BOSTON PRIVATE FINANCIAL HOLDINGS INC - 10-Q Quarterly Report

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As filed with the Securities and Exchange Commission on May 15, 2003

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

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended MARCH 31, 2003

OR

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

For the transition period from _______ to _______.

Commission File Number: 0-17089

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

COMMONWEALTH OF MASSACHUSETTS 04-2976299
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

TEN POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (888) 666-1363

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of APRIL 30, 2003:

COMMON STOCK - PAR VALUE $1.00 22,653,485 SHARES
------------------------------ -----------------
(class) (outstanding)

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BOSTON PRIVATE FINANCIAL HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS

2

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

3

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
-------------------------------
2003 2002
-------------- ---------------

Interest and dividend income:
Loans $ 19,805 $ 18,700
Taxable investment securities 1,695 1,818
Non-taxable investment securities 740 913
Mortgage-backed securities 15 30
FHLB stock dividends 61 68
Federal funds sold and other 127 112
-------------- ---------------
Total interest and dividend income 22,443 21,641
-------------- ---------------
Interest expense:
Deposits 4,110 4,647
FHLB borrowings 1,825 1,577
Securities sold under agreements to repurchase and other 200 218
-------------- ---------------
Total interest expense 6,135 6,442
-------------- ---------------
Net interest income 16,308 15,199
Provision for loan losses 778 680
-------------- ---------------
Net interest income after provision for loan losses 15,530 14,519
-------------- ---------------
Fees and other income:
Investment management and trust 9,849 9,895
Financial planning fees 1,537 1,475
Equity in earnings of partnerships 95 (18)
Deposit account service charges 239 189
Gain on sale of loans 791 271
Gain on sale of investment securities 1,075 415
Cash administration fees 214 221
Other 688 607
-------------- ---------------
Total fees and other income 14,488 13,055
-------------- ---------------
Operating expense:
Salaries and employee benefits 14,265 12,833
Occupancy and equipment 5,292 2,519
Professional services 1,032 822
Marketing and business development 932 830
Contract services and processing 461 399
Amortization of intangibles 39 5
Other 2,115 1,688
-------------- ---------------
Total operating expense 24,136 19,096
-------------- ---------------
Income before income taxes 5,882 8,478
Income tax expense 4,801 2,695
-------------- ---------------
Net income $ 1,081 $ 5,783
============== ===============

Per share data:
Basic earnings per share $ 0.05 $ 0.26
============== ===============
Diluted earnings per share $ 0.05 $ 0.25
============== ===============

Average common shares outstanding 22,618,498 22,307,596
Average diluted shares outstanding 23,298,957 23,332,355

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

4

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)

5

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

6

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of Boston Private Financial Holdings,
Inc. (the "Company") include the accounts of the Company and its wholly-owned
subsidiaries, Boston Private Bank & Trust Company ("Boston Private Bank"), a
Massachusetts chartered trust company, Borel Private Bank & Trust Company
("Borel"), a California state banking corporation, Westfield Capital Management
Company, LLC ("Westfield"), Sand Hill Advisors, Inc. ("Sand Hill") and Boston
Private Value Investors, Inc. ("BPVI"), registered investment advisors, and
RINET Company, LLC ("RINET"), a financial planning firm and a registered
investment advisor. Boston Private Bank's consolidated financial statements
include the accounts of its wholly-owned subsidiaries, BPB Securities
Corporation, and Boston Private Preferred Capital Corporation. Borel's
consolidated financial statements include the accounts of its wholly-owned
subsidiary Borel Private Capital Corporation. In addition, the Company holds a
26% minority interest in Coldstream Holdings, Inc. ("Coldstream Holdings").
Coldstream Holdings is the parent of Coldstream Capital Management Inc., a
registered investment advisor in Bellevue, Washington. The Company conducts
substantially all of its business through its wholly-owned subsidiaries, Boston
Private Bank, Borel (together the "Banks"), Westfield, Sand Hill, BPVI and
RINET. All significant intercompany accounts and transactions have been
eliminated in consolidation.

The unaudited interim consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America, and include all necessary adjustments of a normal
recurring nature, which in the opinion of management, are required for a fair
presentation of the results and financial condition of the Company. The interim
results of consolidated operations are not necessarily indicative of the results
for the entire year.

The information in this report should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
December 31, 2002 Annual Report to Shareholders. Certain prior year information
has been reclassified to conform to current year presentation.

The Company's significant accounting policies are described in Note 3 of
the notes to the consolidated financial statements in its form 10K for the year
ended December 31, 2002 filed with the Securities and Exchange Commission. For
interim reporting purposes, the Company follows the same significant accounting
policies.

INCENTIVE PLANS

The Company applied APB No. 25 in accounting for stock options which
measures compensation cost for stock based compensation plans as the difference
between the exercise price of the options granted and the fair market value of
the Company's stock at the grant date. This generally does not result in any
compensation charged to earnings. Below, the Company discloses pro forma net
income and earnings per share as if compensation was measured at the date of
grant based on the fair value of the award and recognized over the service
period. This is required by SFAS No. 123 for all companies that elect to
continue using APB Opinion No. 25 for stock option grants. As further noted in
"Recent Accounting Pronouncements", the Company has adopted certain provisions
of SFAS No. 148, which is an amendment to SFAS No. 123 and allows for
alternative methods of adopting fair value based compensation on stock grant
options.

THREE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002
---- ----
(in thousands)

Net income:
As reported $1,081 $5,783
Stock-based employee and director compensation expense, net of related tax
effects 519 1,069
----- ------
Proforma $562 $4,714
===== ======

Basic earnings per share:
As reported $0.05 $0.26
Proforma $0.02 $0.21
Diluted earnings per share:
As reported $0.05 $0.25
Proforma $0.02 $0.20

7

(2) EARNINGS PER SHARE

Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. The
earnings per share calculation is based upon the weighted average number of
common shares and common share equivalents outstanding during the period. Stock
options, when dilutive, are included as common stock equivalents using the
treasury stock method.

The following tables are a reconciliation of the numerators and
denominators of basic and diluted earnings per share computations:

8

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) BUSINESS SEGMENTS

MANAGEMENT REPORTING

The Company has six reportable segments, Boston Private Bank, Borel,
Westfield, RINET, Sand Hill and BPVI. The financial performance of the Company
is managed and evaluated by business segment. The segments are managed
separately because each business is an individual company with different
clients, employees, systems, risks, and marketing strategies.

DESCRIPTION OF BUSINESS SEGMENTS

Boston Private Bank pursues a "private banking" business strategy and is
principally engaged in providing banking, investment and fiduciary products to
high net worth individuals, their families and businesses in the greater Boston
area and New England. Boston Private Bank offers its clients a broad range of
basic deposit services, including checking and savings accounts, with automated
teller machine access, and cash management services through sweep accounts and
repurchase agreements. Boston Private Bank also offers commercial, residential
mortgage, home equity and consumer loans. In addition, it provides investment
advisory and asset management services, securities custody and safekeeping
services, trust and estate administration and IRA and Keogh accounts.

Borel serves the financial needs of individuals, their families and their
businesses in Northern California. Borel conducts a commercial banking business
which includes accepting demand, savings and time deposits and making
commercial, real estate, mortgage and consumer loans. Borel offers various
savings plans and provides safe deposit boxes as well as other customary banking
services and facilities. Additionally, Borel offers trust services and provides
a variety of other fiduciary services including management, advisory and
administrative services to individuals.

Westfield serves the investment management needs of pension funds,
endowments and foundations, mutual funds and high net worth individuals
throughout the U.S. and abroad. Westfield specializes in separately managed
domestic growth equity portfolios in all areas of the capitalization spectrum
and acts as the investment manager for several limited partnerships.

Sand Hill provides wealth management services to high net worth investors
and select institutions in Northern California. The firm manages investments
covering a wide range of asset classes for both taxable and tax-exempt
portfolios and has special expertise in transitional wealth counsel.

BPVI serves the investment management needs of high net worth individuals
and select institutions primarily in New England and the Northeast. The firm is
a large-cap value style investor headquartered in Concord, New Hampshire, with
an office at Ten Post Office Square in Boston, Massachusetts.

RINET provides fee-only financial planning, tax planning and investment
management services to high net worth individuals and their families in the
greater Boston area, New England, and other areas of the U.S. Its capabilities
include tax planning and preparation, asset allocation, estate planning,
charitable planning, planning for employment benefits, including 401(k) plans,
alternative investment analysis and mutual fund investing. It also provides an
independent mutual fund rating service.

MEASUREMENT OF SEGMENT PROFIT AND ASSETS

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Revenues, expenses, and assets
are recorded by each segment, and management reviews separate financial
statements.

9

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECONCILIATION OF REPORTABLE SEGMENT ITEMS

The following tables are a reconciliation of the revenues, net income,
assets, and other significant items of reportable segments as of and for the
quarters ended March 31, 2003 and 2002.

