction for
dividends received from its REIT subsidiaries.

15



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the six months ended June 30, 2003, the net loss was $66,000, or $0.02
basic and diluted loss per share, compared to $4.6 million or $1.04 basic
and $0.98 diluted earnings per share for the six months ended June 30,
2002. The current year-to-date earnings were negatively impacted by the
settlement of the REIT tax issue, higher than normal loan loss provision
and OMSR impairment.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Earnings for the six months ended June 30 2002, were impacted by the
settling of a legal dispute at BNB. For the three months ended June 30,
2003 and 2002, the annualized return on average stockholders equity was
6.61% and 10.50%, 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 quarters ended June 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.

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 June 30:                                   |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Assets:                                                          |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Interest-earning assets:                                         |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 | Investment securities (1)              |                                            | $       | 157,207   |           |          | $     | 1,100  |        |         |       | 2.80                   | %    |      | $       | 120,350   |           |        | $     | 1,009  |        |         |       | 3.35 | %   
|                                                                 | Loans, net and loans held for sale (2) |                                            |         | 1,093,786 |           |          |       | 15,855 |        |         |       | 5.80                   | %    |      |         | 1,084,355 |           |        |       | 18,673 |        |         |       | 6.89 | %   
|                                                                 | Mortgage-backed securities (3)         |                                            |         | 150,300   |           |          |       | 1,597  |        |         |       | 4.25                   | %    |      |         | 149,677   |           |        |       | 2,181  |        |         |       | 5.83 | %   
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total interest-earning assets              |         |           | 1,401,293 |          |       |        | 18,552 |         |       |                        | 5.30 | %    |         |           | 1,354,382 |        |       |        | 21,863 |         |       |      | 6.46 | %
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Non interest-earning assets                                      |                                        |                                            | 103,581 |           |           |          |       |        |        |         |       |                        |      |      | 111,277 |           |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total assets                               |         |           | 1,504,874 |          |       |        |        |         |       |                        |      |      |         |           | 1,465,659 |        |       |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Liabilities and stockholders
equity:                            |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Interest-bearing liabilities:                                    |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 | Money market deposit accounts          |                                            |         | 64,798    |           |          |       | 198    |        |         |       | 1.22                   | %    |      |         | 61,390    |           |        |       | 253    |        |         |       | 1.65 | %   
|                                                                 | Savings accounts                       |                                            |         | 214,287   |           |          |       | 592    |        |         |       | 1.11                   | %    |      |         | 192,173   |           |        |       | 696    |        |         |       | 1.45 | %   
|                                                                 | Now accounts                           |                                            |         | 148,223   |           |          |       | 61     |        |         |       | 0.16                   | %    |      |         | 140,769   |           |        |       | 115    |        |         |       | 0.33 | %   
|                                                                 | Certificate accounts                   |                                            |         | 415,188   |           |          |       | 3,960  |        |         |       | 3.82                   | %    |      |         | 392,385   |           |        |       | 4,347  |        |         |       | 4.43 | %   
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total                                      |         |           | 842,496   |          |       |        | 4,811  |         |       |                        | 2.28 | %    |         |           | 786,717   |        |       |        | 5,411  |         |       |      | 2.75 | %
|Borrowed funds (4)                                               |                                        |                                            | 424,757 |           |           |          | 4,264 |        |        |         | 4.02  | %                      |      |      | 445,590 |           |           |        | 5,807 |        |        |         | 5.21  | %   
|Corporation-obligated mandatorily
redeemable capital securities  |                                        |                                            | 32,000  |           |           |          | 880   |        |        |         | 11.00 | %                      |      |      | 32,000  |           |           |        | 881   |        |        |         | 11.00 | %   
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total interest-bearing
liabilities         |         |           | 1,299,253 |          |       |        | 9,955  |         |       |                        | 3.06 | %    |         |           | 1,264,307 |        |       |        | 12,099 |         |       |      | 3.83 | %
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Non interest-bearing liabilities:                                |                                        |                                            | 112,885 |           |           |          |       |        |        |         |       |                        |      |      | 102,933 |           |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total liabilities                          |         |           | 1,412,138 |          |       |        |        |         |       |                        |      |      |         |           | 1,367,240 |        |       |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Stockholders equity                                             |                                        |                                            | 92,736  |           |           |          |       |        |        |         |       |                        |      |      | 98,419  |           |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|                                                                 |                                        | Total liabilities and
stockholders equity |         | $         | 1,504,874 |          |       |        |        |         |       |                        |      |      |         | $         | 1,465,659 |        |       |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Net interest rate spread (5)                                     |                                        |                                            |         |           |           | $        | 8,597 |        |        |         | 2.24  | %                      |      |      |         |           |           | $      | 9,764 |        |        |         | 2.63  | %   
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Net interest margin (6)                                          |                                        |                                            |         |           |           |          |       |        |        |         | 2.45  | %                      |      |      |         |           |           |        |       |        |        |         | 2.88  | %   
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     
|Ratio of interest-earning assets to
interest-bearing liabilities |                                        |                                            | 107.85  | %         |           |          |       |        |        |         |       |                        |      |      | 107.12  | %         |           |        |       |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |       |        |        |         |       |                        |      |      |         |           |           |        |       |        |        |         |       |     

