<PAGE>   1
                                                                      EXHIBIT 13


                        SELECTED CONSOLIDATED FINANCIAL
                         AND OTHER DATA OF THE COMPANY

        The selected consolidated financial and other data of the Company set
forth below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and Notes thereto presented
elsewhere in this Annual Report.

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                   --------------------------------------------------------------
                                                       2000        1999         1998          1997         1996
                                                   --------------------------------------------------------------
                                                                             (In thousands)

<S>                                                <C>           <C>         <C>          <C>          <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets ...................................   $1,327,782    1,253,653   $1,139,123     $974,680     $820,567
Investment securities available for sale(1) ....       63,421       53,203       49,137       31,767        1,086
Investment securities held to maturity(1) ......        2,304        2,304        7,302       20,630       19,170
Mortgage-backed securities available for
 sale(1) .......................................       15,372       15,540       21,029       19,125       23,593
Mortgage-backed securities held to
 maturity(1) ...................................       55,283       13,941       22,913       38,350       43,019
Mortgage loans held for sale ...................       12,816       16,174       17,008        9,817        3,970
Loans, net .....................................    1,036,435    1,032,594      943,662      791,728      676,670
Allowance for loan losses ......................       11,381       10,654        8,500        6,600        4,400
Deposit accounts ...............................      849,647      770,049      707,144      619,821      428,818
Borrowed funds .................................      344,334      387,555      337,500      263,640      300,000
Stockholders' equity ...........................       89,913       85,704       81,794       81,611       86,355


                                                                    For the Year Ended December 31,
                                                   --------------------------------------------------------------
                                                       2000        1999         1998          1997         1996
                                                   --------------------------------------------------------------
                                                                             (In thousands)

SELECTED OPERATING DATA:
Interest income ...................................   $91,834      $80,736      $74,775      $68,037      $52,678
Interest expense ..................................    54,489       47,208       42,557       37,129       28,891
Net interest income ...............................    37,345       33,528       32,218       30,908       23,787
Provision for loan losses .........................     1,000        1,626        1,642        1,696        1,294
Net interest income after provision for loan
 losses ...........................................    36,345       31,902       30,576       29,212       22,493
Total non-interest income .........................    14,354        6,911        6,128        4,806        3,567
Total non-interest expense ........................    35,645       25,300       23,932       21,458       21,040
Income before income taxes ........................    15,054       13,513       12,772       12,560        5,020
Income tax expense ......... ......................     5,344        4,945        5,151        5,505        2,083
Net income ........................................     9,710        8,568        7,621        7,055        2,937
</TABLE>


                                       1


<PAGE>   2




                               SELECTED FINANCIAL
                             RATIOS AND OTHER DATA

<TABLE>
<CAPTION>
                                                                          At or For the Year Ended December 31,
                                                            --------------------------------------------------------------
                                                                2000        1999         1998          1997         1996
                                                            --------------------------------------------------------------
                                                                                      (In thousands)

<S>                                                        <C>          <C>          <C>          <C>          <C>
PERFORMANCE RATIOS:(2)
Return on average assets ............................           0.75%        0.72%        0.72%        0.75%        0.40%
Return on average stockholders' equity ..............          10.72        10.00         9.02         8.21         3.21
Dividend payout ratio ...............................          24.64        25.84        24.67        20.31        31.25
Average stockholders' equity to average assets ......           6.99         7.21         7.99         9.11        12.35
Stockholders' equity to total assets at end of
 period .............................................           6.77         6.84         7.18         8.37        10.52
Average interest rate spread(3) .....................           2.80         2.59         2.69         2.94         2.79
Net interest margin(4) ..............................           3.11         2.97         3.17         3.42         3.34
Average interest-earning assets to average
  interest-bearing liabilities ......................          107.0        109.0        111.6        111.5        113.4


ASSET QUALITY RATIOS:(2)
Non-performing loans as a percent of loans(5)(6) ....           0.09         0.07         0.09         0.17         0.22
Non-performing assets as a percent of total
 assets(6) ..........................................           0.08         0.09         0.08         0.16         0.51
Allowance for loan losses as a percent of loans(5) ..           1.07         1.01         0.88         0.82         0.64
Allowance for loan losses as a percent of
  non-performing loans(6) ...........................       1,190.48     1,428.15     1,050.68       469.75       292.94

NUMBER OF FULL-SERVICE BANKING FACILITIES ...........             11           10           10           10            8

NUMBER OF SHARES OUTSTANDING AT END OF PERIOD
  (IN THOUSANDS) ....................................          4,648        4,973        5,112        5,520        6,260

PER SHARE DATA
Basic earnings per common share .....................      $    2.07    $    1.78    $    1.50      $  1.28      $  0.48
Diluted earnings per common share ...................           2.01         1.71         1.43         1.24         0.48
Dividends per common share ..........................           0.51         0.46         0.37         0.26         0.15
Book value per common share at end of period ........          19.82        17.88        16.84        15.72        14.75
Market value per common share at end of period ......          20.88        15.88        17.63        21.88        14.75
</TABLE>

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

(1)  The balance does not include FHLB-Boston stock.

(2)  Asset Quality and Regulatory Capital Ratios are end of period.

(3)  The average interest rate spread represents the difference between the
     weighted average yield on average interest-earning assets and the weighted
     average cost of average interest-bearing liabilities.

(4)  The net interest margin represents net interest income as a percent of
     average interest-earning assets.

(5)  Loans includes loans, net, and mortgage loans held for sale, excluding the
     allowance for loan losses.

(6)  Non-performing assets consist of non-performing loans and real estate owned
     ("REO"). Non-performing loans consist of all loans 90 days or more past due
     and other loans which have been identified by the Company as presenting
     uncertainty with respect to the collectibility of interest or principal. It
     is the Company's policy to cease accruing interest on all such loans.




                                       2


<PAGE>   3


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion may contain certain forward-looking statements which
are based on current management expectations. Generally, verbs in the future
tense and the words, "believe", "anticipate", "intends", "opinion", "potential",
and similar expressions identify forward-looking statements. Examples of this
forward-looking information can be found in, but are not limited to, the
allowance for losses discussion, subsequent events and any quantitative and
qualitative disclosure about market risk. The actual results of BostonFed
Bancorp, Inc., (the "Company") 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 affecting the Company's operations, markets, products, services and
prices. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included in the Company's filings with the Securities and
Exchange Commission.

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

GENERAL

The Company, headquartered in Burlington, Massachusetts, was organized in 1995
under Delaware law as the holding company for Boston Federal Savings Bank,
("BFS") in connection with the conversion of BFS from a mutual to a stock form
of ownership. The Company later acquired Broadway National Bank, ("BNB") a
nationally-chartered commercial bank, as its wholly-owned subsidiary.
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,



                                       3
<PAGE>   4

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 Northboro, Massachusetts and operates
in approximately 26 states across the U.S. 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, fees and loan servicing income. The Company's primary
sources of funds are deposits, principal and interest payments on loans,
investments, mortgage-backed securities, 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 and borrowings. Results of operations are also affected by the
Company's provision for loan losses, real estate operations expense, investment
and loan sale activities and loan servicing. The Company's non-interest expense
principally consists of compensation and benefits, occupancy and equipment
expense, advertising, data processing expense, goodwill amortization,
corporation obligated mandatorily redeemable capital securities distributions
("trust preferred securities") 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.