THREE MONTHS ENDED
MARCH 31, 2003
-----------------------------------------------------------------------------------
INTER-
INCOME STATEMENT DATA BPBTC BOREL WCM RINET SHA BPVI BPFH SEGMENT TOTAL
-----------------------------------------------------------------------------------
(in thousands)

REVENUES FROM CUSTOMERS
NET INTEREST INCOME $ 11,235 $ 5,022 $ 10 $ - $ - $ 1 $ 40 $ - $ 16,308
NON-INTEREST INCOME 4,778 1,256 5,029 1,508 903 993 21 - 14,488
-----------------------------------------------------------------------------------
TOTAL REVENUES 16,013 6,278 5,039 1,508 903 994 61 - 30,796

PROVISION FOR LOAN LOSS 508 270 - - - - - - 778
NON-INTEREST EXPENSE 9,759 3,232 3,436 1,357 1,145 824 4,383 - 24,136
INCOME TAXES 4,753 972 670 63 (95) 69 (1,631) - 4,801
-----------------------------------------------------------------------------------
SEGMENT PROFIT $ 993 $ 1,804 $ 933 $ 88 $ (147) $ 101 $(2,691) $ - $ 1,081
===================================================================================

SEGMENT ASSETS $1,421,499 $482,533 $10,093 $2,575 $14,623 $3,223 $15,457 $(15,573) $1,934,430
-----------------------------------------------------------------------------------

THREE MONTHS ENDED
MARCH 31, 2002
---------------------------------------------------------------------------------------
INTER-
INCOME STATEMENT DATA BPBTC BOREL WCM RINET SHA BPVI BPFH SEGMENT TOTAL
---------------------------------------------------------------------------------------
(in thousands)

REVENUES FROM CUSTOMERS
NET INTEREST INCOME $ 10,964 $ 4,221 $ 9 $ (5) $ 4 $ 1 $ 5 $ - $ 15,199
NON-INTEREST INCOME 3,632 1,011 4,865 1,475 1,134 938 - - 13,055
---------------------------------------------------------------------------------------
TOTAL REVENUES 14,596 5,232 4,874 1,470 1,138 939 5 - 28,254

PROVISION FOR LOAN LOSS 500 180 - - - - - - 680
NON-INTEREST EXPENSE 8,048 2,429 3,187 1,246 1,062 711 2,413 - 19,096
INCOME TAXES 1,678 1,076 706 92 18 88 (963) - 2,695
---------------------------------------------------------------------------------------
SEGMENT PROFIT $ 4,370 $ 1,547 $ 981 $ 132 $ 58 $ 140 $(1,445) $ - $ 5,783
=======================================================================================

BALANCE SHEET DATA:
SEGMENT ASSETS $1,150,598 $401,065 $ 8,161 $2,465 $14,530 $1,381 $17,342 $(18,219) $1,577,323
---------------------------------------------------------------------------------------

10

BOSTON PRIVATE FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) EXCESS OF COST OVER NET ASSETS ACQUIRED (GOODWILL) AND INTANGIBLE ASSETS

An analysis of the activity in goodwill and intangible assets:

Identified Intangibles Goodwill
--------------------------------------- ------------------------------------------
(in thousands)
Boston
Private Bank BPVI Boston
Total Other Advisory Total Private Sand
Intangibles Intangibles Contracts Goodwill Bank Hill BPVI
------------ ------------ --------- -------- ----------- ------- ---------

Balance as of December 31, 2001 $ 159 $ 159 - $ 17,048 $ 2,286 $ 14,449 $ 313
Adjust estimated deferred purchase price (1,060) - (1,060) -
Amortization (5) (5) -
-------------------------------------- --------------------------------------------
Balance as of March 31, 2002 $ 154 $ 154 - $ 15,988 $ 2,286 $ 13,389 $ 313
-------------------------------------- --------------------------------------------

Balance as of December 31, 2002 $ 1,465 $ 141 $ 1,324 $ 16,542 $ 2,286 $ 13,345 $ 911
Amortization (39) (4) (35)
-------------------------------------- --------------------------------------------

Balance as of March 31, 2003 $ 1,426 $ 137 $ 1,289 $ 16,542 $ 2,286 $ 13,345 $ 911
-------------------------------------- --------------------------------------------

Investment advisory contracts are being amortized on a straight-line
basis over their estimated useful life of 10 years and other intangibles are
being amortized over a 15 year life. The estimated annual amortization
expense for the intangibles above for the next five years is $156,000 per
year, an aggregate of $780,000 over five years. The goodwill is expected to
be deductible for tax purposes.

(5) RECENT ACCOUNTING DEVELOPMENTS

In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The Company adopted the provisions of Statement No. 146 for all
disposal activities initiated after December 31, 2002. In the first quarter of
2003, the company established a reserve of $1.3 million, after tax, or $.06 per
share, for a current lease on Sand Hill Road in Menlo Park, California. The
Company has consolidated its operations into a newer facility in Palo Alto. The
lease on the Menlo Park space expires in 2008; the remaining payments will total
$4.2 million. This charge-off reflects the Company's estimate of the fair value
of these remaining lease payments reduced by the estimated sublease rental
income that could reasonably be obtained for the property. See MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - LEASE
ACCRUAL.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness of Others." Disclosures related to this interpretation are
effective for 2002 annual reports, and the accounting requirements are effective
January 1, 2003, and require all guarantees and indemnifications within its
scope to be recorded at fair value as liabilities, and the maximum possible loss
under these guarantees and indemnifications to be disclosed.

The Banks have issued standby letters of credit where the Banks are
required to make payments to the beneficiary of the letters of credit upon
request by the beneficiary so long as all performance criteria have been met. At
March 31, 2003 the maximum potential amount of future payments was $18.6
million. Of this amount, $18.5 million was covered by collateral.

In December 2002, the FASB issued SFAS No. 148,"Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." This statement amends SFAS No. 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock-based compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 to require prominent disclosure about the effects on
reported net

11

income of an entity's accounting policy decisions with respect to stock-based
compensation. Additionally, this Statement amends APB No. 28, "Interim Financial
Reporting," to require disclosure about those effects in interim financial
information. The amendment to Opinion No. 28 is effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002. The Company has adopted the disclosure provisions of FASB
148.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation No. 46 addresses when a company
should include in its financial statements the assets, liabilities and
activities of another entity. The consolidation requirements of Interpretation
No. 46 apply immediately to variable interest entities created after January 31,
2003. The consolidating requirements apply to older entities in the first fiscal
year or interim period beginning after June 15, 2003. Certain disclosure
requirements apply in all financial statements issued after January 31, 2003.
The Company does not believe the adoption of the statement will have a material
impact on the Company's financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging actives under SFAS 133.
SFAS 149 is generally effective for contracts entered into or modified after
June 30, 2003. The Company does not believe the adoption of the statement will
have a material impact on the Company's financial position or results of
operations.

(6) OTHER MATTERS

REIT Tax Adjustment - In the first quarter of 2003, the Company established
a reserve of $3.1 million for additional state taxes, relating to new
legislation retroactively disallowing the deduction for dividends received from
a real estate investment trust subsidiary (a "REIT") for the 1999 through 2002
calendar years. The reserve includes interest (net of any federal tax deduction
associated with such taxes and interest). The REIT tax reserve has been
established due to new legislation enacted on March 5, 2003 that amends
existing Massachusetts law to expressly disallow the deduction for dividends
received from a REIT. The legislative amendment applies retroactively to tax
years ending on or after December 31, 1999. As a result of the new legislation
the Company ceased recording the tax benefits associated with the dividend
received deduction effective for the 2003 tax year. The effective tax rate was
34.6% for the first quarter of 2003 before the retroactive portion of the REIT
adjustment. The effective tax rate for 2002 was 31.8%.

Lease Abandonment - In the first quarter of 2003, Sand Hill moved its
offices to space adjacent to the Palo Alto offices of Borel. In connection with
this move, we recorded a charge of approximately $2.0 million relating to the
lease for the vacated space. The charge is for the difference between the fair
value of the remaining lease payments reduced by the fair value of the estimated
sublease income to be received from the space being vacated.

(7) SUBSEQUENT EVENT

On May 2, 2003, the Company signed a definitive agreement to acquire an
80% interest in Dalton, Greiner, Hartman, Maher & Co. ("DGHM") of New York,
NY. DGHM, founded in 1990 and managing approximately $2.2 billion of client
assets, is a value style manager specializing in small-cap equities. The
remaining 20% interest in the firm will be retained by members of the DGHM
management team. The transaction's initial purchase price is expected to be
approximately $75 million, with approximately 91% payable in cash, but the
total purchase price could change as it is contingent upon the contracts
transferred and operating results through a five-year earn-out period. We
currently expect to finance the transaction through the issuance of $45
million of trust preferred securities. In addition, we will issue $4 million
in common stock to shareholders of DGHM. The closing of the transaction is
subject to several conditions, including regulatory approvals.

12

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2003

The discussions set forth below and elsewhere herein contain certain
statements that may be considered forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, including statements regarding our strategy,
effectiveness of investment programs, evaluations of future interest rate trends
and liquidity, expectations as to growth in assets, deposits and results of
operations, success of acquisitions, future operations, market position,
financial position, and prospects, plans and objectives of management are
forward-looking statements. These forward-looking statements are based on the
current assumptions and beliefs of management and are only expectations of
future results. Our actual results could differ materially from those projected
in the forward-looking statements as the result of, among other factors, changes
in interest rates, changes in the securities or financial markets, a
deterioration in general economic conditions on a national basis or in the local
markets in which we operate, including changes which adversely affect borrowers'
ability to service and repay our loans, changes in loan defaults and charge-off
rates, reduction in deposit levels necessitating increased borrowing to fund
loans and investments, the risk that difficulties will arise in connection with
the integration of the operations of acquired businesses with the operations of
our banking or investment management businesses, the passing of adverse
government regulation, changes in assumptions used in making such forward
looking statements, as well as those factors set forth below under the heading
"Risk Factors and Factors Affecting Forward-Looking Statements." These
forward-looking statements are made as of the date of this report and we do not
intend or undertake to update any such forward-looking statement.

GENERAL

Boston Private Financial Holdings, Inc. is incorporated under the laws of
The Commonwealth of Massachusetts and is registered with the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA"). On
July 1, 1988, the Company became the parent holding company of Boston Private
Bank & Trust Company, a trust company chartered by The Commonwealth of
Massachusetts and insured by the Federal Deposit Insurance Corporation (the
"FDIC"). In recent years, some substantial acquisitions have contributed to our
growth.