(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
3.95% and 5.18% for the three months ended June 30, 2003 and June 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.



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 six months ended June 30:                                |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Assets:                                                          |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Interest-earning assets:                                         |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 | Investment securities (1)              |                                            | $       | 160,377   |           |          | $      | 2,238  |        |         |       | 2.79                   | %    |      | $       | 120,909   |           |        | $      | 1,991  |        |         |       | 3.29 | %   
|                                                                 | Loans, net and loans held for sale (2) |                                            |         | 1,088,874 |           |          |        | 32,434 |        |         |       | 5.96                   | %    |      |         | 1,085,765 |           |        |        | 37,188 |        |         |       | 6.85 | %   
|                                                                 | Mortgag-backed securities (3)          |                                            |         | 138,713   |           |          |        | 3,134  |        |         |       | 4.52                   | %    |      |         | 140,827   |           |        |        | 4,067  |        |         |       | 5.78 | %   
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total interest-earning assets              |         |           | 1,387,964 |          |        |        | 37,806 |         |       |                        | 5.45 | %    |         |           | 1,347,501 |        |        |        | 43,246 |         |       |      | 6.42 | %
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Non interest-earning assets                                      |                                        |                                            | 106,460 |           |           |          |        |        |        |         |       |                        |      |      | 111,470 |           |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total assets                               |         |           | 1,494,424 |          |        |        |        |         |       |                        |      |      |         |           | 1,458,971 |        |        |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Liabilities and stockholders
equity:                            |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Interest-bearing liabilities:                                    |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 | Money market deposit accounts          |                                            |         | 63,787    |           |          |        | 384    |        |         |       | 1.20                   | %    |      |         | 60,233    |           |        |        | 494    |        |         |       | 1.64 | %   
|                                                                 | Savings accounts                       |                                            |         | 215,279   |           |          |        | 1,208  |        |         |       | 1.12                   | %    |      |         | 187,940   |           |        |        | 1,365  |        |         |       | 1.45 | %   
|                                                                 | Now accounts                           |                                            |         | 145,762   |           |          |        | 156    |        |         |       | 0.21                   | %    |      |         | 137,735   |           |        |        | 224    |        |         |       | 0.33 | %   
|                                                                 | Certificate accounts                   |                                            |         | 418,096   |           |          |        | 8,142  |        |         |       | 3.89                   | %    |      |         | 392,041   |           |        |        | 9,145  |        |         |       | 4.67 | %   
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total                                      |         |           | 842,924   |          |        |        | 9,890  |         |       |                        | 2.35 | %    |         |           | 777,949   |        |        |        | 11,228 |         |       |      | 2.89 | %
|Borrowed funds (4)                                               |                                        |                                            | 415,739 |           |           |          | 8,706  |        |        |         | 4.19  | %                      |      |      | 442,564 |           |           |        | 11,567 |        |        |         | 5.23  | %   
|Corporation-obligated mandatorily
redeemable capital securities  |                                        |                                            | 32,000  |           |           |          | 1,761  |        |        |         | 11.00 | %                      |      |      | 32,000  |           |           |        | 1,761  |        |        |         | 11.00 | %   
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total interest-bearing
liabilities         |         |           | 1,290,663 |          |        |        | 20,357 |         |       |                        | 3.15 | %    |         |           | 1,252,513 |        |        |        | 24,556 |         |       |      | 3.92 | %
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Non interest-bearing liabilities:                                |                                        |                                            | 110,037 |           |           |          |        |        |        |         |       |                        |      |      | 109,033 |           |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total liabilities                          |         |           | 1,400,700 |          |        |        |        |         |       |                        |      |      |         |           | 1,361,546 |        |        |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Stockholders equity                                             |                                        |                                            | 93,724  |           |           |          |        |        |        |         |       |                        |      |      | 97,425  |           |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|                                                                 |                                        | Total liabilities and
stockholders equity |         | $         | 1,494,424 |          |        |        |        |         |       |                        |      |      |         | $         | 1,458,971 |        |        |        |        |         |       |      |      |  
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Net interest rate spread (5)                                     |                                        |                                            |         |           |           | $        | 17,449 |        |        |         | 2.30  | %                      |      |      |         |           |           | $      | 18,690 |        |        |         | 2.50  | %   
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Net interest margin (6)                                          |                                        |                                            |         |           |           |          |        |        |        |         | 2.51  | %                      |      |      |         |           |           |        |        |        |        |         | 2.77  | %   
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     
|Ratio of interest-earning assets to
interest-bearing liabilities |                                        |                                            | 107.54  | %         |           |          |        |        |        |         |       |                        |      |      | 107.58  | %         |           |        |        |        |        |         |       |     
|                                                                 |                                        |                                            |         |           |           |          |        |        |        |         |       |                        |      |      |         |           |           |        |        |        |        |         |       |     