During the first three years following its initial public offering, the Company
was a savings and loan holding company subject to the regulations of the Office
of Thrift Supervision ("OTS"). The Company later became a bank holding company
subject to the regulations of the Federal Reserve Bank as a result of the
Company's acquisition of BNB. BFS is regulated by the OTS and BNB is regulated
by the Office of the Comptroller of the Currency ("OCC"). Since the acquisition
of Forward Financial and Ellsmere in December 1999, the financial statements of
the Company and the following discussion regarding the Company's financial
condition and results of operations at and for the years ended December 31,
2000, 1999 and 1998, include information and data related to Forward Financial
and Ellsmere only from December 7, 1999 to December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of funds are deposits, (including brokered
deposits), principal and interest payments on loans, sales of loans,
investments, mortgage-backed and related securities and FHLB advances. During
2000, the Company obtained $32.0 million from the two trust preferred securities
issuances. While maturities and scheduled amortization of loans are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. The Company has
maintained the required minimum levels of liquid assets at BFS as defined by OTS
regulations. This requirement, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of BFS's deposits and short-term borrowings. BFS's currently required liquidity
ratio is 4%. At December 31, 2000 and 1999, BFS's liquidity ratio was 13.6% and
6.9%, respectively. Management has maintained liquidity at



                                       4
<PAGE>   5

low levels so that it may invest any excess liquidity in higher yielding
interest-earning assets or use such funds to repay higher cost FHLB advances.
The OCC does not have specific guidance for liquidity ratios for BNB, but does
require banks to maintain reasonable and prudent liquidity levels. Management
believes such levels are being maintained.

The Company's most liquid assets are cash, overnight federal funds sold,
short-term investments and investments available for sale. The levels of these
assets are dependent on the Company's operating, financing, lending and
investing activities during any given period. At December 31, 2000, cash,
short-term investments and investment securities available for sale totaled
$114.1 million or 8.6% of total assets. Additional investments were available
which qualified for BFS's regulatory liquidity requirements.

The Company has other sources of liquidity if a need for additional funds arise,
including FHLB advances and wholesale brokered deposits and repurchase
agreements (collateralized borrowings). At December 31, 2000, the Company had
$344.3 million in advances outstanding from the FHLB and had, with existing
collateral, an additional $175.9 million in overall borrowing capacity from the
FHLB. Borrowing capacity can also be increased upon the delivery of mortgage
notes on non owner-occupied 1-4 family loans, multi-family and commercial loans.
The Company generally avoids paying the highest deposit rates in its market and
accordingly utilizes alternative sources of funds such as FHLB advances,
repurchase agreements and wholesale brokered deposits to supplement cash flow
needs.

At December 31, 2000, the Company had commitments to originate loans and unused
outstanding lines of credit totaling $213.8 million. The Company anticipates
that it will have sufficient funds available to meet its current loan
origination commitments. Certificate accounts, which are scheduled to mature in
less than one year from December 31, 2000, totaled $252.6 million. The Company
expects that a substantial majority of the maturing certificate accounts will be
retained by the Company at maturity.

At the time of conversion, BFS established a liquidation account in an amount
equal to its retained earnings as of June 30, 1995. The liquidation
account is reduced to the extent that eligible account holders reduce their
qualifying deposits. BFS is not permitted to declare or pay dividends on its
capital stock, or repurchase any of its outstanding stock, if the effect thereof
would cause its stockholders' equity to be reduced below the amount required for
the liquidation account or applicable regulatory capital requirements. The
balance of the liquidation account at December 31, 2000 was approximately $6.8
million.

The Company is required to maintain a ratio of capital to assets, on a
consolidated basis, which is substantially equal to that required to be
maintained by the Banks. At December 31, 2000, the consolidated capital to
assets ratio of the Company was 6.8%, which exceeded the minimum regulatory
capital requirements for the Company. As of December 31, 2000, BFS exceeded all
of its regulatory capital requirements with tangible, core, risk-based tier 1,
and risk-based total capital ratios of 5.9%, 5.9%, 9.6% and 10.8%, respectively,
compared to the minimum regulatory requirements for adequately capitalized
levels of 2.0%, 4.0%, 4.0% and 8.0%, respectively. BNB also exceeded the minimum
regulatory capital requirements for adequately capitalized levels with leverage
capital, risk-based tier 1 capital and risk-based total capital ratios



                                       5
<PAGE>   6

of 6.5%, 13.0% and 14.0%, respectively, compared to the minimum regulatory
requirements for adequately capitalized levels of 4.0%, 4.0% and 8.0%,
respectively.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with Generally Accepted Accounting Principles
("GAAP"), which require the measurement of financial position and operating
results in terms of historical dollar amounts without considering the changes in
the relative purchasing power of money over time due to inflation. The impact of
inflation is reflected throughout the Company's operations. Unlike industrial
companies, nearly all of the assets and liabilities of the Company are monetary
in nature. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.

MARKET RISK AND MANAGEMENT OF INTEREST RATE 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. The extent of the movement of interest rates is an uncertainty that
could have a negative impact on the earnings of the Company.

In recent years, the Company has utilized the following strategies to manage
interest rate risk: (1) emphasizing the origination and retention of
adjustable-rate mortgage loans; (2) generally selling in the secondary market
substantially all fixed-rate mortgage loans originated with terms of 15 years or
greater while generally retaining the servicing rights thereof; (3) primarily
investing in short-term 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 such as
wholesale brokered deposits and utilizing longer term FHLB advances to replace
short-term, rate sensitive, retail deposits.

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



                                       6
<PAGE>   7

within that time period. These differences are a primary component of the risk
to net interest income. A gap is considered positive when the amount of interest
rate sensitive assets exceeds the amount of interest rate sensitive liabilities.
A gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. Accordingly,
during a period of rising interest rates, an institution with a positive gap
position would be in a better position to invest in higher yielding assets
which, consequently, may result in the yield on its assets increasing at a pace
more closely matching the increase in the cost of its interest-bearing
liabilities than if it had a negative gap. During a period of falling interest
rates, an institution with a positive gap would tend to have its assets
repricing at a faster rate than one with a negative gap which, consequently, may
tend to restrain the growth of, or reduce, its net interest income.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2000, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown (the "GAP Table"). Except as stated
below, the amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The Gap Table
sets forth an approximation of the projected repricing of assets and liabilities
at December 31, 2000, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a three-month period and
subsequent selected time intervals. Annual prepayment rates for adjustable-rate
and fixed-rate residential loans are assumed to be 9.7% and 10.9%, respectively.
Annual prepayment rates for adjustable-rate and fixed-rate mortgage-backed
securities are assumed to be 16.4% and 10.0%, respectively. Money market deposit
accounts are assumed to be immediately rate-sensitive, while passbook accounts
and negotiable order of withdrawal ("NOW") accounts are assumed to have decay
rates of 12% annually. These assumptions may or may not be indicative of actual
prepayment and withdrawals experienced by the Company. The table does not
necessarily indicate the impact of general interest rate movements on the
Company's net interest income because the actual repricing dates of various
assets and liabilities is subject to customer discretion and competitive and
other pressures and, therefore, actual experience may vary from that indicated.

The following table shows the gap position of the Company at December 31, 2000
and 1999:


                                       7
<PAGE>   8



The following table shows the gap position of the Company at December 31,2000
and December 31, 1999:

<TABLE>
<CAPTION>
                                                                  3         MORE THAN      MORE THAN     MORE THAN      MORE THAN
                                                                MONTHS      3 MONTHS       7 MONTHS      1 YEAR TO      3 YEARS TO
                                                               OR LESS     TO 6 MONTHS     TO 1 YEAR      3 YEARS        5 YEARS
                                                             ----------    -----------     ----------    ----------     ----------

<S>                                                          <C>           <C>            <C>           <C>            <C>
Interest-earning assets                                                                 (Dollars in thousands)
Short-term investments ...................................   $    8,978    $       99     $       99    $        0     $        0
Investment securities ....................................       57,692         4,919              0         3,114              0
Fixed rate loans(1) ......................................       14,053        12,587         24,297        86,888         70,292

Adjustable Rate Loans(1) .................................      225,662        70,190        133,138       225,951        100,193

Mortgage-backed securities ...............................       10,688         2,812          5,936        18,381         19,985
Stock in FHLB-Boston .....................................       20,649             0              0             0              0
                                                             ----------    ----------     ----------    ----------     ----------