During 1997, the Company acquired by merger Westfield, a Massachusetts
company engaged in providing a range of investment management services to
individual and institutional clients. During October 1999, the Company acquired
by merger RINET, a Massachusetts company engaged in providing financial planning
and asset allocation services to high net worth individuals and families.

On February 28, 2001, the Company acquired by merger BPVI, formerly E.
R. Taylor Investments, Inc., a corporation engaged in providing value style
investment advisory services to the wealth management market.

On October 1, 2001, RINET acquired by merger Kanon Bloch Carre, a
Boston-based independent mutual fund rating service and investment advisor.

On November 30, 2001, the Company acquired by merger Borel, a private bank
located in San Mateo, California, in exchange for 5,629,872 newly issued shares
of the Company's common stock. In addition, the Company issued 230,000 stock
options in exchange for Borel's previously issued stock options.

These mergers were initiated prior to June 30, 2001 and were accounted for
as "poolings of interests." Accordingly, the results of operations of the
Company reflect the financial position and results of operations including
Westfield, RINET, Borel and BPVI on a consolidated basis for all periods
presented.

On August 31, 2000, the Company purchased Sand Hill, an investment advisory
firm servicing the wealth management market, primarily in Northern California.
This acquisition was accounted for as a "purchase of a business" and,
accordingly, the Company's results of operations and financial position include
Sand Hill on a consolidated basis since the date of the acquisition.

13

On December 18, 2002 the Company acquired 26% of the outstanding
capital stock of Coldstream Holdings, Inc. Coldstream Holdings, Inc. is the
parent of Coldstream Capital Management, Inc. of Bellevue, Washington.
Coldstream Capital is a multi-client family office that provides comprehensive
wealth management services to high net worth private clients.

The Company conducts substantially all of its business through its
wholly-owned subsidiaries, Boston Private Bank, Borel, Westfield, Sand Hill,
BPVI and RINET. A description of each subsidiary is provided in Note 3 to the
Consolidated Financial Statements included on Form 10K.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. We
believe that our most critical accounting policies upon which our financial
condition depends, and which involve the most complex or subjective decisions or
assessments are as follows:

ALLOWANCE FOR LOAN LOSSES: Arriving at an appropriate level of allowance
for loan losses involves a high degree of judgment. The Company's allowance for
loan losses provides for probable losses based upon evaluations of known, and
inherent risks in the loan portfolio. Management uses historical information to
assess the adequacy of the allowance for loan losses as well as the prevailing
business environment; as it is affected by changing economic conditions and
various external factors, which may impact the portfolio in ways currently
unforeseen. The allowance is increased by provisions for loan losses and by
recoveries of loans previously charged-off and reduced by loans charged-off. For
a full discussion of the Company's methodology of assessing the adequacy of the
allowance for loan losses, see "Financial Condition - Allowance for Loan
Losses".

VALUATION OF GOODWILL/INTANGIBLE ASSETS AND ANALYSIS FOR IMPAIRMENT: For
acquisitions under the purchase method, the Company is required to record assets
acquired and liabilities assumed at their fair value which is an estimate
determined by the use of internal or other valuation techniques. These valuation
estimates are used to determine the amount of goodwill and other intangible
assets recognized. Goodwill and intangible assets are subject to ongoing
periodic impairment tests and are evaluated using various fair value techniques.
In evaluating the recorded goodwill for impairment, management must estimate the
fair value of the business segments that have goodwill. The estimated valuation
requires estimates of future performance and is susceptible to changes in the
capital market environment as well as changes that occur at the business
segment.

IMPACT OF ACCOUNTING ESTIMATES

Management of the Company is required to make certain estimates and
assumptions, including estimates for the critical accounting policies noted
above, during the preparation of consolidated financial statements in accordance
with accounting principles generally accepted in the United States. In addition
to the estimates for the critical accounting policies, estimates were made in
conjunction with determining the charge recorded relating to the lease of the
space vacated by Sand Hill Advisors. See "LEASE ABANDONMENT". These estimates
and assumptions impact the reported amount of assets, liabilities and
disclosures of contingent assets and liabilities as of the date of the
consolidated financial statements. They also impact the reported amount of net
earnings during any period. Actual results could differ from those estimates.

FINANCIAL CONDITION

TOTAL ASSETS. Total assets increased $113.7 million, or 6.2%, to $1.9
billion at March 31, 2003 from $1.8 billion at December 31, 2002. This increase
was primarily driven by deposit growth, which was primarily used to fund new
commercial loans.

INVESTMENTS. Total investments (consisting of cash, federal funds sold and
other short term investments, money market investments, investment securities,
mortgage-backed securities, and stock in the FHLB) increased $54.9 million or
12.8% to $483.3 million, or 25.0% of total assets, at March 31, 2003, from
$428.4 million, or 23.5% of total assets, at December 31, 2002. Management
periodically evaluates investment alternatives to properly manage the overall
balance sheet. The timing of sales and reinvestments is based on various
factors, including management's evaluation of interest rate trends and our
liquidity.

14

The following table is a summary of investment and mortgage-backed
securities available for sale as of March 31, 2003 and December 31, 2002:

AMORTIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------ ----------- -------------
(IN THOUSANDS)

AT MARCH 31, 2003
U.S. Government and agencies $156,350 $3,472 $(55) $159,767
Corporate bonds 12,867 119 (33) 12,953
Municipal bonds 175,287 2,926 (538) 177,675
Mortgage-backed securities 1,208 12 -- 1,220
------------- ------------ ----------- --------------
Total investments $345,712 6,529 (626) $351,615
============= ============ =========== ==============

AT DECEMBER 31, 2002
U.S. Government and agencies $163,730 $4,390 $-- $168,120
Corporate bonds 15,887 280 (1) 16,166
Municipal bonds 99,068 2,815 (23) 101,860
Mortgage-backed securities 1,369 19 -- 1,388
------------- ------------ ----------- --------------
Total investments $280,054 7,504 (24) $287,534
============= ============ =========== ==============

LOANS HELD FOR SALE. Loans held for sale decreased $16.9, or 45.2% during
the first three months of 2003 to $14.0 million from $30.9 million. This
decrease is due to the timing of the loan sales. In the first quarter of 2003,
there were $63.1 million of mortgage loans originated for sale offset by $80.0
million loans sold on the secondary market.

LOANS. Total portfolio loans increased $73.8 million, or 5.7%, during the
first three months of 2003 to $1.38 billion, or 71.1% of total assets, at March
31, 2003, from $1.30 billion, or 71.5% of total assets, at December 31, 2002.
This increase was primary driven by growth in the commercial loans portfolio
which increased $70.3 million, or 10.4%, due to the high demand for financing in
this low interest rate environment. Residential mortgage loans increased $7.2
million, or 1.3%, during the first three months of 2003 as mortgage loan
originations of variable rate loans of $45 million were almost offset by payoffs
and refinancings.

RISK ELEMENTS. Total non-performing assets, which consist of non-accrual
loans and other real estate owned, increased by $749,000 during the first
three months of 2003 to $1.8 million, or 0.09% of total assets, at March 31,
2003, from $1.0 million, or 0.06% of total assets, at December 31, 2002. We
continue to evaluate the underlying collateral and value of each of our
non-performing assets and pursue the collection of all amounts due.

At March 31, 2003, loans with an aggregate balance of $4.2 million, or
0.30% of total loans, were 30 to 89 days past due, an increase of 4.1% as
compared to $4.0 million, or 0.31% of total loans, as of December 31, 2002.
Although these loans are generally secured, our success in keeping these
borrowers current varies from month to month, and it is uncertain whether
available collateral would, in all cases, be adequate to cover the amounts owed.

We discontinue the accrual of interest on a loan when the collectibility of
principal or interest is in doubt. In certain instances, loans that have become
90 days past due may remain on accrual status if we believe that full principal
and interest due on the loan is collectible.

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a charge to operations. When management believes that the collection of
a loan's principal balance is unlikely, the principal amount is charged against
the allowance. Recoveries on loans that have been previously charged off are
credited to the allowance as received.

The allowance for loan losses is determined using a systematic analysis and
procedural discipline based on historical experience, product types, and
industry benchmarks. The allowance is segregated into three components:
"general," "specific" and "unallocated." The general component is determined by
applying coverage percentages to groups of loans based on risk. A system of
periodic loan reviews is performed to assess the inherent risk and assign risk
ratings to each loan individually. Coverage percentages applied are determined
based on industry practice and management's judgment. The specific component is
established by allocating a portion of the allowance for loan losses to
individual classified loans on the

15

basis of specific circumstances and assessments. The unallocated component
supplements the first two components based on management's judgment of the
effect of current and forecasted economic conditions on borrowers' abilities to
repay, an evaluation of the allowance for loan losses in relation to the size of
the overall loan portfolio, and consideration of the relationship of the
allowance for loan losses to nonperforming loans, net charge-off trends, and
other factors. While this evaluation process utilizes historical and other
objective information, the classification of loans and the establishment of the
allowance for loan losses rely to a great extent on the judgment and experience
of management.

While management evaluates currently available information in establishing
the allowance for loan losses, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the assumptions used
in making the evaluations. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review a financial
institution's allowance for loan losses. Such agencies may require the financial
institution to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.