(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
3.95% and 5.18% for the three months ended June 30, 2003 and June 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.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Interest Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Total interest income on interest-earning assets for the quarter
ended June 30, 2003 declined by $3.3 million, or 15.1%, to $18.6 million,
compared to the quarter ended June 30, 2002. The decrease in interest
income was due to a 116 basis point decline in the average yield on
interest earning assets, partially offset by the earnings on the $46.9
million increase in average interest-earning assets. The average yield on
interest-earning assets declined to 5.30% for the three months ended June
30, 2003 from 6.46% for the three months ended June 30, 2002. For the six
months ended June 30, 2003, total interest income declined by $5.4
million, or 12.5%, to $37.8 million, compared to the $43.2 million
interest income earned during the six months ended June 30, 2002. Similar
to the current quarter, the year-to-date interest income declined due to a
97 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 two 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 June 30, 2003
declined by $2.8 million, or 15.0%, to $15.9 million compared to $18.7
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
109 basis point decline in the average yield, slightly offset by an
increase in the average balance of loans, net. The average yield on
loans, net for the three months ended June 30, 2003 was 5.80%, compared to
an average yield of 6.89% for the three months ended June 30, 2002. For
the six months ended June 30, 2003, interest income on loans, net, was
$32.4 million, $4.8 million lower than the prior year comparable period.
The yield on loans, net, declined by 89 basis points in the current
six-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 June 30,
2003 was $1.6 million, compared to $2.2 million for the quarter ended June
30, 2002. The decline was primarily due to a 158 basis point decline in the average
yield as there was virtually no change in the average balances. The
average yield declined from 5.83% for the three months ended June 30,
2002, to 4.25% for the current three-month period. On a year-to-date
basis, interest income on mortgage-backed securities declined from $4.1
million for the six months ended June 30, 2002, to $3.1 million for the
comparable period this year. 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 $1.1 million for the three
months ended June 30, 2003, compared to $1.0 million for the prior year
quarter. The improvement was due to substantially higher average balance
of investment securities, which increased to $157.2 million for the three
months ended June 30, 2003, compared to $120.4 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 June 30, 2002, to 2.80% for the current quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income from investment securities was $2.2 million for the six months
ended June 30, 2003, which was a 10% increase compared to the $2.0 million for the
six months ended June 30, 2002. Similar to the current quarter, the
impact on income from much higher average balances, was partially
offset by the
50 basis point decline in average yield in the current period, compared to
the six months ended June 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Interest Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Total interest expense on interest-bearing liabilities for the
quarter ended June 30, 2003 declined by $2.1 million, or 17.4%, to $10.0
million compared to $12.1 million for the quarter ended June 30, 2002.
The decrease in interest expense for the current quarter was primarily due
to a 77 basis point reduction in the average cost of interest bearing
liabilities, which was partially offset by the interest expense applicable to a $34.9
million increase in the average balance of interest-bearing liabilities,
which averaged $1.299 billion during the current quarter, compared to an
average balance of $1.264 billion during the quarter ended June 30, 2002.
The average cost of interest-bearing liabilities declined to 3.06% during
the quarter ended June 30, 2003, compared to 3.83% for last years
comparable quarter. For the six months ended June 30, 2003, total
interest expense was $20.4 million, a decline of $4.2 million compared to
the $24.6 million interest expense for the six months ended June 30, 2002.
The cost of funds declined from 3.92% for the six months ended June 30,
2002 to 3.15% 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 $4.8 million for the quarter
ended June 30, 2003, a decrease of $600,000 from the $5.4 million for the
quarter ended June 30, 2002. Interest expense on deposit accounts
declined due to a 47 basis point decrease in the average cost of deposits.
For the three months ended June 30, 2003, the average cost of deposits
was 2.28%, compared to 2.75% for the three months ended June 30, 2002.
Average balances of deposit accounts of $842.5 million for the current
quarter, were $55.8 million higher than the average of $786.6 for the
quarter ended June 30, 2002. For the six months ended June 30, 2003,
interest expense on deposit accounts declined by $1.3 million to $9.9
million, compared to $11.2 million for the six months ended June 30, 2002.
The cost of deposits declined by 54 basis points during the current six
months to 2.35%, compared to 2.89% for the six months ended June 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 $842.9
million during the six months ended June 30, 2003, compared to $777.9
million for the prior year period.                                                                                                                                                                                                                                                                          
|
| | Interest expense on borrowed funds was $4.3 million for the three
months ended June 30, 2003, compared to $5.8 million for the three months
ended June 30, 2002. Borrowed funds declined to an average of $424.8
million during the current quarter from an average of $445.6 million for
the prior year quarter. The average cost of borrowed funds declined to
4.02% for the three months ended June 30, 2003, a decline of 119 basis
points, compared to the 5.21% cost of borrowed funds for the three months
ended June 30, 2002. Similar results were attained on a year-to-date
basis as interest expense on borrowed funds declined to $8.7 million for
the six months ended June 30, 2003 from $11.6 million for the prior year
comparable period. The cost of borrowed funds declined from 5.23% during
the six months ended June 30, 2002 to 4.19% in the current year period, a
decline of 104 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.                                                                                                                                                                                                                                                                                                                                                                                