       Total Interest-earning assets .....................      337,722        90,607        163,470       334,334        190,470
                                                             ----------    ----------     ----------    ----------     ----------

Interest-bearing liabilities

Money market deposit accounts ............................       54,642             0              0             0              0
Savings accounts .........................................       19,610         4,573          9,145        36,581         36,581
NOW accounts .............................................        4,005         4,005          8,010        32,041         32,041
Certificate accounts .....................................       92,002        76,516         99,484       109,891         38,833
FHLB Advances ............................................       48,334        40,000         20,000       164,000         42,000
Preferred Trust ..........................................            0             0              0             0              0
                                                             ----------    ----------     ----------    ----------     ----------
   Total interest-bearing liabilities ....................      218,593       125,094        136,639       342,513        149,455
                                                             ----------    ----------     ----------    ----------     ----------


Interest-earning assets less interest-bearing
   liabilities............................................   $  119,129    $(  34,487)    $   26,831    $(   8,179)    $   41,015
                                                             ==========    ==========     ==========    ==========     ==========

Cumulative interest rate sensitivity gap
   December 31, 2000 .....................................   $  119,129    $   84,642     $  111,473    $  103,294     $  144,309
                                                             ==========    ==========     ==========    ==========     ==========

Cumulative interest rate gap as a percentage
   of total assets at December 31, 2000 ..................         8.97%         6.38%          8.40%         7.78%         10.87%

Cumulative interest rate gap as a percentage
   of total interest-earning assets at
   December 31, 2000 .....................................         9.71%         6.90%          9.09%         8.42%         11.76%

Cumulative interest-earning assets as a
   percentage of cumulative interest-bearing
   liabilities at December 31, 2000 ......................       154.50%       124.63%        123.21%       112.55%        114.84%

Cumulative interest rate sensitivity gap
   December 31, 1999 .....................................   $   63,642    $  (38,600)    $ (107,088)   $  (14,558)    $   53,818
                                                             ==========    ==========     ==========    ==========     ==========

Cumulative interest rate gap as a percentage of total
   assets at December 31, 1999 ...........................         5.08%        (3.08)%        (8.54)%       (1.16)%         4.29%

Cumulative interest rate gap as a percentage of total
   interest-earning assets at December 31, 1999 ..........         5.45%        (3.31)%        (9.18)%       (1.25)%         4.61%

Cumulative interest-earning assets as a percentage of
   cumulative interest-bearing liabilities
   at December 31, 1999 ..................................       131.92%        89.35%         80.91%        98.23%        105.49%

</TABLE>


<TABLE>
<CAPTION>
                                                                MORE
                                                                THAN           TOTAL
                                                               5 YEARS        AMOUNT
                                                             ----------     ----------
<S>                                                          <C>            <C>
                                                              (Dollars in thousands)
Interest-earning assets
Short-term investments ...................................   $        0     $    9,176
Investment securities ....................................            0         65,725
Fixed Rate Loans(1) ......................................       94,219        302,336
  DEFERRED LN FEES .......................................          217          2,365

Adjustable Rate Loans(1) .................................        3,162        758,296
  ADJ PC'S ...............................................            0         25,480

Mortgage-backed securities ...............................       12,853         70,655
Stock in FHLB-Boston .....................................            0         20,649
                                                             ----------     ----------

       Total Interest-earning assets .....................      110,234      1,226,837
                                                             ----------     ----------

Interest-bearing liabilities

Money market deposit accounts ............................            0         54,642
Savings accounts .........................................       60,967        167,457
NOW accounts .............................................       52,813        132,915
Certificate accounts .....................................            0        416,726
FHLB Advances ............................................       30,000        344,334
Preferred Trust ..........................................       32,000         32,000
                                                             ----------     ----------
   Total interest-bearing liabilities ....................      175,780      1,148,074
                                                             ----------     ----------


Interest-earning assets less interest-bearing
   liabilities ...........................................   $  (65,546)    $   78,763
                                                             ==========     ==========

Cumulative interest rate sensitivity gap
   December 31, 2000 .....................................   $   78,763     $   78,763
                                                             ==========     ==========

Cumulative interest rate gap as a percentage of total
   assets at December 31, 2000 ...........................         5.93%

Cumulative interest rate gap as a percentage
   of total interest-earning assets at
   December 31, 2000 .....................................         6.42%

Cumulative interest-earning assets as a percentage of
   cumulative interest-bearing liabilities
   at December 31, 2000 ..................................       106.86%

Cumulative interest rate sensitivity gap
   December 31, 1999 .....................................   $   63,044     $   63,044
                                                             ==========     ==========

Cumulative interest rate gap as a percentage of total
   assets at December 31, 1999 ...........................         5.03%

Cumulative interest rate gap as a percentage of total
   interest-earning assets at December 31, 1999 ..........         5.40%

Cumulative interest-earning assets as a percentage of
   cumulative interest-bearing liabilities
   at December 31, 1999 ..................................       105.71%

(1)  Includes total loans net of non-performing loans.
</TABLE>

                                       8

<PAGE>   9


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

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. The Company's Board of Directors has established certain minimum
NPV limits by interest rate shock. These approved limits are included in the
following table. The Company is operating above these minimum limits imposed by
the Board of Directors. The OTS also produces a similar analysis using its own
model, based upon data submitted on the Company's quarterly Thrift Financial
Reports for BFS, the results of which may vary from the Company's internal model
primarily due to differences in assumptions utilized between the Company's
internal model and the OTS model, including estimated loan prepayment rates,
reinvestment rates and deposit decay rates. For purposes of the NPV table,
prepayment speeds similar to those used in the Gap table were used, reinvestment
rates were those in effect for similar products currently being offered and
rates on core deposits were modified to reflect recent trends. The following
table sets forth the Company's NPV as of December 31, 2000 and 1999, as
calculated by the Company.



                                       9

<PAGE>   10

<TABLE>
<CAPTION>
  INTEREST
   RATES                                       NET PORTFOLIO VALUE AS OF DECEMBER 31, 2000
  IN BASIS                 -------------------------------------------------------------------
   POINTS                       $               $             %           BOARD          NPV
(RATE SHOCK)                  AMOUNT         CHANGE        CHANGE       LIMITS %        RATIO
-----------------------    -----------      --------       -------      --------       -------
                                                (DOLLAR IN THOUSANDS)

<S>                           <C>           <C>             <C>            <C>           <C>
300.....................       97,908       (14,003)        (12.5)         5.4           7.4
200.....................      103,688        (8,223)         (7.3)         6.4           7.8
100.....................      108,457        (3,454)         (3.1)         7.4           8.2
Static..................      111,911                                      7.0           8.4
(100)...................      111,963            52           0.0          7.4           8.4
(200)...................      111,904            (7)         (0.0)         6.4           8.4
(300)...................      108,125        (3,786)         (3.4)         5.4           8.1




  INTEREST
   RATES                                       NET PORTFOLIO VALUE AS OF DECEMBER 31, 1999
  IN BASIS                 -------------------------------------------------------------------
   POINTS                       $               $             %           BOARD          NPV
(RATE SHOCK)                  AMOUNT         CHANGE        CHANGE       LIMITS %        RATIO
-----------------------    -----------      --------       -------      --------       -------
                                                (DOLLAR IN THOUSANDS)

300.....................      77,571       (34,340)        (30.7)         5.3           6.2
200.....................      88,022       (23,889)        (21.3)         6.3           7.0
100.....................      97,026       (14,885)        (13.3)         7.3           7.7
Static..................     104,503                                      7.0           8.3
(100)...................     109,398        (2,513)         (2.2)         7.3           8.7
(200)...................     113,041         1,130           1.0          6.3           9.0
(300)...................     113,329         1,418           1.3          5.3           9.0
</TABLE>


                                       10

<PAGE>   11


As in the case with the Gap Table, 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 presented 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.