The following table is an analysis of our allowance for loan losses for the
periods indicated:

THREE MONTHS ENDED
MARCH 31,
--------------------------------
2003 2002
---------------- ---------------
(DOLLARS IN THOUSANDS)

Ending gross loans $ 1,375,538 $ 1,151,459

Allowance for loan losses, beginning of period $ 17,050 $ 14,521
Provision for loan losses 778 680
Charge offs (92) (2)
Recoveries -- 2
---------------- ---------------
Allowance for loan losses, end of period $ 17,736 $ 15,201
================ ===============

Allowance for loan losses to ending gross loans 1.29% 1.32%
================ ===============

DEPOSITS. We experienced an increase in total deposits of $96.6 million, or
6.9%, during the first three months of 2003, to $1.497 billion, or 77.4% of
total assets, at March 31, 2003, from $1.400 billion, or 76.9% of total assets,
at December 31, 2002. This increase was due to higher average balances in
existing client accounts, as well as a significant number of new accounts opened
during the first three months of 2003. In addition, we believe clients are
seeking more stable investment opportunities in bank deposits due to the current
uncertainty in the marketplace. The following table shows the composition of our
deposits at March 31, 2003 and December 31, 2002:

MARCH 31, 2003 DECEMBER 31, 2002
------------------------------ ------------------------------
AS A % OF AS A % OF
BALANCE TOTAL BALANCE TOTAL
------------------------------ ------------------------------

Demand deposits $ 246,883 16.5% $ 242,453 17.3%
NOW 206,623 13.8% 207,693 14.8%
Savings 24,542 1.7% 24,071 1.7%
Money Market 771,054 51.5% 675,105 48.2%
Certificates of deposit under $100,000 80,048 5.3% 81,829 5.9%
Certificates of deposit $100,000 or greater 167,758 11.2% 169,182 12.1%
---------- -------- ---------- --------
Total $1,496,908 100.0% $1,400,333 100.0%
========== ======== ========== ========

16

BORROWINGS. Total borrowings (consisting of federal funds purchased, FHLB
borrowings, and securities sold under agreements to repurchase ("repurchase
agreements")) increased $18.5 million, or 8.4%, during the first three months of
2003 to $236.8 million from $218.4 million at December 31, 2002. To better
manage interest rate risk and to help protect our net interest margin, we
utilize fixed rate FHLB borrowings to fund a portion of fixed rate assets.

LIQUIDITY. Liquidity is defined as the ability to meet current and future
financial obligations of a short-term nature. We further define liquidity as the
ability to respond to the needs of depositors and borrowers as well as to
earnings enhancement opportunities in a changing marketplace. Primary sources of
liquidity consist of investment management fees, financial planning fees,
deposit inflows, loan repayments, borrowed funds, and cash flows from investment
securities. These sources fund our lending and investment activities.

Management is responsible for establishing and monitoring liquidity targets
as well as strategies to meet these targets. At March 31, 2003, cash, federal
funds sold and other short term investments, money market investments and
securities available for sale amounted to $474.4 million, or 24.5% of total
assets of the Company. This compares to $420.3 million, or 23.1% of total
assets, at December 31, 2002.

Boston Private Financial Holdings' (the "Holding Company") primary sources
of funds are dividends from our subsidiaries, issuance of our common stock and
borrowings. The condensed balance sheet, statement of operations and statement
of cash flows for the Holding Company are included in the footnotes of the
Annual Report. We believe that the Holding Company has adequate liquidity to
meet its' commitments for the foreseeable future although we anticipate
financing the proposed acquisition of DGHM (see Footnote #7 - Subsequent Event)
in part with the issuance of Trust Preferred securities. In addition,
negotiations are in process to replace the $15 million line of credit that
expired in January 2003 with a new facility for $24 million. Liquidity at the
Holding Company is dependent upon the liquidity of its subsidiaries. The
Company's non bank subsidiaries have adequate capital to meet their recurring
commitments for the foreseeable future. The Holding Company may provide funds
for acquisitions and leasehold improvements acquired by the subsidiaries. The
bank subsidiaries are both well capitalized and maintain liquidity and have
access to borrowings from the Federal Reserve Bank and other sources as more
fully described in the Annual Report on Form 10K.

CAPITAL RESOURCES. Our stockholders' equity at March 31, 2003 was $167.8
million, or 8.7% of total assets, compared to $167.4 million, or 9.2% of total
assets at December 31, 2002. The dollar increase was the result of our net
income for the first three months of 2003 of $1.1 million, combined with
proceeds from options exercised reduced by dividends paid to shareholders and
the change in accumulated other comprehensive income.

The Company is subject to various regulatory capital requirements
administered by federal agencies. Failure to meet minimum capital requirements
can result in certain mandatory, and possibly additional discretionary actions
by regulators that, if undertaken, could have a material effect on our financial
statements. For example, under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Boston Private Bank and Borel must each
meet specific capital guidelines that involve quantitative measures of each of
their respective assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. Boston Private Bank's and
Borel's respective capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Similarly, the Company is also subject to capital requirements
administered by the Federal Reserve Bank with respect to certain non-banking
activities, including adjustments in connection with off-balance sheet items.
The following table presents actual capital amounts and regulatory capital
requirements as of March 31, 2003 and December 31, 2002:

17

TO BE WELL CAPITALIZED
FOR CAPITAL ADEQUACY UNDER PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------------- ------------------------------- ----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------------- --------------- --------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)

AS OF MARCH 31, 2003:

Total risk-based capital
Company $162,188 12.71% $102,053 > 8.0% $127,567 > 10.0%
Boston Private Bank 98,513 11.36 69,356 8.0 86,696 10.0
Borel 43,710 11.09 31,526 8.0 39,408 10.0
Tier I risk-based
Company 146,221 11.46 51,027 4.0 76,540 6.0
Boston Private Bank 87,658 10.11 34,678 4.0 52,017 6.0
Borel 38,778 9.84 15,763 4.0 23,645 6.0
Tier I leverage capital
Company 146,221 7.89 74,098 4.0 92,623 5.0
Boston Private Bank 87,658 6.40 54,746 4.0 68,433 5.0
Borel 38,778 8.30 18,691 4.0 23,364 5.0

AS OF DECEMBER 31, 2002:

Total risk-based capital
Company $160,178 12.95% $98,989 > 8.0% $123,736 > 10.0%
Boston Private Bank 97,395 11.36 68,607 8.0 85,759 10.0
Borel 41,558 11.35 29,283 8.0 36,604 10.0
Tier I risk-based
Company 144,642 11.69 49,495 4.0 74,242 6.0
Boston Private Bank 86,661 10.11 34,303 4.0 51,455 6.0
Borel 36,975 10.10 14,642 4.0 21,962 6.0
Tier I leverage capital
Company 144,692 8.16 70,946 4.0 88,683 5.0
Boston Private Bank 86,661 6.61 52,408 4.0 65,509 5.0
Borel 36,975 8.20 18,041 4.0 22,552 5.0

18

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003

NET INCOME. The Company recorded net income of $1.1 million, or $0.05 per
diluted share, for the quarter ended March 31, 2003 compared to $5.8 million, or
$0.24 per diluted share for the quarter ended March 31, 2002. Net income for the
quarter ended March 31, 2003 includes reserves of $3.1 million ($0.13 per
diluted share) and $1.3 million ($0.06 per diluted share) related to the
enactment of a retroactive Massachusetts tax increase and lease abandonment
costs, respectively. Excluding these reserves, net income and diluted earnings
per share would have been $5.5 million and $0.24, respectively.

REIT TAX ADJUSTMENT. In the first quarter of 2003, the Company established
a reserve of $3.1 million for additional state taxes, relating to new
legislation retroactively disallowing the deduction for dividends received from
a real estate investment trust subsidiary (a "REIT") for the 1999 through 2002
calendar years. The reserve includes interest (net of any federal tax deduction
associated with such taxes and interest). The REIT tax reserve has been
established due to new legislation enacted March 5, 2003 that amends existing
Massachusetts law to expressly disallow the deduction for dividends received
from a REIT. The legislative amendment applies retroactively to tax years ending
on or after December 31, 1999. As a result of the new legislation the Company
will cease recording the tax benefits associated with the dividend received
deduction effective for the 2003 tax year. The effective tax rate was 34.6% for
the first quarter of 2003 before the retroactive portion of the REIT adjustment.
The effective tax rate for 2002 was 31.8%. See "LEGAL PROCEEDINGS."

LEASE ABANDONMENT. In the first quarter of 2003, Sand Hill moved its
offices to space adjacent to the Palo Alto offices of Borel. In connection with
this move, we recorded a charge of approximately $2.0 million relating to the
lease for the vacated space. The charge is for the difference between the fair
value of the remaining lease payments reduced by the fair value of the estimated
sublease income to be received from the space being vacated.

The chart below provides a reconciliation of net income and diluted
earnings per share as determined in accordance with GAAP to adjusted net
income and earnings per share. To supplement its financial results prepared
in accordance with GAAP, the Company has presented non-GAAP measures of
earnings adjusted to exclude the REIT tax reserve and the lease abandonment
costs which management believes are outside the Company's core operational
results. The Company believes presentation of these adjusted earnings
enhances an overall understanding of its historical financial performance and
future prospects because management believes they are an indication of the
performance of our base business. Management uses these non-GAAP measures as
a basis for evaluating financial performance as well as for budgeting and
forecasting of future periods. For these reasons the Company believes they
can be useful to investors. The presentation of this additional information
should not be considered in isolation or as a substitute for net income or
net income per diluted share prepared in accordance with GAAP.