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Net Interest Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Net interest income for the three months ended June 30, 2003 was $8.6
million, compared to $9.8 million for the second 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 2.88% for the quarter ended June 30,
2002 to 2.45% in the current quarter. On a linked-quarter basis (March
31, 2003), the net interest margin declined by 13 basis points, six basis
points of the decline was caused by the reversal of approximately $200,000
of accrued interest on a large delinquent borrower discussed below. For
the six months ended June 30, 2003, the net interest income was $17.4
million, a decline of $1.3 million from the $18.7 million for the six
months ended June 30, 2002. This decline was caused by a 26 basis point
decrease in the net interest margin, which declined to 2.51% during the
current period,
compared to 2.77% for the prior year six-month period. The above
mentioned issues also affected the net interest margin for the six months
ended June 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 $2.0 million for the three months
ended June 30, 2003, compared to $250,000 for the comparable quarter last
year. The increase in the provision was necessary as a charge-off of $1.6
million required replenishment to the allowance for loan losses (ALL).
A large commercial real estate/business loan borrower of the Company
suffered the loss of some of its business to international competition,
causing the borrower to close a large portion of its manufacturing
facilities. A current appraisal of the borrowers real estate showed a
substantial reduction in the value due to the vacated space.
Additionally, the Company provided $400,000 to the ALL 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 June 30, 2003, the Companys
non-performing assets totaled $8.1 million, or 0.53% of total assets,
compared to the December 31, 2002 balance of $6.5 million, or 0.43% of
total assets. The provision for loan losses was $2.5 million for the six
months ended June 30, 2003, compared to $500,000 for the comparable period
last year. 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 declined to $2.6 million for the three
months ended June 30, 2003, compared to $4.1 million for the quarter ended
June 30, 2002, due primarily to lower loan processing and servicing fees
resulting from higher levels of amortization and impairment of OMSRs.
Loan processing and servicing fees were a negative $1.7 million for the
quarter ended June 30, 2003, compared to a negative $198,000 for the
quarter ended June 30, 2002. On a year to date basis, loan processing and
servicing fees were a negative $2.5 million, compared to a negative
$509,000 for last year to date. The primary reason for the decrease was
due to an OMSR impairment charge of $3.0 million during the six months
ended June 30, 2003, whereas the impairment charge for the prior year
comparable period was $1.1 million. The impairment charge for the current
six-month period includes $2.4 million in permanent impairment due to
actual prepayments, as well as an additional $600,000 for anticipated
future prepayments, thereby increasing the valuation allowance to $3.1
million. With the most recent adjustment, the OMSR balance of $5.6
million represents approximately 55 basis points of the $1.020 billion of
loans serviced for others. Further declines in market interest rates,
which affect loan prepayments and prepayment speeds, may result in future
impairment charges.                                                 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Gain on sale of loans amounted to $2.7 million for the three months