During 2000, the Company continued to follow its past practice of selling, while
generally retaining the servicing rights, certain fixed-rate and adjustable-rate
mortgage loans which were either sold as whole loans or, prior to sale,
converted to mortgage-backed securities. In conjunction with this mortgage
banking activity, the Company uses forward contracts in order to reduce exposure
to interest rate risk. The amount of forward coverage of the "pipeline" of
mortgages is set on a day-to-day basis by an operating officer, within policy
guidelines, based on the Company's assessment of the general direction of
interest rates and the levels of mortgage origination activity. Forward
Financial originates and sells, servicing released, substantially all of its
consumer loans to various client lenders. The client lenders impose their
underwriting standards and if they consider an application satisfactory and
accept it, the loan is approved for closing. In this manner, Forward Financial
eliminates its exposure to interest rate risk.

ANALYSIS OF NET INTEREST INCOME

Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income also
depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.

The following table sets forth certain information relating to the Company for
the years ended December 31, 2000, 1999 and 1998. 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.



                                       11

<PAGE>   12
<TABLE>
<CAPTION>
                                                             At              For the year Ended December 31,
                                                                            ----------------------------------
                                                      December 31,2000                   2000
                                                  -----------------------   ----------------------------------
                                                                                                       Average
                                                                   Yield/     Average                   Yield/
                                                   Balance          Cost      Balance       Interest     Cost
                                                  -----------     -------   -----------    ----------  -------
                                                                 (Dollars in thousands)
ASSETS:

<S>                     <C>                       <C>               <C>      <C>           <C>           <C>
Interest-earning assets:
  Investment securities (1)                       $    95,550       6.69%    $   95,711    $    6,481    6.77%
  Loan, net and mortgage loans held for sale(2)     1,049,251       8.03%     1,036,224        80,960    7.81%
  Mortgage-backed securities (3)                       70,655       6.33%        67,667         4,393    6.49%
                                                  -----------                ----------    ----------
      Total interest-earning assets                 1,215,456       7.83%     1,199,602        91,834    7.66%
                                                                   ------                  ----------    ----
 Non-interest-earning assets                          112,326                    95,930
                                                  -----------                ----------
      Total assets                                $ 1,327,782                $1,295,532
                                                  ===========                ==========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Interest-bearing Liabilities:
  Money market deposit accounts                    $   54,642       2.88%    $   55,796         1,597     2.86%
  Savings accounts                                    167,457       2.95%       160,118         4,476     2.80%
  NOW accounts                                        132,915       0.78%       119,070           899     0.76%
  Certificate accounts                                416,726       6.20%       420,031        24,753     5.89%
                                                  -----------                ----------    ----------
      Total                                           771,740       4.33%       755,015        31,725     4.20%
  Borrowed Funds(4)                                   344,334       6.19%       366,450        22,764     6.21%
                                                  -----------                ----------    ----------
      Total interest-bearing liabilities            1,116,074       4.90%     1,121,465        54,489     4.86%
                                                                    -----                  ----------     ----
Non-interest-bearing liabilities                      121,785                    83,489
                                                  -----------                ----------
      Total liabilities                             1,237,869                 1.204,954
                                                  -----------                ----------
Stockholders' equity                                   89,913                    90,578
                                                  -----------                ----------
      Total liabilities and stockholders' equity    1,327,782                $1,295,532
                                                  ===========                ==========
Net interest income                                                  NA                    $   37,345
                                                                                           ==========
Net interest rate spread(5)                                         2.93%                                 2.80%
                                                                    =====                                 ====
Net interest margin(6)                                               NA                                   3.11%
                                                                                                          ====
Ratio of interest-earning assets to
    interest-bearing liabilities                       108.05%                   106.97%
                                                  ===========                ==========
</TABLE>



<TABLE>
<CAPTION>
                                                                          For the year Ended December 31,
                                                -----------------------------------------------------------------------------
                                                                   1999                                    1998
                                                ---------------------------------------    ----------------------------------
                                                                                Average                               Average
                                                  Average                        Yield/      Average                   Yield/
                                                  Balance       Interest          Cost       Balance      Interest     Cost
                                                -----------    -----------      -------    ----------     --------    -------
                                                                            (Dollars in thousands)
ASSETS:

<S>                     <C>                     <C>            <C>                <C>      <C>            <C>           <C>
Interest-earning assets:
  Investment securities (1)                     $    92,956    $     5,486        5.90%    $   88,166     $  5,400      6.12%
  Loan, net and mortgage loans held for sale(2)   1,002,847         73,096        7.29%       876,344       66,040      7.54%
  Mortgage-backed securities (3)                     34,241          2,154        6.29%        50,375        3,335      6.62%
                                                -----------    -----------                 ----------     --------
      Total interest-earning assets               1,130,044         80,736        7.14%     1,014,885       74,775      7.37%
                                                               -----------        ----                    --------      ----
 Non-interest-earning assets                         58,279                                    42,683
                                                -----------                                ----------
      Total assets                               $1,188,323                                $1,057,568
                                                ===========                                ==========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Interest-bearing Liabilities:
  Money market deposit accounts                 $    59,279           1,693       2.86%$       62,739        1,838      2.93%
  Savings accounts                                  142,399           3,534       2.48%       121,092        2,999      2.48%
  NOW accounts                                      110,684             884       0.80%       104,532        1,158      1.11%
  Certificate accounts                              356,668          19,761       5.54%       312,810       18,101      5.79%
                                                -----------      ----------                ----------     --------
      Total                                         669,030          25,872       3.87%       601,173       24,096      4.01%
  Borrowed Funds (4)                                367,849          21,336       5.80%       308,191       18,461      5.99%
                                                -----------      ----------                ----------     --------
      Total interest-bearing liabilities          1,036,879          47,208       4.55%       909,364       42,557      4.68%
                                                                 ----------       ----                    --------      ----
Non-interest-bearing liabilities                     65,762                                    63,729
                                                -----------                                ----------
      Total liabilities                           1,102,641                                   973,093
                                                -----------                                ----------
Stockholders' equity                                 85,682                                    84,475
                                                -----------                                ----------
      Total liabilities and  stockholders'      $ 1,188,323                                $1,057,568
                                                ===========                                ==========
Net interest income                                              $   33,528                                 32,218
                                                                 ==========                               ========
Net interest rate spread(5)                                                       2.59%                                 2.69%
                                                                                  ====                                  ====
Net interest margin(6)                                                            2.97%                                 3.17%
                                                                                  ====                                  ====
Ratio of interest-earning assets to
    interest-bearing liabilities                     108.99%                                   111.60%
                                                ===========                                ==========
</TABLE>

(1)  Includes investment securities available for sale and held to maturity,
     short-term investments, stock in FHLB-Boston and daily federal funds sold.

(2)  Amount is net of deferred loan origination costs, construction loans in
     process, net unearned discount on loans purchased and allowance for loan
     losses and includes non-performing loans.

(3)  Includes mortgage-backed securities available for sale and held to
     maturity.

(4)  Interest paid on borrowed funds for the periods presented includes interest
     expense on FNMA deposits held in escrow accounts with the Company related
     to the Company's FNMA servicing, which, if such interest expense was
     excluded, would result in an average cost of borrowed funds of 6.21%,
     5.78%, and 5.94% for the years ended December 31, 2000, 1999 and 1998,
     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.


                                       12

<PAGE>   13







RATE/VOLUME ANALYSIS

The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated to
changes due to rate.