--------------------------------------------------------------------
MARCH 31, 2003
RETROACTIVE
GAAP REIT TAX LEASE ADJUSTED
EARNINGS ADJUSTMENT ABANDONMENT EARNINGS
------------- ------------------ ------------------- ---------------

REVENUES $30,796 $0 $0 $30,796
PROVISION FOR LOAN LOSSES 778 0 0 778
EXPENSES 24,136 (466) (2,028) 21,642
------------- ------------------ ------------------- ---------------
PRE-TAX INCOME 5,882 466 2,028 8,376
INCOME TAX EXPENSE 4,801 (2,613) 710 2,898
------------- ------------------ ------------------- ---------------
NET INCOME $1,081 $3,079 $1,318 $5,478
============= ================== =================== ===============

DILUTED EARNINGS PER SHARE $ 0.05 $ 0.13 $ 0.06 $ 0.24
------------- ------------------ ------------------- ---------------

19

NET INTEREST INCOME. For the quarter ended March 31, 2003, net interest
income was $16.3 million, an increase of $1.1 million, or 7.3%, over the same
period in 2002. This increase was due to increases in average balances of both
interest earning assets and liabilities offset by decreases in the average rates
of both interest earning assets and liabilities. The Company's net interest
margin was 3.77% for the first quarter of 2003, a decrease of 54 basis points
compared to the same period last year.

The following table sets forth the average balance and average rate for
interest earning assets and interest bearing liabilities for the three months
ended March 31, 2003 and March 31, 2002.

MARCH 31, 2003 MARCH 31, 2002
------------------------- --------------------------
INTEREST INTEREST
AVERAGE EARNED/ AVERAGE AVERAGE EARNED/ AVERAGE
BALANCE PAID RATE BALANCE PAID RATE
------- -------- ------- ------- -------- -------

Earning assets:
Cash and Investments (1) 426,532 3,036 2.86% 331,022 3,414 4.13%
Loans (2)
Commercial 697,522 10,862 6.13% 532,263 9,320 7.00%
Residential mortgage 563,085 7,813 5.58% 502,095 8,154 6.50%
Home equity and other 79,144 1,130 5.85% 78,723 1,226 6.23%
------------------------------------------------------------

Total loans 1,339,751 19,805 5.92% 1,113,081 18,700 6.72%
Total earning assets 1,766,283 22,841 5.18% 1,444,104 22,114 6.12%
============================================================

Interest bearing liabilities:
Deposits $1,213,053 4,110 1.37% $1,006,964 4,647 1.87%
Borrowed funds 222,514 2,025 3.72% 177,269 1,795 4.11%
------------------------------------------------------------

Total interest-bearing
liabilities 1,435,567 6,135 1.73% 1,184,233 6,442 2.21%
------------------------------------------------------------

Interest rate spread 3.45% 3.91%
Net interest margin 3.77% 4.31%

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

(1) Interest income on non-taxable investments is presented on a fully
taxable-equivalent basis using the federal statutory rate. These
adjustments were $398,000 and $473,000 for 2003 and 2002, respectively.

(2) Includes loans held for sale.

INTEREST INCOME. During the first quarter of 2003, interest income was
$22.4 million, an increase of $802,000 or 3.7%, compared to $21.6 million for
the same period in 2002. Interest income on commercial loans increased 16.5% to
$10.9 million for the quarter ended March 31, 2003, compared to $9.3 million for
the same period in 2002. Interest income from residential mortgage loans
decreased 4.2% to $7.8 million for the first quarter of 2003, compared to $8.2
million for the same period in 2002, and interest on home equity and other loans
decreased 7.8% to $1.1 million for the first quarter of 2003, compared to $1.2
million, for the same period in 2002. The average balance of commercial loans
increased 31.0% and the average rate decreased 12.4%, or 87 basis points, to
6.13% for the quarter ended March 31, 2003. The average balance of residential
mortgage loans increased 12.1%, and the average rate decreased 14.2%, or 92
basis points, to 5.58% for the same period. The decline in the average rate is
due to a high level of refinancing at lower interest rates. The average balance
of home equity and other loans increased 0.5% and the average rate decreased
6.1%, or 38 basis points, to 5.85%.

20

Total investment income (consisting of interest and dividend income from
cash, federal funds sold, investment securities, mortgage-backed securities, and
stock in the FHLB of Boston) decreased $303,000, or 10.3%, to $2.6 million for
the quarter ended March 31, 2003, compared to $2.9 million for the same period
in 2002. This decrease was primarily attributable to a decrease in the average
interest rate of 127 basis points on the investments. This represents a 30.8%
decline to 2.86%. This decrease was offset by an increase in the average balance
of $95.5 million, or 28.9% for the quarter ended March 31, 2003.

21

INTEREST EXPENSE. During the first quarter of 2003, interest expense was
$6.1 million, a decrease of $307,000, or 4.8%, compared to $6.4 million for the
same period in 2002. This decrease in the Company's interest expense was the
result of a decrease in the average cost of interest-bearing liabilities of 48
basis points, or 21.7%, to 1.73% for the quarter ended March 31, 2003. This
decrease was partially offset by an increase in the average balance of
interest-bearing liabilities of $251,000, or 21.2%, between the two periods.

PROVISION FOR LOAN LOSSES. The provision for loan losses was $778,000 for
the quarter ended March 31, 2003, compared to $680,000 for the same period in
2002. These provisions reflect continued loan growth and a low level of
non-performing assets. We evaluate several factors including new loan
originations, estimated charge-offs, and risk characteristics of the loan
portfolio when determining the provision for loan losses. These factors include
the level and mix of loan growth, the level of non-accrual and delinquent loans,
and the level of charge-offs and recoveries. Also see discussion under
"FINANCIAL CONDITION - ALLOWANCE FOR LOAN LOSSES." Charge-offs net of recoveries
were $93,000 during the first quarter of 2003. Charge-offs of $2,000 were offset
by recoveries of $2,000 for the same period in 2002.

FEES AND OTHER INCOME. Fees and other income increased $1.4 million, or
11.0%, to $14.5 million for the three-month period ending March 31, 2003,
compared to $13.1 million for the same period in 2002. The majority of fee
income was attributable to investment management and trust fees earned on assets
under management. These fees decreased $46,000, or 0.5%, to $9.8 million for the
first quarter of 2003, compared to $9.9 million for the same period in 2002.
This decrease is attributable to a decrease in the average fees earned on assets
under management almost offset by a 1.0% increase in AUM.

Financial planning fees increased $62,000, or 4.2%, to $1.5 million for the
first quarter of 2003. This increase was due to both new business and special
projects.

Gain on sale of investment securities was $1.1 million for the first
quarter of 2003 compared to $415,000 for the first quarter of 2002. The amount
of security gains recorded in the portfolios are dependent on current market
conditions and the status of the Banks' balance sheets. Gain on sale of loans
increased $520,000 to $791,000 for the first quarter of 2003 compared to
$271,000 for the first quarter of 2002. The Company sells virtually all of its
fixed rate mortgage loans and periodically sells loans out of portfolio to free
up capital and adjust the balance sheet gap.

Cash administration fees, which consist primarily of cash management fees
and liquid asset management fees, were $214,000 for the quarter ended March 31,
2003 compared to $221,000 for the first quarter of 2002. Other fee income, which
consists primarily of loan fees and banking fees, increased $81,000 to $688,000
for the first quarter of 2003.

OPERATING EXPENSE. Total operating expense for the first quarter of 2003
were $24.1 million compared to $19.1 million for the same period in 2002. Total
operating expenses for the first quarter of 2003 include reserves of $466,000
and $2.0 million related to the interest associated with retroactive
Massachusetts tax increase and lease abandonment costs, respectively. Excluding
these costs, adjusted operating expenses would have been $21.6 million, a $2.5
million or 13.3% increase over the first quarter of 2002. This increase was
attributable to our continued growth and expansion. We experienced a 22.6%
increase in total balance sheet assets and an 11.9% increase in the number of
employees from March 31, 2002 to March 31, 2003.

Salaries and benefits, the largest component of operating expense,
increased $1.4 million, or 11.2%, to $14.3 million for the quarter ended March
31, 2003, from $12.8 million for the same period in 2002. This increase was due
to an 11.9% increase in the number of employees, normal salary increases, and
the related taxes and benefits thereon, partially offset by a reduced level of
employee incentive-based compensation.

Occupancy and equipment expense was $5.3 million for the first quarter of
2003 compared to $2.5 million for the same period last year. Excluding the lease
abandonment costs of $2.0 million, occupancy and equipment expenses would have
been $3.3 million, a $745,000 or 29.8% increase over the first quarter of 2002.
The increase was primarily attributable to the increased occupancy expenses
related to expansion at Ten Post Office Square, Boston, Massachusetts, and the
new banking offices in Newton, Massachusetts and Palo Alto, California as well
as our continued investments in technology.

22

Professional services include legal fees, consulting fees, and other
professional services such as audit and tax preparation. These expenses
increased $210,000, or 24.9%. This is a result of increased expenditures
among a number of different professional services.

Contract services and processing, which are mostly costs associated with
custody and data processing, increased $62,000 from the first quarter in 2002.
This increase was due primarily to continued investments in our data processing
systems.

Amortization of intangibles was $39,000 for the first quarter of 2003, an
increase of $34,000 from the first quarter of 2002. This increase is
attributable to the amortization of the advisory contacts associated with the
Goldberg acquisition.

Other expenses include insurance, supplies, telephone, mailing expense,
publications and subscriptions, employee training, interest on deferred
acquisition payments and other miscellaneous business expenses. Other expenses
were $2.1 million in the first quarter of 2003 compared to $1.7 million for the
same period in 2002. For the first quarter of 2003, other expenses include a
reserve of $466,000 for interest associated with the retroactive Massachusetts
Tax increase. Excluding these expenses, other expenses would have been $1.6
million, a decrease of $39,000 from the same period in 2002.