ended June 30, 2003, essentially the same as the quarter ended June 30,
2002. The Company has reduced the amount of gain recognized upon the sale
of adjustable-mortgage loans to reflect current shorter estimated lives of
loans serviced. Additionally, the Company is retaining a larger portion
of loan production for its own portfolio in order to replace loans
that have prepaid and to increase the size of its loan portfolio. The
increased gain on sale of loans resulted from a continuation of high
volumes of one- to four-family mortgage loan sales, made possible by the
high 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 $1.1 million for the
quarter ended June 30, 2003, compared to $1.3 million for the quarter
ended June 30, 2002. On a year-to-date basis gain on sale of manufactured
housing loans was $1.9 million, compared to $2.4 million for the six
months ended June 30, 2002. The decline is due to the continuing
recessionary levels of activity in the manufactured housing market.
|
| | Deposit service fees increased from $768,000 in the quarter ended
June 30, 2002, to $900,000 in the current quarter. On a year-to-date
basis, deposit service fees were $1.8 million, compared to the prior
year-to-date total of $1.4 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 $9.7 million for the three months
ended June 30, 2003, essentially the same as the prior year quarter. For
the six months ended June 30, 2003, total non-interest expense was $19.6
million, compared to $19.4 million for the prior year to date.
Compensation and benefits were $140,000 lower in the current quarter than
the prior year second quarter as the Company reversed a portion of the
short-term incentive plan accrual due to the level of current earnings,
which would preclude the payout of a substantial portion of the plan.
This reversal more than offset increased compensation and benefits expense
for the Companys defined benefits pension plan expense, which resumed
required contributions in the third quarter of 2002 and normal year over
year salary increases. Advertising expense increased to $360,000 in the
current quarter from $264,000 in the prior year comparable quarter due to
the rollout of a more focused advertising program. The total non-interest
expense for the six months ended June 30, 2002 was impacted by a $500,000
legal settlement at the Companys BNB subsidiary.                                                                         
|
| | Income Tax Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Income tax
benefit for the three months ended June 30, 2003, was $2.0
million, due primarily to the reversal of a portion of the REIT accrual
recorded during the first quarter due to the Mass. DOR settlement. The
net effect of the REIT tax issue was an increase in tax benefit of
approximately $1.8 million. For the six months ended June 30, 2003,
income taxes were $2.0 million, the majority of which includes the charge
for the additional REIT taxes applicable to prior years, net of the
settlement with the Mass DOR. The remaining tax of approximately $765,000
results in an effective tax rate of approximately 40.3% compared to $2.4
million, an effective tax rate of 34.2% for the six months ended June 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 June
30, 2003, BFS and BNB had $10.4 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.                                                                                                                                                                                                      