<TABLE>
<CAPTION>
                                            Year Ended December 31, 2000       Year Ended December 31, 1999
                                                   Compared to                         Compared to
                                            Year Ended December 31, 1999       Year Ended December 31, 1998
                                         --------------------------------    --------------------------------
                                          Increase (Decrease)                Increase (Decrease)
                                                Due to                              Due to
                                         --------------------    --------    --------------------    --------
                                          Volume       Rate        Net        Volume       Rate         Net
                                         --------    --------    --------    --------    --------    --------
                                                              (In Thousands)                       (In Thousands)
<S>                                      <C>         <C>         <C>         <C>         <C>         <C>
Interest-earning assets:

  Investment securities and
  federal funds sold                     $    163    $    832    $    995    $    293    $   (207)   $     86

  Loans, net and mortgage loans
    held for sale                           2,433       5,431       7,864       9,538      (2,482)      7,056

  Mortgage-backed securities                2,102         137       2,239      (1,068)       (113)     (1,181)
                                         --------    --------    --------    --------    --------    --------

    Total interest-earning assets           4,698       6,400      11,098       8,763      (2,802)      5,961
                                         --------    --------    --------    --------    --------    --------

Interest-bearing liabilities:

  Money market deposit accounts              (100)          4         (96)       (101)        (44)       (145)

  Savings accounts                            439         503         942         528           7         535

  NOW accounts                                 67         (52)         15          68        (342)       (274)

  Certificate accounts                      3,510       1,482       4,992       2,539        (879)      1,660
                                         --------    --------    --------    --------    --------    --------

    Total                                   3,916       1,937       5,853       3,034      (1,258)      1,776

  Borrowed funds                              (81)      1,509       1,428       3,574        (699)      2,875
                                         --------    --------    --------    --------    --------    --------

    Total interest-bearing liabilities      3,835       3,446       7,281       6,608      (1,957)      4,651
                                         --------    --------    --------    --------    --------    --------

Net change in net interest income        $    863    $  2,954    $  3,817    $  2,155    $   (845)   $  1,310
                                         ========    ========    ========    ========    ========    ========
</TABLE>


                                       13


<PAGE>   14


ASSET QUALITY

The following table sets forth information regarding non-performing assets,
which consist of: non-performing loans and real estate owned ("REO"). In
addition to identifying non-performing loans, as discussed below, the Company
identifies loans that are characterized as impaired. Accordingly, loans
categorized as impaired include commercial real estate, multi-family, business
loans and restructured loans that are non-performing as well as other identified
loans. At December 31, 2000, non-performing loans totaled $956,000, impaired
loans totaled $206,000, consisting of one loan, and REO totaled $145,000,
consisting of six properties. It is the policy of the Company to generally cease
accruing interest on loans 90 days or more past due and charging off all accrued
interest. For the years ended December 31, 2000, 1999 and 1998, the amount of
additional interest income that would have been recognized on non-performing
loans if such loans had continued to perform in accordance with their
contractual terms was $40,000, ($2,000) and $33,000, respectively. For the same
periods, the difference between the amount of interest income which would have
been recognized on impaired loans if such loans were performing in accordance
with their regular terms and actual amounts recognized was $0, $2,000 and
$1,000, respectively.


<TABLE>
<CAPTION>
                                                                                    At December 31
                                                                                    --------------
                                                                        2000             1999            1998
                                                                        ----             ----            ----
<S>                                                                   <C>              <C>             <C>
NON-PERFORMING LOANS:
    Residential real estate:
        One-to four-family ......................................     $      418       $     721       $     784
    Commercial real estate ......................................             --              25              25
    Other Loans .................................................            538              --              --
                                                                       ---------       ---------       ---------
    Total .......................................................            956             746             809
Real estate owned, net(3) .......................................            145             376              47
                                                                       ---------       ---------       ---------
    Total non-performing assets .................................          1,101           1,122             856
Restructured loans ..............................................            206             210             213
                                                                       ---------       ---------       ---------
Total risk elements .............................................      $   1,307       $    1332       $   1,069
                                                                       =========       =========       =========
Allowance for loan losses as a percent of loans(1) ..............           1.07%           1.01%           0.88%
                                                                       =========       =========       =========
Allowance for loan losses as a percent of non-performing
     loans(2)....................................................        1,140.5         1,428.2         1,029.1
Non-performing loans as a percent of loans(1)(2) ................           0.09            0.07            0.09
Non-performing assets as a percent of total assets(4) ...........           0.08            0.09            0.08
</TABLE>

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

(1)  Loans includes loans, net and mortgage loans held for sale, excluding
     allowance-for loan losses.

(2)  Non-performing loans consist of all 90 days or more past due and other
     loans which have been identified by the Company as presenting uncertainty
     with respect to the collectibility of interest or principal.

(3)  REO balances are shown net of related valuation allowances.

(4)  Non-performing assets consist of non-performing loans and real estate owned
     (REO).



                                       14




<PAGE>   15


At December 31, 2000, loans that were characterized as impaired totaled
$206,000. All of the impaired loans have been measured using the discounted cash
flow method or the fair value of the collateral method if the loan is collateral
dependent. During the year ended December 31, 2000, the average recorded value
of impaired loans was $228,000; $15,000 of interest income was recognized and
$15,000 of interest income would have been recognized under original terms. The
composition of impaired loans by type is shown below:

                                                         December 31,
                                                   -----------------------
                                                    2000      1999    1998
                                                   -----     -----   -----
                                                        (In thousands)

        Impaired loans:

                    Multi-family real estate       $  __     $ __    $ 245
                    Commercial real estate            206      235     238
                                                   ------    -----   -----
                    Total impaired loans           $  206    $ 235   $ 483
                                                   ======    =====   =====

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.

Management believes the allowance is adequate to absorb probable loan losses.
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 for losses. Such agencies
may require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.

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

Amounts provided for the years 2000, 1999 and 1998 were $1.0 million, $1.6
million and $1.6 million, respectively. The decrease in the provision for the
year ended December 31, 2000 was due to continued low levels of non-performing
loans and improved coverage ratio of allowance for loan losses as a percent of
loans. During the year ended December 31, 2000, there were recoveries of
$181,000 credited to, and charge-offs of $454,000 taken against this allowance.
As of December 31, 2000, the Company's allowance for loan losses was 1.07% of
total loans compared to 1.01% as of December 31, 1999. Management believes the
increased coverage ratio in 2000 is prudent due to the balance increase in the
combined total of construction and land, commercial real estate, home equity and
improvement, multi-family and business loans. These combined total balances
increased from $236.6 million at December 31, 1999 to $286.5 million at December
31, 2000, an increase of 21%. These loans aggregated to 27.6% and 22.9% of the
total loans at December 31, 2000 and 1999, respectively. The Company had
non-performing loans of $956,000 and $746,000 at December 31, 2000 and December
31, 1999, respectively. The Company will continue to monitor and modify its
allowance for loan losses as conditions dictate. While management believes the
Company's allowance for loan losses is sufficient to cover losses inherent in
its loan portfolio at this time, no assurances can be given that the Company's
level of allowance for loan losses will be sufficient to cover future loan
losses incurred by the Company or that future adjustments to the allowance for
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of allowance for loan losses.

The following table sets forth activity in the Company's allowance for loan
losses for the periods indicated.



                                       15

<PAGE>   16



<TABLE>
<CAPTION>
                                                         At or For the Years Ended
                                                               December 31,
                                       -------------------------------------------------------------
                                         2000        1999          1998          1997         1996
                                       -------      -------       -------       -------      -------
                                                                  (In thousands)
<S>                                    <C>           <C>          <C>           <C>          <C>
Balance at beginning
   of period                           $10,654        8,500       $ 6,600       $ 4,400      $ 4,275
Allowance for loan losses at
    acquisition date (BNB in 1997
    and Forward Financial in 1999)          --          170            --           620           --
Provision for loan losses                1,000        1,626         1,642         1,696        1,294
Charge-offs:
    One-to four-family                     125           19            51           370          387
    Multi-family                             0            1             2            84          263
    Commercial                               0            0            75            45          664
Other                                      329           36           131            16          198
                                       -------      -------       -------       -------      -------
      Total                                454           56           259           515        1,512
Recoveries                                 181          414           517           399          343
                                       -------      -------       -------       -------      -------

Balance at end of
   period                              $11,381       10,654       $ 8,500       $ 6,600      $ 4,400
                                       =======      =======       =======       =======      =======



Ratio of net charge-offs/
    (net recoveries) during
    the period to average
    loans outstanding during
    the period                            0.03%       (0.04)%       (0.03)%        0.02%        0.19%
                                       =======      =======       =======       =======      =======
</TABLE>



                                       16


<PAGE>   17



The Company has developed an internal asset classification system which
classifies assets depending on risk of loss characteristics. The most severe
classification before a charge-off is required is "sub-standard." At December
31, 2000, 1999 and 1998, the Company classified (excluding REO) $3.1 million,
$3.6 million and $4.2 million as sub-standard assets, respectively. Included in
these amounts were $956,000, $746,000, and $809,000 in non-performing assets,
respectively. In the opinion of management, the performing sub-standard loans
evidence one or more weaknesses or potential weaknesses and, depending on the
regional economy and other factors, may become non-performing assets in future
periods.