INCOME TAX EXPENSE. We recorded income tax expense of $4.8 million for the
first quarter of 2003 as compared to $2.7 million for the same period last year.
Excluding the charge related to the retroactive Massachusetts tax increase,
income tax expense would have been $2.2 million. The effective tax rate was
34.5% for the first quarter of 2003 before the REIT adjustment. The effective
tax rate for 2002 was 31.8%. See "LEGAL PROCEEDINGS."

23

RISK FACTORS AND FACTORS AFFECTING FORWARD-LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. BOSTON PRIVATE'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS QUARTERLY REPORT
ON FORM 10-Q. FACTORS WHICH MAY CAUSE SUCH A MATERIAL DIFFERENCE INCLUDE THOSE
SET FORTH BELOW. INVESTORS IN BOSTON PRIVATE'S COMMON STOCK SHOULD CAREFULLY
CONSIDER THE DISCUSSION OF RISK FACTORS BELOW, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q. REFERENCE TO "WE,"
"OUR," AND "US" REFER TO BOSTON PRIVATE AND ITS SUBSIDIARIES ON A CONSOLIDATED
BASIS.

WE MAY NOT BE ABLE TO ATTRACT AND RETAIN BANKING CUSTOMERS AT CURRENT LEVELS

Competition in local banking industries coupled with our relatively small
size may limit the ability of the Banks to attract and retain banking customers.
The Banks face competition from the following:

o other banking institutions (including larger Boston and
Northern California and suburban commercial banking
organizations);

o savings banks;

o credit unions;

o other financial institutions; and

o non-bank financial service companies serving eastern
Massachusetts, Northern California and their respective
adjoining areas.

In particular, the Banks' competitors include several major financial
companies whose greater resources may afford them a marketplace advantage by
enabling them to maintain numerous banking locations and mount extensive
promotional and advertising campaigns. Additionally, banks and other financial
institutions with larger capitalization and financial intermediaries not subject
to bank regulatory restrictions have larger lending limits and are thereby able
to serve the credit and investment needs of larger customers. Areas of
competition include interest rates for loans and deposits, efforts to obtain
deposits and range and quality of services provided. The Banks also face
competition from out-of-state financial intermediaries which have opened low-end
production offices or which solicit deposits in their respective market areas.

Because the Banks maintain smaller staffs and have fewer financial and
other resources than larger institutions with which they compete, they may be
limited in their ability to attract customers. In addition, some of the Banks'
current commercial banking customers may seek alternative banking sources as
they develop needs for credit facilities larger than the Banks can accommodate.

If the Banks are unable to attract and retain banking customers, they may
be unable to continue their loan growth and their results of operations and
financial condition may otherwise be negatively impacted.

WE MAY NOT BE ABLE TO ATTRACT AND RETAIN INVESTMENT MANAGEMENT CLIENTS AT
CURRENT LEVELS

Due to the intense local competition and our relatively short history and
limited record of performance in the investment management business, Boston
Private Bank and our investment management subsidiaries, Westfield, Sand Hill,
BPVI, and RINET, may not be able to attract and retain investment management
clients at current levels.

In the investment management industry, we compete primarily with the
following:

o commercial banks and trust companies;

o mutual fund companies;

24

o investment advisory firms;

o stock brokerage firms;

o law firms; and

o other financial services companies.

Competition is especially keen in our geographic market area, because there
are numerous well-established and successful investment management firms in
Boston, New England and in Northern California. Many of our competitors have
greater resources than we have.

Our ability to successfully attract and retain investment management
clients is dependent upon our ability to compete with our competitors'
investment products, level of investment performance, client services and
marketing and distribution capabilities. If we are not successful, our results
from operations and financial position may be negatively impacted.

For the quarter ended March 31, 2003, approximately 32.0% of our revenues
were derived from investment management contracts which are typically terminable
upon less than 30 days' notice. Most of our clients may withdraw funds from
accounts under management generally in their sole discretion.

Moreover, Westfield receives some performance-based fees. The amount of
these fees is impacted directly by the investment performance of Westfield. As a
result, the future revenues from such fees may fluctuate and may be affected by
conditions in the capital markets and other general economic conditions. During
the past three years, the performance fees earned by Westfield have not been
material. Westfield, BPVI, RINET, and Sand Hill are our major investment
management subsidiaries, and their financial performance is a significant factor
in our overall results of operations and financial condition.

DEFAULTS IN THE REPAYMENT OF LOANS MAY NEGATIVELY IMPACT OUR BUSINESS

Defaults in the repayment of loans by the Banks' customers may negatively
impact their businesses. A borrower's default on its obligations under one or
more of the Banks' loans may result in lost principal and interest income and
increased operating expenses as a result of the allocation of management time
and resources to the collection and work-out of the loan.

In certain situations, where collection efforts are unsuccessful or
acceptable work-out arrangements cannot be reached, the Banks may have to
write-off the loan in whole or in part. In such situations, the Banks may
acquire any real estate or other assets, if any, which secure the loan through
foreclosure or other similar available remedies. In such cases, the amount owed
under the defaulted loan often exceeds the value of the assets acquired.

The Banks' respective management periodically makes a determination of an
allowance for loan losses based on available information, including the quality
of its loan portfolio, certain economic conditions, the value of the underlying
collateral and the level of its non-accruing loans. Provisions to this allowance
result in an expense for the period. If, as a result of general economic
conditions or an increase in defaulted loans, management determines that
additional increases in the allowance for loan losses are necessary, the Banks
may incur additional expenses.

In addition, bank regulatory agencies periodically review the Banks'
allowances for loan losses and the values they attribute to real estate acquired
through foreclosure or other similar remedies. Such regulatory agencies may
require the Banks to adjust their determination of the value for these items.
These adjustments could negatively impact the Banks' results of operations or
financial position.

A DOWNTURN IN THE LOCAL ECONOMIES OR REAL ESTATE MARKETS COULD NEGATIVELY IMPACT
OUR BANKING BUSINESS

A downturn in the local economies or real estate markets could negatively
impact our banking business. Because the Banks serve primarily individuals and
smaller businesses located in eastern Massachusetts and adjoining areas, with a
particular concentration in the Greater Boston Metropolitan Area and Northern
California, the ability of the Banks' customers to repay their loans is impacted
by the economic conditions in these areas. Furthermore, current negative
economic trends, including the recession, increased unemployment in Northern
California and New England, as well as ongoing economic uncertainty created by
the September 11, 2001 terrorist attacks on the World Trade Center and the
Pentagon, and the United States' war on terrorism in Afghanistan and elsewhere,
and the war with Iraq will likely continue to negatively impact

25

businesses in Northern California and New England. While we are currently
uncertain as to the long-term effects of these events, they could adversely
affect general economic conditions, consumer confidence and market liquidity, or
result in changes in interest rates, any of which may have a negative impact on
the banking business of the Banks. The Banks' commercial loans are generally
concentrated in the following customer groups:

o real estate developers and investors;

o financial service providers;

o technology companies;

o manufacturing and communications companies;

o professional service providers;

o general commercial and industrial companies; and

o individuals.

The Banks' commercial loans, with limited exceptions, are secured by either
real estate (usually, income producing residential and commercial properties),
marketable securities or corporate assets (usually, accounts receivable,
equipment or inventory). Consequently, the Banks' ability to continue to
originate real estate loans may be impaired by adverse changes in local and
regional economic conditions in the real estate markets, or by acts of nature,
including earthquakes and flooding. Due to the concentration of real estate
collateral, these events could have a material adverse impact on the value of
the collateral resulting in losses to either or both of the Banks. Substantially
all of the Banks' residential mortgage and home equity loans are secured by
residential property in eastern Massachusetts and Northern California. Also, due
to the recent concerns with power supplies in the State of California, Borel
could be materially and adversely affected either directly or indirectly by a
severe power shortage, if any of its critical computer systems or equipment
fails, if the local infrastructure, such as electric power, phone system, or
water system, fails, if its significant vendors are adversely impacted, or it
its borrowers or depositors are adversely impacted by their internal systems or
those of their customers and suppliers. As a result, conditions in the real
estate markets specifically, and the Massachusetts and California economies
generally, can materially impact the ability of the Banks' borrowers to repay
their loans and affect the value of the collateral securing these loans.

ENVIRONMENTAL LIABILITY ASSOCIATED WITH COMMERCIAL LENDING COULD RESULT IN
LOSSES

In the course of business, the Banks may in the future acquire, through
foreclosure, properties securing loans they have originated or purchased which
are in default. Particularly in commercial real estate lending, there is a risk
that hazardous substances could be discovered on these properties. In this
event, we, or the respective Bank, might be required to remove these substances
from the affected properties at our sole cost and expense. The cost of this
removal could substantially exceed the value of affected properties. We may not
have adequate remedies against the prior owner or other responsible parties
could find it difficult or impossible to sell the affected properties, which
could have a material adverse affect on our business, financial condition and
operating results.

FLUCTUATIONS IN INTEREST RATES MAY NEGATIVELY IMPACT OUR BANKING BUSINESS

Fluctuations in interest rates may negatively impact the business of the
Banks. The Banks' main source of income from operations is net interest income,
which is equal to the difference between the interest income received on
interest-bearing assets (usually, loans and investment securities) and the
interest expense incurred in connection with interest-bearing liabilities
(usually, deposits and borrowings). These rates are highly sensitive to many
factors beyond the Banks' control, including general economic conditions, both
domestic and foreign, and the monetary and fiscal policies of various
governmental and regulatory authorities. The Banks' net interest income can be
affected significantly by changes in market interest rates. Changes in relative
interest rates may reduce the Banks' net interest income as the difference
between interest income and interest expense decreases. As a result, the Banks
have adopted asset and liability management policies to minimize the potential
adverse effects of changes in interest rates on net interest income, primarily
by altering the mix and maturity of loans, investments and funding sources.
However, even with these policies in place, we cannot assure you that a decrease
in interest rates will not negatively impact our results from operations or
financial position. Specifically, Borel is

26

currently asset sensitive, which means that its interest bearing liabilities
mature, or otherwise reprice, at a slower rate than its interest earning assets.
As a result, in a period of declining interest rates, Borel will experience a
shrinking of its interest margin as its floating rate loans will reprice
immediately, while its fixed rate deposits will reprice over the course of a
year. This reduction in interest rate may adversely affect Borel's earnings.