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 $7.0 million of
securities available for sale and $3.2 million cash or cash equivalents at
June 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.
|
| | The Companys 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:

|                                              |  |                |         |          |  |   |         | 
|--------------------------------------------- |  | -------------- | ------- | -------- |  | - | ------- | 
|                                              |  | 06/30/03       |         | 12/31/02
|                                              |  |                |         |         
|                                              |  | (In Thousands)
|Cash and cash equivalents                     |  | $              | 43,533  |          |  | $ | 74,672  | 
|Investment securities available for sale      |  |                | 109,092 |          |  |   | 112,888 | 
|Mortgage-backed securities available for sale |  |                | 116,176 |          |  |   | 114,515 | 
|Loans held for sale                           |  |                | 16,024  |          |  |   | 31,614  | 
|                                              |  |                |         |          |  |   |         | 
|Total liquid assets                           |  | $              | 284,825 |          |  | $ | 333,689 | 
|                                              |  |                |         |          |  |   |         | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These amounts represent 18.5% and 21.9% of the Companys total assets
at June 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 June 30, 2003, the
Banks had $431.8 million in advances outstanding from the FHLB and had,
with existing collateral, an additional $179.6 million in overall
borrowing capacity from the FHLB. Borrowing capacity can also be further
increased upon delivery of mortgage notes on non-owner occupied 1-4 family
loans, multi-family and commercial loans. The Banks generally do not pay
the highest deposit rates in their market and accordingly utilize
alternative sources of funds such as FHLB advances and wholesale-brokered
deposits to supplement cash flow needs.
|
| | At June 30, 2003, the Banks had commitments to originate loans and
unused outstanding lines of credit totaling $413.5 million. The Banks
anticipate that they will have sufficient funds available to meet their
current loan origination commitments. Certificate accounts, which are
scheduled to mature in less than one year from June 30, 2003, totaled
$231.0 million.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | At June 30, 2003, the consolidated stockholders equity to total
assets ratio was 5.9%. As of June 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 12.7%, 11.2% and 7.4%, respectively. BFSs
tier 1 (core) capital, total risk-based, capital, tier 1 risk-based and
tangible equity capital ratios were 6.6%, 11.3%, 10.1% and 6.6%,
respectively. BNBs total risk-based capital, tier 1 risk-based capital
and leverage capital ratios were 13.9%, 12.6% and 6.1%, respectively.                                                                                                                        

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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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | 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 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 June 30, 2003, the Companys one-year gap was a positive 9.8% of
total assets, compared to a positive 10.7% of total assets at December 31,
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

21



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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys interest rate sensitivity is also monitored by
management through the use of a model, which internally generates
estimates of the change in net portfolio value (NPV) over a range of
interest rate change scenarios. NPV is the present value of expected cash
flows from assets, liabilities, and off-balance sheet contracts. The NPV
ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | As in the case with the gap analysis, certain shortcomings are
inherent in the methodology used in the above interest rate risk
measurements. Modeling changes in NPV require the making of certain
assumptions, which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this
regard, the NPV model used assumes that the composition of the Companys
interest sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and also assumes
that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV
measurements and net interest income models provide an indication of the
Companys interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of
the effect of changes in market interest rates on the Companys net
interest income and will differ from actual results. See the Companys
Form 10-K for the year ended December 31, 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 has established and maintains disclosure controls and
procedures designed to ensure that the information required to be
disclosed in its filings under the Securities and Exchange Act of 1934 is
recorded, processed, summarized, and reported on a timely basis. Within
90 days prior
to the filing date of this report, under the supervision and with the
participation of the Companys Chief Executive Officer and the Chief
Financial Officer, the Company has evaluated the effectiveness of its
disclosure controls and procedures. Based on that evaluation, the CEO and
CFO concluded that the Companys disclosure controls and procedures were
effective as of the date of evaluation. There were no significant changes
in the Companys internal controls or in other factors that could
significantly affect those controls subsequent to the date of the
evaluation.