COMPARISON OF FINANCIAL CONDITION AND OPERATING RESULTS AS OF AND FOR THE YEARS
ENDED DECEMBER 31, 2000 AND 1999.

CHANGES IN FINANCIAL CONDITION

The Company's total assets at December 31, 2000 were $1.328 billion, compared to
$1.254 billion at December 31, 1999, an increase of $74.0 million or 5.9%. Asset
growth was primarily attributable to a $41.3 million increase in mortgage-backed
securities held to maturity and a $16.0 million increase in cash and cash
equivalents. The growth in loans, net was $3.8 million, but would have been
$54.8 million if not for the transfer of $51.0 million of loans securitized into
Federal Home Loan Mortgage Corporation ("FHLMC") mortgage-backed securities. The
$54.8 million loans, net growth was primarily due to increased originations of
construction and land, commercial real estate, equity and business loans. Loans,
net, increased from a balance of $1.033 billion at December 31, 1999 to a
balance of $1,036.4 million at December 31, 2000, but the combined balances of
construction and land, commercial real estate, equity and business loans
increased by $52.4 million, from a balance of $214.6 million at December 31,
1999 to a balance of $267.0 million at December 31, 2000. Mortgage-backed
securities held to maturity increased by $41.3 million, from a balance of $13.9
million at December 31, 1999 to a balance of $55.3 million at December 31, 2000
due to the loan securitization mentioned above. Total cash and cash equivalents
increased by $16.0 million, or 46.1%, from a balance of $34.7 million at
December 31, 1999 to $50.7 million at December 31, 2000. The increase was due in
part to an increase of $6.3 million in overnight federal funds sold and a $9.6
million increase in cash as the Company experienced a stronger savings deposit
inflow at the end of December 2000 compared to December 1999. Investment
securities available for sale increased by $10.2 million as increased cash flows
were invested in various securities. Deposit accounts increased by $79.6 million
from a balance of $770.0 million at December 31, 1999 to a balance of $849.6
million at December 31, 2000. This increase included $20.8 million of deposits
from the Company's new Woburn Office. Also, there was a net reduction of $17.8
million of wholesale brokered certificates of deposit. Deposit growth was
believed to be enhanced by the run-off from other institutions, caused by the
disruptive effects of consolidation in the Company's primary market area. FHLB
advances and other borrowings decreased $43.2 million to a balance of $344.3
million at December 31, 2000, compared to $387.6 million at December 31, 1999 as
portions of deposit inflows and proceeds from the Company's issuance of
corporation-obligated mandatorily redeemable capital securities ("trust
preferred securities") were used to repay maturing FHLB advances. Trust
preferred securities totaled $32.0 million at December 31, 2000 as a result of
the $10.0 million issuance on July 26, 2000 and $22.0 million issuance on
September 22, 2000. All but a small percentage of the trust preferred securities
are includable in regulatory capital calculations. Total stockholders' equity
was $89.9 million at December 31, 2000, or $19.82 per share, compared to $85.7
million, or $17.88 per share, at December 31, 1999. Stockholders' equity
increased during the year ended


                                       17

<PAGE>   18

December 31, 2000 due to the combined effects of net income and the amortization
of the Stock-based Incentive Plans, the Employee Stock Ownership Plan ("ESOP")
and the change in market valuation, net of taxes, of the available-for sale
securities portfolio, offset by the completion of the sixth and commencement of
the seventh 5% stock repurchase programs and dividends paid. The stockholders'
equity to total assets ratio of the Company was 6.8% at December 31, 2000 and
1999.

RESULTS OF OPERATIONS

General

Net income for the year ended December 31, 2000 was $9.7 million, or $2.07 basic
earnings per share and $2.01 diluted earnings per share, compared to $8.6
million, or $1.78 basic earnings per share and $1.71 diluted earnings per share
for the comparable period in 1999. The return on average stockholder's equity
improved to 10.7% during the year ended December 31, 2000, compared to 10.0% for
the year ended December 31, 1999. Return on average assets improved to 0.75% for
the year ended December 31, 2000, compared to .72% for the year ended December
31, 1999. Increased earnings were primarily attributable to higher net interest
income, due to improved net interest margins and increased balances of interest
earning assets. The net interest margin in 2000 increased to 3.11% from 2.97%
during 1999. Federal Reserve induced increases in short-term interest rates
during 1999 and early 2000 created a flat yield curve that caused industry-wide
margin compression until the latter half of 2000 when interest rates began to
fall. The Company's margin increased primarily due to the Company's continuing
efforts to expand the portfolio of commercial real estate, construction and
land, equity, consumer and business loans and the effects of including interest
expense on the trust preferreds as non-interest expense.

Interest Income

Total interest income for the year ended December 31, 2000 increased by $11.1
million to $91.8 million compared to $80.7 million for the year ended December
31, 1999. Interest on loans increased by $7.9 million, or 10.8%, to $81.0
million, during 2000 compared to $73.1 million during 1999. The increase in
interest income in 2000 was attributable to higher yields and increased average
balances of interest earning assets. The increased balances were primarily
increases in the average balance of mortgage-backed securities and the average
balance of loans. Average loan balances increased from $1.003 billion for 1999
to $1.036 billion for 2000. The increased average loan, net, balances generated
an additional $2.4 million of interest earned while higher yields increased
interest earned on loans, net, by $5.4 million. The higher yields were generally
the result of rising interest rates during the latter part of 1999 and early
2000 and the increased volume of construction and land, commercial real estate,
equity and business loans. The loan portfolio average loan yield increased to
7.81% for 2000 compared to an average yield of 7.29% for 1999. Interest income
on mortgage-backed securities increased by $2.2 million for the year ended
December 31, 2000 due primarily to an increase in average balances compared to
the prior year. Average mortgage-backed securities balances increased by $33.4
million from an average of $34.2 million during 1999 to an average of $67.7
million during 2000. The major reason for the increase in the average balance
was due to the securitization of $50.0 million of loans into FHLMC
mortgage-backed securities. The yields on mortgage-backed securities increased
by 20 basis points from an average yield of 6.29% in 1999 to 6.49% in 2000. The
combined effects of increased volume and yield resulted in an increase in
interest earned on such securities in 2000 of $2.2 million, compared to 1999.
Interest income on investment securities and overnight federal funds sold
increased by $995,000 to $6.5 million for the year ended December 31, 2000,
compared to $5.5 million for the year ended December 31, 1999. The primary
reason for the increase is due to higher average yield of 6.77% for the year



                                       18
<PAGE>   19

ended December 31, 2000, compared to an average yield of 5.90% for the year
ended December 31, 1999. Investment securities balances averaged $95.7 million
during the year ended December 31, 2000, compared to average balances of $93.0
million for the prior year.