An increase in interest rates could also have a negative impact on the
Banks' results of operations by reducing the ability of borrowers to repay their
current loan obligations, which could not only result in increased loan
defaults, foreclosures and write-offs, but also necessitate further increases to
the Banks' allowances for loan losses.

OUR COST OF FUNDS FOR BANKING OPERATIONS MAY INCREASE AS A RESULT OF GENERAL
ECONOMIC CONDITIONS, INTEREST RATES AND COMPETITIVE PRESSURES

Our cost of funds for banking operations may increase as a result of
general economic conditions, interest rates and competitive pressures. The Banks
have traditionally obtained funds principally through deposits and through
borrowings. As a general matter, deposits are a cheaper source of funds than
borrowings, because interest rates paid for deposits are typically less than
interest rates charged for borrowings. Historically and in comparison to
commercial banking averages, the Banks have had a higher percentage of its time
deposits in denominations of $100,000 or more. Within the banking industry, the
amounts of such deposits are generally considered more likely to fluctuate than
deposits of smaller denominations. If, as a result of general economic
conditions, market interest rates, competitive pressures or otherwise, the value
of deposits at the Banks decrease relative to their overall banking operations,
the Banks may have to rely more heavily on borrowings as a source of funds in
the future.

OUR INVESTMENT MANAGEMENT BUSINESS MAY BE NEGATIVELY IMPACTED BY CHANGES IN
ECONOMIC AND MARKET CONDITIONS

Our investment management business may be negatively impacted by changes in
general economic and market conditions because the performance of such business
is directly affected by conditions in the financial and securities markets. The
financial markets and the investment management industry in general have
experienced record performance and record growth in recent years. The financial
markets and businesses operating in the securities industry, however, are highly
volatile (meaning that performance results can vary greatly within short periods
of time) and are directly affected by, among other factors, domestic and foreign
economic conditions and general trends in business and finance, all of which are
beyond our control. We cannot assure you that broad market performance will be
favorable in the future. In particular, the financial and securities markets
have experienced a significant downturn since March 2000. This decline has
impacted our investment management business, reducing both management and
performance fees. In addition, following the September 11, 2001 terrorist
attacks on the World Trade Center and the Pentagon, the world financial and
securities markets experienced significant and precipitous decline in value from
which they have yet to recover. The world financial and securities markets will
likely continue to experience significant volatility as a result of, among other
things, world economic and political conditions. Continued decline in the
financial markets or a lack of sustained growth may result in a corresponding
decline in our performance and may adversely affect the assets which we manage.

In addition, Westfield's, BPVI's, Sand Hill's and a portion of RINET's
management contracts generally provide for fees payable for investment
management services based on the market value of assets under management,
although a portion of Westfield's contracts also provide for the payment of fees
based on investment performance. Because most contracts provide for a fee based
on market values of securities, fluctuations in securities prices may have a
material adverse effect on our results of operations and financial condition.

OUR INVESTMENT MANAGEMENT BUSINESS IS HIGHLY REGULATED

Our investment management business is highly regulated, primarily at the
federal level. The failure of any of our subsidiaries that provide investment
management services to comply with applicable laws or regulations could result
in fines, suspensions of individual employees or other sanctions, including
revocation of such subsidiary's registration as an investment adviser.

Westfield, Sand Hill, BPVI, RINET, and Coldstream Capital are registered
investment advisers under the Investment Advisers Act. The Investment Advisers
Act imposes numerous obligations on registered investment advisers, including
fiduciary, record keeping, operational and disclosure obligations. These
subsidiaries, as investment advisers, are also subject to regulation under the
federal and state securities laws and the fiduciary laws of certain states. In
addition, Westfield and

27

Sand Hill act as sub-advisers to mutual funds which are registered under the
1940 Act and are subject to that act's provisions and regulations.

We are also subject to the provisions and regulations of ERISA to the
extent we act as a "fiduciary" under ERISA with respect to certain of our
clients. ERISA and the applicable provisions of the federal tax laws, impose a
number of duties on persons who are fiduciaries under ERISA and prohibit certain
transactions involving the assets of each ERISA plan which is a client of ours,
as well as certain transactions by the fiduciaries (and certain other related
parties) to such plans.

In addition, applicable law provides that all investment contracts with
mutual fund clients may be terminated by the clients, without penalty, upon no
later than 60 days' notice. Investment contracts with institutional and other
clients are typically terminable by the client, also without penalty, upon 30
days' notice.

Boston Private Financial Holdings does not directly manage investments for
clients, does not directly provide any investment management services and,
therefore, is not a registered investment adviser. Boston Private Bank and Borel
are exempt from the regulatory requirements of the Investment Advisors Act, but
are subject to extensive regulation by the FDIC and the Commissioner of Banks of
the Commonwealth of Massachusetts and the California Department of Financial
Institutions (the "DFI").

OUR BANKING BUSINESS IS HIGHLY REGULATED

Bank holding companies and state chartered banks operate in a highly
regulated environment and are subject to supervision and examination by federal
and state regulatory agencies. Boston Private Financial Holdings is subject to
the BHCA, and to regulation and supervision by the Federal Reserve Board. Boston
Private Bank, as a Massachusetts chartered trust company the deposits of which
are insured by the FDIC, is subject to regulation and supervision by the
Massachusetts Commissioner of Banks and the FDIC. Borel, as a California banking
corporation, is subject to regulation and supervision by the DFI and the FDIC.

Federal and state laws and regulations govern numerous matters including
changes in the ownership or control of banks and bank holding companies,
maintenance of adequate capital and the financial condition of a financial
institution, permissible types, amounts and terms of extensions of credit and
investments, permissible non-banking activities, the level of reserves against
deposits and restrictions on dividend payments. The FDIC, the DFI and the
Massachusetts Commissioner of Banks possess cease and desist powers to prevent
or remedy unsafe or unsound practices or violations of law by banks subject to
their regulation, and the Federal Reserve Board possesses similar powers with
respect to bank holding companies. These and other restrictions limit the manner
in which we and the Banks may conduct business and obtain financing.

Furthermore, our banking business is affected not only by general economic
conditions, but also by the monetary policies of the FRB. Changes in monetary or
legislative policies may affect the interest rates the Banks must offer to
attract deposits and the interest rates they must charge on their loans, as well
as the manner in which it offers deposits and makes loans. These monetary
policies have had, and are expected to continue to have, significant effects on
the operating results of depository institutions generally including the Banks.

28

TO THE EXTENT THAT WE ACQUIRE OTHER COMPANIES IN THE FUTURE, OUR BUSINESS MAY BE
NEGATIVELY IMPACTED BY CERTAIN RISKS INHERENT WITH SUCH ACQUISITIONS

We have in the past acquired, and expect in the future to continue to
acquire other banking and investment management companies consistent with our
institutions strategy. To the extent that we acquire other companies in the
future, our business may be negatively impacted by certain risks inherent with
such acquisitions.

These risks include the following:

o the risk that the acquired business will not perform in
accordance with management's expectations;

o the risk that difficulties will arise in connection with the
integration of the operations of the acquired business with
the operations of our banking or investment management
businesses;

o the risk that management will divert its attention from other
aspects of our business;

o the risk that we may lose key employees of the acquired
business;

o the risks associated with entering into geographic and product
markets in which we have limited or no direct prior
experience; and

o the risks of the acquired company which we may assume as a
result of the acquisition.

ADVERSE DEVELOPMENTS IN LITIGATION COULD NEGATIVELY IMPACT OUR BUSINESS.

Since 1984, Borel has served as the trustee of a private trust that has
been the subject of protracted litigation. During the last seven years there
have been three actions filed in the Superior Court for San Mateo County,
California, by certain beneficiaries of the trust relating to the management and
proposed sale of certain real property. These beneficiaries have claimed, among
other things, that Borel breached its fiduciary duties as the trustee. Borel has
prevailed in the first action and final judgment has been entered in its favor.
Borel has prevailed in the trial court in the second action; however, the
appeals court has remanded that case to the trial court for limited further
proceedings. The third case has been held in abeyance by the trial court for
several years pending disposition of the first two matters. Adverse developments
in these lawsuits could have a material adverse effect on Borel's business or
the combined business of the Banks. For a more detailed description of this
litigation, see Item 3 "Legal Proceedings."

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

For information related to this item, see the Company's December 31, 2002
Form 10-K, Item 7A - Interest Rate Sensitivity and Market Risk. No material
changes have occurred since that date.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

As required by new Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the date of this report, the Company carried out an
evaluation under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. In designing and evaluating the Company's
disclosure controls and procedures, the Company and its management recognize
that any controls and procedures, no matter how well designed and operated, can
provide only a reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating and
implementing possible controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and
forms. In connection with the rules regarding disclosure and control procedures,
we intend to continue to review and document our disclosure controls and
procedures, including our internal

29

controls and procedures for financial reporting, and may from time to time make
changes aimed at enhancing their effectiveness and to ensure that our systems
evolve with our business.

(b) Change in internal controls.