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

Not applicable




Item 3. Defaults Upon Senior Securities

Not applicable

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##### Table of Contents






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



| | (A) |  | The Company held its Annual Meeting of Stockholders on April 30,
2003. Proxies were solicited with respect to such meeting under
Regulation 14A of the Securities Exchange Act of 1934, as amended,
pursuant to proxy materials dated March 31, 2003. Of the 4,429,876
shares eligible to vote at the annual meeting, 3,708,591 were
represented in person or by proxy.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (B) |  | There was no solicitation in opposition to the Board nominees for
directors and all of such nominees were elected as follows:                                                                                                                                                                                                                                          

|                                                              |  |                 |           |                      |  |  |         | 
|------------------------------------------------------------- |  | --------------- | --------- | -------------------- |  |  | ------- | 
|(1) Election
of Directors to a three-year term ending in 2006
|                                                             
|Nominee                                                       |  | Total Votes For |           | Total Votes Withheld
|                                                              |  |                 |           |                      |  |  |         | 
|Patricia M. Flynn, Ph.D.                                      |  |                 | 3,532,415 |                      |  |  | 176,176 | 
|W. Russell Scott, Jr.                                         |  |                 | 3,532,420 |                      |  |  | 176,171 | 
|Catherine Friend White                                        |  |                 | 3,532,420 |                      |  |  | 176,171 | 

|                         |  |                   |      | 
|------------------------ |  | ----------------- | ---- | 
|(2) Continuing Directors |  | Year Term Expires
|                         |  |                   |      | 
|David F. Holland         |  |                   | 2004 | 
|Joanna T. Lau            |  |                   | 2004 | 
|David P. Conley          |  |                   | 2005 | 
|Richard J. Fahey         |  |                   | 2005 | 
|Kija Kim                 |  |                   | 2005 | 



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



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Ratification of the appointment of KPMG LLP as independent auditors
for the fiscal year ending December 31, 2003:

|          |  |               |        |             |  |  |       | 
|--------- |  | ------------- | ------ | ----------- |  |  | ----- | 
|Votes For |  | Votes Against |        | Abstentions
|          |  |               |        |             |  |  |       | 
|3,650,359 |  |               | 55,549 |             |  |  | 2,683 | 




Item 5. Other Information

None




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits



| | 3.1  |  | Restated Certificate of Incorporation*                                                          
| | ---- |  | ------------------------------------------------------------------------------------------------
|
| | 3.2  |  | Amended and Restated Bylaws as of February 23, 2000**                                           
|
| | 4.0  |  | Stock Certificate of BostonFed Bancorp, Inc.*                                                   
|
| | 10.0 |  | Purchase and Assumption Agreement                                                               
|
| | 31.1 |  | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 
|
| | 31.2 |  | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 
|
| | 32.1 |  | Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
| | 32.2 |  | Chief Financial Officer
Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 



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

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##### Table of Contents





| |  |  | Report on Form 10-K filed on March 31, 2003.
| |  |  | --------------------------------------------

(b)  Reports on Form 8-K



| |  |  | May 16, 2003 press release announcing merger of Broadway National Bank
into Boston Federal Savings Bank                                                                                                                     
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | June 27, 2003 press release announcing the settlement of the REIT tax
dispute with the Massachusetts Department of Revenue                                                                                                  
|
| |  |  | July 10, 2003 press release announcing the signing of a definitive
agreement to acquire Encore Banks seven Boston area branches                                                                                            
|
| |  |  | July 18, 2003 press release announcing second quarter 2003 results                                                                                                                                                          
|
| |  |  | July 28, 2003 press release announcing website availability of the
Companys June 30, 2003 Investor Presentation and the Companys speaking
engagement on July 30, 2003 at the KBW 4th Annual Conference in New York
City.

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

25