Interest Expense

Interest expense increased by $7.3 million, or 15.5%, for the year ended
December 31, 2000 to $54.5 million compared to $47.2 million for the year ended
December 31, 1999. The increase in interest expense for the year ended December
31, 2000 was due primarily to higher interest expense on deposit accounts.
Interest expense on deposit accounts increased by $5.9 million for the year
ended December 31, 2000 due primarily to the effects of higher average balances
of $755.0 million for the year ended December 31, 2000 compared to average
deposit balances of $669.0 million for the prior year. The increased average
balances were primarily attributable to growth of $63.4 million in the average
balance of certificate accounts for the year ended December 31, 2000. The
average balance of certificate accounts amounted to $420.0 million for the year
ended December 31,2000, compared to an average balance of $356.7 million for the
prior year. The higher average balance in certificate accounts was the largest
contributor to the increase in interest expense; $3.5 million for the year ended
December 31, 2000. The increased cost of funds for certificate accounts
contributed an additional $1.5 million increase in interest expense on deposit
accounts. The average cost of deposit accounts increased from 3.87% for the year
ended December 31, 1999 to an average cost of 4.20% for the current year. For
the year ended December 31, 2000, average balances of regular savings accounts
and NOW accounts increased by $17.7 million and $8.4 million, respectively,
compared to the prior year. Borrowed funds consisted primarily of FHLB advances
that are used generally to fund loan portfolio growth. Average balances of FHLB
advances were essentially unchanged and averaged $366.5 million during the year
ended December 31, 2000, a decrease of $1.4 million from the prior year average
balance of $367.8 million. The average cost of borrowed funds increased by 41
basis points, from 5.80% for the year ended December 31, 1999 to an average of
6.21% for the current year.


Provision for Loan Losses

The provision for loan losses amounted to $1.0 million for the years ended
December 31, 2000, compared to $1.6 million for the year ended December 31,
1999. The provision was based on management's evaluation of the growth and
change in composition of the Company's loan portfolio, existing real estate
market conditions, the level of charge-offs and classified assets. Total
non-performing loans increased to $956,000, or 0.09% of loans at December 31,
2000 from $746,000, or 0.07% at December 31, 1999. The Company recorded net
charge-offs of $273,000 during the year ended December 31, 2000, compared to net
recoveries of $358,000 during 1999. The allowance for loan losses as a
percentage of total loans was 1.07% at December 31, 2000 compared to 1.01% at
December 31, 1999. As a percentage of total non-performing loans, the allowance
for loan losses was 1,190% at December 31, 2000, compared to 1,428% a year
earlier. See also "Asset Quality" included elsewhere herein.

Non-Interest Income

Total non-interest income increased to $14.4 million for the year ended December
31, 2000 from $6.9 million for the year ended December 31, 1999. Gain on sale of
loans, which increased from $3.0 million for the year ended December 31, 1999 to
$9.0 million for the year ended December 31, 2000, was the primary contributor
to such increase. The increase was primarily due to the



                                       19
<PAGE>   20

inclusion of $7.8 million of Forward Financial's gain on sale of loans for the
year ended December 31, 2000. Only $572,000 of gain on sale of loans from
Forward Financial was included in the year ended December 31, 1999 as Forward
Financial was acquired at the close of business December 6, 1999. Gain on sale
of loans is the primary source of revenue of Forward Financial. Non-interest
income also increased due to bank owned life insurance ("BOLI"), which was
purchased in July 1999. The policy generated $1.3 million of income for the year
ended December 31, 2000, compared to $556,000 for the prior year, through
increases in the cash surrender value. Deposit service fees were $2.0 million
for the year ended December 31, 2000, compared to $1.7 million for the year
ended December 31, 1999 due to increases in debit card fees and increased
deposit service fees resulting from higher levels of deposit accounts during the
current year. Other non-interest income increased to $1.5 million for the year
ended December 31, 2000, compared to $1.0 million for the prior year due to the
inclusion of a full year of Forward Financial's other non-interest income.

Non-Interest Expense

Total non-interest expense for the year ended December 31, 2000 was $35.6
million, compared to $25.3 million for 1999. The primary reason for the increase
was due to the inclusion of Forward Financial's expenses for a full year and to
a lesser extent increases in expenses due to increased staff levels for the
Company's corporate and business lending department, expenses associated with
the new Woburn Office and normal year-over-year increases. Goodwill amortization
increased to $1.4 million for the year ended December 31, 2000, compared to
$284,000 for the prior year due to the amortization of the goodwill incurred as
part of the acquisition of Forward Financial and Ellsmere Insurance Agency. The
trust preferred securities expense amounted to $1.1 million. Real estate
operations provided income of $257,000 in the year ended December 31, 2000,
compared to income of $71,000 for the year ended December 31, 1999. The current
year's income is larger due to income recognized in the dissolution of a real
estate subsidiary of BFS.

Income Taxes

Income tax expense was $5.3 million and $4.9 million for the years ended
December 31, 2000 and 1999, resulting in effective tax rates of 35.5% and 36.6%,
respectively. The effective tax rate was lower during the current year due
primarily to the effects of the investment in BOLI, which provided income that
is not taxed at the state or federal level.


COMPARISON OF FINANCIAL CONDITION AND OPERATING RESULTS AS OF AND FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998.

CHANGES IN FINANCIAL CONDITION

The Company's assets increased $114.5 million to a balance of $1.254 billion at
December 31, 1999, compared to $1.139 billion at December 31, 1998, an increase
of 10.1%. Asset growth was primarily in loans, net, of $88.9 million, bank-owned
life insurance of $20.6 million and goodwill of $16.7 million, partially offset
by decreases in investment securities held to maturity of $5.0 million,
mortgage-backed securities available for sale of $5.5 million and
mortgage-backed securities held to maturity of $9.0 million. The growth in
loans, net was primarily due to increased originations of adjustable-rate and
ten to fifteen year fixed-rate one- to four-family mortgage loans combined with
increased lending for construction and land, commercial real estate, equity and
business loans. Loans, net, increased from a balance of $943.7 million at
December 31, 1998 to a balance of $1,032.6 million at December 31, 1999.
Volatility in market interest rates and a generally rising interest rate
environment throughout 1999 increased customer demand for adjustable-rate loans
and decreased demand for longer term, fixed-rate loan



                                       20
<PAGE>   21

products most of which the Company sells in the secondary market. Shorter-term
loans, generally under 15 years, were originated for portfolio. The Company also
sold certain adjustable-rate loans. Mortgage-backed securities decreased by
$14.5 million, or 32.9%, from a balance of $43.9 million at December 31, 1998 to
a balance of $29.5 million at December 31, 1999. Mortgage loans held for sale
totaled $16.2 million at December 31, 1999, compared to $17.0 million at
December 31, 1998. Deposit accounts increased by $62.9 million from a balance of
$707.1 million at December 31, 1998 to a balance of $770.0 million at December
31, 1999. This increase is mainly attributable to growth in a premium-rate
statement savings account, BFS' rollout of a new 9-month retail certificate of
deposit acquisition program and growth in longer-term certificates of deposit.
FHLB advances and other borrowings increased $50.1 million to a balance of
$387.6 million at December 31, 1999, compared to $337.5 million at December 31,
1998 as additional funds were needed to support balance sheet growth. Total
stockholders' equity was $85.7 million at December 31, 1999 or $17.88 per share,
compared to $81.8 million or $16.84 per share at December 31, 1998.
Stockholders' equity increased during the year ended December 31, 1999 due to
the combined effects of net income and the amortization of the Stock-based
Incentive Plans and the Employee Stock Ownership Plan ("ESOP"), offset by the
completion of the fifth and commencement of the sixth 5% stock repurchase
programs, dividends paid, and the change in market valuation, net of taxes, of
the available-for sale securities portfolio. The stockholders' equity to total
assets ratio of the Company was 6.8% at December 31, 1999 and 7.2% at December
31, 1998.