None.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A. INVESTMENT MANAGEMENT LITIGATION

On or about May 3, 2002, a complaint was filed against Westfield in the
Allegheny County Court of Common Pleas in Pittsburgh, Pennsylvania, on behalf of
the Retirement Board of Allegheny County (the "plaintiff"). The complaint
alleges that Westfield failed to uphold its contractual and common law
obligations to invest Allegheny County retirement funds with proper care and
diligence, resulting in an alleged opportunity loss of approximately $4 million.
The complaint does not identify what conduct constituted the alleged breach.
Westfield moved to dismiss the complaint on the ground, inter alia, that the
complaint contains no allegations as to how Westfield breached the contract
between the parties or its fiduciary duty to the Board. The motion was granted,
in part. The plantiff's unfair trade practices claim, by which treble damages
are potentially available, was dismissed. Discovery is in progress, and
Westfield will continue to defend this claim vigorously.

B. TRUST LITIGATION

Since 1984, Borel has served as the trustee of a private family trust known
as the Andre LeRoy Trust. There have been several actions involving Borel and
certain beneficiaries of the Andre LeRoy Trust concerning the management and
proposed sale of a certain real property known as the Guadalupe Oil Field. The
property was jointly owned by the Andre LeRoy Trust and another private family
trust, for which Bankers Trust (now Deutsche Bank) is the trustee. In the first
action ("Removal Action"), initiated in 1994, certain beneficiaries of the Andre
LeRoy Trust petitioned for removal of Borel as trustee, claiming that Borel had
breached its fiduciary duties in managing oil and gas leases on the Guadalupe
Oil Field and, following the discovery of environmental contamination on the
property, in negotiating a proposed Settlement Agreement and Purchase and Sale
Agreement to sell the property to Union Oil Company of California (d/b/a
UNOCAL), the operator of the oil field. In the second action ("Approval
Action"), initiated in 1995, Borel petitioned for court approval of the proposed
Settlement Agreement and Purchase and Sale Agreement. The same group of
beneficiaries that filed the Removal Action opposed the Approval Action.

Borel prevailed in the trial court in the Removal Action in 1994 and in the
Approval Action in 1995; however, in 1997 the Court of Appeal reversed the order
in the Removal Action and remanded both actions for further proceedings. A trial
took place in 1998. Borel again prevailed in both actions, and again the
beneficiary group appealed. In February 2001, the Court of Appeal affirmed the
order denying the petition for removal of Borel as trustee, and that order is
now deemed final for all purposes. The Court of Appeal also remanded the
Approval Action for limited reconsideration by the trial court. In March 2002,
the trial court completed that reconsideration and issued an order again
granting Borel's petition for approval of the Settlement and Purchase and Sale
agreements. The beneficiary group filed a motion for a new trial, which was
denied. In May 2002, the beneficiary group also filed a new petition
("Disapproval Action") seeking an order disapproving the Settlement and Purchase
and Sale agreements as they had been recently amended, and on the basis of that
new petition, sought a preliminary injunction to block the consummation of the
amended agreements. The motion for a preliminary injunction was denied, as was
the group's petition to the Court of Appeal for a writ of supersedeas. On July
2, 2002, the Settlement Agreement and the Purchase and Sale Agreement were
consummated.

There are three appeals by the beneficiary group currently pending: (1)
an appeal from the March 2002 order approving the agreements; (2) an appeal
from the denial of the motion for a new trial; and (3) an appeal from the
denial of the motion for a preliminary injunction (which would now appear to
be moot). These appeals have been consolidated. The beneficiary group has
filed its opening brief. No hearing date has been set.

Another action was filed in December 1996 ("Damages Action") in which the
same group of beneficiaries sought damages against Borel and Bankers Trust (now
Deutsche Bank) for alleged mismanagement of the jointly owned Guadalupe

30

Oil Field and for negotiating with UNOCAL for the sale of the property and
settlement of UNOCAL's liability to the trust. In the Damages Action, the
plaintiff beneficiaries claimed damages of $234.2 million, but that amount was
unsubstantiated, and the component elements of damages they identified did not
add up to that amount. In the trial of the Removal Action in 1998, the plaintiff
beneficiaries submitted expert testimony of damages in the amount of $102
million. The trial court found this testimony unpersuasive. The Damages Action
was stayed by the trial court in 1997 pending resolution of the Removal Action
and the Approval Action. It remains stayed at the present time.

The Disapproval Action filed in May 2002 was amended in December 2002. It
seeks, among other things, the unwinding of the Settlement and Purchase and Sale
agreements, the return of the Guadalupe Oil Field to the trusts, and unspecified
damages for loss of the property. The amended petition repeats many of the same
allegations made in this litigation since 1994. All proceedings in the
disapproval action have been stayed pending resolutions of the consolidated
appeals.

The same group of dissenting beneficiaries filed yet another petition
("Distribution Petition") in October 2002 seeking full distribution of the
proceeds of the Settlement and Purchase and Sale agreements and final wrapping
up and dissolution of the Andre LeRoy Trust. It does not seek damages. The
plaintiff beneficiaries have done nothing to date to pursue the Distribution
Petition.

Borel will continue to litigate the remaining matters vigorously. While the
ultimate outcome of these proceedings cannot be predicted with certainty, at the
present time Borel's management, based on consultation with legal counsel,
believes there is no basis to conclude that liability with respect to these
matters is probable or that such liability can be reasonably estimated.

C. MASSACHUSETTS TAX MATTERS

Boston Private Preferred Capital Corporation ("BPPCC") is a real estate
investment trust 99.9% owned by the Boston Private Bank. Boston Private Bank has
received notices of assessment from The Commonwealth of Massachusetts Department
of Revenue ("DOR") for the years ended December 31, 1999, 2000 and 2001. The
Company is aware that the DOR has also sent similar notices to numerous other
financial institutions in Massachusetts that reported a deduction for dividends
received from a REIT on their Massachusetts financial institution excise tax
returns.

The DOR contends that dividend distributions by BPPCC to Boston Private
Bank are fully taxable in Massachusetts. The Company believes that the
Massachusetts statute that provides for a dividends received deduction equal to
95% of certain dividend distributions applies to the distributions made by BPPCC
to Boston Private Bank. Accordingly, no provision was made in the financial
statements at the time of the assessments for the amounts assessed or additional
amounts that might be assessed in the future. Management has estimated the
potential impact to be approximately $3.0 million, net of federal tax benefit
and including interest, for 1999 through December of 2002.

Following the assessment, the Governor of Massachusetts signed legislation
in March 2003 that seeks to amend the statute referred to above to expressly
disallow the deduction for dividends received from a REIT. This amendment will
apply retroactively to the years ending on or after December 31, 1999. As a
result of the legislation, the Company will cease recording the tax benefits
associated with the dividends received deduction effective in the 2003 tax year.
In addition, in the first quarter of 2003 the Company established a reserve of
approximately $3.0 million for additional state taxes, including interest (net
of any federal tax deduction associated with such taxes and interest), thus
reducing earnings by that amount in the first quarter of 2003.

The Company intends to vigorously appeal the assessments and to pursue all
available means to defend its position. The Company also believes that the new
legislation is likely to be challenged, especially its retroactivity provisions,
on constitutional and other grounds. The Company would support such a challenge.

D. OTHER

The Company is also involved in routine legal proceedings occurring in the
ordinary course of business. In the opinion of management, final disposition of
these proceedings will not have a material adverse effect on the financial
condition or results of operations of the Company.

31

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

On May 2, 2003, the Company signed a definitive agreement to acquire
an 80% interest in Dalton, Greiner, Hartman, Maher & Co. ("DGHM") of New
York, NY. DGHM, founded in 1990 and managing approximately $2.2 billion of
client assets, is a value style manager specializing in small-cap equities.
The remaining 20% interest in the firm will be retained by members of the
DGHM management team. The transaction's initial purchase price is expected to
be approximately $75 million, with approximately 91% payable in cash, but the
total purchase price could change as it is contingent upon the contracts
transferred and operating results through a five-year earn-out period. We
currently expect to finance the transaction through the issuance of $45
million of trust preferred securities. In addition, we will issue $4 million
in common stock to shareholders of DGHM. The closing of the transaction is
subject to several conditions, including regulatory approvals

On March 3, 2003, BPVI appointed Richard B. Morgan as a senior vice
president. In connection with this appointment, BPVI agreed to purchase Mr.
Morgan's business. The estimated purchase price of $1.2 million is contingent
upon contracts transferred and is to be paid in three installments as
follows: 40% on July 30, 2003, 30% on July 30, 2004 and 30% on July 30, 2005.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.
None.

(b) Reports on Form 8-K
None

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

BOSTON PRIVATE FINANCIAL HOLDINGS, INC.
(Registrant)

May 15, 2003 /s/ Timothy L. Vaill
-----------------------------
Timothy L. Vaill
Chairman and Chief
Executive Officer

May 15, 2003 /s/ Walter M. Pressey
-----------------------------
Walter M. Pressey
President and
Chief Financial Officer

33

CERTIFICATIONS

I, Timothy L Vaill, Chairman and Chief Executive Officer of Boston Private
Financial Holdings, Inc. certify that:

1. I have reviewed this quarterly report on Form 10-Q of Boston Private
Financial Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: May 15, 2003 By: /s/ Timothy L. Vaill
-------------------------
Timothy L. Vaill
Chairman and Chief
Executive Officer

34

I, Walter M. Pressey, President and Chief Financial Officer of Boston Private
Financial Holdings, Inc. certify that:

1. I have reviewed this quarterly report on Form 10-Q of Boston Private
Financial Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 15, 2003 By: /s/ WALTER M. PRESSEY
-----------------------
Walter M. Pressey
President and
Chief Financial Officer

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