RESULTS OF OPERATIONS

General

Net income for the year ended December 31, 1999 was $8.6 million, or $1.78 basic
earnings per share and $1.71 diluted earnings per share, compared to $7.6
million, or $1.50 basic earnings per share and $1.43 diluted earnings per share
for the comparable period in 1998. The return on average stockholder's equity
improved to 10.00% during the year ended December 31, 1999, compared to 9.02%
for the year ended December 31, 1998. Return on average assets remained at 0.72%
for the years ended December 31, 1999 and 1998. Increased earnings were
primarily attributable to higher net interest income, due to increased balances
of interest earning assets, despite lower interest margins, and earnings from
bank-owned life insurance. The net interest margin in 1999 decreased to 2.97%
from 3.17% during 1998. Federal Reserve induced increases in short-term interest
rates during 1999 created a flat yield curve that caused industry-wide margin
compression. The Company's margin declined as substantial volumes of
adjustable-rate loans either refinanced into lower interest adjustable-rate
mortgages or refinanced to fixed-rate loans, the vast majority of which were
sold in the secondary market. Management is attempting to mitigate the margin
compression by continuing to expand the portfolio of commercial real estate,
construction and land, equity, consumer and business loans.

Interest Income

Total interest income for the year ended December 31, 1999 increased by $6.0
million to $80.7 million compared to $74.8 million for the year ended December
31, 1998. Interest on loans increased by $7.1 million, or 10.8%, to $73.1
million, during 1999 compared to $66.0 million during 1998. The increase in
interest income in 1999 was attributable to increased average balances of
interest earning assets, primarily due to an increase in the average balance of
loans, from $876.3 million for 1998 to $1,002.8 million for 1999. The increased
average loan, net, balances generated an additional $9.5 million of interest
earned while lower yields decreased interest earned on loans, net, by $2.5
million. The lower yields were generally the result of



                                       21
<PAGE>   22

falling interest rates during 1998 and early 1999 that created an opportunity
for borrowers to refinance their mortgages at lower rates. The loan portfolio
average loan yield decreased to 7.29% for 1999 compared to an average yield of
7.54% for 1998. Interest income on investment securities and overnight federal
funds sold increased by $86,000 to $5.5 million for the year ended December 31,
1999, compared to $5.4 million for the year ended December 31, 1998. The primary
reason for the increase is due to higher average balances of investment
securities averaging $93.0 million during the year ended December 31, 1999,
compared to average balances of $88.2 million for the prior year, partially
offset by the effects of an average of 22 basis points decrease in yields.
Interest income on mortgage-backed securities decreased by $1.2 million for the
year ended December 31, 1999 due primarily to a decrease in average balances
compared to the prior year. Average mortgage-backed securities balances
decreased by $16.1 million from an average of $50.4 million during 1998 to an
average of $34.2 million during 1999. The majority of the mortgage-backed
securities held in 1999 were adjustable GNMA securities. The yields on
mortgage-backed securities decreased from an average yield of 6.62% in 1998 to
6.29% in 1999, resulting in a decrease in interest earned on such securities in
1999 of $113,000, compared to 1998.

Interest Expense

Interest expense increased by $4.7 million, or 11.0%, for the year ended
December 31, 1999 to $47.2 million compared to $42.6 million for the year ended
December 31, 1998. The increase in interest expense for the year ended December
31, 1999 was due primarily to higher interest expense on borrowed funds and
certificate accounts. Borrowed funds consisted primarily of FHLB advances that
were used generally to fund loan portfolio growth. Higher average balances of
$367.8 million of borrowed funds for the year ended December 31, 1999, compared
to average balances of $308.2 million for the prior year, resulted in a $2.9
million increase in interest expense. The average cost of borrowed funds
declined by 19 basis points, from 5.99% for the year ended December 31, 1998 to
an average of 5.80% for the current year. Interest expense on deposit accounts
increased by $1.8 million for the year ended December 31, 1999 due primarily to
the effects of higher average balances of $669.0 million for the year ended
December 31, 1999 compared to average deposit balances of $601.2 million for the
prior year. The increased average balances were primarily attributable to the
net acquisition of $53.7 million of wholesale brokered certificate of deposit
accounts, which contributed to the increased average balance of $356.7 million
for the year ended December 31, 1999, compared to an average balance of $312.8
million for the prior year. The higher average balances in certificate accounts
resulted in an increase in interest expense of $2.5 million for the year ended
December 31, 1999 compared to the prior year. The average cost of deposit
accounts decreased from 4.01% for the year ended December 31, 1998 to an average
cost of 3.87% for the current year.


Provision for Loan Losses

The provision for loan losses amounted to $1.6 million for the years ended
December 31, 1999 and 1998. The provision was based on management's evaluation
of the growth and change in composition of the Company's loan portfolio,
existing real estate market conditions, the level of charge-offs and classified
assets. Total non-performing loans decreased to $746,000, or 0.07% of loans at
December 31, 1999 from $809,000, or 0.08% at December 31, 1998. The Company
recorded net recoveries of $358,000 during the year ended December 31, 1999,
compared to net recoveries of $258,000 during 1998. The allowance for loan
losses as a percentage of total loans was 1.01% at December 31, 1999 compared to
0.88% at December 31, 1998. As a percentage of



                                       22
<PAGE>   23

total non-performing loans, the allowance for loan losses was 1,428% at December
31, 1999, compared to 1,029% a year earlier. See also "Asset Quality" included
elsewhere herein.

Non-Interest Income

Total non-interest income increased to $6.9 million for the year ended December
31, 1999 from $6.1 million for the year ended December 31, 1998. The primary
contributing factor was income from bank owned life insurance ("BOLI"). The
policy generated $556,000 of income through an increase in the cash surrender
value. Gain on sale of loans was $3.0 million for the year ended December 31,
1999 compared to $3.2 million for the prior year. The decrease would have been
greater had it not been for the approximately $572,000 of gains on sale of loans
recorded by Forward Financial. Gain on sale of loans is the primary source of
revenue of Forward Financial. The continuation of a strong housing market and
economy contributed to the strong volume for financing of home purchases during
1999. There were no OMSR (originated mortgage servicing rights) adjustments
necessary during 1999 as normal amortization was sufficient to account for loan
servicing balance run-off. During 1998, the high volume of refinancing of
mortgages, however, necessitated an adjustment of $481,000 to reflect the
impairment to the OMSR. At December 31, 1999, the OMSR balance was $5.1 million
compared to $3.6 million at December 31, 1998. Loans serviced for others
increased to $784.6 million at December 31, 1999 from a balance of $648.3
million at December 31, 1998. Deposit service fees were $1.7 million for the two
years ended December 31, 1999 and 1998.

Non-Interest Expense

Total non-interest expense for the year ended December 31, 1999 was $25.3
million, compared to $23.9 million for 1998. The primary reason for the increase
was due to higher compensation and benefits expense, which increased to $15.0
million for the year ended December 31, 1999 from $13.7 million for the prior
year. Compensation and benefits expenses were higher primarily due to increased
staff levels for the establishment of the Company's corporate and business
lending department, the inclusion of Forward Financial's compensation and
benefits from the acquisition date to year-end, and normal year-over-year salary
increases. Data processing expense was $1.6 million for the year ended December
31, 1999, compared to $1.3 million for the prior year. The increase was
primarily attributable to the service bureau computer conversion costs at BNB
and expenses related to the Year 2000 issue. Other non-interest expense declined
to $4.2 million for the year ended December 31, 1999 from $4.7 million for the
prior year. The year ended December 31, 1998 included consulting and legal costs
incurred to assist in establishing the Company's tax saving strategies that
included the formation of real estate investment trusts and securities
subsidiaries.

Income Taxes

Income tax expense was $4.9 million for the year ended December 31, 1999
(resulting in an effective tax rate of 36.6%), compared to a tax expense of $5.2
million for the year ended December 31, 1998 (resulting in an effective tax rate
of 40.3%). The decrease in income tax expense and rate was due to the effects of
BOLI and a lower non-deductible Employee Stock Ownership Plan ("ESOP") expense.



                                       23
<PAGE>   24
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require
that all derivative instruments be recorded on the balance sheet at their
respective fair values. The Company adopted SFAS No. 133 and SFAS No. 138 on
January 1, 2001. The impact of adoption was not material to the Company.


                                       24